Research report: July 2008

Hidden innovation in the creative industries

Ian Miles and Lawrence Green

Hidden innovation in the creative industries

Foreword

Innovation has been a subject of serious academic and policy interest for several decades. The ‘creative industries’ have been studied for a shorter period of time, but perhaps more intensely. However, we do not understand well the process of innovation within the creative industries, nor how waves of innovation from elsewhere impact upon them. Since they represent a large and fast-growing part of our economy, this gap in our understanding needs to be remedied.

Working with the Manchester Institute of Innovation Research, this research project uses the tools of ‘traditional’ innovation research to explore, analyse and compare innovation in four sectors that are critical to the UK’s creative future: videogames development, product design, advertising, and independent broadcast production. Technology is an important driver of innovation in all four sectors, but much innovation remains ‘hidden’ – uncounted by traditional innovation indicators. Moreover, the sectors studied display varied abilities to adapt to new technologies and increasing competition.

NESTA seeks to pioneer new areas of innovation research but also to link these firmly to our areas of practical experimentation. The conclusions reached here will inform our future work on both the measurement of innovation in the UK and in the programme development of our Creative Economy Team.

As with all emergent areas of research and analysis, we are aware that this is unlikely to be the final word. We welcome your comments and your views.

Jonathan Kestenbaum CEO, NESTA

July, 2008

NESTA is the National Endowment for Science, Technology and the Arts. Our aim is to transform the UK’s capacity for innovation. We invest in early-stage companies, inform innovation policy and encourage a culture that helps innovation to flourish.

Executive Summary

There have been surprisingly few firms in other industries to believe that their studies of innovation in the creative innovations impact more positively on their industries business performance.

How innovative are the creative industries? But levels of innovation vary within the creative What new creative products are they sector. In particular, the so-called ‘creator’ producing? How are their methods of industries – which originate content – are production and product delivery different? more consistently innovative than content Are they more innovative in their back-office ‘distributors’. The CIS reports evidence for processes and their relationships with their distinctive approaches to intellectual property clients and consumers? and innovation management, though these findings are neither extensive nor intensive This study uses innovation research to examine enough to provide a comprehensive view of the creative industries. Innovation research the creative industries. (They do not extend has for many years been dominated by studies to cover all creative industries; they do not of traditional manufacturing and high-tech explore many forms of innovation in depth.) innovation. Recent innovation studies have We make some recommendations for future begun to grapple with service sector and surveys. organisational innovation; but there have been few studies of creative industries that use such Deeper insights can be gained from studying tools and perspectives. Our report reviews and individual firms. We have chosen cases from extends existing studies, combining a literature four industries – videogames, product design, review with some secondary survey analysis, advertising and independent broadcast and presents new case studies of four creative production. We examine the nature of their industries. innovation, how their innovation processes are managed, and their linkages to wider systems The Community Innovation Survey (CIS) is the of innovation. single best available source of quantitative information on business innovation in the UK. It is a valuable starting point for our study. The survey asks some revealing questions Technological innovation is rife in all about innovation, enabling us to examine how four case study sectors creative businesses perform on a range of indicators. For example, our chosen creative Each case study features many different industries include some highly innovative innovations. Technological innovation in enterprises. They are also more likely than products and processes is common in most

5 creative industries, with new information for new purposes. TV programmes are technology (IT) and the digitisation of repackaged for DVD, mobile phone or online content driving major changes. But the study downloads; music is repackaged in a new also uncovers less expected innovations in compilation or made available for MP3 new business models and product delivery. players. These findings reflect the ‘hidden innovation’ experienced across many other industries. • Finally, there are numerous innovations that take place on-the-job during the creation of new products and which fail to be recognised or replicated. The creative industries Of particular importance to the creative demand innovative problem-solving, but industries is innovation in the provision many of the new solutions are one-offs. of experiences Businesses don’t find it easy to reproduce such new approaches, though some technical But the creative industries are different from developments (for example, useful lines of most others, because their products are code in videogames) may be systematically fundamentally intended to provoke particular archived. kinds of response from their users. They enable experiences to be co-produced, to greater or The creative industries are experiencing lesser extents, with the product’s consumers. important changes that require and create Innovation often occurs when those producing opportunities for innovation. These changes creative content respond to the experiences include: of consumers and users, and make changes to their offer as a result. • New technological platforms – new information technologies, and the 1. This taxonomy is elaborated associated digitisation of much creative on in NESTA (2007). content, are changing the way products A good deal of innovation in the are created, delivered and marketed. creative industries turns out to be This is particularly true in videogames hidden development, but is occurring across the creative industries. ‘Hidden innovation’ – that which is not recorded using traditional innovation indicators • Consumers – both individuals and firms – is common in the creative industries studied:1 are becoming more sophisticated in their tastes and choices. Consumers are sharing • Sometimes it is because innovation similar their views more readily among themselves to activities measured by traditional and with producers, leading to more co- indicators is excluded from measurement. production of creative products. Much activity in creative industries involves research and development (R&D) of new • Institutional changes such as new products – though outside product design, it regulatory requirements and the is not usually described in such terms. Such globalisation of industries, markets and activities may not take place in conventional labour. Many businesses are out-sourcing laboratories. But research into people’s work overseas or even relocating abroad. tastes and preferences is vitally important in shaping new products and services. Yet it is • New products are being generated for excluded from R&D surveys and tax credit new markets – for example, entertainment systems. firms moving into educational markets with new types of videogame, or manufacturing • Another form of hidden innovation concerns firms becoming service providers. innovation in organisational forms or business models – this is also very common These developments are driving innovation in our creative industries. The most important in the creative industries, not least because developments often involve the users of competitors use innovation to gain market creative products in the innovation process. share and enter new markets.

• A third type of hidden innovation, novel combinations of existing technologies and processes, is also common, with creative industries often using existing content

6 But many creative businesses struggle Policymaking: We offer three main to formalise their innovation processes recommendations. First, further evidence must be collected into how policy might assist The firms we study find it difficult to manage innovation in the creative industries. Though their innovation processes systematically. some research has been undertaken on this Innovation often remains spontaneous or ad theme, more detailed evidence would underpin hoc; creativity tends to involve the ideas of and guide the policy process. charismatic senior professionals, with little formal R&D. University links are limited for Second, targeted innovation programmes innovation, though graduates provide vital should be available to the creative industries. technical skills. However, communities of The creative industries welcome targeted practice – professional associations and more innovation support where it is provided. informal groups – are an extremely important Existing, general innovation support source of new ideas. programmes are often not relevant to their work. Initiatives such as the R&D Tax Credit scheme do not, as structured, support the sort of innovations undertaken in the creative We make a number of recommendations industries. for innovation measurement, creative business management and policymaking Third, knowledge about best practice and new innovations should be more effectively shared Our report suggests a framework for classifying with policymakers. New forms of innovation the range of innovations uncovered in the are emerging rapidly. Keeping abreast of these research. We conclude by examining the changes is crucial. Ensuring that adequate implications for measurement, management intelligence gathering systems are in place, and policymaking. and that new approaches inform training and competence-building schemes or targeted Measurement: Better sampling would ensure innovation support, is central to the future that innovation surveys are more likely to growth and success of the UK’s creative capture organisations in the creative sectors. industries. Current sample frames are too narrow, because they exclude industrial sectors where creative businesses are located, and the smaller firms that dominate the creative industries. Similarly, the questions in innovation surveys currently focus on the activities of large organisations and downplay non-technological innovation. These, too, should be more broadly framed.

There is also a strong case for specialised surveys (or further case study work) targeted at creative sectors and firms. Such approaches would cast greater light on their innovation processes than general surveys.

Management: Firms should focus on acquiring and developing the right skills and capabilities to innovate – especially with the help of their consumers. Much creative industry innovation is based on ‘co-production’ with significant input from the client. Networks, partnerships and collaborations are also important sources of innovation. Whilst conventional project and innovation management skills remain important, innovation managers must increasingly demonstrate skills for collaboration with professionals of various types and for engagement with consumers and other firms – skills such as team building, conflict resolution, and problem solving.

7 Acknowledgements

The authors wish to express their thanks to NESTA for financial support and helpful editorial and intellectual inputs throughout the process of compiling this report. We are grateful to Sally Randles, Shaun Randles, Sally Gee and Lisa Murray at Manchester Institute of Innovation Research for their invaluable assistance in the generation of interview-based materials. We also extend our thanks to Hasan Bakhshi, Richard Halkett, Michael Harris, Jon Kingsbury, Conor Ryan and David Simoes- Brown for their very helpful comments and suggestions with respect to earlier drafts of this report. Our appreciation is also offered to Simon Bolton of Central St Martins College of Art and Design for his contribution of detailed insights in connection with developments in the design sector. Finally, we offer our warmest thanks to the very many creative sector practitioners who gave so generously of their time in helping us to compile a detailed picture of innovation (and its ‘hidden’ components) within their industries.

8 Contents

Hidden innovation in the creative industries

Part 1: Introduction – the challenge of hidden innovation 11

Part 2: Exploring innovation in the creative industries 12

2.1 The creative industries share a number of distinctive features that 12 set them apart from other sectors

2.2 Research studies of innovation in the creative industries have been 13 few and far between

2.3 Creative industries in CIS4 17

Part 3: Innovation in the videogames industry 20

3.1 Introduction – innovation practice in four creative industries 20

3.2 Overview of the industry 20

3.3 Developments, trends and the innovation context 21

3.4 Drivers of innovation 22

3.5 Types of innovation 23

3.6 Management and organisation of innovation 25

Part 4: Innovation in the product design industry 28

4.1 Overview of the industry 28

4.2 Developments, trends and the innovation context 29

4.3 Drivers of innovation 31

4.4 Types of innovation 32

4.5 Management and organisation of innovation 33

Part 5: Innovation in the advertising and communications industry 36

5.1 Overview of the industry 36

5.2 Developments, trends and the innovation context 36

5.3 Drivers of innovation 38

5.4 Types of innovation 42

5.5 Management and organisation of innovation 44

Part 6: Innovation in the independent broadcast production industry 46

6.1 Overview of the industry 46

9

6.2 Developments, trends and the innovation context 46

6.3 Drivers of innovation 49

6.4 Types of innovation 51

6.5 Management and organisation of innovation 53

Part 7: Overview and analysis of industry case studies 55

7.1 Drivers of innovation 55

7.2 Types of innovation 58

7.3 Organisational and business model innovation 60

7.4 Innovation management and innovation systems 62

Part 8: Re-examining innovation in the creative industries in the light of 65 the sector case studies

8.1 A framework for understanding innovations 65

8.2 What does this say about ‘hidden innovation’? 69

Part 9: Conclusions and recommendations 71

9.1 Innovation surveys and measurement 71 9.1.1 The sampling frame of CIS-type surveys needs to be extended to capture more creative sectors 71 9.1.2 Questions on types of innovation 72

9.1.3 Other questions 73

9.2 Innovation policy and management 73

Appendix A: Revealing the hidden: orientation to the study 75

Appendix B: Case study interviews 78

Appendix C: References 79

10 Part 1: Introduction – the challenge of hidden innovation

What types of innovation are found in the creative industries? What new creative products are they producing? How are their methods of production and product delivery different? Are they more innovative in their back-office processes and their relationships with their clients and consumers? To what extent is creative industry innovation unnoticed or under-reported in standard accounts of innovation in the knowledge-based economy or in Research & Development (R&D) and innovation survey statistics?

We begin by exploring how creativity and the creative industries have been conceptualised in the business and innovation literature. We examine what the Department for Innovation, University and Skills (DIUS) Community Innovation Survey can tell us about their innovation. We review the available literature on innovation in the creative industries, before moving on to our own original case study work in the videogames, product design, advertising and independent broadcast production. Finally, we ask how and why such hidden innovation matters; and we make a series of recommendations for statisticians, policymakers and creative businesses.

11 Part 2: Exploring innovation in the creative industries 2. The SIC is the Standard Industrial Classification, the statistical framework used to classify economic sectors. 3. There are actually many activities here, with industrial product design being very different from industrial process design; then there is graphic design and many more activities bearing the ‘design’ label. 4. Many informational goods and services are readily understood as carrying content. But the term does not readily apply to artefacts such as buildings, landscaping, fashion clothing, statues, or well-designed industrial products. In these cases, not all of which are about ‘functional’ products, the form of the artefact may convey the meaning – rather as in McLuhan’s (1964) dictum “the medium is the 2.1 The creative industries share a Some creative industries do design or produce message”. The physical number of distinctive features that set physical artefacts. Most often, “the physical artefact does not just provide a vehicle for carrying meaning them apart from other sectors work is the vehicle for conveying the idea” as if it were a separate rather than playing the purely functional role of informational product. 5. This means that new The most influential definition of the ‘creative an “ordinary economic good” (Throsby 2001, information technology industries’ was given by the Department for p.104). The value of the artefacts is usually is often incorporated into 4 the processes and products Culture, Media and Sport’s Creative Industries overwhelmingly based on the ‘content’, their of these industries. Much Taskforce in 1998 (DCMS, 1998). The taskforce cultural meaning, or the experiences they innovation relates to building on such opportunities. defined them as based upon activities which help create. Many creative industries produce 6. Successive consumers can have their origin in individual creativity, skill and ‘information products’, and this means that consume the information, talent, and as having the potential for wealth they can often be made available in digital which is liable only to decline 5 in value if it is time-based creation through the generation and exploitation form. Several important issues arise: (dependent on news or fast- of intellectual property. They identified thirteen changing fashion) or relies on exclusive access (prestige creative industry sectors (which can be further Information: goods and services have unusual products). The meaning of the disaggregated into either part or whole of over properties.6 Most can be consumed repeatedly. information to consumers is 2 liable to evolve as successive thirty 4-digit SIC industry groups): This provides opportunities for innovation – use is made of it, especially if digital content may be put together in new there is value-added in such forms as, say, critical reviews, • Advertising ways, through music remixes, new DVD box commentaries, parodies, etc. sets or as internet or mobile phone downloads. 7. We shall use the terminology ‘consumers’ here, because • Architecture But such opportunities also present economic alternative terms like ‘user’ challenges – how do you charge for things that and ‘client’ have their own problems. But we should • Arts & Antiques Market can be easily reproduced and communicated at stress that sometimes the low cost? creative service is provided free of charge, and not only • Crafts by public services or altruistic This raises issues for intellectual property creators. For example, 3 advertisers and broadcasters • Design rights (IPRs). There is in general limited may wish the public to scope for patenting (except for certain experience their outputs, while their paying clients are • Designer Fashion aspects of software, and some developments not consuming these outputs of technology in the processes of creative so much as purchasing the service of delivering these • Film firms), but copyright, trademarks and design outputs to the public whose rights may be invoked. Enforcing IPRs – experience is shaped by the act of consumption of • Music and establishing their reach in an evolving the products. A number of information environment – is a highly the creative services in this report are actually businesses • Performing Arts contentious topic. Indeed, the debate is both whose purchasers are other promoting and being reshaped by technological businesses. • Publishing and organisational innovation. 8. There are, as always, exceptions to this generalisation: for example, • Software and computer service Experience: many information goods much software is ‘embedded’ 7 in the equipment it operates, and services require consumers that can and only requires that other • Computer Games (Interactive Leisure understand and process the information parts of the equipment 8 respond to its messages. Software) provided; and the consumers’ experience of creative goods and services is highly • Radio & TV informed by their consumption of related

12 works, prior knowledge, and changing the Independent successfully became a quality tastes.9 In this environment, creative products ‘tabloid’, the Times and Guardian quickly resemble a ‘service experience’. Indeed, some introduced their own redesigns (though in this commentators argue that the ‘experience case more technological change and market economy’ is a more appropriate term than the testing was needed than in the pizza example). ‘service economy’.10 A TV programme format or a videogame concept can be emulated, advertisements often An experience is ‘co-produced’, by an seem to ‘swarm’ around certain themes or 9. A considerable body of interaction between the creative good and styles, and so on. Such imitation is endemic in sociological work on taste, much of it inspired by its consumer. Even the ‘passive’ audience many creative industries. It may even be overt Bourdieu (1984), examines to a TV broadcast is choosing how much and presented as a ‘tribute’, a generic twist, or the ways in which this reflects socialisation into attention to give to the programme, and a parody. But imitation doesn’t seem to deter different social strata and interpreting the material presented in terms innovation. Most services report that they are efforts to acquire and signify status. There is also of their own knowledge and views. Often less concerned about copying and imitation a rapidly-growing body audiences are actively discussing the broadcast than manufacturers12 (Tether et al., 2002), and of work on consumption, some of which asserts that among themselves, and other media – such we shall see later that creative industries are traditional models of taste as videogames or live performances – may highly innovative, even by standard metrics. and high and low culture are being challenged by the rise demand consumer inputs. of ‘omnivorous consumers’ Another feature in common between services (for two points of view here see Sullivan and Katz-Gerro, Sometimes things go further, where the in general and creative industries is that many 2007, Warde et al., 2007). ‘audience’ in effect produces some of the of these share a J-shaped industrial structure 10. Gilmore and Pine II (1999) and Pine II and Gilmore content of the creative product, or where – they have a few large, often transnational (1998) argue for a shift consumers indirectly affect each other’s producers, and a long tail of progressively in the locus of economic 13 activity from producing experiences. Gilmore and Pine II (1999) smaller businesses and microbusinesses. goods, through delivering identify four broad categories of experience services, to creating experiences. Richards (2001, – entertainment (where consumers typically The literature identifies different classes of p55) – one of a great many participate more passively, and their connection services. There are business and consumer authors applying these ideas to the topic of tourism with the event is one of absorption); education services; knowledge-intensive services – goes so far as to assert (requiring more active participation, and with high levels of professional work; and “services are dead – long live again a connection or absorption); escapism more traditional services with high levels of experiences”. 11. Or even a food and drink (requiring greater consumer participation and unskilled labour. Within the most innovative manufacturer. immersion); and aesthetic (typically immersive Knowledge-Intensive Business Services 12. Computer services are a but with limited active participation). Many (KIBS) groups, there are technology-oriented predictable exception. 13. Caves (2000) stresses this events combine several of these features; creative activities (e.g. software, engineering long tail, arguing that innovation may involve shifting between or design), and those that create more social or creators are often unlike other workers in that they adding multiple types of experience. psychological effects (e.g. advertising, fashion have personal investment design). in their creations, they care about their products. It is Services: many creative products are services, suggested that creative and many that are technically goods are used We can anticipate that the innovation patterns professionals tend to find considerable intrinsic value in a service context. Services of many sorts of creative industries will have features in in their work, and are thus frequently involve performance, where the common with those described for other prepared to work for low rewards or endure periods staff help to create the consumer experience information goods, services, and experience of under-employment – consider for example hotels and restaurants. industries and their products. (perhaps solely to pursue their vocations, perhaps with One feature of many services is that production undimmed hopes of a future and consumption are largely co-terminous: breakthrough). 14. Examples include Cohendet the service is produced and consumed and Simon, 2007; Grantham simultaneously, at the same time and in the 2.2 Research studies of innovation in and Kaplinsky, 2005; same place. A theatre performance has this in the creative industries have been few Tschang, 2007. common with a theme park visit. (But note that and far between there is often a great deal of ‘back stage’ work and pre-planning underpinning the successful Few researchers have applied the insights of performance, carried out at an earlier time and innovation studies to the creative industries often in a variety of other places.) in general. There are several studies of specific industries – notably videogames Another feature of services is that many production,14 where a rapidly-growing and service innovations are easier to copy than technology-intensive industry has attracted more complex technological innovations. A attention from management and innovation new idea, such as a restaurant’s new pizza scholars. Studies of film and TV production topping, can be rapidly imitated by another also sometimes touch on innovation issues service provider11 if it proves successful. Once (e.g. Bilton (1999) contrasts an innovative

13 independent production sector with more be interrogated about their production of new conservative corporate media entities). But content – for example, music companies can innovation and creative industries studies have be asked about the release of new CDs as well rarely been brought together in a systematic as about innovation in the production process. way. One factor behind this, in all probability, However, this does little to assess the extent is the predominance of aesthetic issues and of innovation. For instance, there may be some consideration of content in creative industries’ aesthetic novelty in the re-release of an album products. with a new cover (a minor design change in conventional innovation analysis), or in a new There have been few attempts to explore compilation of old tracks, even though these aesthetic and content innovation using the outputs might be far less significant in cultural methods of innovation research terms than a completely new piece of work. One exception is Stoneman (2007). While noting that the creative industries sometimes Both authors point towards innovations engage in traditional technological innovation, involving content, aesthetics or experience. he also notes more unusual features of They see no insuperable obstacles in measuring their innovation. He characterises their such innovations, though it may be harder aesthetic innovations as ‘soft innovation’ to measure the extent of such innovation. and distinguishes two aspects of such soft Stoneman notes that the standard Oslo innovation: Manual16 definitions, mainly oriented to technological innovation, largely rely upon • Innovation in “products that are themselves functionality as a way of identifying the largely aesthetic in nature (e.g. music, books, significance of innovations. Both he and film)… to be found particularly in those Handke propose that market impact would be industries sometimes called the ‘creative a useful readily available metric for measuring 15. Although just what industries’”. This may involve new products the significance of aesthetic innovations.17 constitutes novelty, or how 15 much novelty there is, are and new ways of producing products. not straightforward issues. Economic significance is important, but not 16. OECD (2005), downloadable from: http://www. • Innovation “in industries the output of which all economically significant things are priced. oecdbookshop.org/oecd/ is not aesthetic per se but functional…. This Some highly significant new ideas or processes display.asp?sf1=identifiers&s t1=922005111P1 might cover for example new designs of cars, are provided free of charge – such as the 17. The Community Innovation new food products, redesigned electrical ideas behind the World Wide Web, or some of Survey (based on the Oslo products etc. This has been largely ignored the more creative Web 2.0 content. Market- Manual) does contain questions about such topics in the past because the TPP [technological based measures of economic significance may as the share of turnover product or process] definition has also be a poor guide to cultural impacts – at contributed by new products and processes. emphasised functionality…” Such product least to those impacts that provoke shifts in differentiation has tended not to be regarded cultural products and creative activities. Artistic as innovation. But Stoneman suggests that pioneers whose ideas triggered new styles or at least some of this work may fruitfully be genres may reap fewer rewards than those who viewed as innovative activity. pick up and popularise these ideas (consider the case of ‘street fashion’). While it is harder Some of Stoneman’s examples involve creative to assess the diffusion of an idea than that of and cultural products – the creation and launch a major new technology, an assessment of the of new books, CDs, theatre productions, uptake of a novel approach may be a better movies or advertising promotions; others reflect reflection of its cultural impact and creative aesthetic components of ‘functional’ products significance. – new clothing lines, ranges of furniture, designs for motor vehicles, food products. He Another question is how such measurement also cites as ‘soft innovations’ the development could allow us to develop the sort of and launch of new financial instruments, which distinctions used for more conventional may have neither technological nor aesthetic technological innovation – such as the extent components at their core. to which an innovation is radical or incremental, or whether it is new to a firm or new to the Another exception is Handke (2004a, b) market. The few studies of creative sector who sees creative industries as characterised innovation that have attempted to assess by ‘content creativity’ – a concept close to artistic impact (for example, Galenson, 2006) Stoneman’s ‘aesthetic innovation’. Handke have typically dealt with long-established contrasts this with ‘humdrum innovation’ works (allowing their impact to be assessed or traditional technological innovation. His through their coverage in standard references surveys have shown how creative industries can and textbooks.)

14 Innovation analysts and social researchers • mixing in memorabilia have understandably shied away from making aesthetic judgments. No doubt this is in part • engaging all five senses because of the numerous cases of pioneering works that were very poorly received on their In a study of creative industries similar to those debuts; of ‘revolutionary’ artistic movements covered in our report, NESTA (2006a) focuses that never attracted followers or audiences; and less on ‘product innovation’ than on creative of fashionable styles and products that were approaches at the strategic and organisational soon forgotten. Often, it is only with hindsight level of businesses. Five important areas of that we can make definitive judgements, but innovation are singled out: we can still explore ways of complementing measures of market impact with ways of • innovating into new markets (e.g. moving enquiring about the novelty and influence of from clothing to construction, from creative products and the ideas behind them. entertainment to education)

Innovation in the creative industries goes • disrupting the value chain through digital way beyond the aesthetic and content technologies (by cutting out existing Aesthetic innovation is far from being the only distributors and retailers) form of innovation in the creative industries. Our case studies reveal many aspects of • building on diversity (drawing on ethnic innovation that have less to do with new minorities and global cultures) creative content than with other features of the production and delivery processes, and of the • moving from being IP (Intellectual Property) products themselves. producers to IP owners (generating ongoing revenues from their creative content, for Other recent authors have recognised this. example by enabling material to be used in a 18. For example, with a focus on innovation, See Voss and 18 Chris Voss, for example, suggests that there wider range of commercial formats) Zomerdijk (2007). are five important design areas in which 19. This is perhaps more truly ‘humdrum’ than Handke’s innovation may be created in experiential • collaborating to compete (co-production use of the term. services: of new ideas with customers, enabling the development of competitive new products) • physical environment Green, Miles and Rutter (2007) also focus • service employees on the types of innovation pursued in creative industries, drawing on the project’s • service delivery process preliminary case study work. They draw on an approach proposed by den Hertog (2000) • fellow customers for conceptualising service innovation. His solution is not to classify different types of • back office support innovation (e.g. service, process). Rather, den Hertog identifies different dimensions along Unusually, his studies explore the sources of which innovations can be characterised – information for innovation in these cases: he service concept, delivery, user interface and concludes that the collection of customer technologies. While some innovations might insights forms an important part of the design emphasise just one of the dimensions he process, and that ‘experiential innovations’ are discusses, many would combine several. Thus typically driven by the customer rather than a new service concept might require a new technology. In a complementary approach, technological solution. Pine II and Gilmore (1998) identify a set of principles for the design of experiences – which Green et al. add process innovation to den could equally be strategies for innovation: Hertog’s list. Process innovation may or may not require new technology – an artist may • theming the experience adopt a new way of applying paint to canvas, or a theatre producer a new way of organising • harmonising impressions with positive cues backstage work in a dramatic production.

