How can Northern Ireland improve its innovation ecosystem?

Some parts of Northern Ireland’s workforce are well qualified by the standards of much of the UK, but their skills are not being translated into new processes and products brought to market by businesses. A ten-year strategy seeks to foster greater innovation and a more prosperous economy.

An innovation ecosystem comprises individuals, institutions and resources that connect to enable new ideas, products, processes and services to be created and brought to market. An ecosystem functions best when all elements are balanced and work together – and its performance is ultimately reflected in its innovation outputs.

Northern Ireland’s record on innovation activity is relatively poor compared with England, Scotland and Wales. The nation needs to do better at translating its innovation inputs into innovation outputs and ensuring that the capacity and capability to generate new ideas is strengthened. This will help to support the vision of a 10X Economy set out by the Northern Irish Department for the Economy (DfE) to foster innovation and promote greater prosperity.

What is an innovation ecosystem?

An innovation ecosystem can be defined as a ‘network of individuals, entities, resources, and structures that join forces in a way that catalyses new products, ideas, methods, systems, and even ways of life’ (WeWork, 2020).

As with ecosystems found in nature, the innovation ecosystem does not just refer to its constituent parts. It also includes how they interact with each other in their physical environment, in this case, either to enable or impede innovation.

Although there is a range of contributors within an innovation ecosystem, the main stakeholders can be identified as government, universities and research institutions, financiers and investors, incubators and accelerators, industry, intermediaries, and entrepreneurs and innovators.

The last group comprises the principal actors, exchanging knowledge, skills and ideas within the system to obtain the capital and other resources required to generate innovation and growth.

No one part of the ecosystem operates in isolation. Similarly, the ecosystem itself operates within the prevailing economic and wider framework conditions. These are recognised as the factors external to firms that influence innovation performance and market success. They include the public research base, the business and regulatory environment, physical and digital infrastructure, demand for innovation, and the available human capital (Nesta, 2011).

What does the evidence tell us?

We can measure the success of Northern Ireland’s innovation ecosystem in terms of how it performs in both a UK and wider European perspective. We consider innovation inputs and innovation outputs, as both provide an indication of the effectiveness of the ecosystem.

Innovation inputs are resources devoted to the generation of innovation, such as spending on research and development (R&D) and the supply of skilled workers (or human capital). Innovation outputs represent the new processes, inventions and ideas brought to market.

R&D delivers the knowledge, insight and experimentation used in developing innovations. In Northern Ireland in 2020, £913 million was spent on R&D (NISRA, 2021). Almost three-quarters of this was business expenditure on R&D (BERD), just under a quarter was higher education expenditure on R&D (HERD) and the remaining 3% was government expenditure on R&D (GERD).

In real terms, BERD has performed well over the last decade, increasing by 55% since 2010 (see Figure 1). Similarly, GERD has grown by 49%, although expenditure is at a much lower level. In contrast, HERD grew by just 11% over the decade between 2010 and 2020.

In 2020, in-house BERD accounted for 1.5% of Northern Ireland’s gross value added (GVA) – a measure of the value of goods and services produced. This was similar to the UK average (1.4%) but much lower than the best performing UK region, the East of England, with spending equivalent to 3.5% of GVA.

It is also worth noting that in Northern Ireland R&D activity is highly concentrated; the top ten R&D spending businesses account for one-third of all BERD, while almost two-fifths of BERD spending is in Belfast.

Skilled labour contributes to the absorptive capacity of a firm or region as it relates to the ability of individuals to understand and apply external information, knowledge and technology, thereby enhancing their innovative capabilities.

Northern Ireland’s working age population has a higher share of people with no or low skills relative to other UK regions (Annual Population Survey, 2022). Yet employees in Northern Ireland are actually relatively well qualified, with 37% qualified to national qualifications framework (NQF) level 6 and above (degree, masters or PhD level). This compares with 34% for the UK as a whole (UUEPC, 2022).

In fact, in the UK regional context, Northern Ireland comes second only to London in terms of the proportion of employees qualified to this level (see Figure 2). The share of the Northern Irish population with foundational level essential digital skills also measures up well at 79% compared with 81% in the UK (Lloyds Bank, 2021).

Figure 1: Real expenditure on R&D in Northern Ireland, 2010-20

Source: Northern Ireland Statistics and Research Agency (NISRA)

Figure 2: Proportion of the employed (aged 16-64) qualified to NQF level 6+, 2021Q4

Source: UUEPC based on Office for National Statistics (ONS), Labour Force Survey

Northern Ireland does less well when the focus is on innovation outputs. The most recent UK Innovation survey covering the period 2016-18 shows Northern Ireland to be joint bottom of the UK regional league table in terms of innovation-active businesses (see Figure 3).

