Can UK become a nation of innovation?

The path to success for UK tech companies is apparently to start thinking 'outside the box'.

The issue is particularly dire for the country's telcos, many of which are mired with declining or flat revenues and for whom developing innovation - in everything from products to business model - goes against their grain. That's the message from a recent research report from Snell Consultancy.

Ivan Snell, managing director of Snell Consultancy Services, told silicon.com: "The takeaway [from our research] is that UK telcos do not have innovation strategies."

More concerned with the impact of deregulation and cutting costs, UK telcos realise product innovation is a way to boost sales but few understand how to manage it, the report says. None of the companies interviewed had formal innovation strategies or systems by which to measure advancements - and the majority said there was no business case for innovation.

So what's the incentive for telcos to change their ways? Snell said: "There's a huge volume of evidence that suggests managing innovation leads to faster and greater revenues in the long term - as well as operational efficiencies."

Telecom firms are known to invest scantly in R&D. Based on the Department of Trade and Industry's 2004 R&D Scoreboard, they spent significantly less than other tech sectors in the UK - a total of $517m compared to $950m in IT hardware and $746m in software and services. Globally telecoms also fall behind, with a total R&D spend of $4.7bn compared to nearly 10 times as much - $40bn - for IT hardware and $12.3bn for software and services.

But being innovative isn't only about R&D, according to the Snell research.

It needs to be made a priority by the board and integrated into a company's overall business strategy. Someone must be accountable to measure the level of innovation within a company and money should be budgeted to support the development of new ideas, product and processes, the Snell report says.

Given that currently telcos don't have a lot of extra cash on hand, Snell said: "The challenge for telcos is to innovate on a shoestring."

For the innovation that does take place, the Snell report suggests telcos rely on suppliers and partners - such as universities, research labs and start-ups - while they master the operational deployment of these breakthroughs.

The report, titled the Snell UK Telco Innovation Report 2004, is based on interviews with 25 senior executives from about 10 UK telecom companies including fixed line, satellite and cable operators as well as mobile companies and a service provider.

Innovation is a focus for all technology companies in the UK these days.

Underscoring the government commitment to this ideal, the DTI has created a new body, the Technology Strategy Board, to back technologies that could give the UK a competitive advantage. Science and Innovation Minister Lord Sainsbury announced today the board will be chaired by Graham Spittle, director of IBM's Hursley Laboratory.

Set to begin meeting next week, the board is in charge of allocating £320m to businesses developing emerging technologies from 2005 to 2008.

A panel speaking at silicon.com's CIO Forum last month agreed that innovation is key to businesses' success but that UK firms were lagging in this area.