• eliminating negative cues Green et al. suggest that in creative activities, there is much ‘everyday problem solving’, • ensuring the integrity of the customer leading to a series of small innovations that experience shape the final creative product.19 Such ‘on

15 20. The distinction between the first two categories may be the job’ innovation is also very common in These four dimensions are described as: blurred, as the distinction many professional services. But it is missed in between form and content is particularly problematic innovation surveys and ignored in case studies • Cultural Product – the product that carries for many creative products. of new products and processes. This may the cultural meanings and information If form is seen simply as the physical vehicle of the reflect the fact that new ways of doing things content (a film, videogame, stage product, which carries the are typically the product of practitioners, rather performance, sculpture, or set of design informational content, when the form can be tied to a than the result of innovation activities or R&D specifications). This partly overlaps with the particular class of artefacts work. idea of technological product innovation, – CDs or DVDs for example – then the distinction may though some new elements may have little to work reasonably well. But Figure 1 presents the ‘diamond’ framework do with new technology. such artefacts are highly standardised in technical which Green et al. use to capture the six terms, so that variations in dimensions they identify as important in their • Cultural Concept – the information content rarely impinge on these technical features. case study research. They argue that four of ‘content’ of the product, such as characters, The same may be less true these six dimensions (those constituting the narratives, representations of tangible for products in print media, 20 and even less so where horizontal plane in Figure 1) are particularly objects or less tangible ideas. craft and more traditional prominent in the creative industries (although artistic works are involved. Innovations in the latter may they might also be important for creative • Delivery – how the product is made be hard to define as either production in all sectors). The four dimensions accessible to consumers. form or content innovations. 21. We avoid saying ‘intended are seen as being where ‘hidden innovation’ outcome’ here, since the is likely to be common within the creative • User Interface – how the consumer interacts intentions of producers and consumers may industries. with the product to gain the experience that be very different – for is the outcome of the creative activity.21 example where the creator deliberately sets out to challenge and provoke an unsuspecting audience, or where the consumer treats a product as kitsch. Outcomes may be different from what either party had envisaged when entering into the Figure 1: The diamond of innovation in the creative industries process. This is a feature which creative products share with many services. 22. However, two different Process of classes of concept are being production presented as notionally similar in the diamond: the site of innovation – product, process, delivery, user interface, etc.; and the nature of innovation – whether it involves technological change, new work organisation, etc. Delivery 23. The CIS4 survey form was sent to over 28,000 UK enterprises with ten or more employees; with 16,446 responses, the response rate was 58%. The survey form can be downloaded at: www.berr.gov.uk/dius/ innovation/innovation- statistics/cis/cis4-qst/ Cultural Cultural page11578.html product concept 24. Although some questions do ask whether particular innovations have been undertaken. 25. The exception among service sectors is financial services (see Tether et al., 2002). In many areas of the economy, User and for some types of interface innovation, the focus on larger firms may be less of a problem for innovation analysis than would seem to be the case at first sight. This is because, contrary to a popular belief, smaller firms typically report undertaking innovations less often than do large firms; Tether et Technology al. (2002) document this for services firms across Europe using CIS2 data Source: Green et al. (2007).

16 (noting the interesting The other dimensions of innovation are to (CIS) is conducted every four years by EU exception of certain do with the technologies employed, and the member states; CIS4, undertaken in 2005, technology-based services). Furthermore, there is some organisation of production; these are closer to asked questions about the three years from evidence that technological aspects of conventional innovation research. 2002-04.23 innovations from large firms in manufacturing sectors tend to be the ‘bigger’, This approach goes beyond the simple The CIS focuses mainly on enterprises and more radical innovations as compared with those from contrast of aesthetic or soft innovation with their innovation activities and expenditures. It smaller firms (Tether et al., conventional product and process innovation.22 does not examine any specific innovations in 1997). Whether this would be expected to apply to the After examining our case studies, we will connection with these innovation activities and sorts of creative product and suggest an approach that builds on Green et expenditures.24 organisational innovations produced by firms in creative al., Voss and NESTA’s ideas, to grasp a wider industries is however, a range of the elements of innovation. As with Like most other surveys, CIS4 is based on question for investigation. We should also draw Green et al.’s and Voss’s approaches, this sectoral classifications – so it is not a good attention to the survey synthesis should apply to creative products guide to creative activities, as opposed to of small and medium size enterprises conducted by IFF from all sectors. But we believe it is particularly creative industries. Advertisers, designers and (2008) for the Department helpful to examine creative industries to clarify other creative occupations within sectors that for Business Enterprise and Regulatory Reform (BERR), what needs to be extended in our accounts of are not dominated by their creative activities which indicates rather high innovation. Our analysis of ‘hidden innovation’ are effectively invisible – and their innovative levels of innovation being reported in their large in the creative industries may then cast light on activities are likely to remain hidden. The sample. innovation in other parts of the economy. survey does let us focus on those sectors 26. Some ‘creative’ activities are underway in these, as whose main products are creative ones such as in practically all, sectors of The idea of ‘hidden innovation’ has been advertisements or designs. the economy. For instance, even in very small firms, elaborated in an eponymous NESTA report on people may create their own this theme (NESTA, 2007). Four categories of The CIS4 exclusively addresses private sector advertisements, signage, decorations, slogans, hidden innovation are suggested: firms with ten or more employees. This means entertainments, etc. that sectors with large numbers of very small 27. Business and employers 1. Innovation that is the same or similar to and micro-businesses (which may employ two organisations may be significant sources of activities that are measured by traditional or three people) are under-represented. Such innovative information for indicators, but which is excluded from small businesses are common throughout most some firms and sectors. 25 There may be some measurement. creative industries and service sectors. associations among these that play roles in diffusing innovation, setting 2. Innovation without a major scientific/ The economic sectors covered are sections standards, etc. in creative technological basis, such as innovation in C-K of the Standard Industrial Classification industries. 28. ICM’s (2006) survey asks: organisational forms or business models. (SIC 2003). The sample excludes extractive “Has your business ever industries – agriculture, forestry, fisheries, developed a new product or 26 service in order to generate 3. Innovation created from the novel etc.; the public sector (along with private or greater commercial return?” combination of existing technologies and charitable community, health and education 58% of firms in the film business answered “yes” processes. services, etc.); personal services; and some to this question (which is other activities such as those of business, admittedly vaguer than 27 CIS’s request for information 4. Locally-developed, small-scale innovations employers and professional organisations. about the last three years). that take place ‘under the radar’ and are A more serious omission for present purposes This percentage is above that for the creative therefore unrecognised or accounted for. is SIC division 92, Recreational, Cultural and industries as a whole, Sporting Activities – within which 92.1 is including those sectors In Chapter 8 we shall discuss how examining motion picture28 and video activities; 92.2 radio included in CIS4. 29. A case study work found the creative industries throws light on these and TV activities; 92.3 other entertainment that one of the top industrial categories of innovation, and on how they may activities (including artistic and literary design firms examined was 29 formally located in this part be studied and measured. creation and interpretation, live theatrical of SIC 92.3. presentations, etc., together with arts facilities, 30. Also featured here, and fairs and amusement parks, and much else).30 missing from CIS4, are 92.4 (news agency activities); 92.5 (libraries, archives, CIS results suggest that the creative museums, etc.) – clearly 2.3 Creative industries in CIS4 relevant for a study of the industries are innovative relative to the rest wider cultural industries; The Community Innovation Survey is a of the economy 92.6 (sporting activities); and 92.7 (other recreational valuable source of quantitative information A Department for Trade and Industry analysis activities such as gambling on innovation in the creative industries (DTI, 2006) suggests that CIS4 samples around and betting). Most of these sectors are active in terms of Before embarking on our case studies, we two thirds of the creative industries in the UK applying new technologies. will consider what information about the as defined by the DCMS. The analysis includes creative industries can be gleaned from all of the firms sampled in the industry sectors the main available source of statistics on covered, even though only some firms within innovation. The Community Innovation Survey these industry groups are likely to be ‘creative’

17 31. Additionally we would 31 note that Publishing and in DCMS terms. Despite these problems, the creative industries perform well on all the Reproduction are included, results are indicative: innovation indicators, with some 78 per cent but not Communications (though some delivery of firms (in his definition) undertaking regular of electronic content via • Forty per cent of the enterprises are based innovations – a higher proportion than any of telecommunications is an activity very like publishing); in London and the South East, and the the other broad industry categories considered. Research and Development workforce has a high proportion of graduates He also examines results for ‘wider innovation’, is excluded (though it does feature in some DCMS – notably science and engineering graduates. drawing on CIS4 questions about changes to definitions). (This largely reflects the prevalence of certain corporate strategy, marketing, management 32. This applies to every category of IP considered: technology-based sectors in the sample.) and organisational structures. Firms in the Confidentiality agreements; creative industries emerge as more likely to Copyright; Trademarks; Patents; Secrecy; • These creative industries tend to operate at a undertake such change than those in other Registration of design; more national (34 per cent) and international industries. The results suggest that creative Lead-time advantage on competitors; and Complexity level (14 per cent Europe, 29 per cent Rest industry firms are more likely to introduce of design. of World) than the rest of UK industry, with new products and processes34 and to change 33. Unlike the DTI report, only 24 per cent reporting that their largest and adapt their structures and approaches. Wilkinson weights sector data according to the share markets are regionally or locally based. This, as Wilkinson notes, may be important for of these industries that Corresponding figures for other UK industries making the most out of product and process DCMS considers creative. 34. It has been common practice are: 30 per cent UK markets, 10 per cent innovations. Other results include: to refer to the CIS questions Europe, 18 per cent Rest of World, and 44 about product and process innovation as ‘technological per cent local/regional markets. • Firms in the creative industries attribute 52 innovation’ (though the per cent of their turnover to new or improved precise formulation does not necessarily imply this • These creative businesses are highly products, compared with 40 per cent for – for example many service innovative (69 per cent report innovation firms in other industries. ‘New to market’ quality improvements could easily have been achieved activity, compared with 56 per cent of other products – as opposed to those innovations without technological UK enterprises). The proportion is even which are ‘new to the firm’, but already change), and the ‘wider innovation’ questions higher in some regions – over 75 per cent available in the market – account for almost as about ‘organisational of creative firms in Yorkshire & Humberside, twice as much of creative industry turnover innovation’. Several authors have contrasted sectors Northern Ireland and the South East report than for other industries. in terms of the reported innovation activity. incidence of the two broad categories (e.g. Schmidt & • Creative industry firms are more likely to view Rammer, 2006; Miles, 2008), • Creative industry enterprises attribute intellectual property – including copyright noting a strong relationship between the two forms of over half of their turnover to their product and patents – as important for protecting innovation at a sectoral level innovations. innovation. (i.e. sectors reporting more of one type will also report more of the other type); • Over a fifth of creative businesses report But there are significant differences across but also reporting that services sectors in general having co-operation agreements for types of creative business tend to place relatively more innovation – nearly twice as many as other One limitation of these two studies is that they emphasis on the wider, organisational innovations industries, where co-operation is much rarer. treat creative industries as a whole, and elide (technology-based services differences between sub-sectors. It is quite like computer services are an exception). • Creative industries report that product- possible that the trends cited are features of 35. See also NESTA (2006a). orientated innovation effects are strongest, specific sub-sectors rather than the whole 36. We propose adding some with improved quality of goods or services industry. additional industries to being the most important. the list in the Toolkit. R&D services can be located in The DCMS Evidence Toolkit (2004)35 provides creation, and are in our These creative businesses are also more one way forward. This classifies creative analysis; we also include • Public Relations (which active at protecting their innovations than industries into six groups, depending on involves both creation other firms.32 The DTI Paper suggests that whether they are involved in Creation, and dissemination of messages); and Market this could partly reflect their greater levels of Making, Dissemination, Exhibition/Reception, Research (some of its work originality. Archiving/Preservation, and Education/ resembles R&D, and the industry creates analyses, Understanding activities.36 Our analysis concepts and reports). These creative businesses also face greater suggests that the CIS4 sample includes 1,093 Telecommunications services • can be experimentally barriers to innovation (not unexpected, since ‘creators’,37 followed by 568 ‘makers’38 and 359 classified as distribution, more innovative organisations in general ‘distributors’.39 There are only five ‘exhibitors’; though much of their activity will have little to do report higher barriers). Qualified personnel and the other two groups are not represented with creative content (in are harder to recruit than in other industries; in the sample.40 It is notable that the ‘creators’ contrast, say, to publishing, printing, and retail of but regulatory impediments are less and ‘makers’ are dominated by engineering, media). Further work frequently encountered. software, and manufacturing activities. This might also allocate some sub-sectors of industries goes some way toward accounting for the to different groups – for Wilkinson (2007) also examines creative discovery by the DTI and Wilkinson that example, in SIC 74.4 Advertising, 74.40/2 industries in CIS4.33 He concludes that the

18 (Planning, creation and patents are considered important in the undertaken at least three out of four of these placement of advertising creative industries.41 innovations. activities) does involve creation, while 74.40/1 (Sale or leasing activities The creative industries emerge from analysis • Most of the creative industry firms which of advertising space or time), appears to be either of the CIS4 data as more oriented towards undertake technological innovation consider dissemination or exhibition, business markets than other firms.42 Analysis that their innovations have positively as is 74.40/9 (Advertising activities not elsewhere of data on graduate employment shows affected: the quality of their goods or classified) since it is largely high proportions of science and engineering services; their value-added; their market exemplified in SIC manuals in terms of distribution and graduates in the engineering and software share or entry to new markets; their range display activities. firms, while other ‘creators’ are liable to feature of goods or services; and their flexibility of 37. Three industries here are 46 well-represented, each more ‘other graduates’. Some commentators production or service provision. A majority featuring over 200 firms: suggest that the share of professionals in the of the innovative ‘makers’ consider that Engineering Consultancy and Design, Other Software workforce of a sector indicates its innovation their innovations have been moderately Consultancy and Supply, propensity, and may even be a better indicator or highly important for reducing costs and and R&D in natural sciences. Other industries in the of innovation efforts than R&D for services increasing capacity. Given that the creative ‘creator’ category include sectors. If so, the creative industries are likely industries have higher than average levels Architecture; Advertising, Photography, Market to be particularly innovative. of innovation, the implication is that their Research and Public innovation is having particularly striking Relations, and social science We also identify some other results from effects.47 R&D. 38. The only ‘maker’ industry our analysis of CIS4 for our four creative with over 200 firms industry groups: There is much more scope for exploring featured is ‘Printing not elsewhere classified’, • Overall, all four creative industry groups are CIS4 – the other questions it asks are worthy and the other industries more likely to have both technological and of analysis, and more detailed industrial featured are mainly involved in the manufacture of wider innovations than enterprises in general. classifications can be examined. Our findings media-related goods, and But ‘distributors’ are less innovative than demonstrate that, despite its obvious publishing and printing. 39. The largest other creative groups, reflecting very low limitations, it is a useful resource for studying ‘distributor’ industry is frequencies of innovation in the ‘trade’ and at least those creative industries covered. telecommunications, with over 175 firms; most other ‘retail’ creative groups (partly offset by high cases are in wholesale or frequencies in telecommunications). Our results illuminate many aspects of creative retail sectors dealing mainly industries’ innovation. They confirm that with media. 40. These figures would change • Those ‘creators’ involved in technology creative industries are innovative, and that somewhat if we reallocated development are particularly innovative in their innovations go well beyond technological parts of advertising as suggested in footnote 38, most classes of innovation. innovations. They also allow us to anticipate and if telecommunications that, in our case studies, we will find were not to be included as a distributor. Almost all creative groups feature higher substantial differences across different types of • 41. Our analysis indicates that shares of combined innovation (both creative industry.48 it is the ‘creators’ that ‘technological’ innovation and ‘wider are particularly keen on IPR techniques, especially innovation’)43 than of either technological or confidentiality agreements, wider innovation alone.44 ‘Distributors’ most secrecy and copyright; the technology-oriented closely resemble the rest of the economy in ‘creators’ – unsurprisingly this respect.45 – emphasise patents more than other firms. 42. The importance of • All creative industries report roughly similar business sales for creative industries has already been (high) levels of product innovation. highlighted by researchers such as Freeman (2007) and Bakhshi, McVittie and • The creative groups – especially the ‘creators’ Simmie (2008). – are more prone to undertake wider 43. Strictly speaking, the survey innovations than firms in general. Across the tells us that both forms of innovation are underway economy, changed Marketing Concepts or in the same firm, not that Strategies are most common, followed by they are actually combined in the same process of new Organisational Structures, Corporate change. Those ‘creators’ Strategies and Advanced Management with a technology focus, incidentally, are the group Techniques. The creative industries broadly with most emphasis on follow this pattern, with somewhat more combined innovation. 44. Technology-only innovation stress on changing organisational structures. is somewhat more prevalent The ‘creators’ are most prone to undertake than wider-only innovation each form of wider innovation. Most of in most groups. 45. Both in terms of overall those reporting wider innovation have incidence of innovation, undertaken two or more of such innovations and in displaying a fairly low incidence of technology- – with over 20 per cent of ‘creators’ having only innovation.

19 46. The question of impacts is not asked of ‘wider Part 3: Innovation in the videogames industry innovation’. 47. It would be possible to explore some impacts of innovation further using CIS4, for instance by exploring the proportion of sales related to new products, and whether there is a relation between the reported novelty of the innovation and the perceived impacts, in the various creative sectors. On this theme, Wilkinson (2007) does report that creative industry firms attribute more of their turnover to new or improved products than do firms in other industries, with ‘new to market products’ being particularly prominent (accounting for almost twice as much of creative industry turnover than for other industries). 48. We can note here that 3.1 Introduction – innovation practice in • Third-party developers are contracted by a our case study industries are all largely ‘creators’, four creative industries publisher to produce games on a title-by- and also that they are title basis. not all captured in CIS4. Broadcasting is excluded, for This section presents the first of four sector example, together with parts case studies. Each has been constructed by • Self-publishers are studios that develop of the videogames industry that are not classified as combining desk research with an extensive games without publisher support. This software activity; and we programme of interviews (involving industry category includes producers of specialist or find some design firms located in industries that practitioners, executives, trade representatives niche games including factual and web- are not included in CIS4. and commentators) and sector workshops. The based games. Many companies producing Only advertising seems to be completely unproblematic. evidence collected is organised around four games exclusively for web-based distribution 49. A more detailed statement separate headings:49 fall into this category. of the methodology deployed in construction of the cases (and in the 1. The context and operating conditions in There are parallels in industrial structure study more broadly) appears in Appendix A. A list of which innovation takes place. between videogames development and the companies interviewed development of feature films during the case development process is included in 2. The drivers for innovation. For independent developers, the production Appendix B. process is similar to that found in the creation 50. This case study was prepared 3. The different forms of innovation that are of feature films. Development studios will primarily by Jason Rutter. evident. work up an idea for a game which will then 51. An extended overview of the sector can be found in the be pitched to a publisher through a ‘design Interim Report developed in 4. The management and organisation of the document’ and working prototype. Publishing connection with this project (Green et al., 2007). Further innovation process. agreements are often negotiated for specific details relating to the size global regions, though console games often and dynamics of the sector (and to operating contexts need agreement from each territory before and challenges) are available they can proceed to development. During early in NESTA (2006a). 50 52. Also known as computer 3.2 Overview of the industry stages of the process, the developer takes the games, and entertainment financial risk (through speculative activity with software, among other labels. This first case study focuses on the videogames some resemblance to R&D). When publisher 53. Middleware, in this context, development sector,51 a subset of the broader interest is secured, publishers will negotiate is software with component- and rapidly developing videogames industry52 terms, milestones, payment and transfer of IP based architecture developed by a third party that includes game publishing, marketing, retail with the development studio. Once terms are company which offers a set and ‘middleware’53 companies. finalised, the development company dedicates of tools to streamline the game development process. full development teams to work on the game. Common middleware There are three types of videogames packages in the games industry include RenderWare development company, defined by their Games developers mainly produce games for (used for creating 3D relationship to games publishers personal computers (PCs) and games consoles environments), Havok (a ‘physics engine’ to allow • An in-house developer is part of a (e.g. the Sony PlayStation, Nintendo Wii and interaction between objects) videogames publishing company, or wholly Microsoft Xbox). Games are also produced for and FMOD (controlling audio playback across owned by one. It produces exclusively for mobile phones and personal digital assistants platforms). Many games that publisher. (PDAs), and for websites and digital TV, as well development companies also develop middleware tools of as games arcades. varying complexity which are not commercialised outside the firm.

20 Games development brings together all the 3.3 Developments, trends and the elements of games production from the initial innovation context idea and design through to the final version of the code (which is usually marketed and The videogames industry underwent a distributed by a videogames publisher). The period of major structural change in the industry comprises a range of specialisms 1990s including games production, games design, Since its origin in the late 1970s, the games development, level design, audio electronic games value chain has become design, art and testing. With the exception of global, extended and complex (Readman the simplest games, the production process and Grantham, 2006). Driven by increasingly usually involves complex project management. powerful PCs and consoles, a specialised development sector emerged by the early The industry relies on a workforce with a 1990s. Major developments during the wide range of technical skills 1990s included: the growing role of console Each game project involves producers, games manufacturers in shaping games production; designers, level designers, sound engineers the growth and development of independent and composers, actors54 and testers. Despite a publishers; an increasing division of labour in strong emphasis on computing and technical games development; the emerging power of skills, music, art and animation are also vital. retailers to control access to consumers; and, increased crossover with other cultural goods The industry is young enough that many of its (as in film, TV and book tie-ins). key figures were previously teenage enthusiast programmers (‘bedroom coders’) who went There has been a tendency for publishers to on to establish small companies. However, establish their own development operations most new professional employees come from – either through organic growth or by computing or mathematics degree courses acquisitions 54. Actors are needed for video or speech, or to capture (though there are over 170 courses at 47 UK Many developers note that the past decade motion in the development universities dedicated to games design). Only has been one in which considerable flux and of character models. 55. The UK has historically been 12 per cent of the industry’s employees are change has been witnessed in their industry: the third largest producer of women (Skillset 2006), and their involvement some report that operating conditions videogames (UKTI, 2006), but there are suggestions is largely concentrated on art and design and have become difficult and increasingly that this position has slipped public relations functions (Krotoski, 2004). unpredictable. Publishers have also been to fourth (French, 2007). increasingly keen to establish their own 56. The European Leisure Software Publishers’ The UK remains one of the world’s leading development operations (or to acquire Association (ELSPA) finds centres for videogames development55 development firms). The absence of a strong that eight of the top twenty games companies in the Unlike the USA, the UK has retained a strong or strategically robust response from UK UK remain independently independent sector alongside companies developers has resulted in: (a) greater power owned. owned by international publishers.56 The UK accruing to publishers; and (b) a majority of games development industry has a strong larger development firms falling into foreign heritage of entrepreneurial activity, which has ownership (or at least dependence upon allowed its companies to place themselves foreign-owned publishing operations). within niche markets and rapidly exploit new game ideas. Development costs have skyrocketed Costs of development have also increased The UK also has an established record of sharply (especially so as new and more attracting international publishers and sophisticated generations of consoles developers such as Sony, Microsoft and have appeared on the market). Access Linden Lab. While most games hardware is to development funding has become designed and manufactured outside the UK, increasingly difficult to secure. Moreover, exceptions like the EyeToy (produced for the the competitiveness of UK developers has Sony PlayStation 2 and PlayStation Portable) been eroded as Asian and Eastern European demonstrate the UK’s ability to exploit development houses (often offering very technical innovation successfully. sophisticated design and programming capability) have entered the market (NESTA 2006a).

The operating context and competitive environment for the games development industry has also been affected by: the changing relationship between developers and

21 publishers; shifts in labour supply and training; and university science researchers is and a new system of regulation for gaming underdeveloped. Games developers and content. HEI-based researchers and teachers could profitably foster better strategic partnerships Risk-averse publishers and the difficulties with each other. The industry could turn to of anticipating market demand for games universities for knowledge transfer or as a makes life difficult for developers source of R&D, though industry professionals Development studios frequently suggest that currently complain that it is too hard to locate publishers are risk-averse, taking on games that appropriate research expertise within large most easily fit into existing markets. Games universities. that defy existing genres (e.g. First Person Shooter, God Games, Sports Simulations) are Regulations have helped to fashion the notably difficult to place successfully within the industry’s development market. The Pan-European Game Initiative (PEGI) has provided a self-regulatory rating system for Demand drives innovation within the games games which supplements the British Board industry, but difficulties in forecasting demand of Film Classification (BBFC) rating system can also hinder innovation. This can mean that that is applied to games with significant innovative games may not be commissioned, or video content. The system provides an age that games without an established track record rating system (similar to films) which marks are most likely to be cancelled when revenues the appropriateness of game content for are tight. Some games have apparently got various age groups (currently 3+, 7+, 12+, as far as the submission of final code before 16+ and 18+). This system is now recognised the release was cancelled by the publisher as by Electronic Point of Sale (EPOS) systems in it was thought that the games would be too supermarkets, although it does not carry the 57. An example of this multi- expensive to market. regulatory weight of film classifications. stakeholder approach to games development training is the new Games Republic A game’s financial success is heavily dependent In the UK, games with significant video content Academy which supports three Masters courses (at upon its marketing, and the standardisation of are regulated by the BBFC. This compulsory the University of Bradford, games genres has affected this significantly. framework makes it illegal to supply younger University of Hull and Sheffield Hallam). This Standardisation has enabled easier packaging, consumers with games that are only certified has been developed with display and sales of games by non-specialist for older age groups. This process could have funding from the Regional Screen Agency, Screen retailers. Supermarkets now sell games, for had a significant potential impact on the Yorkshire, and the Yorkshire example, but will only carry a small selection of UK games industry, as exemplified by the trade alliance, Game Republic, with additional popular titles rather than the back catalogue BBFC’s initial decision to refuse a certificate funding from the Rockstar, available in independent retailers. Games to Manhunt 2 (developed by Rockstar Team 17 and Sumo Digital development studios. developers believe that this will reduce the Games). Protection of minors is bound to be shelf life of games (and the period during an increasingly important issue for games which high retail prices can be charged), which publishing in the future, especially with the may increase the attractiveness of innovative linking of games with social networking and titles for publishers. user-generated content.

Knowledge transfer between universities and videogames developers tends to be one-way 3.4 Drivers of innovation Many games development studios report that they have developed strong and ongoing User-driven demand for new titles has been relationships with local universities. However, a stimulus to technological and gameplay some practitioners feel that knowledge transfer innovation within these relationships is often one way, The videogames development industry is with companies increasingly supporting games driven by novelty, rapid turnover of titles development courses at universities. Key and successive generations of technology. figures provide guest lectures; companies offer It owes much to the development of new advice on the relevance of training content and game platforms overseas. And it must reflect provide placement for students; and developers consumer demand for new titles as well as advise on the content and shape of the games increased levels of technical sophistication and design curriculum.57 gameplay innovation.