Just 32% of Northern Irish (and Scottish) businesses are innovation-active compared with a UK average of 38%. Notably, rates across the UK are lower than those reported in the previous survey for the 2014-16 period.

When broken down further into more specific components, businesses in Northern Ireland are broadly on par with those in the rest of the UK in terms of process innovation – at 12% of businesses compared with 13% in the UK.

But the share engaged in product innovation – in other words, new goods or services – is lower with just 13% in Northern Ireland, compared with 18% in the UK. The gap is still there when assessing the share of product innovators with new-to-market products: just over one-third of innovators in Northern Ireland undertake this more radical type of innovation compared with two-fifths in the UK.

Patenting activity, which gives inventors intellectual property rights in their new ideas, is also low in Northern Ireland. In 2020, there were almost 12,000 patent applications filed in the UK: of those just 153, or 1%, were from Northern Ireland (Intellectual Property Office, 2021).

Likewise, of the 4,500 patents granted, just 65 were from Northern Ireland, again representing 1% of the total. Both trademarking and designs registered there also each account for just 1% of the respective UK totals.

Given that Northern Irish businesses represent around 2% of all UK business activity, shares of 1% in these types of innovation output activities indicate that they are lower than would be expected.

In contrast, university spin-outs – companies that emerge from scientific research – represent a successful element of Northern Ireland’s innovation ecosystem. In 2020, Queen’s University Belfast was ranked first in the UK, and Ulster University 16^th, in terms of their entrepreneurial impact ranking, a metric calculated according to the key indicators that influence spin-out activity at universities (Octopus Ventures, 2020).

Figure 3: Percentage of innovation-active businesses by UK region, 2014-16 and 2016-18

Source: NISRA

Note: Round point = 2014-16 level; bar = 2016-18 level

Figure 3 suggests a relatively poor performance in the UK’s innovation context. But Northern Ireland performs at or above the European Union (EU) average in a small number of innovation-related pursuits, including the above-mentioned product and process innovation activities.

Where Northern Ireland particularly excels is in the collaboration of small and medium-sized enterprises (SMEs) with other enterprises or institutions (see Figure 4). This is a form of open innovation whereby innovation is co-created with external partners.

In Northern Ireland, businesses collaborate for innovation at twice the EU average rate. This collaboration is strongest with suppliers, and private sector clients or customers, although in Northern Ireland, it is mostly undertaken at the local rather than national or international level.

Figure 4: Northern Ireland and EU relative performance in innovation activities, 2019 (EU=100)

Source: European Regional Innovation Scoreboard

How might the innovation ecosystem be improved?

The evidence summarised above suggests that despite the poor outcomes, some components of the Northern Irish innovation ecosystem are performing relatively well. But it is not enough for individual elements of the ecosystem to work.

Indeed, according to the European Commission, a balanced innovation system is needed that performs well across all dimensions. The Commission’s analysis suggests that the most innovative regions are those within innovative countries and those that perform particularly well in terms of their research system and business innovation (European Commission, 2021).

In Northern Ireland, it is encouraging that BERD has increased, but it is concentrated within too few firms and it is regionally unbalanced. And while some parts of the nation’s workforce are well qualified in a UK context, their skills capabilities are not being translated into innovation outputs.

This is particularly the case with new-to-market outputs, suggesting a potential lack of innovation prioritisation among business leaders. This deficiency of innovation activity is subsequently related to the nation’s poor productivity and economic performance.

The most recent economic strategy for Northern Ireland, a 10X Economy (DfE, 2021) emphasises the nation’s ambition for a decade of innovation. Its aim is to focus on innovation in areas of competitive advantage to deliver fundamental change resulting in a ‘ten times better economy’, which benefits all people, businesses and places.

The aim is admirable and undoubtedly there is an improving base from which to work. But the bottlenecks in the existing innovation ecosystem need to be identified and addressed. Without doing so, the ecosystem will not deliver on its potential.

Where can I find out more?

The Department for the Economy’s 10X strategy sets out the policy aim and focus on innovation for the next decade.
The European Regional Innovation Scorecard assesses the innovation performance of European regions across a number of metrics.
The UK Innovation Survey contains sub-regional data on innovation performance across the UK.
Innovation and the knowledge-base for entrepreneurship: investigating SME innovation across European regions using fsQCA: Using a novel methodology this study looks at the importance of four interlinked conditions for innovation by SMEs across European regions.
The Enterprise Research Centre website contains a number of reports on the topic of innovation.