Skills, Knowledge, Innovation, Policy and Practice
Lead Research Organisation:
University of Sussex
Department Name: Sch of Business Management & Economics
Abstract
This research project explores the relationship between skills, management practices and innovation to better understand how government policy and industrial management might intervene to improve the performance of the UK economy. Previous work has shown how different levels, types and arrangements of workforce skills and managerial practices improve innovative performance when they are grouped together in "bundles". So while managerial interventions to improve performance may have little or no impact on their own, when they are combined the impact can be considerable. This project is exploring those relationships in more detail, and trying to unpick the complex causality at work. The project involves exploiting detailed datasets based on repeated surveys of firms over a number of years, that allow these relationships to be explored over extended periods of time. Together with the new statistical methods that the project will develop, the team will be able to analyse these causal mechanisms in a robust way to show the directions and strengths of the relationships, and how they vary across different types of firms.
In conducting this research, the project team aim to help improve engagement between academic researchers, industrial practitioners and policy makers through a programme of collaborative research that will highlight points where both managers and policy makers can intervene to improve performance and contribute to improved innovation, productivity and job creation. The project involves five subprojects that address:
a) which pattern of complementary skills and managerial practices are associated with what kinds of innovative performance,
b) how these relationships change over the long term for a sample of high tech firms, and what the causes and impacts of those strategic changes are,
c) how the increased number of graduates in the UK have been distributed across sectors over the last 15 years, and what impact that has had on wages and productivity,
d) how new econometric methods can be used to understand the causal relationships that link skills and innovation, and
e) how the results of the project can be packaged and diffused to best influence policy and practice.
Improvements in skills are one of the main ways in which individual employees improve their working conditions and firms improve their economic performance. However, the way in which they interact with each other, and with different managerial practices within firms, is very complex. This project hopes to unpick some of this complexity to enable policy makers, firms and individuals to make better, more informed choices about the value of those skills.
In conducting this research, the project team aim to help improve engagement between academic researchers, industrial practitioners and policy makers through a programme of collaborative research that will highlight points where both managers and policy makers can intervene to improve performance and contribute to improved innovation, productivity and job creation. The project involves five subprojects that address:
a) which pattern of complementary skills and managerial practices are associated with what kinds of innovative performance,
b) how these relationships change over the long term for a sample of high tech firms, and what the causes and impacts of those strategic changes are,
c) how the increased number of graduates in the UK have been distributed across sectors over the last 15 years, and what impact that has had on wages and productivity,
d) how new econometric methods can be used to understand the causal relationships that link skills and innovation, and
e) how the results of the project can be packaged and diffused to best influence policy and practice.
Improvements in skills are one of the main ways in which individual employees improve their working conditions and firms improve their economic performance. However, the way in which they interact with each other, and with different managerial practices within firms, is very complex. This project hopes to unpick some of this complexity to enable policy makers, firms and individuals to make better, more informed choices about the value of those skills.
Planned Impact
The research strategy builds upon a large IRC distributed project that is attempting a major change in the interactions between policy and research in response to the Government's concerns that research is still failing to support policy after a decade of investment in knowledge transfer. The interactions between policy and research is a major area of SPRU research, which suggests that the problem is rarely one of transfer, and more often relates to policy and research being disconnected. While policy practitioners in the UK (who often have post graduate degrees) can readily access academic research, it rarely addresses their problems or categories that address academic disciplinary concerns rather than policy makers' problems. Our impact plan therefore proposes to help close the loop between research and practice through continued close interaction with industry and the wider user communities. While this project is more 'academic' than the other IRC distributed project, it will still be able to exploit the co-production research design which aims to generate short medium and longer term impacts.
In the short term, the impacts relate to direct provision of research on the links between skills and innovation and the need to bundle investments to generate impact. This will be of direct relevance to BIS, HMT, etc. The existing project involves provision of resources for fast turn around policy support (for example, a two page research summary to the House of Lords S&T select committee from Coad within 24 hours), and this project will exploit that investment, which will be expanded through close interaction with the Work Foundation.