Nevertheless, the relationship between The release of new generations of gaming the videogames development community technologies, such as Wii and DS interfaces

22 and controllers such as EyeToy and Buzz, publishers and copyright owners recognise the can trigger significant innovation both in commercial potential of tie-ins across platforms content development, and in the search for and media.60 This is resulting in significant new applications that utilise the enhanced innovation across media and platforms. functionality embedded in ‘latest generation’ consoles. Regulatory pressures have stimulated innovative technical solutions Equally, the avid videogaming fan and Concerns about the nature of some videogames consumer base (one that now stretches content and access by children are leading across several generations and is increasingly to pressure for certification, regulation and internally segmented)58 provides an access controls. This is prompting innovation. extraordinary stimulus to innovation: the New ‘technical fixes’ are helping to manage success of a new title or genre can bring and restrict access, and continuing parental immense rewards. Indeed, consumer concerns are likely to drive such innovation demand for increasingly complex games and further. With the growth of online gaming, it sophisticated interfaces constitutes a major is also likely that there will be new pressures driver for innovation. Publishers and games to regulate contact between players of online developers have also increasingly recognised games. the sophistication, intelligence and potential of their customers: users are much more involved But it is not just parents who want to regulate 58. The segmentation of markets has impacted on in the games and console development process. content. Games industry insiders worry about the activities of developers. ‘Ideas harvesting’ and user-testing programmes piracy and theft of IP. Whilst some protective Fragmentation and increasing variegation are an important and embedded element of the legislation is in place, piracy remains a major of the gameplaying contemporary development environment,59 and threat to profits. Development firms, publishers community implies increased opportunity for the developers are starting to permit the insertion and IP owners are likely to seek further development and targeting of user-generated content into their games. protection of their interests through regulation of games and genres for specific demographic groups and innovative technology-based solutions. (female, older and younger At the same time, technological innovations users etc.) 59. There are important have spurred wider forms of innovation in resonances with widely videogames development recognised Web 2.0 characteristics here – as Much of the impetus for innovation in the 3.5 Types of innovation noted in other cases in this videogames development industry derives from research, user inputs and the exploitation of users developments in technologies – more powerful Innovations in this sector extend well beyond as a source of ideas for and high-speed chips have made it possible to those that are focused primarily on the creation innovation are an important driver and support for enhance the gaming experience significantly, of game content. product innovation. and have added new features to gaming 60. Multi-platform and cross- consoles. The rapid penetration of broadband Innovations in hardware technologies media/platform tie-ins are perceived to permit and the inclusion of browser/connectivity present opportunities for UK games optimised exploitation of IP options with contemporary consoles reflect developers and reduction or spreading of risk. Common games tie- innovation and constitute important drivers for The games industry continues to operate ins include those with sports further development. hardware technology cycles of approximately events and personalities, films, television shows, five years. While it is often assumed that new music performances, and Online gaming and the roll-out of online generation consoles quickly kill the market for media celebrities. Whilst many players in the games components of gaming (digital distribution the previous version (e.g. Higson et al., 2007), industry are eager to secure of games and add-ons) offer myriad sales patterns do not support that view. Titles involvement in tie-in arrangements, pressure from opportunities for further development for previous generation platforms are usually other sectors is an important and are thus important innovation drivers. produced – and sell – several years into the factor in promoting collaborative exploitation Improvements in technology and software lifecycle of the new console. of IP. development processes have also facilitated innovation in the games development process The rapid evolution of platform technologies by accelerating development times or enabling offers potential for UK developers to innovate, more sophisticated graphics and gameplay but developers must acquire the skills to features without the need for major new coding exploit the capabilities (and software libraries) resources. of successive generations of games machines. These technical innovations tend to be strongly Another key driver for innovation resides driven by the new technologies and are linked in the innovative exploitation of existing to issues such as increased complexity of Intellectual Property characters and environments (and a continuing While licensing and the allocation of rights shift towards increased ‘realism’). They also can sometimes be complex, games developers, provide opportunities to exploit processing

23 power to develop increasingly sophisticated (or set of components) upon which the artificial intelligence for non-player characters developers draw. The investment in developing and for more complex in-game physics (e.g. such software in-house is seen by developers controlling the movement of a car around a such as Blitz Games Studios to be necessary to track or handling collisions in a racing game). ensure control over the development process. In practice, however, most companies use both The associated rise in development costs in-house and third-party middleware. has prompted the use of middleware companies Some UK houses have developed a Such developments imply associated reputation for gameplay innovation development costs, as increased complexity The evolution of software and hardware pushes up development time and resources technology does not easily correlate to required. Attempts have been made to manage innovation within gameplay. An example of the increased overheads through the use of such innovation is Bratz – Forever Diamondz middleware – computer software that connects developed by Blitz Games. Blitz has developed software components or applications. a strong reputation for games based upon existing characters (including Barbie, Disney, There are two sources for middleware within Action Man, Spongebob Squarepants and the games development industry – in-house Bratz). However, developing a game based on and third-party – and there are tensions dolls can involve extensive content innovation with each. Firms such as Rebellion rely as that goes well beyond the original IP contained little as possible on third party middleware in the Bratz cartoon. Although the Bratz (representatives believe that as middleware franchise provides characters for the games, is commonly developed for specific platforms for instance, the games designers must adapt or technologies, it rarely offers innovative the characters for their audience, with a game performance). world for the dolls to inhabit, activity themes and in-game tasks. But the use of middleware solutions brings its own problems for developers too Developers are increasingly exploiting the While middleware may seem to offer a cost opportunities for interactivity through effective solution, the limited versatility of online gameplay certain packages can increase costs when The latest consoles all have broadband attempts are made to apply it to a range of capability. So most major game releases also projects. Furthermore, as middleware takes have online elements. Players can post scores control of certain processes – managing physics on online leader boards, buy add-on elements or certain types of rendering or facial animation to games (such as new cars for a racing game) – problems can arise when developers cannot download updates or play against other gamers modify these elements without access to in real time. These elements not only offer the source code. This can lead – as with one added value for gamers, but also generate extra Rebellion title – to new games being delayed revenue and enable consumers to input into by the hardware manufacturers due to bugs in content innovation. the middleware rather than in-house coding. Debugging can add to production time cost The games development sector has also and hinder efficient management of the demonstrated innovation in the marketing and project. delivery of its products. Such innovation has been visible in a number of forms, outlined Third-party middleware also locks development below. projects into a technology for the duration of the title’s life, often requiring the purchase Electronic distribution of games is of middleware licences to develop sequels for beginning to offer an alternative to the popular game titles. Some development studios developer-publisher model see this as an unacceptable risk, given that a Although file sizes for games are generally middleware company may cease trading or be much larger than those for music or text- purchased by another company (as when EA based products, the growth in broadband bought Renderware). access makes it less likely that downloads will be interrupted or take an unacceptably In consequence, many games development long period. This growth in broadband access studios also develop their own middleware has been accompanied by new payment tailored to their specific development profile mechanisms, digital rights management and and projects. This software acts as a toolbox anti-cheating mechanisms.

24 Electronic distribution has also opened new other players. This is known as the Massively- opportunities for developers to publish their Multiplayer Online Game (MMOG) market. own games. The attraction for developers Whilst the UK lacks a strong indigenous of self-publishing is that it allows them to presence in this market, some foreign MMOG retain full control (and value) of their game’s companies have established a UK presence, intellectual property instead of signing it over and games are being developed indigenously to the software publisher. for future release. 61. M:Metrics (2008) indicate Some UK developers have succeeded Models based on revenue generation through that only a few per cent of phone owners download in moulding their offer to new games advertising and pay-per-play are also games. This figure does audiences being used. ‘Advergames’ usually promote not seem to be growing substantially: increased Demographically, the ‘hardcore’ market for a particular product, company or political numbers of users and repeat videogames is growing older. The Interactive perspective and tend to feature a company’s purchases are needed for the market to take off. While Software Federation of Europe (ISFE) reports new product prominently. Some are provided more smartphone users that the average age of a gamer is now 29 in with breakfast cereals; others are played online download games, there is much free and pirated Europe compared with 15 just a decade ago. at the company’s website or made available content available for these for download. They can be linked to viral users. 62. There is also a growth of Publishers want to broaden the appeal of marketing campaigns, with the games used online gaming services games beyond young men. So they are to spread product and company awareness by (which currently fall outside 62 the working definition of developing ‘casual’ or ‘lifestyle’ games which word of mouth, email and blogs. the games industry offered are less combat-based, easier to learn and above) which are based upon a commission/fee require less time. revenue structure. Websites such as King.com provide a service where gamers In March 2007, Kuju Entertainment re-branded 3.6 Management and organisation of can compete against each its Brighton studio (employing 100 staff) as innovation other for cash prizes. This is managed by each player Zoë Mode, using a logo in the style of a female placing a stake on the game signature and young female player. The studio The UK remains an attractive location to and the winner taking the pot minus a fee taken by has concentrated on developing games using develop videogames, but out-sourcing is King.com. new types of game controllers such as the increasingly common 63. To take one example, EyeToy and SingStar, as well as mobile games There is some debate regarding costs Dundee-based studio Realtime Worlds has for the PlayStation Portable (PSP). associated with games development in the a Korean office which UK. Whilst the UK was viewed as a cheaper enables development of its contemporary-themed New markets for casual games are also being location for development than the US in massively multiplayer games developed online through King.com and 2005 (according to UKTI, 2007b, American All Points Bulletin (APB) to connect more closely Pongo.co.uk, where gamers play simple games production workers earned 9 per cent more with Korean culture. This is against each other (these are often based than their UK counterparts in 2005), it perceived to be important if the game is to have on traditional board games such as Scrabble now appears that the UK has the highest appeal in the large Korean or Monopoly.) Although this is still a new average salaries for developers (GIC, 2007). online gaming market. For its previous console game 61 market with relatively low adoption rates, Nonetheless, the UK remains an attractive Crackdown, the company it is expected to grow significantly through location for development, with the sector out-sourced work to two sites in North America, the use of mobile phones. However, whilst owing much of its competitiveness to its two studios in Russia and development costs are low in comparison smaller, more agile development teams. one in England. Such an approach permits enhanced with other gaming formats, problems persist management of costs and with delivery, interoperability across handsets However, out-sourcing of development work skills, but requires the acquisition of additional and networks and these act as a barrier to to studios outside the UK, notably India project management and innovation in this type of games market. UK and Russia, is increasingly commonplace communications capabilities on the part of the developer mobile developers also face the problem of in the videogames industry. Out-sourcing (and thus the importation of adapting to separate markets across Europe. enables UK companies to compete on price a new resource overhead). by taking advantage of lower cost inputs. It There are significant instances of business is being used by some companies to manage model innovation production and project cycles, and to alleviate Being still heavily based on the developer- problems with over-commitment of company publisher relationship, the games industry still resources, enabling timely delivery of final and relies on unit sales. This is especially true for interim milestones. Out-sourcing also allows the console market. development studios to cut their total costs while retaining contracts and management However, new business models are being of games projects within the UK. Off-shoring adopted. The most visible is where players allows UK games companies to produce pay a monthly subscription for unlimited specialist games, such as those relying on game play time in an environment with many Korean artwork.63

25 But with the obvious cost advantages from training to develop triage skills. The goal off-shoring comes potential costs of the games development company is to In the short term, there are two particular develop realistic human avatars which model concerns for the UK videogames development the physical characteristics of a range of industry: medical conditions, recreating attributes such as skin pallor or flushing, realistic breathing • Control over code: As with music (NESTA, and sweating. Beyond the immediate medical 2006a) piracy is a major economic concern application, Blitz intends to bring this for the industry. Loudhouse and Macrovision knowledge back into games – for example (2005) estimate that for every 100 legal creating more believable, emotionally engaging games sold, 43 are downloaded illegally characters. on peer-to-peer networks. Broadening the distribution of cultural products increases But even in these companies there is little the possibility of the product being copied.64 evidence of rigorous measurement of how This is a problem for the games industry, not much is being spent on R&D just because of direct copying of games at None of the companies interviewed during this various stages of development, but because research had a rigorous method for measuring access to games code means that digital R&D expenditure or estimating the return rights management built into the game can from this activity. While the last decade has be reverse engineered. seen an increasing use of management tools such as Prince 2 and Agile in the UK games • Control over process: While development development industry, measuring R&D is not companies put into place management seen as an economic imperative by most firms. procedures to work with development Even studios with a dedicated R&D team and companies overseas in a manner similar to an associated budget feel that R&D cannot 64. This is one reason why those used for managing in-house projects, practically be separated from the inventive copies of films are transported in the UK using there is a risk associated with working with and innovative processes which are part of the only registered couriers, as new companies, especially if they are outside routine practice of problem-led development part of an industry security scheme. established networks of national legal and creativity. frameworks. Interviewees talk of cases where work has been out-sourced to companies Firms are aware of the R&D tax credit, but outside Europe and which have either gone don’t understand its reach and how it is bankrupt or disappeared with code and accessed advanced payments. Blitz’s TSB-supported R&D was unusual. HM Treasury’s tax relief on R&D is complex Only the largest developers have formal to navigate and currently may not support R&D strategies everything a games company believes is Larger games development companies often innovative. The scheme focuses on technology, have their own R&D strategies. They dedicate for example, whereas many companies, such as resources to them once they have established Blitz, innovate in production workflow, process themselves within a market and achieved a and animation techniques. However, TIGA, the relatively stable size. In such cases, employees games development trade organisation, has are dedicated to R&D projects or work on recently been promoting R&D tax credits to its them when there are gaps between commercial members. products. So, development studios are aware of the R&D These R&D projects tend to develop new Tax Credit and its potential relevance; however, generic or multi-purpose tools to support there remains some confusion about how it future projects. These tools lead to process is administered and any potential benefits. innovation and streamlined development, thus The smaller companies in particular find the reducing costs. ‘administrative overhead’ too large to take advantage of the scheme – many believe that In some cases that R&D is taking UK the paperwork would either involve taking developers into less traditional areas a member of staff away from a project or Blitz is notable in that it has extended this employing someone to take on the role. form of R&D to involve expertise and potential markets outside games development. Using funding from the Technology Strategy Board, the company has worked with medical practitioners to develop computer-based

26 A particular concern is how R&D activities can be identified separately from other spending Larger studios (200+ employees) are unsure about how individual R&D elements can be separated from other work and what activities count as R&D for tax purposes. This is especially the case where several individuals are engaged in development activities. Some studios have begun to exchange experiences of the scheme, with one studio having successfully counted a percentage of staff time as R&D without having to measure individual activities. In addition to publicising the availability of tax credits, TIGA is aiming to build a framework to support best practice for studios that wish to apply.

The combination of technical, creative and management factors prominent in the videogames development industry, along with its project-based approach, often obscures innovation. Developers and studio managers interviewed describe innovation not as an extraordinary aspect of games development, but something inherent in the routine process. It does not sit above standard manufacturing or production processes; it involves solving current problems on projects rather than developing new commercial opportunities in their own right. Innovation is more commonly a rational response to continual change in the industry. It addresses demands that stem from new hardware or software, and the creative demands associated with new games projects. Such content, design, process or artistic innovation is part of the ‘normal’ process of developing video games, and so remains hidden from traditional analysis.

27 Part 4: Innovation in the product design industry65

65. The authors wish to express their gratitude to Simon Bolton of Central St Martins College for his valuable insights concerning the design industry and helpful comments on earlier drafts of this chapter. 66. The terms ‘Product Design’, ‘Product and Industrial Design’ and ‘Product Design Consultancy’ are used interchangeably throughout this text. 67. There is an ongoing debate concerning definition of the term design: Heskett (2002, 4.1 Overview of the industry sciences, and an appreciation of the culture, p.3) suggests, somewhat values and preferences of business clients and cryptically but helpfully, that “Design is to design a The product design industry covers a very consumers of their products. design to produce a design” broad group of activities (Heskett, 2002, p. 3). This 66 can be interpreted to imply Product design is a subset of the design When innovation research was focused that the aim of design is industries, a grouping that includes interior, primarily on manufacturing R&D, ‘design’ to create an intermediate output (drawing, blueprint product, packaging, furniture, web and digital warranted little more than a footnote. However, etc.) that is then deployed media, graphic, spatial, apparel and fashion there has been a growing appreciation of the in the production of a final 67 artefact/system etc. design. Within the sector, independent design importance of design for UK firms. Design is 68. Accurate data relating to consultancies sell their services to design now recognised as an important contributor relative employment levels in in-house design teams and buyers in the UK and abroad. They sometimes to business competitiveness, especially in the design consultancies are not also sell to companies with an in-house team low-technology businesses and SMEs that readily available. Industry commentators suggest when the latter require specific competencies dominate the UK economy (Cox Review, 2005; that more than 50% (and or skills. In-house design teams tend to work DTI, 2005). possibly up to 90%) of UK 68 design activity is undertaken solely for a particular company or brand. in-house. The UK design sector is fragmented, with 69. Design Council, 2005. These Product designers design the artefacts (the large numbers of SMEs figures relate to design consultancy in general, not tangible goods, devices, equipment and The UK design industry comprises over 4,000 just the ‘product’ sector. gadgets etc.) that we use in our daily lives firms, with an annual gross income of £4 70. Ibid. A broader definition 69 will identify a larger number as consumers and workers. They certainly billion, including £500 million from overseas. (for example, if ‘engineering design more than ‘consumer goods’: much of Most recent surveys indicate the existence design’ consultants are included in the product their effort concerns the design of industrial, of between 600 and 1,300 Product Design design category, then this commercial, medical and defence artefacts or consultancies in the UK, with the difference will swell the recorded number of product instruments – for example, their work can be in these figures being explained largely by design firms). A further found in aero engines, commercial printers, non-congruent approaches to defining design complicating factor concerns 70 the activities of design firms: EPOS terminals, medical equipment and food activity. some are engaged fully in processing machinery. product design whilst others are only partially engaged In the early 1980s, the design scene (and are thus active in either As a result, product designers are often was dominated by a ‘big five’ group of connected fields of design or non-design business). required to be multi-skilled consultancies – BIB, AID, Pentagram, Conran Many product designers are formally trained and DRU. However, by the late eighties, a in ‘design schools’ where several disciplines, major shake-up had seen the birth of many notably visual arts, ergonomics, engineering, smaller and medium-sized consultancies as marketing, management and business are many senior designers left the ‘big five’ to brought together (Design Council, 2005). practise independently in an expanding market. Their key skills are in ‘making things that work reliably, efficiently or as intended’, ‘making Employment in the sector has more than things with visual appeal for the intended doubled since then. And both the technologies consumer’, and ‘making things that will sell in and the skills required have changed target markets’. Designers need to combine dramatically. The inception of 2D, followed their aesthetic and artistic talent with an by 3D Computer Aided Design (CAD) has understanding of engineering and physical

28 transformed the design process and the While such specialisation remains, the recent interaction between designers and clients. economic slowdown is making generalism fashionable again, with many design The sector is supported by four main trade consultancies attempting to enter their and professional associations competitors’ niche markets. The design sector is supplied with technologies, hardware and software by a range of suppliers. The late 1990s also saw the rise of the It is supported by four main trade and ‘informed client’ – design buyers and design professional associations – the Design Business managers, who became established as Association, British Design Innovation, the (client-based) intermediaries in the design Design Council and the Chartered Institute procurement process.72 of Designers. Government agencies have an important role in promoting the industry and At the same time, there was a massive establishing the socio-political, economic and migration of manufacturing to the Far legal environment in which the companies East. Product designers found themselves operate. The sector is also served by a fairly increasingly dealing with producers operating extensive trade press. in remote environments. Some consultancies re-located or opened Far East branches to Design activities mix technological and smooth the transition and explore emerging aesthetic knowledge opportunities. However, many suffered as 71. An extended overview of the industry and trends therein The sector is characterised by its blending relatively inexpensive overseas design services appears in Green et al. of technology and aesthetic knowledge and emerged alongside the Far East manufacturing (2007). Further information relating to developments its complex links to industrial clients. Client operations. in the past decade can be companies often see design as a secondary found in NESTA (2006a). 72. Some interviewees indicate activity to innovation. But it is arguably As a result the importance of smaller but that this had some negative a sector that has facilitated and driven leaner design businesses has increased impacts on their business – ‘informed clients’ can innovation for many client organisations, sharply allegedly be ‘difficult and and experienced and generated significant Many UK design firms are now considerably demanding’ clients. internal innovation in the face of technological smaller than they were five or ten years ago 73. A clear and important trend is visible here: as incumbents development and globalisation. (certainly in terms of the numbers that they have shed employees, some employ). At the same time, more design firms of those former employees 73 have established their own The UK continues to be seen as a global hub have entered the market. Many companies companies or have swelled for design, but that position is viewed as have traded hierarchical for ‘flatter’ structures; the ranks of freelance vulnerable to increasing competition from and there is a clearer focus on ‘core activities’.74 designers. 74. Though there are some overseas notable exceptions to this Industry insiders believe that the UK remains Almost three-fifths of product design general trend – PDD and Kinneir Dufort constitute a major global hub for industrial design, only consultancies are very small businesses with important cases in point. matched by New York for its importance. no more than five employees; a medium-sized However, this position is threatened by the design company may have between six and migration of manufacturing and support ten employees; and the larger companies will industries to the Far East. Though innovation typically have fewer than 50 workers. More is helping to maintain the UK industry’s than 70 per cent of firms have ten or fewer position, there are little public data about the employees and only the largest product design innovativeness and innovation investment of companies employ more than 50 people. product design businesses. The small size of Among the few large companies are IDEO, many agencies means their activity is rarely Sagentia, PDT, PDD, DCA and Seymour Powell. captured in surveys such as the Community Innovation Survey. One consequence has been to boost the pool of freelancers providing specialist design services Most design consultancies rely heavily on 4.2 Developments, trends and the the services of freelance designers and innovation context 71 complementary service providers, particularly in London and the South East. Few contemporary The product design sector experienced agencies can afford the overheads associated major structural changes in the 1990s with retaining a pool of designers, CAD Throughout the 1990s, a number of agencies technicians, model makers, researchers and aligned themselves with specific sectors and ergonomists etc. niches (for example, medical instruments, transportation and telecommunications).

29 There is a widespread perception that the develop concurrent engineering arrangements supply of design graduates exceeds the and generate new business. number of jobs available Labour supply to the UK design industry – at Where this strategy has been adopted, some least in terms of quantity – is not seen as a design companies report significant success. problem. UK universities and colleges operate A substantial minority indicates a rolling hundreds of design courses and produce reduction in their UK/European operations to thousands of design graduates annually: the focus more on business in Asia and beyond. Higher Education Statistics Agency (HESA) recorded 60,000 students enrolled on over Globalisation has also been associated 150 design courses at undergraduate or with an internationalisation of the product postgraduate level in 2005-6.75 Unfortunately, design client base there are few career opportunities for such The contraction and tightening of domestic graduates and only a small proportion will enter markets is a widely reported trend in the the design profession.76 design industry.77 In an effort to overcome the domestic squeeze, a number of agencies have Design industry practitioners suggest that sought business opportunities in a wider range there are four key trends that are shaping their of territories. Many have expended significant industry and the context for innovation: effort on attracting new business overseas – 75. See http://www.hesa. either with or without an overseas base. ac.uk/dox/dataTables/ studentsAndQualifiers/ • migration and re-location of manufacturing download/subject0506.xls industry Those agencies that have adopted a strategy 76. Whilst there is little statistical evidence to of internationalisation report positive results. substantiate this claim, it is • intensification of competition and the entry They frequently connect their success with one that is made frequently (almost unanimously) by of competitors from parallel disciplines and the strong reputation and kudos associated senior practitioners in the new territories with UK design. Many overseas clients are also design industry. Direct entry to the design industry is reportedly eager to sell into relatively affluent possible for only a small • changes in the nature of relationships with European markets and are thus keen to recruit number of elite design graduates; however, more clients UK designers. They see the designers as well- graduates reportedly find attuned to Western consumer preferences roles in design-buying or design-related functions in • shifts in consumer demand and buyer and well-acquainted with Western regulatory UK industry and retail. preferences requirements. 77. This trend should not be overstated however – many agencies report Each of these factors is addressed in much Product designers are being increasingly that business in the UK greater detail in the sections below. However, it called by their clients to provide intelligence remains generally strong and that some niches have is worth briefly considering each of these issues on future market trends demonstrated encouraging in turn. A major reported trend since the late nineties growth. has been a growing focus on future trends – The continued migration of manufacturing designers increasingly seek intelligence about towards lower cost countries is shaping the emerging needs and the shape and dynamics of product design industry future markets. The migration of manufacturing industry from the UK – a process that has been underway Much greater resource has reportedly been and accelerating throughout the past three applied in an effort to identify and plot decades – has impacted dramatically on the innovation drivers, and to understand how UK design sector. As noted above, for many intelligence derived from driver scanning designers it has implied interaction with activities can be deployed in the product and clients and production facilities located many brand development process. thousands of miles away. As a result, front-end research is seen It has also intensified competition as new increasingly as a staple activity for design industries have emerged to service designers emerging manufacturing hot-spots. Though it ‘Front-end’ research into technological and represents an expensive high-risk strategy for materials development, market evolution, and design consultancies – and has been pursued consumer preferences is now a staple of the mainly by larger firms – establishing a presence design industry operation. It helps to inform in these hotspots can offer firms the chance to innovation processes and activities, and their exploit new opportunities in indigenous and timing, within client organisations. export markets, and to get closer to the point of manufacture. This can also allow them to

30 Some designers also indicate that more has Many product designers perceive the been done to understand consumers from an ‘commoditisation’ of design as an important ‘emotional’ perspective throughout the past threat decade. Before the late nineties, user research Many agencies report that the value of design was confined largely to issues of functional has long been under-estimated by some design ergonomics; more recently it has focused on clients (senior managers often see design as user lifestyles and aspirations. New research a cost rather than an input with potentially programmes have been designed to yield significant strategic value). Many also report insights into client motivations, attitudes and that product design is now perceived widely as purchasing preferences. a ‘commodity’ input – an input of limited value that can be accessed easily and inexpensively In the past five years, this research has been from an expanding range of suppliers in a broadened to encompass client responses and crowded and highly competitive market. Some reactions to new materials, and there are moves designers argue that their industry’s slowness to understand how materials (and their various in ‘professionalising’ has amplified this properties) might be used in the creation and perception. strengthening of brands.78 The most successful design businesses are those that stress the strategic benefits of design to their clients 4.3 Drivers of innovation Devising an appropriate response to the challenge of commoditisation may not be Product designers have responded to easy, but some designers argue that the trend the challenges that they confront with requires greater confidence and stronger significant and widespread innovation articulation of the strategic benefits of design While shifts in the structure, size and for client organisations. Moreover, they argue 78. The white plastic and aluminium that is associated distribution of the industry have taken place for a fundamental re-positioning of design with the Apple brand is an over the last decade, much innovation has services at a higher level in the value chain. interesting case in point here. been taking place within consultancies as designers have responded to new opportunities Clients are reported to be increasingly and the new trends described above. ‘savvy’ Designer practitioners say that clients have Some of the major factors driving and shaping become far more demanding and more ‘savvy’ innovation reflect internal changes within the purchasers of design services. Professional design sector; others reflect changes in the design buyers are aware of increased wider business, commercial and competitive competition and some reportedly use this to environment. This is reflected in our case study keep fees down and to demand the speedier work, as we shall now illustrate. delivery of a broader range of alternative designs for each brief. Product design consultancies have had to adapt their relationships with UK Some designers attribute these changes to the manufacturing clients who are increasingly availability of CAD and internet technologies, shifting their own operations to low cost as they have heightened expectations of centres overseas the rapid generation and transmission of drawings. There is broad agreement that The re-location of manufacturing to the Far more sophisticated and more demanding East has had a big impact. Some agencies design consumers are triggering innovation, report shifts in the nature of relationships particularly in deploying internet technologies with UK-based clients as the latter move their and improving client relationships. operations east and begin to source services – including design – in these territories. The domestic market has become more The advantages of co-locating design and crowded as universities and colleges manufacturing have long been recognised and continue to churn out large numbers of design clients are now benefiting from reduced design graduates design costs in low-wage economies. Whilst the UK remains a global hub for design, domestic competition appears to be increasing markedly. Hundreds of design graduates enter the labour market and design sector annually from 150+ product design courses at UK universities and colleges. Whilst only a few will

