<p> The 2001 R&D Scoreboard Is the UK hitting the target?</p><p>One of the main pillars of the government’s attempt to improve the UK’s productivity performance is the promotion of research and development (R&D). R&D is one of the key inputs in the process of creating new products, processes and services. As the 2001 R&D Scoreboard remarks: ... it is the role of R&D to generate technical advances, which drive the flow of innovative new products and services, providing enhanced value for customers and value added growth for the company. 1</p><p>What is the R&D Scoreboard? The government’s attempt to promote R&D within the UK involves several policy initiatives, ranging from the use of R&D tax credits, to the promotion of co-operative R&D ventures. The R&D Scoreboard is a further strand in this R&D strategy. The scoreboard is now in its 11th year and is a widely recognised and understood indicator of the UK’s R&D performance. Its purpose is two-fold. First, to raise awareness of the crucial role that R&D plays in furthering business success, and second, to act as a benchmark against which firms within an industry can compare their R&D spending against the best, both domestic and international. The world economic situation has changed markedly over the last 18 months and a number of sectors are experiencing difficult business conditions. In these circumstances it is even more crucial for companies to benchmark their R&D investment against best international practice in their sector and to understand the ways in which their R&D investment will affect future business performance. In previous business downturns, companies that have cut R&D investment have often found that their range of products and services compare less well with competitors when the upturn comes and it is then more difficult to protect market share and value added.2</p><p>The 2001 Scoreboard findings and their implications In 2001, R&D spending in the UK stood at £15 billion, an increase of 14 per cent over the previous twelve months. The scoreboard revealed that 83 per cent of this increase was down to nine companies with increases in R&D of 28 per cent. The remaining 588 UK companies that make up the scoreboard, saw R&D rise on average by a far more modest 3.9 per cent. UK R&D intensity (the ratio of R&D to sales) compares less favourably with international competition, being only half that found in the 500 international companies used in the scoreboard for such comparative purposes. However, in certain sectors, such as pharmaceuticals, UK R&D intensity is way above the world’s best levels. This reflects a more general imbalance in the UK’s R&D performance. Pharmaceuticals and aerospace together account for 48 per cent of the UK’s total R&D spending. This is compared to an international average where the two sectors occupy only 19 per cent of the R&D total. Although such concentration of R&D may reflect specialisation and strength in certain sectors, it may also reflect weakness in the narrowness and restricted nature of the UK’s R&D focus. One of the most revealing pieces of information generated by the 2001 Scoreboard (confirming evidence from previous scoreboards) is that there is a strong link between R&D and business performance. Those sectors with high average R&D intensity have the highest rates of sales growth. In fact, evidence presented by the scoreboard suggests that sales expand six times faster in companies with a higher than average percentage of sales from new products than in competitors with a lower than average percentage of sales from new products. It has also been found that sales per employee rise with higher R&D per employee, suggesting that R&D enhances business productivity. Firms’ market value is also positively correlated with R&D activity. Charting share prices over time, it has been found that the share price performance of those companies with high R&D intensity is significantly greater than share price performance generally. The relationship between business performance and R&D clearly suggests that R&D is a key variable in creating economic success. It also shows that it is crucial in times of recession, when R&D might be subject to cut backs, that a business should think very carefully about such action. Such a strategy might seriously undermine both the short- and long-term position of the business. A recent article in the Financial Times suggests that many of the findings from the R&D Scoreboard have been taken on board by UK business: Several chief executives indicated during the long period of growth during the 1990s that they had learned the lesson of previous downturns and would protect R&D budgets from the axe next time. With global competition becoming ever more fierce, companies have every reason to keep the funds flowing to their scientists and engineers, if they are to make the most of the recovery whenever it comes.3</p><p>The limitations of R&D and the R&D Scoreboard The major drawback of using R&D and the R&D Scoreboard to evaluate the innovative capacity of the economy is that it only identifies innovative potential. It shows the potential to create new products, processes and services rather than the actual new products, processes and services created in reality. In other words, R&D is but one input into the innovation process; whether such R&D materialises into valuable new output is in no way guaranteed. Clearly, the more R&D a firm conducts, the greater the likelihood it will generate success. However, what about output indicators, such as product patents? Are the highest R&D spenders those with the highest number of patents filed? Or are certain companies more efficient (lucky) in converting more limited R&D into commercial success? A recent article in the Financial Times stated that: ... a table of the top 10 drugs companies by patents filed looks quite different from the top 10 by R&D spending. Pfizer is comfortably number one by R&D investment but number seven by patents filed.4 The attempt to promote innovation within the EU has also involved the creation of scoreboards. The EU approach, however, has attempted to broaden the criteria upon which innovation depends. Rather than focusing solely R&D, the 2001 European Innovation Scoreboard identifies 18 criteria, covering a wide range of indicators such as the number of science and engineering graduates that a country has, the level of in-house innovation in small and medium-sized enterprises (SMEs), and the level of high-tech venture capital as a proportion of GDP. As with the UK R&D Scoreboard, the hope is that the European Innovation Scoreboard will raise awareness and establish benchmarks against which business and countries can compare themselves, not only to the best performers in the EU but also internationally.</p><p>Question Visit CORDIS, the European innovation website http://www.cordis.lu/en/home.html. Identify the criteria used to make up the Innovation Scoreboard. Find out which countries in Europe are the most innovative. Under which criteria does the UK score well? 1 The 2001 R&D Scoreboard p3 2 ibid. p2 3 Survey: R&D Scoreboard, Financial Times, 27 September 2001 4 ibid. </p>