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‘I have identified innovation as the key to the competitiveness of British
industry.’ In normal times, this flash of hubris might have provoked the
response: ‘Where have you been all these years?’ In the event, it is a sign
that the British government has changed its views on innovation and manufacturing
industry.

The source of the quote is Peter Lilley, Secretary of State for Trade
and Industry. His comment marks a distinct change from the position throughout
the 1980s, when the prevailing view in government was that Britain could
forget about old-fashioned activities such as manufacturing, and the innovation
needed to sustain it. The country would, it seemed, make its money out of
such endeavours as financial services and tourism (‘Last chance for Britain’s
Industry’, New Å®ÉúСÊÓƵ, 30 November 1991).

The final manifestation of Lilley’s espousal of innovation before John
Major fired the starting pistol for the general election came with the announcement
by the Department of Trade and Industry that it is to put more than £100
000 a year into the MacRobert Award for Innovation organised by the Fellowship
of Engineering. The extra cash will pay the running costs of the scheme,
allowing the trustees to increase the prize from its present £25
000.

Not long ago it would have been unthinkable for a Conservative government
to part with taxpayers’ money in this way. But this foray into support for
innovation is only one of many that the DTI unveiled in the run-up to the
election campaign.

On 12 February, the DTI ‘found’ an extra £16 million, on top
of the amount announced in the Chancellor’s autumn statement, for spending
on innovation over the next three years. On 18 February, Lilley threw £40
million into the DTI’s programme of Small Firms Merit Awards for Research
and Technology, ‘to develop highly innovative technology with real commercial
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Three days later, Lilley gave £15 million to support an industry-backed
research programme on ‘tracked-transport systems’, or trains. And on 25
February, the DTI announced it had had a ‘ £5.75 million brainwave’
and put that amount into research on neural computing.

Of all the money the industry secretary distributed, arguably the most
radical investment is a mere £2 million set aside to foster a new
breed of institution. On 19 February, in a wide ranging speech on ‘the revival
of British industry’, Lilley singled out aspects of the Fraunhofer Institutes.

These German bodies bridge the gap between industry and academia. Lilley
ruled out the idea of replicating these organisations ‘in the different
circumstances of this country’. There will be no new buildings. Instead,
the DTI will seek to reproduce their success by arranging marriages between
higher-education institutions, including universities and polytechnics,
and industrial research organisations. Lilley announced plans to exploit
‘three features of particular interest’ in the Fraunhofer institutes.

Their first attraction identified by Lilley is that they enable postgraduate
students to do research leading to higher degrees at a ‘partner’ university.
Secondly, they create strong research institutes, ‘primarily funded by contract
research, specialising in specific areas of technology and working closely
with both industry and universities’. And thirdly, Lilley said the Fraunhofer
system generates ‘a flow of talented people with industrially relevant experience
from universities and polytechnics to industry’.

Not to be outdone, on the same day as Lilley’s speech Labour also endorsed
the idea of new intermediaries between academia and industry. It calls them
Newton Institutes. The Liberal Democrats have had similar plans since last
summer.

With all three major political parties supporting the idea, albeit with
some differences, this looks like one innovation that will survive the election.

The man behind much of the interest in this foreign invention is Bob
Whelan, director of the Centre for Exploitation of Science and Technology.
CEST first mooted the idea in June 1991 in its report Attitudes to Innovation
in Germany and Britain. The institutes’ objective, says Whelan, is ‘to promote
the application of new technologies in German industry and to undertake
research in areas of long-term public concern such as environmental protection,
energy savings etc’.

Fraunhofer Institutes interact with industry and academia in diverse
ways. Managing directors of the institutes, many of which are on university
campuses, are appointed in conjunction with universities, and are professors.
Universities employ researchers from an institute to augment their teaching
staff. And the institutes employ students as research assistants.

In the Fraunhofer system contract research accounts for about 85 per
cent of the overall budget and personnel. Britain’s universities may have
taken on contract research to top up falling incomes, but this can never
be more than a small part of their work.

Of the £670 million spent on contract research in 1988/89 (the
last year for which figures exist), higher education institutions earned
£180 million. The largest players in the business are the contract
research organisations (CROs), which took in work worth £250 million.

The CROs could well form the heart of Britain’s version of the Fraunhofer
Institutes. For this reason, they are coming under increasing scrutiny.

Unlike the German institutes, Britain’s CROs do not come out of any
particular mould. Indeed, no two are alike. Some are tiny. The Shipowners
Refrigerated Cargo Research Association has a staff of about a dozen and
is controlled by its four shipowning members. Yet it is the place to go
if you want independent tests of transportable refrigeration equipment.
At the other end of the spectrum sit the likes of Pira, which specialises
in production engineering, with a staff of more than 300 and a turnover
of about £20 million a year.

