Direct link between productivity and innovative economics

27 May 2011

Research shows a direct link between the gross value added (GVA) and innovative companies verses non-innovative companies, Martin Shanagher, head of Science & Technology at the Department of Enterprise, Trade and Innovation, told the Leyton innovation conference yesterday.

“Productivity levels in innovation active firms are twice those in non-innovative firms,” Shanagher said.

Quoting CIS2008 analysis – Ireland: GVA for non-innovative enterprises was 96,031 and 170,977 for innovative companies, Shanagher said: “The EU Innovation scoreboard shows that firms in Ireland spent 3.4pc of GNP on innovation, the third-highest level of the 25 countries measured.”

Shanagher also highlighted the new Government’s initiatives to make the smart economy we hear so much about a reality rather than an aspiration.

“The new Programme for Government’s continued emphasis is placed on the role of knowledge and innovation in driving economic productivity. This has been reinforced in the Government’s Draft National Reform Programme submitted to the European Commission on 29 April last, wherein clear commitment is given to improving the conditions of research, development and innovation with the aim of raising combined public and private investment levels in R&D to 2.5pc of GDP.”

Specific measures undertaken include driving and supporting in-company R&D through the R&D fund and, by creating awareness of the benefits of innovation through R&D advocates. Shanagher mentioned that Innovation Vouchers are being successfully used to stimulate a cultural shift in the small business community by encouraging them to build links with the research community.

He said that in 2010, “(Some) 254 Innovation Vouchers were redeemed worth over €2.5m, bringing the total number of Innovation Vouchers redeemed since the scheme opened to over 1,000”.

Other initiatives by The Programme for Government were highlighted, such as the establishment of applied research centres in cloud computing, manufacturing research and energy efficiency research.

Support for start-up companies in sectors with export potential will continue to be established throughout Ireland. “Eighty high-potential start-ups were established in 2010 and the target is to reach 100 companies per year by 2015,” stated Shanagher.

The innovation conference host, Leyton, commended the recent jobs initiative announcement, the sole purpose of which was to support innovation in this country. Specific sectors were targeted, such as ICT, energy, cloud computing and life sciences.

In addition, a change to the R&D tax credit scheme was announced that will greatly enhance the manner in which companies can account for the tax credit.

For Leyton, a firm that specialises in the provision of R&D tax credit services to claimant companies, this change was particularly welcome. “Like other measures announced on the day, these changes do not represent a quick fix to the serious difficulties this country finds itself in. However, they are small steps in the right direction. And more importantly, it is a signal of intent of this administration’s desire to place innovation at the very centre of future enterprise policy,” Andrew O’Reilly, senior manager at Leyton, commented.

“This change to the R&D tax credit scheme will make it more attractive for multinationals to employ researchers and locate R&D facilities here. The value of the tax credit reached €400m in 2009 and is now a central component of our innovation ecosystem,” Shanagher added.

IBM insight into innovative economics

Two of Ireland’s most innovative and dynamic companies gave presentations at the conference and shared their experiences on how innovation has led to their continued success.

IBM is celebrating its centennial year and managing director Peter O’Neill provided an insight into how it has remained adaptive and grown in Ireland to a highly skilled operation supporting domestic and international missions.

“IBM’s investment in research reflects its commitment to innovation that has differentiated the company and IBMers for a century,” O’Neill said.

“Our collaborative research projects in Ireland are an important element of our high-value business strategy, which is focused on enabling instrumented, interconnected, intelligent infrastructures that can change how systems of all kinds work to support a smarter planet.”

Logitech Ireland were also keen to share their success story in an attempt to inspire others to succeed. “Our research is different as it is all about what the end user wants/needs. We aim to delight and excite our consumers as well as prove convenient for them. Last year, Logitech sold over 146m products in more than 100 countries, proving we have the perfect blend of design and technology.”

“It’s not about being cheap; it’s about being the best in the world in what we do. It’s about reinventing how we add value on an ongoing basis. We exist because we supply research and innovation that there is a demand for, that adds value and which drives growth in our company … We get to grow as a local site when we understand what will be in demand tomorrow and we supply before others, and better than others. We stay close to marketing functions and all trending to be able to deliver the type of research and innovation that will be required tomorrow.”

Other speakers giving their opinion on Ireland’s economic mission were representatives from Enterprise Ireland, Science Foundation Ireland, New Morning IP and former Innovation Taskforce member and founder of Iona Technologies, Chris Horn.

The conference concluded that there are many positives to take from Ireland’s innovation performance to date and there is certainly potential for innovation to play the part marked out for it in this country’s economic recovery and the creation of sustainable growth into the future. Firms are engaging in innovation activity, levels of expenditure are relatively high and reasonably high levels of turnover are attributable to product innovation.

However, Ireland still needs to transform itself into a global innovation hub and to do that the innovation system needs to be all embracing. To achieve this, barriers to innovation need to be identified and removed.

For example, cash flow difficulties are having a significant impact on the level and type of innovation being undertaken by our SME companies. This needs to be addressed. “It is about levelling the playing field and allowing our innovative companies to do what they do best on the global stage – succeed,” concluded Leyton’s Andrew O’Reilly.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years