In the medium term the project dissemination will support the funding partners through a diffusion strategy targeted at "Bridgers and Brokers" that will draw on the project and the large body of work on innovation, innovation policy, strategy, and skills development that has been undertaken in the last 40 years. This involves the diffusion of research, from the project, the wider IRC and UK innovation research communities and the global research networks, through translation into policy outputs.
In the longer term, the project will directly contribute towards improving the innovative potential of UK firms through improved understanding of the links between skills, bundling and innovative performance, more nuanced appreciation of the variations in industrial dynamics in relation to different kinds of innovation (hopefully leading to more specific policy measures), and better practical models for exploiting skills.
To ensure full engagement across these time scales, our research builds in attention to users and dissemination from the start and researchers will have ring-fenced time to work with the policy community, industry and particularly the funding partners, to build engagement capabilities on both sides. This will be done through targeted communications materials (briefing papers, reports, workshops, web based materials and academic papers), engagement with the IRC Hub, a strategy to ensure the work remains independent and does not become low grade 'academic consultancy', and by building in "epistemological virtues", such as subjecting research to as wide a range of criticisms as possible.
SPRU has a huge global network with links to a wide range of national and international organisations that we will exploit (details previously communicated to the funding partners) and considerable experience in both engagement with practitioners and the co-production of policy relevant research with the partners that the project will extend further over its life. A substantial amount of PI and CI time devoted to translating this research is already funded by the IRC distributed projects scheme, which this project will exploit further.
In the short term, the impacts relate to direct provision of research on the links between skills and innovation and the need to bundle investments to generate impact. This will be of direct relevance to BIS, HMT, etc. The existing project involves provision of resources for fast turn around policy support (for example, a two page research summary to the House of Lords S&T select committee from Coad within 24 hours), and this project will exploit that investment, which will be expanded through close interaction with the Work Foundation.
In the medium term the project dissemination will support the funding partners through a diffusion strategy targeted at "Bridgers and Brokers" that will draw on the project and the large body of work on innovation, innovation policy, strategy, and skills development that has been undertaken in the last 40 years. This involves the diffusion of research, from the project, the wider IRC and UK innovation research communities and the global research networks, through translation into policy outputs.
In the longer term, the project will directly contribute towards improving the innovative potential of UK firms through improved understanding of the links between skills, bundling and innovative performance, more nuanced appreciation of the variations in industrial dynamics in relation to different kinds of innovation (hopefully leading to more specific policy measures), and better practical models for exploiting skills.
To ensure full engagement across these time scales, our research builds in attention to users and dissemination from the start and researchers will have ring-fenced time to work with the policy community, industry and particularly the funding partners, to build engagement capabilities on both sides. This will be done through targeted communications materials (briefing papers, reports, workshops, web based materials and academic papers), engagement with the IRC Hub, a strategy to ensure the work remains independent and does not become low grade 'academic consultancy', and by building in "epistemological virtues", such as subjecting research to as wide a range of criticisms as possible.
SPRU has a huge global network with links to a wide range of national and international organisations that we will exploit (details previously communicated to the funding partners) and considerable experience in both engagement with practitioners and the co-production of policy relevant research with the partners that the project will extend further over its life. A substantial amount of PI and CI time devoted to translating this research is already funded by the IRC distributed projects scheme, which this project will exploit further.