CROs also vary in their relationship to their customers. Some work exclusively
for members who pay subscriptions. Others depend purely on income from contract
research. One such is Smith Associates, which specialises in communications
and space technologies with a staff of about 100 and a turnover of about
£6 million a year. Smith Associates works for clients ranging from
police authorities to large companies. Research associations are often linked
to a particular industry, as in the case of the Motor Industry Research
Association (MIRA), with customers that range from the large car makers
to small component manufacturers.

Other research associations also work for a range of companies, the
Sira Institute for example, began as the research arm of the scientific
instruments industry but moved towards general contract research. It also
has subsidiaries, Sira Electro-optics, for example, which design and manufacture
products.

How can these operations fit in with the plans for new institutes? Lilley
says that the DTI would invite higher education institutions, industrial
research organisations ‘or other research institutes/agencies to form partnerships
and to submit proposals in tandem’.

Labour’s plans are not yet finalised but Jeremy Bray, the shadow science
minister, says Labour would not rule out existing independent research organisations
or new institutions designed for the purpose, provided they could offer
high standards of research and education.

On 9 March the DTI invited more than 100 industrial organisations and
every university and polytechnic in Britain to bid for students for the
coming academic year. Each of the first wave of pilot schemes would include
up to 20 students. These could be for MSc or PhD degrees. To begin with,
the duration of degree courses would be the same as normal. The research,
however, would be carried out in an industrial research setting and there
would be joint supervision of students by research organisations and higher
education institutions.

Some CROs already have researchers registered for higher degrees. John
Bennett, secretary of the Association of Independent Research and Technology
Organisations, believes that the number probably amounts to no more than
100.

Universities have found ways of validating degrees earned at such external
organisations. The University of Birmingham, for example, gives honorary
titles to researchers at the electronics division of the Defence Research
Agency, formerly RSRE Malvern, allowing them to supervise research students.

Some CROs believe the government’s recognition of their education potential
has come a little late in the day. Many see themselves already as bridge
builders between industry and academia. Contract researchers claim that
their knowledge of industry makes them appropriate catalysts for the transfer
of technology to small manufacturing companies in particular. ‘We have deliberately
established strong links with universities to draw on their research,’ says
Geoff Callow, research manager at MIRA. He says that MIRA uses its strong
links with industry to turn academic research into usable knowledge.

For students to do research that is recognised as the equal of that
performed in universities, independent research organisations have to carry
out research of a sufficiently advanced nature. Simple testing and certification
work, the bread and butter of much contract R&D, hardly qualifies.

Callow is the first to admit that even inside MIRA, researchers would
describe only 10 per cent of their work as real research. The other 90 per
cent is testing and development. For this reason MIRA clearly needs to
refresh its research base. ‘We have to do now the research that will fuel
our test and development work in 10 years’ time.’ It is this ‘strategic’
work that best suits research students.

All CROs face the problem of paying for research that will not deliver
immediate benefits to their customers, but will help both them and industry
in the longer term. The traditional research associations, where members
pay annual fees, often set aside some of their income for this strategic
research. Few CROs are commercial organisations in the sense that they have
to deliver profits for shareholders or owners. Most plough any surplus back
into research.

The suggestion that public funds should support strategic research would
not have found favour until recently. The DTI’s support for this sector
diminished throughout the 1980s. At one time, government funding accounted
for half of the income of the research associations. In 1985 the government
still picked up 23 per cent of the tab; this is now down to 17 per cent.
Germany, the Netherlands and Italy invest much more in their CROs. Only
France is on a par with Britain.

Whichever party wins the election, there will have to be further changes
of heart if the DTI is to support strategic research. Recently, the department’s
philosophy has been to add its backing to ideas which have an industrial
sponsor. It isn’t obvious to the CROs that this approach makes sense when
planning strategic research.

‘The market does not give appropriate guidance for research,’ says Chris
Elliott of Smith Associates. He believes that researchers themselves are
in a better position to decide on the R&D that their sectors of industry
will need in five years’ time. Elliot wants a system of ‘untargeted funding’,
in which ‘you do not need a customer to put up any money.’ He believes that
as well as adopting the German notion of the Fraunhofer Institute, Britain
should look at the French model. French CROs have access to a ‘slush fund’
of government money. They can receive grants worth 10 per cent of their
income from contract work. The organisations can then use the money as they
see fit, but do have to account for how they spend it.

How can the government be sure that the CROs will not waste the money?
‘We are commercial operations,’ says Elliott. ‘We are in the marketplace.
If we use it unwisely we will go bust.’