31 enter an established design consultancy, many 4.4 Types of innovation will establish themselves as ‘designer-makers’ or ‘sole traders’ adding to the industry’s very As discussed above, much academic work and ‘long tail’ of micro businesses. industrial commentary concerning innovation focuses on a binary distinction between its Easy access to the internet gives new entrants ‘product’ and ‘process’ forms. However, this greater visibility. However, established firms distinction conceals much interplay; broad believe it also crowds the market and confuses categories and characterisations can mask a clients in an already competitive environment. very complex picture. Our case study work Moreover, several universities – eager to revealed the existence and evolution of many generate cash and to provide a visible career forms of innovation in the sector. route for graduates – have established their own commercial design consultancies (often The UK’s product design sector undertakes 79. This assertion, based operating on advantageous terms with ‘free’ a wide range of innovation activities that on analysis of interview material, appears to premises and high levels of business support). are not captured by the usual product and contradict some recent Such consultancies promote themselves process innovation taxonomies macro-economic evidence that UK business cycles aggressively and have been reported to have Many new forms and ways of working are have become less volatile undercut incumbents in some regional and evident. There appears to be a major trend over time. One possibility is that volatility in business niche design markets. towards ‘networking’, where agencies no longer cycles may impact on the rely on in-house expertise for a full range product design sector more dramatically than on others. Beyond the domestic scene, global competition of functions (prototyping, model-making, The extent to which this for product design business has never ergonomics, research) but contract out such applies is an issue for further exploration. Recent work been more acute. The emergence and rapid work when necessary. on the creative sectors in growth of increasingly high-quality design London (Freeman, 2007) does suggest a connection sectors in China, Korea, Taiwan and India The contracting of freelancers has increased between served markets – key manufacturing locations for UK and sharply as teams incorporating the requisite and levels of output and employment volatility. The international firms – are providing a strong skills are built around specific projects. Indeed, sectors that report strong challenge to British designers. many consultancies seem to have swapped business-to-business links appear to experience large, in-house teams for a ‘lean’ and ‘fleet’ greater volatility than There is a noticeable feeling of approach, where strategic partnering provides those that primarily serve the domestic/household/ ‘vulnerability’ across large parts of the them with the necessary competencies and business-to-consumer sector capacity.80 sector. Established designers also feel that increased 80. Despite this generalised trend towards downsizing, competition is leading to volatility and As with many instances of organisational there is some evidence vacillation in demand for design services. An innovation, some of the shifts in the product that larger agencies in particular have recruited unpredictable inflow of new entrants and a design sector have been driven by, and depend specialist strategists and fairly high failure rate has made it more difficult on, new technologies. Opportunities for ‘human factors’ researchers including ethnographers and for design agencies to plan future activity. remote working and electronically-mediated anthropologists. co-working have certainly contributed to the Whilst a uniform flow of business has never re-structuring of workflow. More importantly, been guaranteed for UK designers, some report they have made out-sourcing to freelancers that business cycles have become significantly much easier. less predictable and that more dramatic ‘ebbs and flows’ have required an innovative New technologies promote novel systems approach to business structuring and strategy.79 for establishing electronic, ‘real time’ In particular, alignment of capability and relationships with clients capacity with unpredictable demand has forced The creative deployment of new technologies is the adoption of more flexible practices and permitting designers to establish electronically- employment patterns (including, for some, mediated relationships with partners and the pursuit of business beyond conventional clients (often played out in online ‘client geographical or ‘served segment’ boundaries). zones’). It is also facilitating greater levels of co-evolution and co-production of design. Some agencies have also attempted to reduce their dependence on client commissions, and Furthermore, technology appears to be thus on the vagaries of a volatile market, assisting designers in overcoming barriers by diversifying in the development and associated with time and distance as drawings distribution of their own products. and designs can be transmitted instantaneously across the globe at any time of day or night.

32 The internet also provides an electronic ‘shop and products, as varied as espresso makers and window’ and many designers put significant toilet brushes. effort into having a high profile – and frequently highly sophisticated – web presence. Classifying the different types of innovation Where style, fashion, creativity and usability are presents challenges as they are inter- important hooks for potential clients, a well- related designed website provides designers with an Whilst the list above is not exhaustive, it does opportunity to establish their credentials and capture the main types of innovation that are demonstrate their track-record and capability. reported to be underway in the product design sector. It is also clear that the categories of However, innovation in interfacing, marketing innovation outlined above are not mutually and delivery is not solely connected with new exclusive. There are many overlaps and there technologies and electronic networks. Pressure is a complex relationship between the various from clients to produce a greater number of types: for example, new business models alternative ‘versions’ for each brief (at ever predicated on the inception of licensing increasing speed) is leading to ever-more arrangements connect closely with the shift in innovative means of managing and organising some agencies towards the development of ‘in- workload. house’ brands and products.

Many design businesses are attempting to reposition themselves higher up the value chain 4.5 Management and organisation of As design is viewed increasingly as a innovation ‘commodity’, many UK agencies are engaged in business model innovation: whilst ‘design’ It is striking how little of this innovative remains a core activity for most UK agencies, activity is recognised as such by designers 81. It can be argued that diversification is not higher value activities such as brokering, Surprisingly little of the innovation activity connected solely with strategy, brand and identity consulting are sketched above would be recognised or competitive positioning – some commentators emerging as an attractive focus for some reported as such by design practitioners. For suggest that diversification businesses or as a lucrative premium service for many, organisational innovation is seen as and the targeting of higher value activities constitutes others. either routine or a response to environmental a response to increasing change. It is part of ‘normal business’. Interface sophistication in the design process and client-side Most agencies are seeking to increase the and delivery innovation is frequently portrayed integration of marketing value of their business activities and many as service improvement (a feature of work and new product design functions. are innovating to establish differentiation, in the design business that is unavoidable if enhance profitability and ensure survival competitiveness is to be maintained). in an increasingly competitive market.81 Innovation is also evident in the evolution of However, deliberate and strategy-driven licensing, royalty, IP and shared risk and reward shifts in business and revenue models are strategies. more readily recognised as innovation, as is the development of new products. The Some product designers are engaging in work of designers is inherently bound up significant product innovation, expanding with problem-solving: where such problem- their product offer into new areas solving is undertaken on behalf of a client, it Whilst design agencies are widely believed is associated with innovation. However, where to support their client’s innovation activities it relates to a consultancy’s own business by realising their product ideas, some UK positioning or service delivery problems, it designers are applying their expertise and is more likely to be perceived as business knowledge of consumer preferences to develop development activity. their own range of products. Although in some cases the changes are Given the brokerage role of many consultancies more or less deliberate than in other cases – where they source and coordinate the people Innovation within the product design sector needed to take a product from conception can be characterised broadly as evolutionary, to manufacture – some are identifying clear though it is not always reactive. Many opportunities to market their own products. design agencies are actively engaged in Some agencies are creating spin-out companies horizon scanning and in the identification to manage the manufacture and distribution of of opportunities for innovation that will their own novel (sometimes branded) designs benefit themselves and their clients. They reportedly devote at least some of their time to

33 developing innovative solutions to both clients’ Some report an effort to capitalise on problems and their own challenges.82 expertise, connections and accrued capabilities to: (a) create a distinctive Product development and product innovation identity; (b) establish themselves as niche (often undertaken as part of a client’s brief) or specialist suppliers; or (c) evolve a high- tend to have the character of formal R&D. value or unique offering that is of strategic Where innovation is organisational or process importance to potential clients (for example, oriented, it tends to be ad hoc and managed network brokering, consumer research, or by agency principals: such innovation is often brand consulting). directed at dealing with perceived threats in the domestic and broader business and • Primary research – some (often larger) economic environment. agencies have engaged in self-funded primary research (for example, relating to Product designers have managed these forward needs in the healthcare sector) and changes in myriad ways foresight and scenario development work The management of innovation is closely as a means of: (a) raising their profile and tied up with more general strategic responses visibility; (b) enhancing credibility in target of the design industry to the pressures and markets; and (c) underpinning future design forces sketched above – particularly those and product development activity. Research 82. For example, many agency associated with globalisation and re-location of outputs may also have a commercial value principals report that whilst much the larger part of their manufacturing activity. in niche markets and are a useful tool for everyday work consists in ‘proving need’. responding to the needs of clients, some portion Our conversations with designers indicate of effort is regularly given several key approaches to dealing with these • Niche focus and development – some over to trend analysis and 83 formulation of business changes, sometimes involving innovation designers note that specialisation can provide development strategy. themselves, and often bearing on the a degree of protection against increased 83. It should be noted here that there is much overlap innovation process more generally. These competition: it is not unusual to see smaller and interplay between include, briefly: agencies focusing effort on a specific client types of response. Readers should also note that sector (for example, medical instruments, several approaches can be • Downsizing – many agencies have divested catering equipment or agricultural and blended at any given time (depending upon location, expensive in-house capability in favour off-road vehicles). However, this strategy conditions, capabilities and of out-sourcing for certain functions and is not without risk as niche markets often capacity, and availability of resources): many of the specialisms, and contracting-in freelance become vulnerable to encroachment from UK agencies contacted expertise as required. As we have seen, many competitors. in the course of our work indicate that they have active agencies are now considerably smaller pursued many or all of the than five or ten years ago. • Targeting higher-value business – a listed pathways – in various combinations – over the past strategy of value-chain re-positioning 5-10 years. • Networking – the extent of the shift to a is clearly favoured by some of the more 84. Commercial confidentiality network form of organisation in UK product well-established agencies (though is not means that it is not possible to cite specific examples design is dramatic. Only a few of the largest unique to these groups). Fearing increasing here. agencies have retained a multi-capability and commoditisation of design, some agencies multi-function operation; the vast majority are eager to position themselves at a participate in partnering and contracting higher level in their clients’ value chain arrangements to secure requisite capacity (by providing knowledge-based strategic and capability. services rather than commodity inputs). Many indicate that their work has become • Development of ‘own brands’ and products, more strategic, with branding and identity and of new business and revenue models – development a growing part of the sector’s several consultancies report a move away work. from complete dependence upon client contracts:84 in-house development of shelf- • Accessing support – support initiatives ready products is perceived to represent from DTI, Regional Development Agencies a useful means of using spare capacity, and the Design Council etc. (e.g. SMART providing protection against intensive awards) have been broadly well-received competition, and levelling-out peaks and in the design sector. When times are tough troughs in business. or where re-positioning is sought, support from official agencies is welcome and • Differentiation – as a result of intensified often highly valuable. While none of the competition, many UK consultancies are design companies we spoke to relies on striving to achieve enhanced differentiation. state or agency support, some suggested

34 that support initiatives can be useful where business development or change processes are in play, or during a market downturn.

There is some awareness of the R&D tax credit among practitioners – more so than in some of the other creative sectors studied – but there is little knowledge about what formally constitutes R&D for tax purposes and how it is demarcated from other development activities. There is also the general perception that the application process for the tax credit is unwieldy and burdensome.

Many of the strategies outlined above – and in the section relating to developments and trends – can be connected to some degree with the types of innovation discussed (though there is clearly some overlap across categories). Internationalisation and multi-territory location strategies are connected strongly with business model innovation, as are the development of niche focus, the targeting of higher-value business, and the roll-out of ‘own brand’ strategies.

The reported shifts towards downsizing (focus on core capability) and networked forms of organisation provide evidence of significant organisational innovation. Moves towards the development of ‘own brands’ and ‘own products’, engagement in primary research, and re-orientation of services around higher-value business reveal a substantial degree of product innovation (though primary research activity is also connected with interface innovation and the desire to ‘get closer’ to clients by understanding their future business and opportunities).

35 Part 5: Innovation in the advertising and communications industry

5.1 Overview of the industry and consumer research, strategy development 85. Exports account for for brand and products, and the creation of approximately 12% of turnover for the UK The UK’s advertising industry is the largest adverts for transmission or placement across a advertising industry and in Europe by some way variety of media); and, second, media buying, are split reasonably evenly between EU and non-EU Advertising and Communications is a relatively (contracting, negotiating and leasing of purchasers. large and well-established industry in the UK, advertising time and space).86 Our case study 86. We should note that the largest share of advertising and many UK-based advertising agencies enjoy focuses mainly on organisations involved in the industry turnover is an international reputation with some having first set of activities, though some larger ‘full connected with ‘sale or 85 leasing of advertising a global client base. In its turnover and service advertisers’ both create campaigns and space or time’. Statistical value-added, the UK’s advertising industry is place advertisements. sources vary, but Eurostat (SBS, 2003) indicates that far more significant than any other in Europe. around 65% of advertising Advertising is also the third largest of the The main actors in the advertising industry turnover in the UK is generated in connection UK’s creative industries (behind ‘Software and include commissioning bodies, creative with such activities. Only Computer Services’ and ‘Television and Radio agencies, media buyers and media owners. around 7% of turnover is generated in connection Broadcasting’). The purchaser of advertising services (the with ‘advertising design’, commissioning client or an agent acting on though another 13% is generated in connection The UK advertising industry has approximately its behalf) usually contracts with a creative with ‘full service advertising’ 12,000 firms (Frontier Economics, 2006) with agency. Such agencies frequently offer a (and a further 3% by ‘direct marketing’ activity). a total turnover of £18bn. Gross value added is menu including research, content creation, These proportions accord calculated at a little over £5.1bn, while 95,000 copy writing, brand development, campaign reasonably closely with the views of communications people are employed directly by UK-based planning and media buying. practitioners, most of whom advertising companies. The industry is fairly suggest that about 10-15% of turnover is generated concentrated, with the largest 4 per cent of While the advertising contractor focuses solely at the ‘creative end’ of firms accounting for around 80 per cent of on ‘creative’ components of the process, a the advertising industry (i.e. campaign and content turnover; the leading four and eight firms ‘media buyer’ will find appropriate space in development). contribute 18 per cent and 28 per cent of the the print or broadcast media, outdoor display, total respectively. transport, cinema, direct mail or internet for the adverts. The buyer negotiates with media Medium-sized firms are also important in the owners (or direct mail operators) to secure advertising sector in terms of both employment advertising time and space at an acceptable and turnover. Such firms accounted for more cost. than 40 per cent of employment in 2005 and almost 50 per cent of turnover (proportions well above the creative industries’ average). 5.2 Developments, trends and the Its main activities are the creation of innovation context advertising content, the management of advertising campaigns and media buying The advertising sector is also undergoing The sector’s main activities are: first, the major structural changes creation of advertising content and the As with most UK creative industries, the planning and management of advertising advertising and communications industry campaigns (sub-activities here include market has witnessed significant structural changes

36 throughout the past decade. Some have been Company size is also positively associated generated within the sector as managers and with reputation, solidity and credibility, and advertising practitioners have jockeyed to with a perceived ability to: deliver full-service enhance the competitive positioning of their packages; leverage skills and capabilities; and, companies; others by industry responses most significantly for our study, undertake to shifts in the business, regulatory and innovation and product development. Larger operating environment; and yet more by UK advertising agencies claim that their smaller social and cultural trends and technological counterparts are frequently forced to operate developments. in ‘reactive mode’, with limited access to the resources that support innovation. These shifts are complex in their overlaps and interactions, and far-reaching in their This process of consolidation has at the implications and the responses that they have same time been accompanied by off-shoring elicited from stakeholders in the advertising of non-core functions 87. Consolidation has been particularly evident in the community. We offer a reasonably detailed Interestingly, the trend towards consolidation is ‘media buying’ segment sketch of key developments and trends to focused firmly on the acquisition of core assets of the industry – reports suggest that large media provide some background to the discussion of (particularly digital capability). There has also buyers are able to secure innovation drivers, types and management that been a counter-trend towards the out-sourcing more advantageous deals from media operators/ follows. and off-shoring of non-core functions. UK owners than their smaller advertising operators of all sizes report that counterparts. However, it is also true that much A marked trend has been industry they have been able to exploit a large and consolidation has been consolidation inexpensive pool of labour outside the UK witnessed in media ownership: a diminishing Consolidation within the UK industry has and that this has assisted in cutting costs and number of owners been a marked feature of the advertising improving value for clients. (including US-based global 87 corporations such as Time landscape. Significant merger activity Warner, News Corp, GE, has followed attempts by traditional Out-sourcing of non-core activities (such as CBS and Disney) control the larger part of the media communications companies to acquire the routine research and campaign monitoring) industry. assets and capabilities that permit them to do to UK specialist operators is widespread; 88. The distinction between business in digital environments. some agencies actively prefer UK suppliers. ‘below the line’ (BTL) and ‘above the line’ (ATL) This preference is said to reflect nervousness advertising is not always Shifts in demand towards multi-media about the efficiency and reliability of overseas clear-cut. However, ATL is usually taken to refer campaigns have favoured agencies with providers. to advertising that is scale channelled via media such as television, radio, magazines Whilst ‘pure digital’ represents an important Digitisation has had profound consequences and newspapers, decorated sector of the advertising market, a generalised for the way that consumers access content vehicles and street hoardings. The term BTL is shift in favour of multi-media campaigns Rapid diffusion of digital technologies and used to refer to advertising implies that competitive agencies must be the internet have impacted massively on the that is more directly targeted at specific individuals (i.e. equipped to launch campaigns across both advertising industry and on the behaviour via direct mailshots, email, traditional and digital channels. Beyond the (and communications expenditure) of clients. face-to-face distribution of in-store literature and push for digital capability, some merger activity Funding is increasingly being diverted from brochures etc.) ATL is held has reportedly resulted from the integration ‘conventional’ channels to digital media. to be more appropriate where intended audiences of ‘above the line’ and ‘below the line’ are diffuse, large and only agencies.88 Current evidence supports the view Web-based advertising, email, mobile partially defined. BTL is commonly understood to that integrated agencies will be better able telephony and digital television have become be more efficient where to prosper in the evolving communications the media of choice for many clients and target audiences are tightly- defined, bounded and finite. environment. campaigns. Targeted website messages, direct email and SMS texts allow fine-grained The need to achieve geographical spread targeting of potential consumers and ready has also increased consolidation access to the attractive professional and The need to achieve geographical spread teenager customer groups. Such advertising is driving many mergers and acquisitions. is often seen as relatively inexpensive and Many UK agencies are eager to secure the effective compared with print media or direct advantages of network capability: the ability mail. to run a business across local hubs and to co-ordinate and ‘localise’ multi-region and The proliferation of television channels international campaigns is of increasing has been associated with audience importance (especially where global brands are fragmentation concerned). The proliferation of TV channels over the past decade has also delivered major new challenges and opportunities for advertising and

37 communications agencies. An explosion in the 1. The construction, tenor and packaging of number of available channels has fragmented messages. television audiences. 2. The core characteristics, preferences, and A parallel expansion in the number of behaviours of target consumers. delivery platforms has created both challenges and opportunities for the sector 3. Identification of the most appropriate mix This explosion has been accompanied by a of channels for transmitting such messages parallel expansion in delivery platforms and to their intended recipients. novel ways of accessing broadcast content. Time-shift viewing through TiVo or Sky+ has So, if intended message recipients are more allowed viewers more easily to skip adverts. But likely to consume content online, for example, advertisers can also direct viewers to additional then this reality – and its implications for the material on their websites. construction of messages and campaigns – should be uppermost in the minds of The evolution of Web 2.0 has also presented advertisers. a challenge to advertisers. Whilst many regard it as a resource (a source of information on cultural trends and emerging product preferences), it is also a problem insofar as it 5.3 Drivers of innovation diverts users from more conventional broadcast technologies and forms of advertising Drivers for innovation in the advertising and consumption. communications industry are linked closely with the trends described above. The changing Together, channel and platform proliferation face of technology is a major, perhaps critical, have triggered much thinking within the innovation push factor. However, industry advertising industry about appropriate modes insiders believe that shifts in the competitive of communication and message delivery. Many and demand environment and changes in the senior advertising practitioners argue that UK’s economic, social and demographic profile integrated, multi-platform campaigns are the are also helping to stimulate innovation. only way forward for their clients. Technological change, and IT in particular, There is a feeling that the advertising has been a major driver for innovation industry is returning to core public relations The ascendance of digital media is highlighted principles unanimously in practitioner interviews as a Closely related to the issues raised above, some force for innovation. (However, the ‘shift to within the advertising industry believe their digital’ is just one component of a complex sector has returned to its roots. Since modern mix of technology-related trends and should advertising emerged from the Public Relations not obscure the importance of parallel and (PR) movement (the latter an industry connected developments). organised around the delivery of finely-tuned messages concerning the products, activities, The internet has become a part of business, brands and image of firms and organisations), social and cultural life: for many people they suggest that there is a pressing need to (especially the young), the internet is the key return to the principles of PR and focus on medium for seeking and gathering information, the communication of tailored messages to interacting with friends and peers, buying, individuals. selling and sharing, social networking, and engaging in leisure and cultural pursuits. They note that the various recent changes have greatly increased ‘system noise’ which means The evolution of Web 2.0 networks and that advertising messages, brand identities and applications in the last three years has product characteristics are easily disregarded. deepened and extended the range of such At the same time, potential consumers are far activities and introduced myriad opportunities more sophisticated and sceptical in the way for the uploading and sharing of user- that they relate to advertising content. generated content (e.g. YouTube, MySpace and Facebook). Thus, if advertisers are to deliver for their clients, they must give more consideration to: Digital television and the roll-out of multi- channel systems have had major implications for broadcasting. In particular, they have

38 changed the consumption of broadcast content increasingly being incorporated into campaigns and have fragmented television audiences. and are a focus for significant innovation. Together with timeshift technology, they have re-defined viewing behaviours among large Regulation has, again, motivated innovation sections of the public. in some areas as well as constraining it in others New online platforms for accessing content Although privacy regulation in digital have taken off environments has limited the scope of Beyond television, further important shifts advertisers to some extent89 – especially have been witnessed as new platforms for in ‘below the line’ operations – it has also transmission and consumption of cultural provided fertile ground for innovation. content (e.g. mobile television, online access to Advertisers have innovated to work around broadcast content) have come on-stream. both policy-inspired restrictions and the filters and spam controls that are frequently applied Taken together these factors have triggered by institutional and individual web users. a substantial degree of innovation in the advertising industry. Perhaps most importantly, Much innovation activity has also reportedly advertisers have been eager – or obliged – to been applied by marketers and advertisers develop novel mechanisms and strategies to in efforts to harvest the contact details of address increasingly diffuse audiences. potential consumers.

However, technological development is not Digitisation has also stimulated simply a ‘push’ factor: digital media present organisational innovation as businesses their own opportunities for innovation. Almost reconfigure their practices to take all practitioners are trying to exploit the advantage of the new opportunities potential of digital markets and environments. Beyond innovation relating to generation and 89. The imposition of heavy penalties for ‘spamming’ For example, innovation connected with delivery of advertising content, many agencies etc. has severely restricted enhanced and more finely-tuned targeting also report involvement in organisational opportunities for email- based direct marketing. of potential consumers is reported widely. So innovation as they reconfigure operations to too is allocation of resources to improve the establish or integrate digital divisions, activities richness of the consumer experience on digital and offerings within their firms. media, and the delivery of tailored and context- dependent advertising content. The effort to develop sophisticated databases and associated management Many, frequently larger, communications tools has been at the heart of much companies are also evolving and using tools innovation in the advertising industry to assist them in Web 2.0-oriented research According to practitioners, the ‘right activities (notably, recognising signals database’ is a crucial resource and source of that point to emerging cultural trends and competitive advantage in the contemporary consumption behaviours), and in generating communications market. feedback about the reception and performance of promotional campaigns. Considerable investments have been made in the design of database software and systems. Digitisation has made direct marketing to This is especially true of profiling and data consumers easier interrogation tools, and software that tracks Direct marketing has been another important responses to live campaigns. Such development area for innovation. Such advertising has work is sometimes undertaken in-house, but moved from direct mail shots (which remain more often involves external IT consultancies important) to digital environments, with developing bespoke applications. clear advantages in cost, speed, focus and coverage. Email can also offer greater technical As with other creative sectors, technological sophistication: messages can elicit instant development has implied that remote responses or provide links to websites. co-working has become a feasible and attractive mode of operation Several agencies have tried to enhance Advertisers increasingly develop and display advertising messages with novel and rich their ideas within private, web-based client multi-media experiences for customers. zones. More importantly, they are able to Games, downloads, trials, ‘walk-throughs’, 3D provide real-time feedback and analysis of models and Virtual Reality presentations are campaign performance and audience reaction data via electronic networks. They can

39 then adjust campaigns in the light of early Clients are more discriminating in the responses. quality of the service they receive and the nature of the relationship they have with Indeed, enhanced communication between advertising suppliers advertiser and client and the development A further spur to innovation has been the of more intimate working relationships is changing relationship between advertising claimed as a major benefit of web-based suppliers and purchasers. Whilst most agencies communications and represents an area in report that they have enjoyed close and which further innovation activity is forecast. It long-term relationships with their clients, is another area of considerable investment. such relationships are increasingly seen as highly valuable links that should be extended Equally important to advertisers as a wherever possible. After all, retention is less stimulus to innovation has been the impact resource-intensive than competing for new that structural changes have had on their business. clients The transformations in the business, Innovative use of IT has been important in technological and socio-cultural environments addressing their needs that have impacted on advertising agencies Innovative use of new IT is one means of have impacted on their clients too. As clients cementing such relationships. Hence the 90. Conventional campaigns have accommodated changes in their operating growth of online client zones, where clients have frequently required integration across different environments and markets, the nature and help develop and reinvigorate campaigns. forms of media (street extent of their demand for advertising and hoardings, radio, magazines, direct mail, television etc.). communications services has also changed. Some advertising agencies are pushing 91. Strong parallels with the boundaries by offering themselves as developments in the product design industry are Some key facets of this change and their role ‘innovation partners’ evident here, and point to as a driver for innovation in the advertising Agencies that assist strategy development efforts within both sectors to: (a) diversify activities; sector are examined below. in client and partner organisations promote and (b) exploit perceived themselves as ‘innovation partners’ and market capabilities. Clients’ advertising budgets have shifted their ability to ‘read’ demand signals, lead new away from terrestrial TV to digital media product development, and integrate the latter With the growth of digital media, a growing with marketing and advertising functions.91 proportion of businesses’ advertising budgets has shifted from terrestrial television channels This re-positioning appears to have been fairly towards digital channels and other digital successful and some industry commentators media. suggest that advertising agencies are now taken very seriously as key strategic partners Some advertisers report that they have been by their clients. The emergence and increasing able to anticipate and ride the crest of this importance of the ‘advertising planner- new wave, innovating to develop appropriate strategist’ function within advertising has seen services and packages to reflect shifts in some agencies assert increasing influence on demand. However, others have found the shift brand strategy development, new product to be a steep (and ongoing) learning curve design, packaging and channel-to-market with investments in ‘cultural renewal’, digital strategy within their client organisations. capability and internal reorganisation. The pressures from more demanding Multi-platform campaigns have become clients to reduce costs have been more desirable as a result another important driver for product and The increasingly capricious nature of consumers organisation innovation and their less predictable viewing behaviours One of the most commonly reported demand- have made multi-channel and multi-platform related drivers for innovation is a client-inspired campaigns more desirable. Such campaigns push to minimise costs. Many practitioners say (an innovation in their own right) require both that ‘cost minimisation’ has become crucial sophisticated coordination and the packaging for clients impacting both on agency revenues of content to ensure that it is right for the and the advertising production process. Where platform or channel concerned. While such clients have maintained their advertising medium-sensitivity is not a novel concept,90 it budgets over recent years, they reportedly has required substantial re-consideration (and expect greater returns and enhanced value investment in innovation). from their investments in communications.