Organisations
Publications
Binder M
(2014)
Heterogeneity in the Relationship between Unemployment and Subjective Well-Being: A Quantile Approach
in SSRN Electronic Journal
Binder M
(2013)
Subjective Well-Being Capabilities: Bridging the Gap Between the Capability Approach and Subjective Well-Being Research
in Journal of Happiness Studies
Binder M
(2014)
Autonomy-enhancing paternalism
Binder M
(2012)
Life satisfaction and self-employment: a matching approach
in Small Business Economics
Binder M
(2015)
How Satisfied are the Self-Employed? A Life Domain View
in Journal of Happiness Studies
Binder M
(2015)
Heterogeneity in the Relationship Between Unemployment and Subjective Wellbeing: A Quantile Approach
in Economica
Binder M
(2014)
Unemployment impacts differently on the extremes of the distribution of a comprehensive well-being measure
in Applied Economics Letters
Coad A
(2014)
Causal linkages between work and life satisfaction and their determinants in a structural VAR approach
in Economics Letters
| Description | This project explored the relationships between skills and innovation by using advanced statistical methods to explore causal relationships within large datasets that capture firm behaviour over many years. A central focus of this work is on the extent to which skills and managerial actions are more effective when they are 'bundled' together, rather than being found in isolation. The key findings of the research can be summarised as: skills and training matter and have a direct causal influence on innovation and firm performance. It is too simplistic to only focus on founders and entrepreneurs, as a key skill they have is hiring good people. We find that firms with good workers, good managers, and good external sources of human capital, such as external Venture Capital investors, tend to have higher innovative performance. In more detail, a number of key findings have emerged: 1. The first key finding is that the research identified a causal chain that drives the relationship between skills and innovation. Specifically, we find that firms performance is driven by initial investments in employing new people, this then leads to additional investments in innovative activity, such as increased R&D spending. This investment, in turn, leads to new products and services being launched, which finally leads to increased profitability. There is, however, no feedback loop from increased profitability to additional investment in new employment that might create a virtuous cycle. This suggests that managers and policy makers might be more effective if they focus on building upstream capability in people before focusing on downstream innovation metrics. Moreover, it provides an explanation of the results of recent evaluations of government policy which find focusing on profitability to have limited impacts, as it suggests that policies that aim to increase downstream profitability may not be particularly effective if the firm level capabilities are not in place, and because causal links to other features of firm behaviour are missing. 2. The second key finding relates to the importance of STEM graduates. We find that firms that employ STEM graduates tend to outperform other firms without them on almost every measure. In looking at entrepreneurial start ups we find that the best performing firms are started by STEM graduates who then employ someone with managerial skills as their second employee. The importance of this bundling of skills, and their effective fusion, is something that we find repeatedly in our work. Similar results were found in the Brighton FUSE project, where we found that firms that fuse technical skills with capabilities in arts and humanities performed particularly strongly. For technical firms in our sample increasing graduate employment by 1% increased the probability of long term growth by 2.4%, suggesting employing graduates brings very significant benefits to firms. 3. The third key finding relates to the performance of firms, where we have unpacked the meaning of firm 'failure', where firms exit the market. We have found that firms exiting the market may not always be failing, with roughly 12% of the firms in our sample exiting in a positive way, and 11% of firms exiting in the traditional way. This suggests many firm 'failures' are economically beneficial reallocations of resources. Roughly a quarter of firms persist, but do not show signs of success, while roughly a half of firms perform well. When we statistically compare between the successful and unsuccessful firms that exit and stay in the market we find that skills play a key role. High performing firms have higher skill levels for founders and staff, and bring human capital in from external sources of finance. Moreover, they tend to be more international in their outlook, with founders more likely to have international experience and education. Firms that report difficulty in accessing skilled staff, particularly in marketing, find it more difficult to grow later on. Firms that cannot hire key skilled employees often experience a "scarring" effect, where this damages their performance for long periods of time into the future. 