Innovation boosts R&D outlook despite COVID difficulties – report

Views & Analysis
Innovation boosts R&D outlook despite COVID difficulties

Ayming Group’s second annual International Innovation Barometer (IIB) has said that the international outlook for R&D is “remarkably promising” despite strong headwinds caused by COVID-19.

The report reveals that R&D departments are being empowered by the creation of ‘innovation ecosystems’, new funding methods, and the deployment of technology.

Ayming surveyed a combination of 330 business executives and R&D managers from 13 countries across North America and Europe. The report covers three sections: The Innovation Landscape, Financing Innovation and Sustainable Innovation.

The report’s authors say that R&D teams remain resolute in the face of several key obstacles.

“Not only has COVID-19 caused expectations for budget increases to decline 12%, but complexity is making it increasingly difficult to innovate successfully, international competition for talent is fierce, and collaboration is proving challenging,” they said.

However, advances in technology are empowering R&D professionals – 39% of respondents see it as the most important driver of innovation, with companies now having cheap and easy access to advanced tools that can be used to accelerate innovation.

The report says it is clear that technology plays a growing role in developing new products and services, while ‘Industry 4.0’ has been heralded as something that would revolutionise R&D.

“Collaboration may be down, but a new outsourcing hybrid model is emerging whereby big companies create an ‘innovation ecosystem’ with smaller ones”

“People are actually starting to implement technology that has been talked about for a long time,” commented Mark Smith, partner of innovation incentives at Ayming UK. “Now the cost has come down, it’s taking off and you can basically tailor your computing resources to your needs, without having to maintain an overhead for infrastructure.’’

All the same, the growing technical nature of R&D means businesses are looking for outside support, with use of external private resources up from 35% to 48%.

However, the report points out that businesses often underestimate what it takes to collaborate.

“There can often be a mismatch,” says Stefaan Heyvaert, innovation performance manager at Ayming BeNeLux. “Parties do not think enough about differences in cultures, procedures and expectations, which can lead to disagreements. A lot of small companies look at big companies as a bank to support the risk-prone parts of their development, whilst big companies see smaller companies as external, risk-free investments on development of IP, which – if successful – can be acquired.”

The report notes that technology may also be contributing to a decline in collaboration – with more tech available at the lower level, firms no longer need the support of bigger tech companies.

Collaboration may be down, the authors say, but a new outsourcing hybrid model is emerging whereby big companies create an ‘innovation ecosystem’ with smaller ones.

The report also notes that the funding landscape has diversified. Incentives remain crucial, with R&D tax credits most popular at 47%, but applications remain overcomplicated – a particular problem for SMEs with limited resources.

SMEs often cannot finance R&D themselves, so these challenges have caused a jump in private funding, with equity/debt funding up 6%, and crowdfunding up 17%.

“The pace of economic change is rapid, and COVID-19 has added fuel to the fire,” said Smith. “While the impact of the pandemic on R&D has yet to fully reveal itself, companies must innovate through market downturns. Fortunately, this report reveals that businesses and governments alike are discovering new ways both to fund their innovation and make it more productive.

“Yet these emerging trends seem chiefly driven by private resources. Governments can safeguard innovation spending by encouraging further education on R&D – because ultimately businesses need to know how much they are doing to decide whether to boost activity – and through the provision of further incentives.

“By demonstrating that innovation will be rewarded, governments can help maintain R&D growth.”

Driving sustainability

This year’s IIB has a particular focus on sustainable innovation, finding that most businesses do not prioritise sustainability, with 35% allocating between one and ten percent of their budget to this area.

Respondents said they did this primarily to improve business performance, indicating sustainability is a secondary concern.

The report shows that there is a high demand for more environmentally friendly products and processes, and more needs to be done, but legislation – which was unanimously seen as relatively unimportant by respondents – is not the answer.

The authors say that the key seems to lie in increased tax incentives for sustai­nable projects, which was noted as the second most important factor behind technology to help achieve sustainable innovation in the report, at 28%.

“Solving problems is at the heart of innovation,” Smith adds, “so it is essential both for COVID-19 and for challenges like the climate crisis. It’s becoming clear that there are huge commercial opportunities in environmental solutions. Businesses must rise to this challenge, and with urgency.

“It seems that greater incentives are the way forward because, although providing a minimum standard, regulation can distract businesses from their underlying ambitions.

“For a supercharged tax incentive to work, definitions need to be drawn up. It needs to be crystal clear specifically what counts as sustainable R&D for it to be rewarded. In my mind, that is our way to a circular economy.”