40 In any case, most clients are said to be actively A search to differentiate themselves from seeking to reduce advertising expenditure competitors has also driven advertisers’ (whilst expecting the same quality of service), innovation activities often as a result of more intense competition in Whilst few practitioners say they are worried the retail market. about new entrants or the internationalisation of markets – some even see the latter For advertisers, pressure on budgets requires as an opportunity rather than a threat – more efficient delivery of results. This has led consolidation in the sector means that larger to the innovations we have described both in agencies have similar full-service, multi-region the advertising product and in the organisation and multi-channel capabilities. of the creative and delivery process, including electronically-mediated direct mail messages. Given this, and the claim of smaller and Tighter funding has also led to diversification medium-sized agencies that they too are and integrated packages. equipped for major and demanding campaigns, a differentiation strategy has become a The fragmentation of audiences has placed pressing concern across the industry. a premium on advertising agencies tracking and understanding the implications of A reputation for innovation features in socio-demographic change the differentiation strategies of some As noted elsewhere, the changing profile of advertising agencies the UK population, with associated shifts in Agencies have different views about the value preferences, aspirations and lifestyles, has of a reputation for innovation when attracting impacted heavily on the commercial activities clients. Some see reputation and brand as of firms and service provision in both the public more important than ‘innovation pedigree’ for and private sectors. generating business. However, others believe that a reputation for innovative campaigns Increased segmentation of markets by gender, and an innovative approach to the delivery of age, ethnicity, region, culture, income and high-value and cost-effective product can be class have driven innovation in advertising attractive to potential clients. as industry practitioners have striven to keep abreast of change and exploit the opportunities But this can be problematic where clients for niche marketing and more finely-tuned are perceived to be risk-averse consumer targeting. Communications practitioners who try to raise their profile through innovative Such innovation has helped to map change methodologies and approaches often, however, (understanding, recording, plotting and find themselves up against conservative and analysing segmentation patterns), profile risk-averse clients who prefer tried and tested consumers, and develop new products to approaches to more experimental campaigns. reflect fragmenting demand. It has also helped to fine-tune the messages for these different Nonetheless some of the largest agencies markets. are in effect positioning themselves as ‘innovation labs’ for their clients The digital revolution has also brought new Beyond the deployment of a reputation online clients with advertising needs for innovation capacity as a component in A final but not insignificant demand factor is competitive strategy, one or two of the largest connected with the expansion of the digital UK communications agencies are starting economy and the entry of new players into to develop their innovation capability in a the digital environment. The ‘shift to digital’ very direct sense. As part of the effort to sketched elsewhere has not simply provided broaden their service offering to clients, they new opportunities for advertisers to exploit have established ‘innovation laboratories’. new channels and platforms. It has also These laboratories – essentially a form of heralded new businesses, many of which co-innovation facility – assist clients in require advertising services. These companies exploring business and product development are often highly innovative and demand a opportunities. They then link such exploration brand image and marketing campaign to with marketing and advertising programmes. match.

41 5.4 Types of innovation auditing’ systems); (b) planning marketing and channel strategies; (c) evaluating the success In common with product design, much of campaigns and advertising investments; and innovation activity is not perceived as such (d) configuring product development activities. by advertising professionals Our interviews with advertising practitioners Broad-based consultancy services have in showed that the industry is characterised by some cases become an important part of high levels of innovation activity. It is also the advertising agencies’ offer evident that such activity can be found in Beyond the evolution of such tools, we have many forms, locations and guises. Perhaps as seen how practitioners are developing broad- a result of this diversity – or perhaps reflecting based consultancy packages. Examples include an industry mindset common to other creative advice on ‘360 degree’ or media-neutral sectors – the effort and expenditure dedicated advertising strategies (predicated on enhanced to innovation is rarely regarded as investment consumer targeting rather than platform/ in innovation per se. Instead, many industry channel selection). professionals describe their innovation activity as product or organisational development, Technological advances have permitted or characterise it as creativity undertaken on substantial and important innovations in behalf of clients in the course of campaigns. market research and scanning 92. It should be noted here that This is a field where progress has been much of the innovation relating to product and Despite this definitional confusion, we believe supported massively by technological advances. content is heavily reliant on that such activities can be conceptualised and As noted earlier, Web 2.0 systems are perceived technological developments. 93. A number of organisations classified as innovation along the lines that are to provide fertile ground for the harvesting of: (including the BBC and frequently applied in parallel service (and for (a) signals with respect to market development; Procter & Gamble) have established websites that matter industrial manufacturing) sectors. and (b) clues to the evolution of consumer that invite consumers to aspirations, preferences and demand patterns. experiment with product and content development Much innovation in advertising is focused tools, and to ‘get inside’ on the development of novel content The generation of up-to-date intelligence and manipulate ‘brand DNA’. These organisations and the creation of new client-oriented and sophisticated analyses of consumer are eager to learn from products92 preferences and behaviours is a crucial experimentation with user-generated innovation, An important area of activity is the creation activity for advertisers. Many report that they and to include consumers’ of ‘contextual content’. When consumers have invested heavily in the creation and ideas in the R&D process, developing these into click through advertising-oriented web pages, development of database technologies. marketable products where the content displayed will be personalised this is feasible. to their perceived preferences and assumed Profiling of consumers through complex characteristics. Some practitioners say that data-mining techniques and technologies such content can be configured to optimise is another important field of endeavour, message impact (and even induce a ‘purchase offering opportunities for innovative impulse’). matching of brands and products with life- styles and aspirations. Profiling also provides Another key area for content innovation opportunities to develop innovative products is the delivery of a multi-media and ‘rich’ based on the recognition (and creation) of experience for the advertising consumer desire. Web technologies and digital platforms mean that it is now possible to create highly rich Technological innovation more generally content packages that can be channelled has supported the effective migration of across a variety of devices and media. Some large chunks of advertising activity into the advertisers are inviting consumers to ‘explore digital domain and play with brands’ in online environments A large part of advertising activity has migrated to stimulate and exploit user-generated into the digital domain. Indeed, electronic innovations.93 marketing is now the dominant form in many market and product segments. Rich content Advertisers have developed tools to and multi-media, cross-platform experience assist clients to better understand their has become standard for campaigns in several customers’ behaviour product classes, and innovation continues as Creation of novel products has also received advertisers seek increasingly subtle means of much attention – advertisers report that they influencing behaviour and communicating ever have been generating tools to assist clients more compelling messages. in: (a) developing a better understanding of consumers (for example, through ‘client

42 There have been marked process and Whilst client (and industry) conservatism has organisational innovations in recent years, limited the extent and form of such activity, particularly at the client interface some practitioners point to increasing use of Email and collaborative electronic working ‘smart-shoring’ techniques. Smart-shoring spaces have made it easier to keep clients – the UK-based development, testing, updated. Beyond routine communications, modularisation and preparation of processes some agencies also offer to assist clients in prior to export and subsequent off-shore activities such as business development and operation – is an evolving phenomenon that product-line planning. Where agencies have enables UK advertisers to overcome the secured deeper relationships (and client buy- resistance of clients to novel approaches. in) at the strategic planning level, significant benefits are claimed: shared understandings For many UK advertisers, out-sourcing or off- and expectations (with respect to the ‘possible shoring of some components of the campaign and desirable’) are achieved from the outset, development process is essential, in maximising and agencies are frequently able to avoid the value-added. resource-intensive process of competitive pitching. Moreover, longer-term relationships The integration of the digital and are often forged and a platform for co- conventional sides of the advertising innovation work can be established. business constitutes one of the most significant examples of organisational 94. Core areas for skills development include: Some practitioners also report that they innovation in the sector database design, are afforded a more profound opportunity Many agencies expect to launch campaigns management and interrogation; rich content to engage with a client’s brand and values, across all relevant media, and some suggest development; download and with its R&D and marketing functions. that digital media – internally fragmented systems management; and cross-media linking. This engagement is said to facilitate greater as they are – will be the key environment 95. Training appears to be understanding of the client’s future business for a growing proportion of communications designed to assist agencies with three key aspirations: prospects and options for beneficial market programmes. first, facilitating competitive positioning. It can also prepare the ground for positioning in evolving and attractive fields; mutually beneficial co-development work. Most large communications companies and second, enabling effective an increasing number of smaller agencies deployment of database, data-mining and tracking Technological change has also facilitated have recruited or appointed a head of digital technologies; and third, the delivery and management of advertising campaigns within the past few years. improving retention of key campaigns through innovative project staff. management tools Further organisational innovation has seen In addition to enhancing everyday supplier- the integration of ‘below’ and ‘above the line’ client interactions, developments in technology divisions. This trend has allegedly hardened as have supported both process innovation increasing numbers of agencies recognise the within advertising practices, and innovation in necessity of designing cross-format campaigns the delivery and management of advertising for environments where a large proportion of campaigns. Sophisticated project management target consumers are increasingly difficult to tools have ensured that the coordination access via traditional media. of time-critical campaigns has become less exposed to risk, and that (frequently Training in support of process and product geographically distributed) partners are able innovation constitutes a further area of to monitor and shape project trajectories with organisational development in advertising limited impediment, friction and delay. Some senior advertising executives have recognised the need for upskilling in the digital Further innovation has been witnessed with professions:94 indeed, the acquisition of digital the introduction of real-time project tracking assets and innovation-facilitating capabilities and evaluation technologies. As indicated constitutes a priority for many agencies. elsewhere, these technologies permit detailed monitoring of customer responses to However, some within the advertising advertising projects and offer the possibility industry believe that their professional body, of timely intervention where campaign the Institute of Practitioners in Advertising performance is judged to be sub-optimal. (IPA), has not provided sufficient relevant and contemporary professional qualifications As is the case with many industries, programmes. Individual agencies have had to advertising has witnessed a strong trend arrange their own skills programmes,95 leading towards experimentation with out-sourcing to a piecemeal approach across the sector. and off-shoring of activities and functions

43 Smaller agencies certainly appear to recognise generation involving agency leaders – is what the value of training, but some report that its matters most. cost can be prohibitively expensive. Where this is the case, innovative solutions have Though many agencies claim to regard their involved the recruitment of skilled individuals personnel as a key source of innovative from outside the communications sector, or thinking (and some say that innovation- the organisation of self-training and ‘skills oriented thinking is a ‘required’ characteristic), cascading’ schemes. few incentivise innovation beyond small ‘prizes’. Critics argue that an offer of partial IP rights might be more productive.

5.5 Management and organisation of Mechanisms for innovation are rarely innovation formalised – a common theme in all the sector case studies It is possible to identify both diversity and Processing of ideas for innovation appears commonality in approaches to the organisation to be relatively casual and ad hoc, and of the innovation and product development mechanisms for the selection of new ideas process in the advertising sector. Whilst are rarely formalised – a common theme in all diversity partly reflects differences in firm size, the sector case studies. Some agencies report it also points to real differences in orientation that senior members of management teams with respect to the management of various are expected to filter ideas, but there seems elements of the innovation process. rarely to be any formal process or ‘criteria set’ to guide this work (other than reasonable Our interviews with practitioners and expectation of ‘bottom-line’ benefits). executives have indicated that innovation management in the advertising sector is In larger agencies, the identification of a concerned mainly with: promising idea is usually followed by the construction of a business case and its 1. Sourcing and processing ideas presentation at board level. With software and hardware investments – often stimulated 2. Allocation of resources by innovation or a cue for it – decisions on budgets and specification are usually 3. Project leadership and management the responsibility of senior managers (in consultation with technology suppliers and IT 4. Project evaluation and knowledge capture personnel).

An overview of each is provided below, Most agencies claim emphatically that they alongside a discussion of the main approaches do not operate with a dedicated budget for to management reportedly adopted in relation innovation to each. Nearly all agencies indicate that innovation activity is funded solely from specific project The sources of ideas for the different forms budgets (and that innovation – where this of innovation in advertising are many and occurs – is usually undertaken on behalf of varied a particular client). For some agencies, this Most sources for new ideas mirror those found presents a problem as few clients are willing in other service industries. They are reported to to support experimentation and trialling of include: interaction with clients, suppliers and new methods during the course of campaign competitors; board level visioning; media and development (thus resources for innovation are horizon scanning; market research and trend heavily circumscribed). tracking; data-mining and consumer profiling; agency-internal brainstorming; attendance However, the absence of dedicated budgets at industry conferences, exhibitions and is not always the problem. Larger agencies ‘awards’ events; and, importing personnel from frequently report the allocation of funding competitor agencies. to support research and development programmes, and the commissioning (or Whilst most agencies reportedly derive authoring) of software to support market innovation principally through interaction research, data-mining, profiling and project and co-development work with clients, a delivery activities. The failure to recognise significant proportion say that internal sourcing allocation of development funding as – especially that connected with ideas- ‘investment in innovation’ probably reflects

44 a general reluctance within the sector to Few advertising agencies claim to define development-oriented work in terms of evaluate their innovation effort or capture innovation activity. associated learning on a systematic basis Alhough most advertising practitioners Responsibility for development of ideas is and agency managers appear to recognise almost invariably placed in the hands of a that innovation takes place within their project ‘champion’ who assembles project organisations – and that at least some resource teams, often on an ad hoc basis is allocated to development work (however it 96. A small number of The champion is usually a head of the business is labelled) – few indicate that the outcomes companies contacted in connection with this study group or a senior manager with an interest in of development projects are evaluated in any indicate that team members the field and links with partners who might be systematic way. are matched with projects via a process of ‘CV auditing’ required to supply complementary assets. – such companies profess Moreover, few allude to any efforts to capture to a proactive approach to innovation and a desire to Usually, the champion will assemble a the knowledge generated in connection with ensure that the ‘right’ team development team with an appropriate the pursuit of innovation.98 Some find the members (i.e. those with appropriate interests, client skill set. Its size and constitution will vary notion of evaluation attractive but say that connections and knowledge) according to the nature of the project but ‘getting on with business’ must come first. are allocated to individual development projects. can include clients, creatives, art directors, 97. There are a few notable business development managers, researchers, This appears to be recognised by a number exceptions here. One major agency reports the technicians, campaign planners, client of advertising professionals, and is seen as publication of a book handlers, consultants, media buyers/placers, a source of concern for the industry concerning shifts in UK 96 culture and their impacts on and administrators. Teams are almost Despite the widespread failure to recognise the consumption trends. The always assembled on an ad hoc basis with benefits of evaluation, some agencies report book is aimed at raising the profile of the agency and representation from project-relevant functions, an interest in project-related learning, and a demonstrating its credentials and R&D divisions appear to be almost entirely small number have invested seriously in the and knowledge of markets 97 to prospective clients. The absent in the advertising business. establishment of an evaluation system. exercise of planning and conceptualising the work, researching and collating Few agencies report any problems with an ad For those that profess an interest in evaluation, material and organising hoc team-based approach to the execution attention and profile in the press and trade is for production of the publication is likened to an of innovation projects, though one indicates a useful proxy indicator of success. Similarly, R&D process. that a ‘disruption-based’ approach to team industry awards signify success and confer very 98. The failure to systematise construction can be fruitful. Its representatives valuable kudos and profile. efforts to capture knowledge from project development believe that fixed teams – even in a creative is somewhat strange: many industry such as advertising – can breed However, some within the industry want these advertising agencies indicate that they have ‘review ‘comfort’ and ‘bounded thinking’: removing awards to move beyond rewarding creativity systems’ in place with individuals from the familiar surroundings alone: they argue that the effect of a campaign respect to their campaigns and that learning with of their regular team and placing them in an on a client’s ‘bottom line’ is crucial and that respect to ‘what works’ is ‘innovation team’ can be a challenge to those creative inputs should be linked to project considered highly valuable. 99. Some commentators concerned, but one that frequently stimulates objectives and outcomes (i.e. outcomes in suggest that it is possible to creative thinking (and can even rejuvenate terms of awareness generation, market share, ‘monetise’ the contribution 99 of communications (and faltering careers!). profitability, sales and margins). that this highly positive step is one that has been encouraged by the IPA’s In another allusion to the problems and Indeed, agencies that place a high value on ‘Advertising Effectiveness’ benefits associated with ‘innovation team’ evaluation – whether in relation to campaigns Awards). Indeed, it is clear that in communications – as working, one agency reports that creatives or innovation projects – strongly agree that in the design sector – there can sometimes be limited by their concept of clear objectives should be in place and that is growing support for the inception of some form ‘the achievable’: where there is a failure to related metrics should be agreed by all parties. of evaluation system that understand the levers and tools of innovation, prioritises the contribution of advertising inputs to a a project’s progress can be slowed significantly. A representative of one major agency client’s bottom line. suggested that the establishment of relevant The agency in question found that when it success, performance, profile and impact tried to integrate its digital and conventional metrics would be a positive development for operations, misaligned perspectives and the industry (both in improved reputation differences in modes of operation led to and increased client confidence) and that this considerable pain and a highly protracted might stimulate further innovation. process. Though the organisation is generally highly successful and clearly innovation active, thoroughgoing organisational innovation was experienced as a very difficult process with some undesirable knock-on effects.

45 Part 6: Innovation in the independent broadcast production industry

6.1 Overview of the industry of this growth can be traced back to the 100. An accurate figure for promotion of ‘viewer sovereignty’ in the the number of active UK production firms is not The broadcasting sector is the second Peacock Report (1986) and subsequent currently available. The largest of the UK’s 13 creative industries efforts to introduce greater competition and Producers Alliance for Cinema and Television, The UK television and radio broadcasting flexibility of production into the sector (though PACT (the trade body for industry includes some 4,700 businesses and this process of liberalisation has been quite the production sector) has a membership of employs more than 73,000 people. With a gradual). approximately 700. combined turnover of more than £18bn and a However, PACT does not claim to represent contribution of £7.1bn gross value-added, the The regulatory environment has played a all UK independent industry constitutes the second largest creative particularly important role in the evolution producers. Kemps, an online production sector in the economy (Frontier Economics, of the industry services directory, lists 2006). Three important measures have impacted on approximately 2,000 independent companies the rise of the independent content production in the UK: this figure is Broadcasting embraces a vast range of sector: first, the creation of an internal probably a reasonably accurate reflection of the activities, the most significant of which market within the BBC; second, the inception true size of the sector. are programme commissioning, content of an auction process for the allocation of production, broadcasting (and scheduling), and Independent Television (ITV) franchises; and, signal transmission. third (and most notably), the requirement placed on major terrestrial broadcasters to We concentrate our case study on the purchase one quarter of their programming independent production sector from external sources (Deakin and Pratten, As we are most interested in the creative 2000). end of the broadcasting spectrum, we focus our study on the independent broadcast The industry is experiencing a large number production sector. The sector is concerned of coincident structural changes with the development of broadcasting content A climate of intensifying competition drives for TV and radio broadcasters in the UK innovation in the industry. However, this and abroad. It has been a fast-growing and climate is itself shaped by other factors, successful sector over the last two decades. some familiar from our study of advertising, There are approximately 2,000 firms in the including new technologies and digitisation industry. While many of them are small or very of broadcasting, a movement towards multi- small enterprises,100 the industry has its share channel television formats, the inception of of larger organisations with a global reputation new channels and platforms, new ways of for the quality of their programmes. ‘consuming’ broadcast content and new forms of consumption behaviour. The sector also faces a changing regulatory environment; it must respond to the manoeuvring and 6.2 Developments, trends and the strategising of advertisers, and the positioning innovation context of broadcasters and infrastructure providers.

The broadcasting sector has grown markedly Clearly then, there is a complex mix of factors over the last 20 years. The source of much that have the potential to impact on the

46 environment in which independent production the BBC’s proprietary software ‘iPlayer’. Some companies work, and many opportunities for niche digital radio operators, such as Emap’s interplay between them. The Jazz, migrated their programming from DAB to web-based radio. Digital broadcasting has been an important trigger for innovation ‘Podcasts’ have grown in popularity markedly Preparations for the analogue switch-off of since their mass market arrival some five broadcast signals in the UK (scheduled for years ago: these allow users to download completion in 2012) are moving ahead rapidly. radio content onto personal music players (for 85 per cent of UK homes already had digital example, iPods and MP3 devices). television receiving equipment by mid-2008,101 a shift accelerated by reductions in the retail Delivery of television via the internet (Internet price of flat screen and plasma televisions and Protocol Television or ‘IPTV’) is forecast by consumer eagerness to replace ‘dated’ Cathode some commentators to constitute the ‘next Ray Tube-based receivers. big thing’ in the evolution of broadcasting. Several IPTV services are already in play and The arrival and rapid take-up of digital the idea here is that broadcasters are able television (following a faltering start) has to deliver content ‘on demand’ to service brought widespread access to multi-channel subscribers/users via either television viewing. Perhaps the most important factor receiving or (broadband-enabled) computing here is the availability of Freeview (more equipment. Virgin Media, BT Vision, Channel recently complemented by Freesat), a free-to- 4 and Tiscali are already well-established in air service that has delivered a multi-channel the IPTV market and now provide on-demand viewing experience to many households at little services across most of the UK. The presence cost. of these providers – most with extensive business interests outside the broadcasting 101. ‘The Nations and Regions Communications Market’ Whilst the ‘major’ terrestrial channels are sphere – points to significant convergence in (Ofcom, 2008). available via Freeview, much of the appeal of the broadcasting, media, communications and 102. Ibid. the new system resides in its ability to provide leisure services space. 103. The BBC’s service is known as ‘Listen Again’. variety and choice – many new ‘digital only’ radio and television channels are available via Taken together these developments are the BBC, and other broadcast providers have putting pressure on traditional broadcasting moved to populate Freeview with both mass models – they highlight the importance of appeal and relatively niche content. multi-platform and multi-media delivery of content In the radio broadcasting sphere, take-up of Beyond the arrival (and apparent early success) Digital Audio Broadcasting (DAB) has been less of independent providers, there is a general impressive, though it has grown significantly feeling within the sector that the traditional over the last year – 22 per cent of homes broadcasting model has reached the end of had invested in dedicated DAB equipment its life. The focus for many is multi-platform by mid-2008102 – while consumption of operation and much effort is now invested in digital radio broadcasts via digital television the generation and configuration of content equipment appears to be rising steadily (with that will have appeal and relevance across all an estimated 35 per cent of adults accessing key delivery channels. In the words of one radio in this way). senior broadcasting insider: “the traditional broadcast model is going out of the window In recent years there has been a major [what is important is…] being able to work expansion in the availability of web-based out how content being produced will work on radio different media”. The availability of internet-based music and radio services is not a new phenomenon, but Accompanying the growth in digital the past five years have witnessed a major broadcasting has been a reassessment of expansion in web-based radio broadcasting. advertising models The BBC’s extensive and content-rich web As we have already seen in the previous operation, for example, offers listeners the chapter, the rise of digital broadcasting and opportunity to access radio material broadcast internet take-up is forcing the advertising on its main channels for up to seven days industry and its clients to reassess where following original transmission103 (an availability they run their campaigns. The proliferation window that is sometimes extended): listeners of television channels is fragmenting viewing are able to use the service in conjunction with audiences, and internet use and other leisure

47 pursuits could dilute TV viewing figures in the ‘stark’ for certain programmes – including some UK significantly.104 dramas – and further investment is required at post-production stage to ‘tidy’ or normalise a Of course, this development worries advertisers completed edit to meet viewer expectations. who fear that television-based advertising could reach a diminishing audience. Whilst Out-sourcing – many practitioners say that a allocation of funding to television-based broad pool of highly skilled technical workers advertising campaigns has held up well in the is available in emerging and technologically decade up to 2005 (according to Advertising advanced economies. Many such economies Association data from 2006, total advertising have strong, often subsidised, indigenous expenditure in televisual media rose from film and broadcast industries with spare, £3.2bn to £4.4bn from 1995-2005), there are and relatively inexpensive, capacity (for clear indications that significant re-allocation is example, Brazil has a large pool of expert CGI 104. This does not appear to be underway. technicians). Beyond advantages associated the case at present – data from BARB indicate that with direct reduction of costs, some UK average weekly viewing The internet provides myriad opportunities producers have started to use overseas hours have increased by approximately 10% for direct contact with advertising targets providers as a way of limiting risks contingent over the past decade and web-based direct mailing has received a on currency fluctuations (for example, out- (see http://www.barb. co.uk/viewingsummary/ significant boost in funding. Whilst expenditure sourcing contracts are now often awarded weekreports.cfm?RequestT on television-based advertising is expected to operators in dollar-pegged locations and imeout=500&report=total). to grow in the coming five years, almost all payments are made in the currency used by the 105. It is important to note here that broadcasting in growth is expected to be directed to multi- final client). the UK is one of the most channel rather than traditional operations regulated of the creative industries (in terms of (PricewaterhouseCoopers, 2004). Audience fragmentation – this is commonly which organisations can reflected in a general reduction of budgets broadcast what content, when, from what sources, Alongside shifts in the allocation of funding for individual programmes. However, channel under what conditions and for advertising, some practitioners have proliferation does not always imply reduced via what platforms, media and parts of the spectrum). seen impacts on their business as a result audiences – according to some independent Content production is of the regulation of food advertising during producers, strong brands like Deal or No Deal certainly affected by the 105 general parameters of programming aimed at younger audiences. and X Factor will always achieve strong ratings. broadcasting regulation Some channels have exited the children’s Whilst producers view fragmentation as an (both favourably and negatively – moves to entertainment market entirely and others important opportunity for more varied content ensure that major public have significantly reduced their children’s – and many are trying to create the next ‘big broadcasters source at least a proportion of their programming. concept’ – others suggest that blockbuster content from independent brands reduce opportunities for the placement providers has given a major boost to the industry), Industry practitioners point to a number of of novel content in the schedules of major however, some forms of other structural developments impinging on channels (especially where large numbers of regulation are designed to apply more specifically independent production slots are dedicated to ‘winning’ shows). to the independent Whilst channel proliferation, shifts in production sector and these have frequently advertising practice and growing use of the Audience research – although audience stimulated and shaped internet are central themes, there are many research has always mattered to broadcasters, innovation in the sector. other factors and trends that increasingly content producers and advertisers, increasing impinge on the activities of independent fragmentation has added greater urgency to broadcast content producers. efforts to generate more sophisticated and detailed understandings of audience segments HDTV – there is a growing demand for High and their preferences and consumption Definition Television (HDTV) content (one behaviours. Indeed, increasing resource is that is driven by consumer demand and the being dedicated to the mapping of current and increasing availability and affordability of future audience attitudes and needs, and the HDTV-ready receivers). This shift is requiring intelligence generated by such work is being increased investment in hardware and software plugged-in directly to the content creation required for high definition (HD) content. and production process. As competition for Investments can be very costly – especially audiences and the effort to engage and retain in the case of Computer Generated Imagery viewers intensifies, a profound and nuanced (CGI) technologies – and rapid technological understanding of their needs, expectations obsolescence is a growing problem. Moreover, and viewing habits is becoming ever more whilst there is generalised demand for HD necessary. product, some independent producers claim that HD is not appropriate for all genres. It Accelerated production – whilst digitisation of is claimed that HD material can appear too the content production process has delivered

48 universal benefits, it has also presented new have experienced significant churn among challenges: some independent producers senior staff. These factors have created major complain that demand for rapid delivery has problems for independent producers, reducing reached barely tolerable levels and planning for their ability to forecast demand. through-flow of work has become increasingly difficult.