4. Our fourth set of key findings relates to the nature of small firms, entrepreneurship and industrial dynamics. In exploring the datasets we found performance to be highly skewed, with the majority of firms performing relatively poorly compared to a small minority of high performance firms. While this has been found before, our work highlights some key differences. While we find that innovative performance if highly skewed, it is also highly persistent. On the other hand, we find that growth is highly skewed, but not persistent. So while 6% of firms may generate the majority of jobs, it is not the same 6% through time. This lack of persistence suggests that the category of high growth firms, that policy makers call gazelles, may not be a particularly useful category for policy makers to focus on. Moreover, the significant differences between types of firms suggests that policy makers need to be more realistic about the potential of the typical entrepreneurial start up. Most start ups will perform poorly and will exit the market very quickly, with roughly 50% of firms failing within 3 years. Our results strongly suggest that government policy is mistaken in thinking there are barriers to entry and that growth is easy. Instead, we find that barriers to entry are very low, so that market entry is very high and possibly excessive, while growth is very hard. Poor quality firms that enter the market find it particularly difficult to build the capabilities they need to improve. 5. Our last key findings relate to HR practices, where we find that many of the positive effects associated with HR in previous work are not as robust as we originally expected. It is difficult to differentiate between good HR practices and employment of high quality staff and training, as they are closely associated. However, it does seem that high quality people, combined with training are the key factors driving performance. Skilled people, it seems, are a necessary but not sufficient condition for success, but provide the basis from which other strategic interventions are more likely to succeed. For academic researchers the project also piloted new methods for research and analysis. These were successfully validated, allowing new causal tools to be applied in new areas to generate results that are more useful for policy makers. A key part of this validation involved looking at what makes people more happy in their work, and this has led to a stream of interesting research avenues. |
| Exploitation Route | We have worked closely with BIS to diffuse our key findings on what drives successful innovation in firms and how and why investments in skills are so important. This has highlighted the vital importance of STEM graduates and highly trained employees more generally, which we have fed into policy discussions about science funding. We have disseminated our research through a BIS economics paper and through NESTA research papers to reach out to the wider policy community in the UK. The findings on the limited value of most entrepreneurial activity, and the suggestion that market entry might be excessive in the UK has important policy implications. However, there is considerable political support for current SME policy, particularly as SME owners are 10% of the voting population, which makes changing policy a longer term strategic challenge. We have disseminated our work in two ways. First, diffusion of the results to policy makers, for example, through a DEMOS quarterly article, and secondly, by engaging in a forceful academic debate on the economic value of marginal, undersized, poor performance enterprises. |
| Sectors | Aerospace, Defence and Marine,Chemicals,Construction,Creative Economy,Digital/Communication/Information Technologies (including Software),Electronics,Financial Services, and Management Consultancy,Healthcare,Leisure Activities, including Sports, Recreation and Tourism,Government, Democracy and Justice,Manufacturing, including Industrial Biotechology,Transport,Other |
| Description | The findings on the importance of STEM graduates have been diffused to BIS and the RCs, where it is feeding into submissions on future science funding. We gave a face to face briefing to the Science Minister on the key findings and have diffused the work in more detail through a BIS economics paper and research papers for NESTA. We hope to complement this work with new results on the importance of fusing STEM with non-STEM (especially Arts and Humanities) skills, which will feed into the RCs engagement with BIS. We expect the findings to play a role, particularly for the AHRC, in gaining support. The results on the differences between innovation and growth (both highly skewed, but only innovation persistent, with growth largely random), have informed policy debates in the EU about high growth firms. Our special issue in Industrial and Corporate Change has hopefully diffused the key findings to the academic community engaged in Gazelle policy. We have diffused the findings about the importance of complementary assets (that allow firms to capture value) and their association with higher firm performance through engagement with BIS. This is a more complex impact process and will take time as we work through the implications with them, but BIS have been very positive about the results. The findings on industrial dynamics and the limited potential and capabilities of most entrepreneurial start-ups is a more complex set of findings to diffuse. There is a very strong political lobby associated with small firms, that currently gets some £7bn a year from the UK State. They are likely to resistant to the findings. Politicians are prepared to accept the finding in private, but find it difficult to express them in public. Driving through impact in this area will be a long slow process - but the message that entrepreneurship policy should focus on 'quality not quantity' seems to be getting traction. In 2016-17 Marc Cowling and Paul Nightingale have been working with BEIS (formerly BIS) on public policy to support small firm financing. They have analysed a wide range of policy instruments as a whole (rather than in isolation) and have made recommendations about how the variety of tools available to the UK Government can be integrated to provide an improved environment for firms in the UK. |
