Big business can and should play a vital role in the UK's innovation ecosystem – but we're getting that role all wrong at the moment.
Professor Mariana Mazzucato (of 'the Entrepreneurial State' fame) over the weekend used the controversial and complex Pfizer bid for AstraZeneca as a hook to call for the a re-think of the role of big business in innovation in the UK.
Highlighting pharmaceutical giant Pfizer's play as an example of a company looking to 'privatise profits and socialise losses', she notes that the takeover appears largely an exercise in international tax arbitrage, and to make room for schemes which suck investment out of broader innovation efforts, such as share buybacks.
But Professor Mazzucato also usefully points up the danger of an over-the-top response to these threats; responses driven by an assumption that, if big business can exploit our innovation system for gain that doesn't benefit the UK, then government's only recourse to prevent such corporate pillage is to shut them out of our carefully-nurtured innovation ecosystem.
While this would be an understandable response from government agencies to the threat of regulatory capture – under the current system governments such as the UK do indeed seem to be 'being played front and back' – it would also be entirely wrong; it would be throwing the baby out with the bathwater. Instead, through the national debate prompted by Pfizer's attempted takeover, we have an important opportunity to think about how to create an innovation ecosystem that genuinely has a 'symbiotic' rather than 'parasitic' role for big business.
I would like to build on Professor Mazzucato's argument on the role of big business in innovation through three related points:
- Firstly, we need to acknowledge and work with the fact that the way innovation is done in large organisations is changing: it’s become more 'open’, and more based on a broader, collaborative ‘ecosystem’ – they’re more than buzzwords – and we aren't going back to individual company vast internal R&D labs which were the dominant model of corporate innovation the 70s and 80s. And with that change we need to ensure a broader range of big businesses are more effectively integrated into more nimble networks of small, entrepreneurial businesses in clusters like TechCity in London. For large organisations to find the right balance between open and closed innovation – the open innovation sweet spot, if you like – we need to better understand how they are deploying (jargon warning:) 'intrapreneurship’, that is, entrepreneurial activity from within or at the boundaries of large corporations. Some research even suggests intrapreneurship to be as prevalent and important to economies as its external counterpart, but its role remains badly understood in the innovation system, and by innovation policy. One interesting route through which big business is using intrapreneurship to engage with networks of SMEs is the rise of ‘corporate’ accelerators – groups of small businesses and startups which are supported through a structured growth phase by the money, expertise, and potential customer base of a large business. Examples in London would include the BBC, and Telefonica through its influential global ‘Wayra’ brand. These initiatives are relatively new, but present a potentially crucial collaborative interface between large organisations and networks of small businesses – an interface that engages people in different, more flexible ways across organisational boundaries to drive innovation.
- Secondly, big business has a crucial role to play when we recognise that innovation is far more than invention and R&D (and large firms are still huge investors in these areas – despite the UK’s poor record by international standards). I would argue that we still need large firms’ marketing reach, 'go-to-market' capabilities like brands, sales forces, links to customers, and the ability to get quickly to scale to ensure we can capture and benefit from the value created in innovative UK networks. Big firm innovation through investment in elements such as training and leadership development (still largely a large-firm activity), in process improvement, and in software play important roles in ensuring the UK’s innovation ecosystem has the robustness to respond when threatened with a (well-funded) smash-and-grab raid. Acknowledging that ‘innovation is a long term, expensive, uncertain problem-solving process that takes place in firms, and normally in established and often large firms’ is a crucial step. And beyond that, multinational firms remain a key way in which innovation practices are spread globally both from the UK, and into the UK.
- Thirdly, big business is often rather overlooked in when it comes to innovation policy, which, it has been argued, focuses too much on startups. Improving the UK innovation ecosystem demands that we move beyond a fetishism around entrepreneurs and growth (particularly when linked to an erroneous celebrating of soaring self-employment figures) and add to our focus the role that big businesses are really playing in those ecosystem. The jury is (largely) still out on GSK's major UK experiment in open innovation, the rather ungainly-named Stevenage Biosciences Catalyst. But its mix of startup incubation, small businesses acceleration, university spin-outs and on-site research projects, and a mix of public and private funding, offers at least a model to look to – one in which the large firm plays an ‘orchestrating’ rather than a controlling or necessarily exploitative one.
Ultimately, as Professor Mazzocato urges, rather than shunning big business we need to involve them more closely in the innovation system – tying their fortunes more tightly to the broader success of the cluster, industry or indeed nation. To do so is imperative that we develop a much stronger understanding of the (full potential) positive role that big business can play in networks of startups and small businesses, and structure policy to encourage more large businesses to play that role. Otherwise we will continue to see Pfizer-style dysfunctional and damaging interventions. Instead we need to work with large businesses to understand how and where they engage effectively in different innovation ecosystems both in the UK and abroad, so that their involvement is harnessed for positive commercial and social outcomes.