Regional issues – the partial re-location of the 6.3 Drivers of innovation BBC is expected to have a major impact on the organisation of content production in the The drivers for innovation in the independent UK. Some independent producers expect more production sector – as reported by industry opportunity and influence for Northern-based practitioners – are fairly diverse. Many broadcasting-sector firms. However, others informants pointed to the complex interplay of expect there to be limits to such shifts – if real stimuli for innovation activity and innovative change is to be achieved, provincial producers products. must secure improved access to commissioning broadcasters, and an end to the ‘London club’ The importance of a clear differentiation that allegedly dominates the broadcasting strategy in a marketplace that is industry. Some Northern-based producers characterised by intensifying competition argue for further legislation to ensure that both is highlighted by many broadcasting ITV and the BBC procure a certain proportion practitioners of content from outside London, and that such Three key factors – frequently combined in the work is delivered by independent producers. development of such strategies – are singled out. Regulation and risk – according to independent practitioners, broadcast content development First, cost is a major concern for most content is a high-risk venture, and this is one reason producers (and their clients). Pressure why so many broadcasters have out-sourced on programme budgets has contracted to independent producers. It has allowed cash-flows within the sector and many broadcasting organisations to reduce their own independent agencies have innovated to exposure and simultaneously apply pressure on cut costs. Technology has helped, enabling costs. However, recent developments over the some producers to deliver high-quality rights to broadcast content have led to some content without the need to outsource re-consideration of this arrangement. In 2005, important (and expensive) components of the PACT secured reversion of ownership rights to production process. Where such delivery is the content producer within five years (rather possible, producers report that they are able than fifteen years under the previous regime). to differentiate themselves on the basis of As a perverse consequence, some broadcasters price (and that this can be attractive to cash- are starting to return production to in-house strapped clients). facilities as this affords enhanced control of medium-term income streams. Second, some independent producers report that ‘capability and talent’ are important Industrial consolidation – there is evidence that differentiating factors. Many have invested in larger independent producers are acquiring the development of niche capability and talent their smaller counterparts to exploit the (for example, application of CGI in small-screen latter’s talent and stock of ideas. Consolidation documentary-making). This has contributed also offers greater purchase, visibility and to their unique profile in the production competitive edge in an increasingly competitive community. marketplace. Third, a number of regionally-based producers Reorganisation at major channels – see geographical location as a positive broadcasting industry insiders say the past year differentiating factor. Location outside the has been one of great flux and nervousness capital makes them more approachable and for the sector as a whole, and the major accessible to regionally-based clients. It also broadcasting channels in particular. Channel 4 reportedly assists producers in attracting and has sought to secure its funding base through retaining key personnel and minimises the increased contributions from the public ‘poaching’ of staff that is more common in purse, the BBC has reduced commissioning in London. Whilst location is not on its own an the face of reorganisation and redundancy, obvious driver for innovation, some producers and some channels (especially Channel 5) report that their niche focus or regional

49 expertise can be attractive to commissioning As with other creative sectors, technological broadcasters. changes (both hardware and software) have heavily impacted on both the propensity to As in all the creative industries analysed in the innovate and innovation trajectories in the current study, competitiveness more generally broadcasting sector is identified as a crucially important driver for As broadcast production-related technologies innovation. Unique expertise and experience is have improved in their performance and valued most highly with a capability to ‘deliver become much more affordable, sophisticated beyond the client’s expectations’ prized as a broadcast content has been produced more means of raising profile and reputation and rapidly, and fallen within the province of a securing future business. The aspiration to broader range of suppliers. achieve enhanced competitiveness is cited by most independent producers as a driver Many independent producers now undertake for innovation and product development. a more comprehensive range of production Some invest heavily to bolster niche expertise tasks ‘in-house’ (with major savings), and are and technical capability (as facilitators of becoming increasingly self-sufficient in filming, innovation), whilst others focus more closely editing and completing some stages of the on the generation of innovative concepts and post-production process. content. While such self-sufficiency is a trigger for Opportunities to co-develop content with process and organisational innovation within the broadcasters are seen by independent the sector, it can also lead to the development producers as an important driver for of novel products as independent producers innovation bring their distinctive approaches and Practitioners report that opportunities to get methodologies to bear on a larger segment involved in the co-development of content of the content development and realisation with major broadcasters, producers or directors process. are highly attractive (as successful collaboration can lead to extended relationships and the The notion of ‘technology trickle-up’ is chance of future business). According to some mentioned as another interesting driver for in the industry, the prospect of collaboration innovation in the sector. Some practitioners spurs innovation in independent production suggest that the evolution of user-generated houses – especially smaller and less well- content such as blogs or podcasts has alerted established operators – as they are keen to content producers to what can be achieved demonstrate their capability and potential with limited budgets. They suggest that ideas value as longer-term partners. borrowed from the ‘user-generation’ domain will appear increasingly in mainstream media The nature of working relationships and channels. contracting and production arrangements means that producers and their clients tend Revenue and payment systems within to work in very close proximity. This proximity the broadcasting industry are changing exposes independent producers on an ongoing dramatically (with important implications basis to the changes that are experienced by for innovation) their broadcaster partners. As noted above, the success of PACT in re-negotiating broadcast content rights Indeed, such innovation gives much impetus has changed the balance of rights between to development activity as producers strive to producers and broadcasters, ostensibly create content that is suitable for contemporary reducing the power of the latter. While some and evolving multi-channel and multi-device broadcasters have returned content production environments. Thus, some commentators in-house, others have sought to derive suggest that whilst a significant level of optimum value from their licensed assets in the innovation in independent production is limited time available to them. And while the triggered by ideas that are indigenous to the change initially caused some disquiet among sector, much development is a response to independent producers, it has subsequently innovations introduced or undertaken by their been a trigger for innovation, particularly with broadcaster clients. respect to the development of new business and revenue models, and the re-configuring of partnering arrangements (see below).

50 6.4 Types of innovation Some producers report that they have been forced to pare costs to an absolute Whilst the types of innovation in minimum to win and maintain business independent production mirror those in This is especially the case with respect to US other creative sectors, they are more likely clients. Whilst not an innovative business to be recognised as innovation model in itself, cost paring is allied with other The forms of innovation that can be found approaches as a survival strategy, one that can in the independent production sector mirror be sustained until greater fluidity and improved those that are found in many other creative cash flow returns to a troubled market. industries fairly closely. However, the concept of innovation is recognised and deployed Many producers report innovative more widely in the sector than in many parallel approaches to the generation of creative domains. development finance New approaches to financing development Whether because of the technological basis of are reportedly crucial in the face of significant much of the work that underpins the broadcast competitive pressures. Given the reduced content development process – or the BBC time period in which broadcasters as licensers background and connections of many of the of content are now able to recoup their practitioners that operate within the sector – investment, such operators are allegedly ‘innovation’ is likely to be known and labelled exerting substantial downward pressure on as such rather than as business renewal or licensing fees. This has impacted negatively product development activity. on independent producers, reducing incomes substantially and cutting capital for new Four main classes of innovation are identified programming. by practitioners – each is explored briefly below, with some allusion to variants and As a consequence, some producers have looked examples of development activities. to distributors to make up funding deficits by supporting the development of content Most practitioners note that business suitable for pre-selling in overseas territories. models are being redeveloped in the face of This has created a complex funding and rights structural changes triangle involving producers, broadcasters This is an important area of innovation for and distributors; however, this complex nexus many production companies, and reflects of relationships and arrangements is seen as the stressed nature of the industry and levels necessary if new programmes are to be made. of change that have been experienced in recent years. Most informants report that Essentially, under evolving arrangements, some attention has been afforded to the distributors contribute to the development of development of business models appropriate to new programmes by independent production the changing climate within the broadcasting houses. The producers license their product industry. Some suggest that the creation of to UK broadcasters who then own UK rights new business models and re-positioning their to broadcast for five years. Distributors can business are key areas of innovation activity. sell the product immediately following its first UK transmission – and thus recoup their Production companies are making increased investment – in overseas markets, and the use of novel risk sharing and reward independent producer can recoup investment contracts following revocation of rights under the five- Given the difficulties that have been year rule. According to some producers, such experienced by many broadcasters (especially distribution deals are essential to the survival of smaller and minor overseas operators), some smaller production companies and assist them production companies have entered into shared in bringing product to market, and developing risk and reward arrangements. The producer a longer-term and sustainable revenue stream. charges a minimal fee – perhaps 50-60 per cent of the market rate – and recoups the remainder Some production companies are choosing from a share of royalties. This approach ensures to locate at least some of their filming in that programmes that otherwise would not cheaper locations overseas reach production stage can be supported from Though not in itself a new business model, their early stages of development through some producers innovate in their production to completion – the expense of doing so processes by locating some of their filming independently is becoming too high for some outside the UK. As content budgets have been operators.

51 stable for a decade, they must find new ways Each individual CGI technician is trained as of reducing production costs. a specialist in one component of CGI work (rendering fluids, shadows or smoke, or human The internationalisation of location shooting or animal animation) and projects requiring helps to rein in overheads. In some countries – multiple forms of intervention are passed from including the Czech Republic, Ireland and New one expert to the next along the line. Zealand – there are also tax incentives in place. According to some practitioners, this new Some industry representatives believe that the arrangement (arguably a knowledge-economy UK is losing out as a result of this relocation: update of Taylorist and Fordist practices) they argue that tax breaks in the UK would privileges specialism and permits the generate benefits in terms of employment, exploitation of bounded skills to ensure the tourism and the expenditure that is associated highest possible quality of work and efficiency. with film production (benefits that would far outweigh any reduction in tax revenues). Many producers report investment in software and hardware to facilitate ‘in- Organisational innovation is evident in the housing’ of some functions independent production sector in many In more conventional production agencies, an forms important focus for innovation is the use of One of the most significant of such innovations technology to save money and control more of is the growing out-sourcing of routine the content production process. As discussed operations and functions. Many companies above, many producers invest in software report that they now exploit a global pool of and hardware to facilitate ‘in-housing’ of expert labour (for example, CGI technicians in some shooting, editorial and post-production Latin America, and web designers in Hungary functions. This has reduced expenditure on and Romania), and through sub-contracting out-sourcing and generated an enhanced work they are able to realise substantial skills-base among employees (as the latter are operational savings. trained to perform a wider range of technical and creative functions). Some concerns with respect to management of processes and quality are reported, but However, some practitioners suggest that developing economies are generally perceived less use of out-sourcing can reduce creativity as excellent suppliers of high-level craft and by narrowing the range of individuals that technical skills. Off-shoring can also reduce are involved in the production process. As problems associated with currency fluctuations. contacts with external suppliers are reduced, so opportunities for collaboration and In some areas there has been a shift in co-innovation are lost, and the ‘creative- demand for skills – demand for technical or innovative’ spark that is associated with crafts skills is outstripping that for creative dispersed team working is diminished. skills In some specialist areas of content production, Broader technological developments are there is a perceived shift in focus away from central to the production process, and creative skills (often characterised as the to the re-organisation of functions and mainstay and artistic core of the production working practices industry) in favour of technical and craft skills. Technology is an important part of the This is particularly evident with CGI and HD- renewal of communications, interfacing and oriented production companies, and reflects delivery mechanisms. Email and web-based increased demand among commissioners and communications tools are used extensively in consumers for visually ‘realistic’ programming the broadcasting industry (indeed, co-working (wherein creative content and quality of on shared whiteboards and in shared web- storylines may be less important). spaces is reported commonly) and finished products are almost invariably electronically With CGI in particular, specialist producers transmitted, a process that increases rapidity of report that increasing specialisation is key delivery and provides ‘ready to go’ content to to the production process. So, there is great post-production services and broadcasters. innovation in the production process. CGI used to be seen as a craft skill and each project would be handled by an individual or integrated team from start to completion. Now, the trend is towards ‘production lines’.

52 Product and content development But the barriers to such content innovation constitutes another major locus for are many, including alleged risk aversion on innovation activity in the independent the part of commissioners production sector Despite such optimism surrounding content, Again, much product and content innovation some practitioners foresee problems and is facilitated by advances in broadcast and bottlenecks. Commissioning bodies are often production technologies; however, the risk-averse, and this can lead to a glut of application of creativity is at the forefront of ‘hospital’ and ‘police’ dramas, soap operas developments in a number of product areas: and ‘young celebrity’ programming. This is said to be preventing the production of more • Additional content – much effort is now innovative content. applied to the bundling of ‘extras’ or additional content with programming packages (especially where multi-platform distribution is envisaged). Thus, in the 6.5 Management and organisation of process of shooting, it is common to organise innovation interviews with actors, stills photography, scripting and casting of additional clips and Although difficult to quantify with any scenes, filming of alternative endings or the precision, industry perceptions are that capture of outtakes. It is also increasingly independent production is an innovative common to see some content developed for sector mobile phone or internet-only distribution. It is clear that significant levels of innovation The creation of additional content requires are present in the production industry: investment and allocation of effort in however, levels of investment are less logistics, however it is perceived as an easily quantified. Some producers on the increasingly important means of generating technological side of the industry suggest extra revenue within the industry. that innovation can account for approximately 10-15 per cent of expenditure, whilst those in • Internet-specific content – There is growing creative and concept development businesses interest in the production of internet-only believe that innovation can account for as short dramas and other forms of content. much as 60 per cent of expenditure. Either Ten-minute self-contained programmes or way, these are big numbers. short serial episodes are perceived to be attractive to younger internet users (and Despite wider recognition of innovation to the advertisers eager to access them). activities as such in the sector, most However, some practitioners recognise innovation is still viewed as ad hoc and that the internet experience is qualitatively organic different from traditional formats, presenting According to some commentators, innovation new challenges to the sector including an can be deliberate (where there is strong expectation of interactivity. According to one recognition of opportunities, or the prospect practitioner, new media producers are just that an idea can be developed into the ‘next ‘feeling their way’ – the rules of the game big thing’). On the other hand, innovation can are not yet established. be ‘accidental’, occuring as it frequently does in the process of delivering a client project. • Repurposing for multi-platform distribution Most practitioners say that innovation is (‘content is king!’) – according to many in rarely planned and deliberate, and many claim the industry, repurposing and adaptation that organisation is broadly ad hoc and often of broadcast content for distribution across ‘organic’. The need to invest in innovation is multiple channels and platforms is a key recognised widely. However, few companies area for innovation activity. Moreover, have formal methods and systems to evaluate producers are eager to experiment with the their innovation-related expenditure. development of high-quality content that can be delivered across multiple formats This may partly reflect the resource and devices: whilst some modification and constraints that most independent re-wrapping or packaging may be required, producers face some production companies believe that a Some firms claim that they have many ideas digital, analogue, mobile phone, and internet for innovative concepts, products and forms of presence is possible for most forms of delivery. However, there is too little resource or programming. time to bring such ideas to fruition. Although formal resource constraints are cited as the

53 main barrier to innovation, regulatory bodies are for example, sometimes perceived as a brake on innovation (a programme with a gambling format might attract attention from regulators). It can also be argued that regulation can constitute a disincentive to production companies that might wish to try to experiment with more controversial topics and styles.

Co-production and network-based development of programming is very common The broadcast production industry consists of a network of individuals and small, specialist (and some larger) companies with a range of complementary skills and expertise. Team- based working is seen as essential to the realisation of new and innovative products. Development practitioners believe that one of the most important development functions resides in the assembly of expert groups for the progression of content projects.

Given the high level of proximal working and interaction in the industry, the development process requires very good personal relationships and buy-in from various stakeholders. The inception of ‘360 degree’ approaches and methodologies will require even closer strategic relationships. While much innovative work can be achieved, industry commentators caution that sourcing and managing relevant expertise will be a real challenge: the creation and purposing of material for multiple formats requires many layers of expertise and the growth of such activity implies significant further organised and process innovation.

54 Part 7: Overview and analysis of industry case studies

This chapter weaves together insights from the types; and new channels for delivery or use of four separate sector case studies, in terms of content. drivers of innovation, the types of innovation involved, and the more general issues of These developments create opportunities innovation management and innovation for familiar products to be designed, systems. These categories inevitably have produced, delivered and used in new ways; many overlaps, but splitting the discussion for new combinations of familiar products; in this way should help us to identify major and for brand new products. They also common themes and points of difference. raise the prospect of new competition as a result of ‘digital convergence’ (the blurring of boundaries between creative industries, and between such industries and 7.1 Drivers of innovation telecommunications and computer industries.)

Across the case study industries, a number These technology drivers are experienced in of drivers repeatedly create pressures for all of the creative industries, but nowhere innovation, shape the innovation process more strongly perhaps than in videogames directly, or change the context for innovation development. The industry has to adapt efforts. Most drivers are experienced directly by to the succession of consoles, with their the industries studied here. However, some are more powerful and faster chips offering encountered less directly, for example, when opportunities for enhanced experience, the business clients with whom advertisers, new features, functionality and connectivity designers or independent producers are dealing options. Broadband communications allow are themselves strongly influenced by structural online games, while mobile phones present not changes in consumer demand. just new platforms but also new concepts for gaming. A. New information technologies are having deep implications for the business The other industries also feel the pressure environment and supply chains of creative of a changing technology environment, businesses with advertising, for example, not just being New information technologies continue to be provided with new marketing channels, but applied increasingly extensively and intensively having to deal with fragmentation of audiences in the consumer and business markets, and across multiple media. the supply chains and business environments of creative firms. Particularly important here When we consider the types of innovation are: digitisation of content (including historical undertaken, and more general issues of content); expectations around the digital innovation management, we shall continue to delivery of content; expansion of broadband see the pervasive influence of new information and computer facilities (and capabilities on technology. It affects the nature of the product the part of customers and business partners); (by enhancing the richness of experience or development of applications software of many permitting delivery of tailored content). It allows more sophisticated market research

55 and marketing of innovations (data-mining health, safety and environmental standards. (In to assist in locating targets, direct marketing addition to formal regulations, there may also through email and Web environments). And it be standards imposed by powerful clients.) The changes how innovation activity is conducted independent television producers are strongly (use of content generated through Web 2.0, influenced by the evolution of media regulation co-development through client zones). And, of (including rules about broadcasting licences course, practically all information-processing and sourcing of content). Rules restricting activities associated with innovation activity advertising during children’s programming are ones where the new technologies can be affect both advertising and broadcasting applied. industries.

B. Partly reflecting these technological D. Consumers of creative goods and services trends, but also other developments, we are becoming more sophisticated, more have seen a proliferation of new content networked, more discriminating and more delivery mechanisms which have driven active wider innovation in all the sectors Four developments taking place on the demand Technological advances are also leading to side for creative industries are substantially new media, new channels and new delivery realigning the nature and expression of mechanisms. We present this as a distinct demand. driver because the proliferation of platforms also reflects regulatory trends (allowing Consumers (and clients) are becoming more more competition in broadcast media and sophisticated. They are more experienced in telecommunications) and changes in the ‘reading’ and assessing the products of the domestic and global competitive environment. industries. 106. We are here rather loosely using a term introduced by Linder (1970). Digital broadcasting, mobile communications Consumers are more networked. They exchange 107. Toffler (1984) predicted and internet delivery of content are particularly views – criticisms, recommendations – and may and named this development. important developments in this context. As distribute content among themselves, as well as we have seen, the videogames development providing feedback to suppliers. sector is highly influenced by the succession of competing games consoles. Even in the Consumers are more discriminating, able to product design sector – where the proliferation exercise more choice – attention spans are of platforms is not such an important driver supposedly more limited, with remote controls – we encounter designers who are working enabling channel surfing and timeshift devices on the features of devices such as mobile offering alternative schedules. Consumers have telephones. many alternative services offering other ways of spending leisure time (‘the harried leisure C. Ongoing and complex changes in the class’).106 Advertisers have had to confront regulatory environment have pervasive the issue that young people are increasingly implications for innovation in the creative switching from broadcast TV to the Web and sectors mobile phones. There is an ongoing and complex evolution of regulatory environments: this is associated with Consumers are more active; they may be market liberalisation, digital convergence and ‘prosumers’,107 creating their own content; or the application of new technologies, and new more often actively co-producing content and social and environmental concerns. creative experiences together with suppliers. The various industries examined vary in This makes regulatory influences pervasive, how they experience these factors, not least but they affect different industries in different according to whether their immediate markets ways. For instance, concerns about privacy, are businesses or individual end consumers. pornography and violence particularly affect the advertising and videogames industries. In terms of final consumers as drivers, Videogames must meet certification the videogames development experts we requirements (differing across countries), and interviewed reported facing demand for novel online gaming raises questions about control titles (games significantly different from of access to under-age players, and those existing offerings); greater sophistication/ who fail to abide by rules of the game. The realism in gameplay; and improved interfaces product design industry confronts technical (to enhance gameplay experience). Advertisers compliance requirements, and needs to address in our study repeatedly remark that audiences

56 are more fragmented: this permits more precise low cost overseas – and while this labour may targeting of content where more precise not always be attuned to the requirements location of audiences is possible. of many Western consumers, it may be in touch with the tastes of ethnic minorities and Business clients are also seen by creative ‘omnivorous consumers’ (see Section 2) in the businesses as being more demanding. Thus West. product designers claim to have experienced increased pressure and questioning of their Wider economic changes associated with expert view from ‘more educated’ clients. One globalisation and structural change also impact feature of this is growing pressure from clients on some of the creative industries. Product to produce a greater number of ‘alternative design firms that are currently focused on versions’ of designs in relation to each brief. serving manufacturing clients, for example, In advertising, there is a reported increase in may need to reorient their business to service the intensity of agency-client relations, with sector clients or to reorganise so as to follow increasingly close interaction being sought. At their markets overseas or capture new overseas the same time, clients (many under competitive clients. Even industries like those parts of pressure) have a cost focus, being eager to broadcasting that cater mainly to ‘local’ minimise costs whilst maintaining quality. audiences may find that they see consumers increasingly scattered around the world as Business clients themselves are changing, people’s living and working patterns become reflecting broader economic changes (for more dispersed. example, the declining role of manufacturing and increasing role of services in the UK). The A generalised intensification of competition emergence of new businesses associated with from various sources is driving innovation at new channels and platforms – each with new the firm level needs and perspectives – can spark innovative While the drivers discussed above affect approaches in the creative industries that serve creative industries as a whole, the experiences them. of individual firms in these industries are greatly influenced by the strategies of their E. The creative industries are functioning in competitors and collaborators in response to increasingly international markets wider trends. Innovation on the part of others This can provide opportunities for exports of is itself an important driver of change. their products or for setting up outlets in new overseas markets. Online export of creative It is also an essential source of ideas for products in digital form may allow even creative producers and informed consumers. small firms (and ‘prosumers’) to reach global Firms need to stay abreast of these innovative audiences. developments to remain competitive and relevant. Similarly, some creative businesses face competition from overseas entrants into This is important in labour markets – especially domestic markets. While increased competition for the ability of creative firms to attract associated with globalisation is common, the right staff – as well as in business and there are niches where local provision for consumer markets. Thus advertising industry local demand remains particularly effective, interviewees note that a reputation for providing some shelter for localised creative innovation (along with one for producing industries and restricting export opportunities cost-effective products) is highly valued in a (for example because of language differences, crowded market, with awards for innovation varying tastes, close links between the creative and success being taken very seriously. product and other elements of the local milieu or cultural context.) Intensified competition is very widely experienced, with established firms facing Globalisation also brings with it international new entrants not just from overseas territories financing, as well as cross-border mergers and but from UK universities: in design, such acquisitions. While labour is far from perfectly entrants might include graduates from UK mobile, international travel has become much design colleges working as freelancers, and in easier and new IT offers scope for collaborative broadcast production, professionals who have and distant working of many kinds. The heated exited established broadcasting companies discussions about off-shoring in many of our in favour of independent status. Another case study sectors reflects the fact that many trend is for at least some producers to in firms now access skilled (and other) labour at effect ‘commoditise’ their products, making

57 them more standardised; in some industries in new ways by creative businesses. It may this may lead to a separation between those be reorganised, repackaged, combined with offering cheaper mass-produced products and other material in new ways, so as to create those offering more bespoke ones including new products, to reach new markets, to associated business services (consultancies in extend product lifetime, or to achieve other product design and videogames development, commercial and/or creative goals. for example.) At one extreme this may involve little more Partly as a result, IP issues are viewed as than a relatively gestural invocation of a increasingly important in many creative brand or iconic image in new contexts, as sectors and as a driver for innovation when a fictional character is used to endorse a Finally, intellectual property (IP) manoeuvring consumer product. by competitors, the need to organise IP agreements with collaborators, and perceived More substantial change may be effected threats of piracy and unauthorised copying, when texts and narratives are reworked for new imply that IP issues in innovation are media: it is possible simply to make broadcasts increasingly important to many creative available for streaming or downloading via the industries. And IP can act as a driver for Web (or mobile platforms), but there is also a technological innovation (copy-protection), move to creating value-added content. or for other types of innovation (for example, creating attractive non-digital components of In independent television production this products like packaging, or shifting to licensing can include ‘additional content’ such as cast arrangements). interviews, outtakes or alternative scenes. (There are some suggestions from producers themselves that content innovation here is being restricted by the risk aversion of 7.2 Types of innovation commissioning bodies and broadcasters.)