| Sector | Government, Democracy and Justice |
| Impact Types | Economic |
| Description | Support for BIS in design of funding schemes for UK SMEs |
| Geographic Reach | National |
| Policy Influence Type | Contribution to a national consultation/review |
| Impact | We are advising, drawing on our work on innovative forms of finance, and evaluations we have conducted, BIS on the design of support schemes to help improve the funding of innovative firms in the UK. |
| Description | informing productivity review |
| Geographic Reach | National |
| Policy Influence Type | Contribution to a national consultation/review |
| Description | Advice to HMT on productivity and innovation |
| Form Of Engagement Activity | A formal working group, expert panel or dialogue |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Gave advice to a panel from HMT and BIS on improving productivity in the UK and the issues with current innovation policy |
| Year(s) Of Engagement Activity | 2016 |
| Description | Discussion at Number 10 on Productivity and the long tail |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | on the 3rd of November 2017 I had a meeting at Number 10 to discuss work on productivity and the long tail of poor performance firms, and what policy makers might change to improve the UK's productivity. This has informed government thinking about productivity and led to a conference/workshop with BEIS and HMT. |
| Year(s) Of Engagement Activity | 2017 |
| Description | Discussion of local growth strategies with Greater Brighton City Region |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | Local |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Research we have undertaken fed into the growth strategy of the local Greater Brighton City Region, and their development of a Smart Specialisation Strategy |
| Year(s) Of Engagement Activity | 2016 |
| Description | Discussion with DBIS on Innovation and Social Science |
| Form Of Engagement Activity | A formal working group, expert panel or dialogue |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Discussion with policy makers about the role of social science in innovation. |
| Year(s) Of Engagement Activity | 2015 |
| Description | Discussion with HMT on Productivity |
| Form Of Engagement Activity | A formal working group, expert panel or dialogue |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Discussion with policy makers in HMT and BIS about productivity. |
| Year(s) Of Engagement Activity | 2016 |
| Description | Engagement with the Banking Review |
| Form Of Engagement Activity | Participation in an activity, workshop or similar |
| Part Of Official Scheme? | Yes |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | We made suggestions about the market for SME debt and equity and how it might be improved. This was highlighted in the review and influenced policy thinking in BIS. The URL for the Vickers' report is here http://webarchive.nationalarchives.gov.uk/20131003105424/https:/hmt-sanctions.s3.amazonaws.com/ICB%20final%20report/ICB%2520Final%2520Report%5B1%5D.pdf We were one of a number of submissions that contributed towards improved regulation and policy support for SME lending in the UK, including policy actions to support public investment in support of SME funding. |
| Year(s) Of Engagement Activity | 2011 |
| Description | Growth and Innovation. Babson College Research Conference, London, Canada, June 20th, 2014. |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | International |
| Primary Audience | Professional Practitioners |
| Results and Impact | Presented evidence on linkages between innovation and growth |
| Year(s) Of Engagement Activity | 2014 |
| Description | HMT Productivity roundtable at HMT 19/9/2017 |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Was part of a roundtable on productivity challenges with the Minister at HMT |
| Year(s) Of Engagement Activity | 2017 |
| Description | Presentation on Loan Guarantee Financing. to British Business Bank, London, 12th October, 2015 by Marc Cowling |
| Form Of Engagement Activity | A formal working group, expert panel or dialogue |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Presentation to BBB. INformed policy makers of recent research. Impact hard to unpick |
| Year(s) Of Engagement Activity | 2015 |
| Description | Presentation on Public Financing Initiatives to OECD Expert Group on Industrial Policy, Paris. September 3rd, 2013. by Marc Cowling |
| Form Of Engagement Activity | A formal working group, expert panel or dialogue |
| Part Of Official Scheme? | No |
| Geographic Reach | International |
| Primary Audience | Policymakers/politicians |
| Results and Impact | A presentation of recent research on Public Financing Initiatives delivered to the OECD Expert Group on Industrial Policy, in Paris on September 3rd, 2013 by Prof. Marc Cowling, drawing on the work of the project. |
| Year(s) Of Engagement Activity | 2013 |
| Description | Talk to visiting BEIS team on industrial strategy 20/7/2017 |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Gave a talk on industrial strategy to visiting BEIS team |
| Year(s) Of Engagement Activity | 2017 |
| Description | Workshop/conference on productivity and the long tail for BEIS/HMT/Number 10 |
| Form Of Engagement Activity | A formal working group, expert panel or dialogue |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | I organised a workshop for Number 10, HMT and BEIS that invited 10 academics to discuss the long tail of poor productivity firms in the UK and what public policy could do to address that long tail. The meeting has fed into the initial work that informs the forthcoming review of productivity. |
| Year(s) Of Engagement Activity | 2018 |