British firms trail behind on research spending

The latest R&D Scoreboard published by the Department of Trade and Industry's Innovation Unit makes disappointing reading for followers of British business, writes Roger Trapp.

For the first time since the annual listing was launched in 1991, research and development investment has grown at a lower rate than that of the rest of the world. As a result, the trend of UK companies catching up with their overseas counterparts has been reversed.

Overall UK R&D investment was up 4 per cent, compared with the 5 per cent rise recorded by the world's leading 300 spenders in this area, while the top 18 UK companies spent 2.5 per cent of their turnover in this way, compared with the world average of 4.4 per cent.

Inevitably, though, the generally bleak picture disguises some encouraging signs. As Richard Freeman, corporate chief economist at Imperial Chemical Industries, says in the introduction to the scoreboard: "Increasing R&D spending does not automatically lead to commercial success."

Companies have to bridge "the often-overlooked gap between invention and innovation, the process of successfully exploiting the idea". To achieve this, R&D projects need to be part of the company's overall strategy and focused on customer needs.

Siebe, the controls and temperature appliances group that last month reported a 20 per cent rise in profits to pounds 331m on increased sales of pounds 2.6bn, came 215th in the world rankings by spending pounds 112.6m, or 5.2 per cent of its turnover, on R&D. The company has impressed observers by making appropriate acquisitions and investing in the development of products so that it is in a position to challenge such US groups as Honeywell and Emerson.

Further down the scale is Cray Electronics, which was 66th in the UK's R&D investment league and unplaced in the world rankings. Its recent history has been troubled, with particularly severe problems in its data communications division.

However, the company is keen to point out that it is sorting itself out and dealing with Mr Freeman's concerns about converting invention into innovation by introducing "controlled chaos". It claims that the production cycle for certain items has been reduced from 18 months to six through "virtual teams" representing all parts of the process working in parallel.

Making this sort of activity more of the norm is the aim of a project that is the brainchild of John Howells, the UK technical director at 3M, the US-based company that is world renowned for such products as Scotch tape and Post-it notes.

3M, which tomorrow spins off part of its operations into a data storage company to be called Imation and pulls out of the audio-visual products market, has not been trouble-free, as its 16 per cent drop in R&D spending to just less than pounds 570m demonstrates. But it does have a long history of being able not just to develop new technologies, but also to find applications.

Mr Howells' project, which is under way, aims to create a network so that companies of all sizes can link with each other and with universities in order to get products that people want to market much faster. "The message is: if you're a small inventor, I can set you up with people around the world," he says.