Innovation blog: Does public investment in innovation provide good ROI?

Mike King

A report from the Department for Business, Innovation and Skills, on ‘Estimating the effect of UK direct public support for innovation’ found that firms benefit significantly from active engagement with universities or Public Sector Research Establishments (PSREs).

Businesses that cooperate with universities or PSREs are 70 per cent more likely to generate revenue from the sale of new products relative to a control group composed of firms with the same characteristics and history but who failed to make use of such institutions. Similarly, R&D intensity (R&D as a fraction of turnover) increased by 160 per cent.

The National Physical Laboratory (NPL) is the UK‘s National Measurement Institute and one of the UK’s leading Public Sector Research Establishments (PSREs), and therefore serves as a good example of what public sector collaboration can offer for companies.

A recent customer survey found that companies working closely with NPL receive direct financial benefits worth £634 million a year; and with 63 per cent of users having introduced a new or improved product during the period they worked with NPL. Moreover, NPL is committed to enhancing its portfolio of services over the next few years so that it delivers £1 billion pa in financial benefits to its community of users.

Significant impacts are often achieved through the use of practical training in measurement best practice; following which 92 per cent of organisations saw improvements in their organisations.

Like many PSREs, NPL also contributes at an early stage of the innovation process by teaming up with companies to conduct cutting edge research as well as offering third party validation of novel products to build customer confidence and support its marketing.

As well as improving revenue through their own products and services, the BIS report found that companies that collaborate with research institutes were more likely to secure funding through public sector grants Forty-five per cent of grant-holders also collaborated with the public sector, whilst 32% of firms that collaborated with universities and government agencies were also grant-holders. Grants support the broader development of firms’ absorptive capacity (the ability to innovate as captured in the skills, networks and experience of its people).

Receiving grants from organisations like Innovate UK tends to substantially increase innovation performance in a number of ways. Collaboration and public sector support made recipients more likely to invest more in R&D (122 per cent%), employ high-level STEM graduates (29 per cent) and introduce novel products to market (41 per cent).

Receiving a public sector grant doubles a company’s spending on innovation, and crowds-in around 30 per cent more private funding (in addition to the public funding provided) across three years.


There is of course more work to be done to assess all of the impacts of collaboration over the long-term. However, all evidence points towards the fact that public support and grants have a positive impact on UK innovation and subsequent economic growth. Companies who forge ties with universities and public sector research establishments, like NPL, can gain significantly from these partnerships, both financially and otherwise, giving them the edge over the competition.

Case study: CW Fletcher & Sons Ltd

Product Verification. Pic courtesy of CW Fletcher

CW Fletcher & Sons Ltd, a precision parts manufacturer to the aerospace and nuclear industries, was facing significant cost pressure from an increasingly competitive global market. Conscious of the need to increase efficiency and reduce costs, the team at CW Fletcher saw NPL's Product Verification Services as an offer of valuable support which they otherwise wouldn't have had access to.

Following NPL's recommendations – one of which should improve the company’s application of measurement techniques to yield attractive savings – the company is working to reduce lead times and increase throughput. John Walker, Engineering Manager at CW Fletcher, said: "Through NPL’s Product Verification Services, we are manufacturing with a higher degree of confidence and increasing efficiency to provide more for our customers for the same cost."