Could innovation catalyse economic change in Scotland?

Managing Director & CIO26 Oct 2023

With finance scarce, many levers for growth are now limited. Could innovation lift Scotland’s economic growth? The challenge is not unique to Scotland in a world where growth is slowing, and most western economies are struggling. But given more encouragement and supportive policies, innovation might deliver more without major capital investment. Surprisingly, this could boost public organisations as well as private businesses, and traditional ones alongside new entrants.

Focus on innovation seems to have faded. In the run-up to COP26, there was a flurry of events for Scotland’s Innovation Centres, setting up some catalysts for change. But if project’s website news is a guide, little has been announced since 2021. Things might be happening without fanfare, but keeping innovation in the public eye is important.

Meanwhile, Innovate Cambridge, is outlining plans to boost growth and double the number of multinationals to 40 in the area. This will be a core part of an ambition to drive investment in science and technology in a “golden triangle” cluster with Oxford and London. The 10 year plan would be a partnership of local universities, government and industry, building local hubs of activity to bring the key people together with critical mass. Competing for talent and keeping ahead of international competitors will involve innovation ecosystems. Scotland has a range of initiatives and policies but the bar internationally is being raised.

Scotland’s ambition is expressed in its 10-year National Innovation Strategy, launched in June this year, Scotland plans clusters and is looking to examples of best practice from countries of a similar size, with Norway and Denmark leading the way with their collaborative innovation ecosystems that focus investment, business support and knowledge exchange. But developing a Scottish Cluster Scheme is taking time and more urgency may be needed to catch up with neighbouring countries. It is good that planning involves green transformation and a fair balance across regions and communities, but the sheer complexity of trying to incorporate so many considerations may not be the agility that smaller nations need. Our competitors seem more nimble.

Looking at innovation more broadly, might there be other things Scotland could also do? Although often mixed up with technology and entrepreneurship, innovation is a bigger thing encompassing many types of positive change. It offers the opportunity to improve system productivity within bigger organisations. That spans more effective ways of working, possibly new tools and better use of resources. Innovation in its broadest sense means fresh thinking, creativity and embracing change. That bias to action and positive mindset needs to be embedded in Scottish culture - it matters for all types of organisations, public and private. Much of the change may not take a lot of money to implement. The danger in conflating innovation with technology and start-ups is that we fail to tap into the potential lying within most workplaces.

Making it work is not just coming up with imaginative ideas but about the willingness to adopt new ways. Entrepreneurship is linked with vision, courage and risk capital: innovation depends more on ability to implement. A flexible Scottish economy should underpin innovation and positive change, while possibly also improving resilience and sustainability.

The question is whether the Scottish economy has become more or less flexible following the stresses of the last three years. Can it adapt to new things? That involves a bias to experiment, moving resources around, and being agile in identifying what works while accepting the inevitable failures. The response to the unprecedented challenges of the pandemic in 2020 showed that Scotland can adapt quickly when it needs to.

Certainly, the arrival of hybrid working has made work adjustment easier for many, changing what job mobility means. Combined with better communication and online meetings, flexible working and digital methods now open greater collaboration opportunity for organisations and their teams. The test is whether exchange of ideas is as open as it once was face-to-face. And where new ideas emerge, the challenge is to demonstrate value.

There needs to be a way in which new approaches to services can readily be assessed for impact in pilot schemes and then rolled out. Some of this Innovation might pay-off quite quickly, but organisations should encourage trial and value assessment. Cash constraints are biting across the Scottish economy, and it will take determination to innovate to improve system productivity. We should not rely on start-ups and technology to drive improvement and efficiency.

Innovation that relies on entrepreneurs is facing a tougher outlook. Generative AI may be a strong new force for innovation but other trends are negative. Global technology and social media groups have established  dominance in their areas and have reached a point where they have less need to develop new products and services. We should expect less innovation from mature technology groups that feel less competitive pressure and are beginning look complacent. More must come from new processes and better systems built on customer focus and better data.

Even the challenger businesses that once disrupted traditional ways of doing things are now struggling. It is much harder for young companies to raise finance from private equity –capital is currently scarce and expensive.  Investors are less willing to sink more money into unproven new businesses facing possibly years of losses. It is evident in the  banking sector, where the new banks with their colourful debit cards are seeing valuations collapse. More innovation will need to come from within established organisations, changing how people work and joining up services differently. The whole workforce has a role to play in this.

Done right, innovation can be a driving force for a vibrant sustainable economy and better service provision. But it should not just be left to technology clusters and entrepreneurs. Digital infrastructure is certainly an enabler in spreading the opportunity across the nation, but we should not ignore the importance of mindset and culture. Scotland has heritage in openness to new ideas and this should be the cornerstone of the economic change we need.

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