Our case studies have identified many Videogames based around characters or innovations and innovation trajectories in the narratives developed in other media require creative industries. We classify these under extensive content innovation, with the a set of headings below, though innovation development of a more complete games world, activities actually span several categories. tasks and activities for the player, and so on. It is not surprising that many of these developments are very much responses to Tie-ins are sought across platforms and media, the drivers discussed above. But, again, many notably in the games industry. Technical of the specific examples of innovation are skills are required to ensure suitability in responses to more than one driver. Thus viral multiple formats, together with skills in editing marketing is driven by changes in consumption and creation of content. As the scope for and the new technologies for distribution of extracting further value from creative content content, while also seizing the opportunities is recognised, so IP issues become more salient; they provide. firms seek to control how their content is re- used, and gain awareness of the changing IP We begin with the two ‘classic’ categories of landscape. innovation – product and process innovation – among which several types of innovation B. Product Innovation II – New products, can be highlighted. We then move on to some new markets, improved quality types of innovation that do not fit neatly into Improvement in the quality of existing these categories. In later sub-sections we move products is a feature of practically all on to consider changes in organisations and industries in an increasingly competitive business models that may also be considered to world. Creative industries are confronted by be types of ‘wider innovation’ (as it is reported the particular opportunities and demands in the Community Innovation Survey – see provided by continual change in media and Section 2). delivery platforms. A prime example of this is the increased complexity and realism in A. Product Innovation I – Repackaging and videogames. repurposing content It is common to find that material – especially They also face opportunities and demands creative content – that has originally been flowing from the greater sophistication of produced for one specific product is exploited consumers – many products will not be

58 consumed repeatedly; instead consumers source of tools and techniques for working up expect a succession of novel or more-or-less creative ideas. (The elaboration of new basic linked products. Videogames, again, need ideas is often a trigger for the generation of to supply more complex and multi-faceted new ideas, or extension of the original ones characters, and to create novel situations and into new products.) activities for consumers. New technologies also enable the sharing of Markets are in any case changing, with an ideas and drafts with colleagues and clients. ageing population and the maturation of Creative industries are still often reliant on consumer markets wherein some consumers traditional ways of meeting and sharing ideas first encountered the creative products in – brainstorming and project meetings using question when much younger than they are whiteboards, or flipcharts etc. – but collective now. Many creative businesses are responding workspaces supported by new IT are employed to the drivers discussed earlier by applying increasingly, especially on large and complex their capabilities to creation of products for projects. completely new markets (games for educational purposes), or for new segments of existing Thus our product design interviewees report markets (games aimed more at female or very rapid and substantial changes involving elderly audiences). the introduction of electronic whiteboards and shared web spaces to support collaboration in Innovation will reflect changing social and teams. New IT also accelerates and simplifies economic structures, and this may involve many of the tasks that are required; this targeting a given product, or a particular makes it possible even for small firms to product family, at particular segments of a handle more steps in the production chain heterogeneous and, in many cases, increasingly in-house. (This, in turn, can trigger other fragmented market. The advertising industry process and organisational innovations; it may 108. Adam Smith famously discussed ways in which focuses much of its innovation on the affect product innovation, too. For example, increased specialisation can development of novel content, for example, designers and independent producers can promote innovation, but the argument here is that and on ‘mass customised’ content (tailored achieve greater oversight of larger parts of decreased specialisation to particular consumers and contexts). The the development and realisation process; thus can do so, too. consumer experience is targeted, with they may be able to bring their distinctive much emphasis on developing rich or multi- approaches and creativity to bear on more of media experiences in its campaigns. For its the creative product.)108 business clients, the industry creates new tools and services for campaign tracking and Sophisticated project management tools are consumer targeting etc. that assist clients also being deployed in many creative industries in understanding consumer behaviours, to support the coordination of time-critical planning product development and marketing campaigns (in advertising, for example), and strategies, and evaluating campaigns. (This complex projects (in design, for example). blends into organisational innovation, as when These tools are believed to result in reduced the advertising firm moves towards becoming risk of failure, and to permit closer monitoring a developer and provider of consultancy of projects allowing for more adjustment of packages/services connected with advertising operations in real-time – thus, in advertising, strategy.) real-time campaign tracking and evaluation systems are increasingly common. C. Process innovation Contrary to the focus of much of the D. Using users innovation literature, not all process innovation While concepts such as ‘open innovation’ and is a matter of technological innovation. But it ‘user-driven innovation’ are often exaggerated is inescapable that new information technology – after all, who wants to be closed and is pervasively used in creative industries, unresponsive to users? – changes in the role of even in those industries where – unlike, say, users in the innovation process are mentioned videogames – it has not always been a major frequently by creative industry practitioners. element of their products and processes. It They see this as more than improved process may not in general be able to generate creative innovation or innovation management; in fact, ideas – these tend to come from experienced the engagement of users is reshaping consumer creative professionals or, in some cases, experience, marketing, and other elements of ‘young upstarts’ – but it is used for ‘capturing’ innovation. information (like video images) that can be exploited in the creative process, and as a

59 Moves in this direction are reported in all the again involving different ways of interacting industries studied, though in product design, with consumers – warrant being seen as a such engagement is more with business clients specific class of innovation. The internet than end-consumers (both groups are involved is especially important: an interactive Web in the case of advertising). presence is vital for most firms.

There are widespread efforts to involve users The advertising industry is profoundly shaped in various activities – generating new content, by these developments, with the migration generating ideas for content and other features of advertising into the digital domain being of products (e.g. interfaces), distributing so pervasive that electronic marketing is now content (through P2P systems, email, blogs, dominant. Much innovation activity concerns social networking sites), and promoting moving direct marketing from mail shots to products (e.g. viral marketing, user groups). email and other online environments (beyond new content, innovation here can include The videogames development industry has identifying and characterising target audiences been sourcing ideas for innovation from more or evading spam filters.). Digital TV may sophisticated users for some time, and is also require innovative and novel packaging deeply involved in user and usability testing. of content from the broadcast production Online games are increasingly being opened up industry. to user-generated content. These media developments provide Broadcasting has moved beyond phone-ins opportunities to reach more diverse and and letters from listeners, to running message fragmented audiences; they also require boards where audiences can exchange innovation in the construction of multi-channel reactions, recommendations and news. and multi-platform campaigns. The videogames Advertisers use similar interaction to explore industry is a different case, as the delivery of what brands mean to consumers. traditional games or updates on the internet is overshadowed by the emergence of online In their dealings with business clients, the gaming, with scoreboards and real-time product design industry talks of ‘e-mediated competition features. It is clear that interaction partnerships’ and ‘client zones’, where there among users has become an important element can be discussion and co-production of of the games experience. designs. (One implication noted above, is that this may mean that clients become more demanding, requesting more versions and modifications of designs. It could also allow 7.3 Organisational and business model partly-formed ideas to be ‘borrowed’ by clients innovation and used in other ways without attribution.) Organisational innovation may be hard to The Web can also be an electronic shop distinguish from the wider evolution of window – an innovative and rich website businesses, but new models and approaches are attracts clients in an environment where emerging. In some of the sector case studies, style, fashion and creativity matters. In the notably product design, the term ‘innovation’ advertising industry, we see parallel trends is connected as much with strategy-driven such as ‘innovation laboratories’ fostering shifts in business and revenue models as it co-innovation with business partners. This is with development of new products (even may mean ‘getting inside a client’s brand though such organisational changes are usually and values’, but more mundanely, it could portrayed as being highly spontaneous.) mean engaging more closely with their R&D and marketing functions. In these industries, A. Out-sourcing and off-shoring one focus for innovation, then, is upgrading Out-sourcing is particularly common in the the client interface (and this is linked to more technology-based industries, where other trajectories of improving relationship codified tasks need to be distributed around management systems so as to foster closer links the world. In the videogames development and longer-term relationships with clients.) industry, for instance, out-sourcing to Russia and India is being driven by cost control and a E. Delivery innovation and new interfaces requirement to manage production and project While the delivery of digital products by new cycles more flexibly. Routine operations and media has elements of product and process functions are thus out-sourced to a global pool innovation, changes in mode of delivery – of expert labour and specialist companies.

60 This is made more possible because some But other firms may seize the opportunity to former ‘craft skills’ have become de-skilled – reduce their dependence on intermediaries, with increasing specialisation of workers and with videogames developers hoping to rely less fragmentation of tasks, giving rise to ‘assembly on publishers by moving to self-publishing, line’ organisation. something made increasingly feasible by broadband communications, electronic But with the cost of technology continuing payment mechanisms and digital rights the fall – and its use becoming easier – some management systems. aspects of production are being brought in-house. Independent broadcast producers C. Strategic partnering and leadership are training staff to use relevant technologies Many business services are reportedly moving and other elements of the production process. from being arm’s length sub-contractors to a This can be cost-effective and safer where more proactive role which may even involve outsourcing is seen as insecure and hard to leadership. Thus advertisers talk of ‘innovation manage and control. partnering’ and even of leading new product development for clients, by integrating this In product design firms, price competition with marketing and advertising functions. is especially intense. Out-sourcing is part Product design firms similarly aim to engage of cost-saving, and is associated with some in higher value activities such as brokering reorganisation of workflows in this industry. (It and strategy, brand and identity consulting. is hoped by many practitioners that fluidity will Some product designers are also experimenting eventually return to the depressed market, and with development, marketing and distribution more creative strategies can then be pursued.) of ‘own products’: this may lead to their management and orchestration of the set The advertising industry reports moves towards of businesses involved in creating the final off-shoring too, but interviewees suggest that product. this will be limited by client conservativism. D. Risk, reward, and business models TV production now involves much location Associated with developments in supply chains shooting outside the UK to save money and and project leadership are new financial and exploit tax incentives. These off-shoring profit-sharing arrangements. In the case of strategies are not usually seen as opportunities large projects, specialised creative firms are for innovation. But they do highlight the typically paid standard fees. But in other increasing interdependence of firms as cases, there is an element of risk-sharing. ‘network organisations’, operating as part Independent television producers, for example, of a constellation of producers involved in expect to recoup their outlay through a share accomplishing complex projects, sometimes of royalties. Here the risk and reward are across borders. shared with broadcasters and distributors. Sharing of risk and reward is also experienced B. Supply chain repositioning by product design firms. Successful firms in the creative industries are liable to reposition themselves in supply chains The volatile environments of many creative as competition grows and markets change: industries – indeed, the stressed nature of attempts to lead projects or offer consultancy such industries as product design – naturally services associated with the work of their encourage different business models. New ways industry are fairly common. Some advertisers of achieving payback for creative products are are seeking ‘to climb up the value chain’ and sought. Advertising revenues support broadcast offer market analysis, brand consultancy and and online content, and are a significant product line management. element in videogames development. Licensing fees – including overseas rights – and Innovation can also be supported where royalties are important for product designers. freelances and sub-contractors are employed. Subscriptions are increasingly important for Their management can involve new project videogames, especially in online markets. management tools. The creative firm may focus on core capabilities, networking with a set of strategic partners. This may be a stimulus to innovation, as among independent producers who report that they innovate partly to establish their value as long-term partners to broadcasters.

61 7.4 Innovation management and projects being undertaken – or it may simply be innovation systems a case of professionals seeking to retain some mystique. Innovations and their associated pressures bring substantial challenges to management. B. Formal systems of innovation While these challenges are widely recognised, management are rare there is less agreement about how they are There is little evidence of much use of formal best met. Best practice is still emerging – R&D, even in the more technology-based though that may be an alien concept in such a industries. Little formal R&D is reported by diverse and volatile environment. videogames developers, for example, who may apply the term to work in connection A. Innovation-related market and business with generic or multi-purpose tools to support environment research is common in some games development, but not to creative sectors, but outside advertising is not large- development of specific new products. (Such scale innovation is perceived as part of problem-led What creative industries often refer to as development processes, not as flowing from ‘research’ is their semi-organised scanning of more fundamental rethinking of the nature of their markets. In this they are like most other their products.) innovative industries, with senior professionals expected to keep up to date with evolving There is next to no measurement, recording or trends in the consumer or business markets, evaluation of the expenditure associated with examining the innovations and strategic what R&D there is. Practitioners are able to positioning of competitors and similar firms in estimate innovation expenditures, but do so other industries or countries. without any systematic monitoring. Thus, in independent production, interviewees suggest Large firms in some sectors – such as financial that anything between 10 per cent and 60 and retail services – have invested considerably per cent of expenditure is accounted for by in data-mining systems that enable them to innovation activities – both quite considerable profile customers and track market trends. Such figures! an approach appears to be quite uncommon in the creative industries we studied though, The lower figure represents the technical perhaps because the firms may be too small end of the business (e.g. preparation of to afford such exercises, or the complex computer generated imagery – our producers nature of their products make it difficult to are presumably not responsible for much of compile standardised data on sales trends. In the new hardware and software here); the any case, such exercises may be less useful in higher figure more closely corresponds to the sectors where creative firms are mainly dealing creative end. But such estimates, it should be directly with business clients rather than final stressed, are not based on formal methods consumers. for monitoring or evaluating of investment – and one reason for this is that while there are A major exception is the advertising industry. deliberate decisions made about innovation, Here new technology is being employed to often major developments are not a result of support established approaches to market planning, but of practitioners ‘getting carried research and environmental scanning. Thus away on projects’. Web 2.0 and the online interfaces mentioned earlier are rising to prominence as sources of Most practitioners claim that innovation here signals. is mainly ad hoc and ‘organic’ and is rarely planned: though at a strategic level most Database and data-mining systems provide firms are involved in positioning themselves tools for identifying and analysing signals for new development (and this affects their relating to market development and changing recruitment, marketing, and collaborations, for consumer tastes, profiling types of consumers, example). and matching brands and products with lifestyles. But outside advertising, the Interestingly, while the advertising industry processing of new ideas is largely casual and invests considerable effort in campaign review, ad hoc. Senior staff filter promising ideas and it too reportedly undertakes little innovation or present the most promising ones at Board level. R&D evaluation. The only measures of success This filtering appears to be largely based on appear to be attention in the trade press tacit knowledge rather than any generic set of and industry awards (though the latter tend criteria. This may reflect the great diversity of

62 to reward creativity rather than a financially important. They are also typically responsible successful campaign). for more organisational forms of innovation, including exploring new business models. Some advertisers argue that all campaigns should have clear objectives from the start, In sectors like independent production, with metrics agreed by both advertiser and team-based and inter-firm collaborative work client. They suggest that relevant success, is almost universal, with co-production and performance, profile and impact metrics would network-based development of programming be positive for the industry’s confidence and very common. The broadcasting landscape is credibility. characterised by networks of individuals and specialist firms possessing complementary skills Tax relief could drive more formal assessment and expertise. of innovation activities. There is some awareness of the R&D tax credit scheme Production of content for multi-platform, among product designers (less in other multi-channel and multi-device environments industries) and its relevance to these activities. is expected to lead to an ever greater focus But few are clear about what counts as R&D on close strategic relationships, and thus the and how such activity might be demarcated sourcing and management of relevant expertise from other parts of the development process. will be a major issue. And there is little understanding of how the scheme is administered, with a general The social skills and personal relationships perception that the administrative overheads needed to assemble expert groups and teams would be too large to contemplate. are key assets for senior professionals in the industry. They have to achieve buy-in from The product design sector undertakes some relevant stakeholders and motivation from R&D-like development of products on behalf employees to undertake new projects. of clients (and indeed in some respects it is very close to the R&D services sector). Similar issues arise in other industries. In Problem-solving and development on behalf advertising, innovation activity is typically of clients may attract the innovation tag. led by a ‘project champion’ (usually a head Where such activity is undertaken on behalf of Business Group or a manager with relevant of a designer’s own business, it is unlikely to interest and contacts with suppliers of be perceived as innovation. Creative industries complementary assets or skills). He or she is may paradoxically be inclined to see innovation responsible for assembling a team with relevant as unremarkable, and thus not always worth capabilities and skills for a given project. highlighting. Few agencies appear to operate permanent Perhaps this is why there are few creative innovation teams; the experience of being businesses with dedicated R&D or innovation recruited into new project teams and being budgets. Innovation is funded mainly removed from regular duties can benefit from specific projects for clients; and few the individuals involved. Their established business clients are willing to support much approaches and thinking may be challenged, experimentation. Advertising agencies and they must integrate their individual invest in software development for market creativity with the tools and disciplines research, data-mining, profiling and project involved in innovation projects. (There management/delivery – but this is rarely are few immediate incentives provided for perceived as innovation investment either. being innovative, though there are obvious career benefits if the individual is credited Accordingly, innovation management itself adequately.) is rarely identified as a discrete role. Instead it is a part of the job description of all senior More formal knowledge management systems professionals: they are expected to be the are being introduced in some quarters. One source of creative ideas, or at least their common feature of such systems is their conduit into the business. They generate ideas, role as repositories of past accomplishment co-develop projects and innovative solutions (making them very useful for repurposing, with clients and business partners, and scan the as discussed above). They are not generally environment for ideas to borrow. They establish used to monitor the competition and they and manage project teams; in some sectors currently have limited use in the production of with complex projects and many partners, new creative ideas, though this may change if project management skills become very knowledge management systems are integrated

63 more closely with ‘client zone’ and ‘innovation laboratory’ systems (assuming intellectual property issues can be resolved). More informal mechanisms such as brainstorming, and interchange within product teams, remain vital. Apprenticeship within these teams is relatively informal: explicit mentoring schemes are relatively rare in the creative industries studied here.

Practitioners often complain that there are insufficient resources to bring many of their creative ideas to fruition (or even to explore their feasibility in more depth). There is no shortage of creative ideas, but there are constraints – regulatory ones, conservative clients, pressure of time and resource issues.

Intellectual property management is increasingly recognised as a key element of strategy, across all four creative industries studied. Formal approaches are adopted here, as opposed to most other aspects of innovation management. One reason for the new awareness is the emergence of new aspects of IP concerned with new technology developments in particular. Such issues as the repurposing and use of content from other property right holders, the delivery of content through new, non-geography-based media, and the growing importance of branding, require new approaches. The videogames development industry (like the software, film and music sectors) is among those most concerned with intellectual property issues, because of the ease of copying not just the underlying ideas, but the creative product itself.

64 Part 8: Re-examining innovation in the creative industries in the light of the sector case studies

The case studies reveal considerable variety real-time as they are making the game moves). in the challenges faced by different creative Such a version of a game may also offer scope industries, but there is also a great deal of for new forms of organisation of innovation, as commonality. One striking factor is the wide user inputs are welcomed into creating aspects range of opportunities and demands associated of the game world. with new IT and digitisation in all sectors, including the emergence of new collaborators and competitors, and new modes of collaboration and competition. Other common 8.1 A framework for understanding factors include the increasing sophistication innovations of consumers and demands from business clients and the growing size and complexity of We can develop a new conceptual projects (even with product design, where firms framework for understanding innovation in have on average become smaller). the creative industries, linking innovations to specific business processes All industries are affected by ongoing The range of innovations we have identified transformations in markets and business forces us to look beyond the diamond model environments, and the creative industries are of Figure 1. One way in which they vary, no exception. Indeed, the creative industries’ of course, is in their technology content, emphasis on knowledge-intensive work and the which Figure 1 captures. But another ‘experience’ dimensions of products may make important differentiating feature relates them exemplary. to the specific business processes that the innovations concern. Indeed, innovations can Many of the innovation activities of creative be categorised in terms of the various areas businesses are likely to remain hidden from of the firm’s business processes where they innovation researchers and policymakers are located – though in the case of creative Our sector case study evidence suggests industries (and many other industries with a that the range of innovations encountered heavy service content) we need to extend the in creative industries goes well beyond the conventional set of business processes, so as to types, and the processes, of innovation that include those involving consumer experience are emphasised in most innovation studies, and co-production activities. statistics, and policy approaches. Often the innovations encountered span multiple areas, Such a listing of sites relating innovation to and organisational, process, technological different business processes includes the and consumer experience innovations may following categories (grouped into a set of be combined (and perhaps even be in overlapping areas of innovation practice, in the collision in some cases). An online version Olympian model presented in Figure 2): of a game, for instance, may involve new technology (broadband communications), 1. General administrative activities and processes (required to manage multiplayer financial management. The innovations environments), and user experiences (players in featured here – office automation and different locations communicating by voice in financial control systems – are likely

65 to be very similar across firms in many areas. Innovations may also involve less sectors, with differences among firms technological novelty, such as various types being influenced by issues of firm size, the of season ticket and membership scheme. range of branches or sites at which work is undertaken. 8. Marketing and customer relationship management. There are likely to be 2. Business model. Innovations may involve many innovations common across creative how finance and profits are derived. For industries and many other service industries instance, publications and websites may in this area. But specialised innovation be funded through advertising revenues as approaches may reflect consumer or opposed to payment from readers. business client requirements, and the interactive nature of many creative 3. Value chain location and positioning. products: few other industries feature ‘fan What parts of the creative product are clubs’, for instance. being produced and processed by the firm; and what role is taken in terms of 9. Content of product. The content is leadership or other role in the chain. For the core material which is consumed to instance, innovation may relate to strategies produce the desired experience: the text, for ‘moving up the value chain’ or taking imagery, and other symbolic substance responsibility for fewer or lesser elements of that usually constitutes the main object of production. consumption. Innovations can range from the creation of completely new genres of 4. Communications. With suppliers, content through to reframing of familiar collaborators, supply chain partners, etc. content within a new context (e.g. a new While this will relate closely to value chain production of a drama or piece of music). 109. In the diamond model position, tools and techniques for relating this was presented in terms of the ‘cultural to partners, and for managing these 10. Performance and production processes. concept’ behind a new relationships, can be sites for innovation of The product is generated through creative creative product. Neither this terminology nor that various kinds. work, often in the form of a performance of ‘content’ (or even by artists, actors, musicians, etc. – though ‘symbolic content’) is completely satisfactory. 5. Internal communications. And the this performance may be recorded and/ management of human resources and or consumed immediately (in which case work organisation within the enterprise. process and product overlap considerably). Approaches ranging from knowledge In the case of material artefacts, the management systems to ways of production process may involve craft work maintaining contact with staff in the field or some more manufacturing-like activity. and new training systems are examples of Innovations in the supporting technology innovation here. and in the organisation of creative work are manifold. 6. Back-office/backstage production processes. These are processes in 11. Product format. The creative product has which the product is designed, scripted, a particular format and character depending rehearsed, prototyped, etc.; they vary on the sorts of media and performance that considerably according to the type of it involves. Innovations can involve new industry: the activities can be heavily types of product (such as new media like dependent on skilled or unskilled labour, DVDs) and improved features of existing or on technology of various kinds. The products. processes may even be rendered visible as part of the consumer experience. 12. Delivery of product. How information Innovation can involve the application of content, or the physical medium for such new technologies or procedures to such content, reaches the consumer (or how preparatory work. the venue for performance and display is constituted). Much service innovation has 7. Transactions. Innovation may centre concerned delivery, with electronic delivery on the process of payment for access to of information services and technological product. E-commerce and systems for support for conventional performances online bookings and reservations, and being particularly important. The creation loyalty cards, for example, are innovations of new venues, the repurposing of existing in this area, and may be more or less venues (perhaps by introducing live music closely tied to marketing and related to a restaurant), the restructuring of venues

66 to provide new dimensions to the consumer this. Moreover, the consumer experience experience, are all options for innovation. may be determined by interactions among consumers. Co-production is an important 13. User interface with product. How the feature of many creative (and other consumer engages with the product, knowledge-intensive) services, and much their points of access to content and attention has been attracted by recent functionality. For some creative industries, innovations collectively labelled Web 2.0, the interface may be electronic (cf. Point where users supply much of the content to 14 below), but may also involve creative websites. Such models may be developed facilities and premises such as cinemas, well beyond ‘social networking’ websites, as theatres or galleries. Innovation can evidenced by the popular facilities offered involve decisions about which facilities by Amazon or the BBC for their users to add are created and used, as well as how they their own reviews or comment to the views are configured and rendered appropriate and information provided by other users. settings for the experience in question. Where we deal with physical media such 15. User capabilities. The area in the as TVs, PCs, phones, or even print media, ‘User Experience’ circle is also a site of there is a more restricted sense of interface innovation, for instance in mobile phones reflecting the types of control and entry that show live TV, and perhaps in the points presented. development of consumer skills and tastes required to secure full benefit from 14. User interaction. In part the scope for creative products. Typically innovations user interaction is determined by interfaces here lie beyond the creative firm’s business (Point 13 above). But creative products processes, and are undertaken by users can also reflect consumer inputs beyond themselves (however, they can involve

Figure 2: Sites of innovation in the creative industries

Creative firm Production & Product pre-production

6. Back-office/ 9. Content of product 5. Internal back stage (cultural communications, production 11. Product format 1. General concept etc.) administration management processes, (’cultural product’, & financial of HR & work design process performance management organization 10. Performance and features of product) production processes

2. Business 14. User interaction, including supply 7. Transactions model & configuration of content (purchase, lease etc.) 13. User interface 3. Value chain 12. Delivery with product location of product

8. Marketing and customer 4. Communications with 15. User capabilities & relationship suppliers, collaborators, media (e.g. management supply chain partners etc. consumer electronics)

Communications User experience

67 suppliers of consumer technologies, rather providing more pleasant, sophisticated, or than players from the creative industries). simplified interactions and symbolic material.

