Today the Innovation Caucus and the Enterprise Research Centre published Wave 2 of their joint report commissioned by Innovate UK into how supported businesses have weathered the pandemic.
This Insights Paper was prepared by Stephen Roper (Enterprise Research Centre and University of Warwick), Tim Vorley (Innovation Caucus and Oxford Brookes University) and Jen Nelles (Innovation Caucus and University of Sheffield).
Download the Wave 2 report here. The Wave 1 report can be found here.
Stephen Roper, ERC Director and co-author, has also written a short blog reflecting on the key findings.
Headline Summary
Trend and outlooks in October/November 2020
- R&D and innovation activities remained critical to many firms – Particularly to small and micro firms who reported increased significance of R&D activities at greater numbers than the previous period. A fifth of all firms planned to increase R&D and innovation investment by at least 10 per cent over the next three months (up from 1:13 in the Wave 1 survey). Overall, R&D is seen as “crucial to survival” (in the words of one respondent) but firms vary in projected timelines to increase investment in this area.
- Disruptions to R&D were decreasing – although firms still reported significant disruptions due to cash flow, networking, and business development. In this survey period (October), 31% fewer firms cited R&D disruptions, while 50% fewer firms reported that they had stopped all R&D activity, and 42% fewer firms reported that they were re-tasking R&D personnel to essential functions.
- Business revenues were rebounding slightly – The proportion of businesses reporting a reduction in revenues over the last 3 months in October was 58.1% down from 69.7% in the preceding period. A small number, 9.1% (1:11), of firms increased their revenues, a threefold increase compared to June 2020 (3% or 1:33). However, about the same number of firms (1:3) had their revenues halved or reduced to zero, with a slight decrease from 36% to 30%.
- Cash flow concerns were decreasing for some firms – 11% (1:9) firms experienced positive cashflow in October 2020, a 250% increase from June 2020 (4%) and fewer firms (1:6) described their liquidity as ‘critical’ compared to the previous period (1:5), with 2:3 firms reducing costs to manage liquidity challenges.
- Business rates relief has yielded some benefits – 1:4 firms benefited from business rates relief, four times more than in June 2020 (6% or 1:17), which was the most commonly utilised measure to mitigate the impact of Covid-19.
- Collaboration rates are beginning to increase overall – Levels of collaboration with suppliers, clients/customers from the private sector, clients/customers from the public sector, and government or public research institutes had increased compared to the previous period. However, there are some worrying trends in R&D collaboration with universities and R&D institutes.
- More businesses plan to use grants – 1:8 firms planned to utilise the Small Business Grants Fund (SBGF) to mitigate the impact of Covid-19 over the next three months (almost double from the 1:15 in the Wave 1 survey).
Areas of current and future concern in October/November 2020
- Supply chain and demand volatility is increasing – 2:3 firms experienced changes in customer orders in October 2020, a 19% increase compared to June 2020; the majority reduced or delayed orders but more (1:4) cancelled compared to June 2020 (1:5). There was an increase in those cancelling as opposed to reducing or delaying orders.
- A small number of firms continue to reduce R&D spending – Around 1:8 firms planned to reduce R&D and innovation investment by more than 50 per cent over the next three months (down from 1:4 in the Wave 1 survey).
- Cashflow remains a problem for many firms – Although fewer firms described their financial status in precarious terms, 2:3 firms reported their cash flow as “under pressure”. Firms expected this to be a persistent problem over the short term. About a quarter of firms projected a fall in revenues of over 50 per cent over the next three months (down from 1:3 in the Wave 1 survey). Only a fraction of that (1:8) project an increase in revenues (up from 1:21 in the Wave 1 survey).
- Collaboration with R&D intensive institutions decreased – More firms reported that collaboration with other businesses within their own enterprise group (1:4) and consultants, commercial labs or private R&D institutes (1:3) has fallen compared to June 2020. While 1:3 have reduced their collaboration with universities, 1:4 have increased their collaboration, an increase from 1:7 in June 2020.
- Collaboration with universities has decreased substantially – Around 2:3 firms were collaborating with universities prior to the pandemic. 1:5 of these firms had reduced spend on collaboration by more than 25 per cent. 1:7 reduced their spending with universities by more than 50 per cent, a 38% increase from June 2020.