This list is presented with specific relevance Each of these categories is associated with its to creative industries. But the categories are own types of professional skill and knowledge, relevant to a wide range of industries (though and many innovations require the innovator to terminology may need to vary across sectors). be able to combine distinctive skill sets. It will be apparent that some of the areas for innovation are ones where a creative firm Technological innovation has been would have to rely upon other industries to pervasively important in the creative help set standards, and to make their own industries, and if anything is becoming complementary innovations, if the new product more so is to find a market. Other areas are ones where Technological innovation has traditionally been there is much more scope to go it alone with a at the centre of most innovation thinking. new idea. Such innovation is certainly pervasive across the creative industries studied. If anything it is Major innovations may well involve action becoming more important, with the ongoing and novelty across several of these sites developments in the diffusion, capacity and Indeed, major innovation undertakings will usability of IT, creating both opportunities often include the introduction of a whole and challenges for firms. Key technological series of individual creative products, as developments across our case study sectors when we see tie-ins between a film, a book, a include new tools to: simulate and represent videogame, a set of toys, a website – or even designs; control the production of radio and TV a series of such tie-ins. Creative sub-sectors programmes; develop and assess information like cinema are increasingly dominated by such on consumers to be targeted by advertising 110. This also appears as a multi-media products, with their own supply campaigns; or create and archive content for challenge to firms that are not necessarily regarded chains, business models, creative product videogames. as part of the creative development, and user experiences. This industries. For example, mobile telephone network adds a level of complexity to the analysis of The ‘creators’ respond to changes in operators have struggled (commercially) major creative products.110 consumer media and platforms with new to manage the complexities associated with the products and product elements. They also introduction of music and Innovation at any of these sites may take respond to new user practices – such as social video downloads. various forms, as has already been suggested. networking websites – by recognising the Returning to our earlier discussion of new opportunities they provide for interaction innovation theories, we note that an innovation with – and information about – clients and at any of these sites is liable to involve a competitors. mixture of radical or incremental: Social and organisational change is also • Technological development – where the frequently – though not always – associated innovation is associated with the creation or with technological change adoption of new or improved technologies New ways of consuming products, and evolving public or client concerns and motivations can • Organisational change – where the impel content-related innovation, which can innovation is associated with the creation or also be inspired by industry factors (evolution adoption of new organisational forms and of genres, for example) and experience in other practices of work (including the ‘work’ of media and other parts of the world. consumers and business clients) The changes are also often associated with Furthermore, though the most evident site new organisational strategies. In some cases at which this will be encountered is the user firms have downsized, so that their lead staff experience associated with the creative can concentrate on creative activities rather product, more radical or incremental innovation than having to manage large teams; in other may also involve: cases new technology has permitted some disintermediation so that the creative firm • New creative content and/or aesthetic can undertake more of the production activity design – where the innovation is associated itself. with efforts to shape the experience of users (who may be business partners or employers, The general drift has been toward specialisation in addition to consumers and clients) by – for example, specialised contributors of sound, artwork, even plot concepts to

68 videogames production. But there is also set these out, together with the challenges some integration of previously specialised they might present to improving mapping and activities – for instance, as marketing, market measurement of innovation: communications, and customer relations are brought together in some new media 1. Innovation that is the same or similar to advertising activities, with extensive use of activities that are measured by traditional databases and information-gathering tools. indicators, but which is excluded from measurement. Much R&D-like activity is There is considerable ferment in business underway in creative industries, but is not strategies and organisational arrangements. described as such. It is often organised in Economic uncertainty and concerns about different ways from those familiar in high- globalisation (off-shoring of professional work, tech industries – dedicated departments or establishing bases near emerging markets) professionals are uncommon; the activity contribute to this further. is usually built into product or project development, or carried out in the course Increasing emphasis on the experience of work that is underway. The exclusion of economy means that changes in symbolic market research, for example, from R&D content will be increasingly recognised as surveys and tax credit systems necessarily an important source of innovation pushes this activity into the category of Change in symbolic content, and the associated hidden innovation. Innovation surveys have 111. One of the biggest headaches may actually be experiences created for users, has been given failed to cover many creative industries. one of the improvements much less attention as an issue for innovation Improving measurement systems to that requires least reconceptualisation thinking and research than have technological deal with these shortcomings should be of instruments – the and organisational developments. However, relatively straightforward.111 extension of surveys to cover more small firms. the appearance in management discourse of Statisticians are reluctant terminology such as ‘experience economy’ 2. Innovation without a major scientific/ to take this on, because of the burden on the firms, and ‘customer service focus’ indicates that technological basis, such as innovation in and the relatively low industrial practitioners are sensing the organisational forms or business models. incidence of substantial innovation activity on the importance of such forms of innovation. Our We have noted many cases of such part of many traditional study can be seen as a further recognition of innovations. For instance, shifting to an small firms. With high innovation levels in many its importance. Innovation studies need to advertising-financed model as opposed creative industries, the grapple with these topics, even if they are less to directly paying for creative content is latter argument has less force, but the problems tangible than technological innovations. novel in many creative industries – even of burdening industry are if it has been used by commercial radio real ones that may require creative solutions. and television and free newspapers for some time. For such innovation to be 8.2 What does this say about ‘hidden encompassed by innovation studies, we innovation’? need satisfactory ways to differentiate ‘new’ activities (whether new to the firm, the ‘Hidden innovation’ was originally introduced industry, or the world at large) from those as a description of types of innovation and that are simply replicating or ‘rolling out’ innovation process that were not being given activities already instituted in other markets sufficient credit in established innovation (e.g. extending the geographical reach of studies, policies and indicators. Studies the market, without introducing changes of service industries had recognised that in products or using novel distribution or service innovation rarely involves formal R&D marketing tools). expenditure and management, and was rarely reflected in such measures of innovative 3. Innovation created from the novel outputs as number of patents. combination of existing technologies and processes. ‘Repurposing’ of content is a Where the focus is the creative industries, central feature of many creative industries. the issue is especially acute, but in its This can involve new combinations of Hidden Innovation report, NESTA (2007) technologies and processes, with the also demonstrates that hidden innovations content itself designed, produced, are apparent in activities as wide-ranging as organised, stored, and delivered through oil and gas exploration and prison services. technological systems and social processes Four different sorts of hidden innovation (such as those associated with rights are identified by NESTA and each of these management). resonates with the case studies examined in our research on the creative industries. We briefly

69 The delivery of creative content via the or inspiring imitators and successors, would internet or mobile phones is a good require us to go beyond examining the types example. Embedding one’s advertisements of innovation. As well as understanding in a videogame – perhaps, displaying virtual innovation management, we would need posters in the backdrop of car races – is to explore what these innovations mean for an innovation that not only spans two of the creative businesses and their consumers. our industries, but involves reworking the Further work is undoubtedly needed on such advertising content to fit seamlessly into case study material. But already it is possible to the virtual environment, and to convey the draw some conclusions from the results of this required messages. study.

Such innovation could be addressed in innovation surveys by appropriate questions; the demarcation of novel practices from more limited customisation will require careful guidance and formulation of questions.

4. Locally-developed, small-scale innovations that take place ‘under the radar’ and are therefore unrecognised or accounted for. Practitioners in the creative industries recognise that most of their new projects demand innovative problem-solving. They also accept that many of their innovative solutions are not formally recognised, ‘captured’ or reproduced.

Of course, some major innovations developed on-the-job are recognised as important ones. And some types of technical development (for example useful lines of code in videogames) may be systematically archived for re-use.

But many other new developments are never revisited. Since this is problematic for the firms that might be able to profit from them – ‘knowledge management’ systems to support innovation are reportedly not yet very successful – these are likely to be hidden innovations that will be hard systematically to measure by conventional means. Perhaps the most effective approach would be to ask the professional workers themselves how far they are engaged in non-routine problem solving.

The scale of hidden innovation in the creative industries seems to be great, and the forms it takes appear to be extraordinarily diverse. The framework we have sketched out above provides one way of thinking through the issues raised in our case studies, though it cannot do complete justice to the rich descriptions that these have provided us with.

For instance, assessing the value of innovations – the extent to which they are transforming experiences and behaviours, creating revenue,

70 Part 9: Conclusions and recommendations 112. This will be managed by NESTA in partnership with the Office for National Statistics (ONS), the Design Council, the CBI and others. See DIUS (2008) White Paper ‘Innovation Nation’ published in March 2008 and online (with much other relevant material) at http://www.dius.gov.uk 113. Many important technological innovations have been examined by such surveys – for instance there were numerous studies in the 1980s examining the diffusion of microelectronics, PCs and robotics. Less common, but equally feasible, are studies of diffusion of organisational practices such as just-in-time and This report has explored hidden innovation in assessment of innovation activities within quality control procedures. One approach to survey a set of creative industries. It has identified individual firms (and, perhaps, within business studies might involve: a great deal of innovative activity that is networks); and for survey work looking at the (1) identifying what are more or less emergent poorly represented in statistics and metrics, diffusion and elaboration of specific types of and familiar innovations in policy discussions, and in the management innovation.113 in technological, organisational, and literature. In these conclusions we address content areas; and (2) the implications of our work for innovation 9.1.1 The sampling frame of CIS-type enquiring as to whether and for how long a period measurement and policy more generally. surveys needs to be extended to capture the organisation has more creative sectors been employing such innovations, and how We particularly emphasise measurement The sample of firms covered should be routine they are in their issues because our study is about finding expanded to include more creative industries. products and processes. ways to bring hidden innovation to the In particular, SIC division 92 is liable to include 114. Less likely to include creative industries, but still surface to better understand its nature. several innovation-active creative industries. liable to be innovation- This understanding should help underpin This should be a priority for further extension active, are SIC division 114 90 (Sewage and Refuse development of policy and management of CIS. Disposal, Sanitation and practice. We can also learn a great deal from Similar Activities), SIS division 91 (Activities of examining such evolving practice, since it Many creative firms are microbusinesses; a Membership Organisations is responding to – and sometimes helping complete understanding of the innovation n.e.c.), and SIC division 93 (Other Service Activities, to create – the transformations that are performance of the creative industries including hairdressing, reshaping the nature of innovation, innovation requires information about these smaller funeral activities, physical well-being activities, management, and innovation policy. firms to be collected astrology, pet care and Survey questions would need to be revised to escort services). 115. Surveys of small business be rendered more appropriate for smaller firms, such as IFF (2008), and the concern about overloading small firms which do enquire about innovation (along with 9.1 Innovation surveys and with official requests still needs to be taken other topics), should measurement seriously: smaller firms need shorter forms.115 be encouraged to use questions that are more comparable with CIS We have seen that the creative industries, and Given that relatively few firms in creative formulations. the types of innovation they undertake, remain industries have yet been captured in the 116. Again, this is relevant in the context of the under-represented in statistics and conceptual sampling frames of CIS surveys, one solution Innovation Index proposed analyses. The evidence base for policy and might be to organise specialised surveys to in DIUS (2008). 117. As noted, it is common practice in the field is thus impoverished. That examine creative firms and sectors – especially to interpret these two this is recognised in the UK is demonstrated the ‘creators’ – rather than extending CIS to questions as having a technology focus; in all by DIUS’s recent announcement that it will a large sample of small firms, or to weight likelihood many – though pilot a new Innovation Index in 2009, aiming its sampling toward creative industries. Such probably not all – respondents will also make to include more hidden innovation (including surveys could be a test bed for new questions this assumption. creative industries) activity, and to put a fuller aimed to capture more of the essence of system in place by 2010.112 creative industry innovation.116

Our focus here is mainly on improvements that 9.1.2 Questions on types of innovation can be introduced in the framework of CIS- The CIS4 questions cover a wide range of type instruments. There is also scope for better innovations, but at the outset the survey asks

71 about product and process innovations. Several ‘Olympian’ model of business process sites issues arise with these questions, and several for innovation. ways of extending them can be envisaged: CIS4 asks about ‘implementation’ of new or • The first is the likely exclusion of much significantly changed: non-technological product and process innovation, when respondents interpret • Corporate strategies: changes in Business 118. Another approach these questions as ruling this out.117 For Model may be captured here, though would be to ask how instance, new service encounters and creative this could equally be eliciting answers far the most important innovations undertaken experiences, or improved user-friendliness, about, for example, changes in value chain by the firm involve new might reflect new work practices – such as location. technology and how far new organisational how visitors to a theatre are welcomed. One practices and structures partial solution would be to ask respondents Advanced management techniques within (for instance, scale • ranging from ‘not at all’ to whether these innovations are: (a) mainly the enterprise: does this rule out supply ‘extensively’). technological; (b) mainly a matter of chain management? Communications 119. Another issue is the exclusion of changes of organisational practices and routines; or (c) a with suppliers, collaborators and supply a purely cosmetic nature. mixture of the two.118 chain partners are important opportunities As implied by Stoneman’s (2007) comments about for innovation which may be missed design and product • In the creative industries, these questions here. Internal communications may be differentiation, there may be more or less may well fail to elicit responses where captured, though they might feature important creative the innovation reflects Stoneman’s ‘soft’ under another heading. Knowledge innovations excluded by this specification, because innovations – those involving creative management is specified as an example of the distinction between content, aesthetic design features and advanced management techniques, and cosmetic change and 119 aesthetic content will need packaging of products. A solution here this could include innovation management to be spelled out more would be to explicitly differentiate within approaches. explicitly. product innovations between those primarily 120. Here and elsewhere, work would be needed affecting the cultural content or user • Organisational structure: this may capture to establish a clear experience, and those affecting product changes in the management of human terminology that can be 120 interpreted in consistent functionality, reliability, quality, prices etc. resources and the organisation of work ways across the range within the enterprise, along with those of creative and other sectors. This will require • Innovations concerning delivery and user in general administrative activities and pilot studies, of course. interactions may be excluded, even when financial management, and in the spatial or In such piloting, an effort should be made to obtain they have a high technology component. business practice organisation of the firm. information as to exactly At present we have no way of knowing what innovations are being referred to. This how far they are regarded as product or • Marketing concepts or strategies: this is will assist in developing process innovations, and how far they are fairly precise, though a range of contacts effective questions and understanding the nature simply hidden. The definitions of product with customers and clients (e.g. ‘after- of the changes being and process innovation could be extended sales’ service, and issues to do with co- discussed. 121. A slightly different to make it clear where these aspects of production of the creative experience) may approach would be to innovation are to be included. Better still, not be seen as relevant here. ask about innovation in ‘product services’, those though imposing more of a burden on services that support respondents, specific questions could be The only way to be sure that a survey acquisition or use of the main product of the firm. added asking about innovations concerning is sampling the wider range of types of 122. Again a question could the delivery of goods and services, innovation that have been discussed above is ask about the extent to transactional activities, and relations with explicitly to ask about these different types of which the most important 121 of these innovations users. innovation. Additional questions addressing involve new technology the various sites of innovation could be and/or new organisational practices and structures • With process innovations, the question introduced, following closely the format of (using a rating scale is liable to evoke responses about the the existing CIS questions (“in the last 3 years ranging from ‘not at all’ to 122 ‘extensively’). immediate production of the good or have you introduced…?”). Questions as to service, obscuring back-office and backstage how far these innovations are technological or innovations such as those involving otherwise could be appended to these. communications, administrative, marketing and financial processes. The questions on Asking more questions would increase the size ‘wider innovation’ do address some of these of the survey form, but it is difficult to see topics (marketing in particular is singled how this could be avoided in a CIS examining a out). But these questions are isolated from wider range of types of innovation. the more general innovation questions in CIS4, and do not clearly address the whole A major shift in survey approach might be one range of activities described earlier in our solution, for example by shifting more of the

72 focus to the innovations rather than keeping it uncovering many creative industry (or services) on the firm. For instance, respondents might innovations. Consumer co-production is hard to be asked to identify their top three innovations detect; the sourcing of creative ideas in artistic (which could be defined as those that have and cultural communities or in-practice is hard been most important in terms of turnover, to determine. These are important topics if market share, profitability, or some similar we are to have a fuller understanding of the criterion – even cultural impact). Then, a set evolving role of experience-based industries of questions in the survey would explore these and services in the economy. innovations – what their nature is, how they were managed, what sources of information were used and collaborations undertaken, and so on. Other questions, for example, those 9.2 Innovation policy and management about innovation activities and expenditures, could remain as more general questions NESTA has produced many studies on hidden 123. The survey shifts from 124 early concern about concerning the orientation of the enterprise as innovation. On the basis of the present whether any product/ a whole. study, we would argue that there is a strong process innovation has been undertaken, to case for the generation of more (and more asking about more general 9.1.3 Other questions detailed) evidence about the role of policy innovation activities and relationships. It is likely, In the present CIS survey, the questions about in fostering, impeding, or changing the but far from inevitable, novelty and origins of the innovations, sources trajectories of innovation in the creative that the latter questions should be answered in of information or collaboration are likely to industries. Accordingly, we suggest that this terms of the specific be answered with the ‘technological’ product is a key area for further research: it would innovation(s) discussed at the outset. It is less and process innovations considered at the be useful to undertake such research on a likely that they will be outset.123 References to R&D, acquisition of comparative basis, exploring the topic by answered in terms of ‘wider equipment and software, and the like, do seem examining what influences the policies in innovations’. 124. See for example the to be aimed at more technological innovations; different countries and regions are having. ‘Hidden Innovation’ report though some of those dealing with sources at: http://www.nesta. org.uk/informing/policy_ of information and collaboration could serve Our case study research has found that and_research/highlights/ fairly well for non-technological innovation some creative professionals believe that hidden_innovation.aspx 125. These programmes may too. One solution would be to ask similar government support programmes have been not have had a specific sets of questions about technological and helpful for at least some creative industries. focus on innovation. organisational innovations. We also encounter complaints about the 126. This is discussed more in Miles (2007). If tax difficulties encountered when such support is credits were effective, It would certainly be useful to explore run down or terminated abruptly.125 Targeted we might find that firms put more innovation- the activities undertaken and sources of programmes – such as those that support related investment into information used for the less technological digital content sectors in regional clusters, or R&D and less into other forms of activity. If there ideas and innovations. The precise questions promote increased use of industrial design – is a real problem of employed in this part of the survey are are generally viewed positively. But the R&D the creative industries failing to take sufficient frequently worded in a fashion inappropriate tax credit scheme is not sufficiently open or account of technological for creative industries (for example, discussing accessible to the creative industries.126 opportunities, this would be welcome; if it leads ‘knowledge’ rather than ‘ideas’). to a diversion of effort The creative industries are highly innovative away from potentially more effective forms of Likewise, questions about the impacts of and they are at the forefront of major creative innovation, it is innovation do not provide much insight into technological changes, which are spurring new problematic. consumer experience (this may be wrapped creative content, consumer experiences and up into ‘improved quality’) or ways in which organisational change. The big challenge for consumers are involved in its creation. both policymakers and managers is to keep abreast of emerging practices here. New questions should be developed concerning the different impacts that the innovations may Managers also need to know what strategies have on consumers and on the innovating are being adopted by other creative firms firm itself. Such questions should explore how (and in other relevant sectors) to discover firms themselves understand the impact of opportunities for new approaches in their own their innovations (for instance, assessing their firms and networks. cultural importance, by looking at the extent to which ideas are being imitated or built upon). But more widely, there is a body of work emerging in the Knowledge-Intensive Business More generally, we are concerned that the Service (KIBS) arena that focuses on the co- question about sources of information (and production of services between service firms that concerning collaboration) is inadequate for and their clients. This is particularly relevant to

73 creative firms with business clients, since the innovation (frequently requiring new hybrid studies in this literature propose that firms can skill combinations), and for various efforts to improve co-production by management of their promote them through, for example: relationships with clients. • Alignment of R&D and existing innovation Thus Bettencourt et al. (2002) note that programmes making sure that deadlines are met, and that problems are diagnosed early on, demands • Supporting consultancy and benchmarking traditional project management skills. But co- for creative firms, sectors and industry and production relationships also require project professional associations leadership skills in areas such as conflict resolution, team building, and effective and • Organising studentships (e.g. CASE honest communication. By encouraging and collaborative studentship awards), rewarding client behaviours there can be more placements and joint seminars to support effective and innovative co-production, more mutual learning across creative industries open communication with shared problem (and more widely) solving and greater personal dedication of staff members. Top managers are responsible for • Tax credits for innovation support activity selection and adequate resourcing of leaders (beyond conventional R&D) with such abilities. Some of these suggestions will clearly require For policymakers, the task is even more considerable effort to persuade relevant demanding: to understand these new or hidden stakeholders that these are appropriate areas practices; to ensure that existing policies for policy intervention. More research is are not putting unnecessary barriers in their certainly needed, as always. But we hope that 127. Not all forms of innovation way,127 and to design policies that can more the material presented in this report will itself are welcome, of course, for reasons of safety actively foster creative practices and modes provide persuasive evidence concerning the and security, intellectual of organisation characteristic of the creative nature and importance of creative industry property protection and free markets, and so on. industries. innovation.

Policymakers may thus need to undertake their own benchmarking of policies that have been adopted across different countries and regions to support creative industry innovation (and to support similar innovation across industry generally). Some of these policies may be targeted at specific creative industries. Our case studies and survey analysis suggest that innovation patterns vary across industries – and thus that instruments may also need to be adapted to industrial specificities (and those associated with firm size and value chain location). One valuable way of understanding the implications of these specificities for innovation policy would be to review the impact of current R&D and innovation policies on various creative industries and types of firm.

More generally, recognition of the different types of innovation that are underway in the creative industries, and in production of creative goods and services in all sectors, would be an important step towards raising awareness of these varied activities and products. This could be supported by highlighting best practice and better targeted awards schemes.

Beyond this, there may be scope for enhancing training and competence-building measures related to the variety of types of

74 Appendix A: Revealing the hidden: orientation to the study

Introduction – fresh evidence studies – the rationale for selection of cases appears in Table 1 below. One of the key aims of this study has been to generate new, focused and detailed evidence to assist in the process of developing a better understanding of the dimensions (types), Case development sites, management and extent of innovation in the creative industries. Whilst secondary Construction of cases progressed throughout materials can assist in the generation of useful the first ten months of the project and was overviews and insights – and such materials undertaken primarily via deskwork, interviews were used extensively in building industry and workshops. The videogames development ‘maps’ and sector descriptions – it was believed and product design industries received most important from the outset that the Hidden attention in the early months of the study, Innovation research should build from the and the broadcast production and advertising bottom up, generating a solid base of primary sectors in the later part of the research. evidence from which to derive answers to Deskwork and literature review was undertaken questions that have received little previous to facilitate mapping of the history, trajectory, attention. A second important goal has been structure and economy of the industries, and to build a detailed picture of innovation in the focused interviews were used to generate creative industries that accurately reflects the detailed insights into the innovation activities experiences and perspectives of practitioners in (and orientation to innovation) of selected the domain. firms in the target sectors.

A case-based approach Approach to innovation

Given the breadth of activities that are included Noting that the term ‘innovation’ is used to in the creative industries – and the exploratory cover activities (the innovation processes) and nature of the study – it was determined at products (the novel things or activities), our an early stage that the research would be interim report (Green, Miles and Rutter, 2007) undertaken via the development of detailed distinguishes between three broad facets of case studies in a sample of creative industries. innovation phenomena: Rather than aiming to provide a comprehensive overview of the creative industries, it was 1. The Type of Innovation being undertaken – recognised that the purposes of the study the focus of the novelty. would be served best by the development of rich insights into the specifics of approaches 2. The Management of Innovation – the to innovation and innovation activities in a process whereby new ideas are generated, circumscribed range of fields. Four sectors were selected, and materialised into new selected as targets for the construction of case practices and products, which may then

75 Table 1: Selection of creative industry cases

Case sector Rationale for selection

Advertising Largest of the UK’s creative industries in terms of employment and income. ICT- and technology-dependent – characterised by a need to marry creativity with technological capabilities and knowledge of markets and socio-cultural trends.

Broadcasting Second largest UK creative sector. Strong presence of a public service provider (thus offering potential for illumination of public sector innovation). Shift to digital TV is an exceptional development, on top of the generic ‘challenge of the internet’. A major and complex industry, so innovation of many forms can be expected (technological & infrastructural, content, organisational, delivery, concept etc.). Interaction of various classes of innovation (and triggers and consequences of innovation across forms) are of particular interest.

Videogame Games development is a recognised UK strength (though UK performance in games Development publishing and hardware development is weak). A cyclical industry with inherent risk and massive front-end investment in product/content development. Some innovation shaped by developments in consoles/hardware.

128. Given the aim of examining Product Design The UK remains the major (but challenged) global hub for industrial design. Product the ‘hiddenness’ of innovation in the creative Design is characterised by its blending of technology and aesthetic knowledge and industries, the project team its complex links to industrial clients. Design is often perceived as a core support to was eager to ensure that innovation in client companies. A few large and medium sized companies but a ‘long companies with a strong tail’ of small and micro businesses. record of innovation were included in the study. The rationale here is that if the innovation activity and investment of a highly innovative firm is hidden, then we can have some confidence that similar activities in less innovative be tested, diffused, implemented and support agencies. These encounters were useful counterparts will also be configured, and so on. in developing a general picture of innovation concealed. Innovative companies were identified environments, activities and drivers in each via canvassing of expert 3. The Innovation Context – the wider industry and for generating data on (and opinion, snowball sampling and tracking of recipients organisation of innovation in the systemic contacts with) the more innovative companies of industry awards for framework within which the firm-level in each domain. Interview programmes were novelty and performance management processes take place. then broadened to include discussions with senior executives and practitioners in firms with These three facets are related to a fourth a strong innovation pedigree.128 See Appendix category: B for a full list of the firms and organisations that took part in the interview programme. 4. The Agent of Innovation: the organisation or individual(s) responsible for the new idea and its translation into practice. Sector workshops The facets of innovation are interrelated: the nature of the innovating organisation is liable The sector workshops for product design and to determine (and in turn be influenced by) videogames development were designed to the type of innovations undertaken, the way allow the research team to present its initial these are managed, and the wider systemic findings – based on desk and interview work – context(s) in which it is located, for instance. and to invite reflection and commentary from Figure 3 depicts the linkages between these a small group of industry commentators and four elements, which are discussed at more practitioners (and relevant academics). These length in the interim report. workshops – each attracting around twelve participants – proved valuable in generating additional insights and in nuancing early outputs. They were also particularly useful in Interview programme generating ideas with respect to how it might be possible to account for and raise the profile Interviewing in each industry commenced with of the innovation that takes place in the meetings with industry experts, journalists creative industries under study. and representatives of Trade Associations and

76 Figure 3: Facets of innovation

1. Type of innovation – innovation characteristics

4. Innovating agent – innovative organisation characteristics

2. Process of 3. Context of innovation innovation – innovation – innovation management system characteristics characteristics

Analysis of statistical datasets Conceptualising and theorising creative activity Analysis of available statistics was perceived to offer a valuable complement to the qualitative Review of creativity and creative industries case work. The research team engaged in a literatures was undertaken at two levels: first, survey of available innovation metrics, surveys as noted above, to assist in the development of and relevant statistical sources in order to an overview of activities, trends and key issues evaluate their usefulness in recording and in each of the case sectors (and thus underpin reflecting the innovation effort and investment collection, marshalling and presentation that is present in the creative industries. The of primary evidence); second, to facilitate review included an analysis of the Creative development of a thorough understanding of Businesses Research Report (ICM/NESTA), UK the ways in which the creative industries (and Innovation Scoreboard (BERR), sector-specific activities therein) have been conceptualised studies (undertaken for example, by Design and theorised. Though the focus in this second Council and Screen Digest), data contained in strand was clearly targeted at unpacking commercial company databases (for example the portrayal of innovation in the creative FAME), and crucially, the Department for industries and understanding the ways in Innovation, Universities and Skills’ Community which such innovation has been modelled, the Innovation Survey. review also aimed to grapple with wider issues relating to the creation and consumption of cultural products, and with the steps, phases and relationships through which such products come into being.

77 Appendix B: Case study interviews129

Advertising and Broadcasting (Independent Video Game Development Communications Production Sector)

Access/Access Digital 4:2:2 Rebellion Games

Good Technology/Naked Comms Baby Cow ELSPA

129. The authors wish to Gyro International Diplomat Films BERR express their gratitude to all of the individuals and firms that gave Hartley Stone Hat Trick North Blitz Games so generously of their time in agreeing to Madhouse Kudos Develop provide information and commentary in connection with this McCann Erickson Libra Television Evolution Hidden Innovation study. The organisations that MV Media/MV Solutions RED DESQ requested anonymity are excluded from this list: all others are included in the Proximity (The Dreamery) Wall to Wall Games Audit tables. The Communications Practice IBM

Vertex NWDA

SCEE

Whizz Games

Product Development

Panchromos Satherley Design Prospect Design

JAB Design Consultancy Ltd Alto-Design Factory Design

Raft Consultancy Sublime Design Group Smallfry

Frazer Designers Ltd Product First Pearson Matthews

Birkbeck College Bolton Associates ASA Designers

Kinneir Dufort The Product Group PDD

Alloy Total Product Design Tangerine Therefore

David Morgan Associates Lucid Innovation Design Connect

British Design Innovation/ Form Foundry DBA Design 2020

78 Appendix C: References

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Published: July 2008 HICI/13