From the jet engine to a chocolate-powered racing car, the UK has always been a hotbed of innovation. But how do you turn an ingenious idea into a lasting commercial success?

A Formula 3 racing car fuelled by chocolate, steered by carrots and with bodywork made of potatoes. It sounds like the latest piece of potting-shed engineering from Wallace & Gromit. But this car is real, not a figment of an animator's imagination. Unveiled by researchers at the University of Warwick last month, the WorldFirst, which can do 125mph around corners, is the university's response to the global need for more environmentally sustainable products.

The brainchild of a team from Warwick Manufacturing Group and the Warwick Innovative Manufacturing Research Centre, the vehicle shows what can be achieved if you "broaden your vision and have a strategy that stretches throughout the chain from the raw materials to the final disposal of the car," says Dr Steve Maggs, one of the researchers. "This project demonstrates that automotive environmentalism can and should be about the whole package." But the real test will be the car's commercialisation—something that electronics entrepreneur Sir Clive Sinclair failed to do with the C5, his venture into electric vehicles, more than two decades ago.

It is this failure to marry creative ideas and technical expertise with customer insight that hobbles so many British attempts to exploit inventions commercially. And to be truly innovative, you have to do both. Hence the caricature of the garden-shed inventor lives on, while breakthroughs such as the jet engine, microwave and liquid crystal display technologies, computers and the internet, are exploited abroad, often with the help of UK designers keen to shine in a more fertile climate.

Michael Willmott, partner at the futures consultancy, Trajectory, believes that a silo mentality is largely to blame. "Most businesses can't think innovatively enough because they compartmentalise things," he says. "So computer companies, for example, still tend to be driven by what the technology can do rather than what customers want to do with it. Similarly, designers are often designing in a vacuum: they do what is physically possible. They find it enlightening when futures or research people sit down with them to tell them what people actually want. Smaller companies, which lack those artificial separations, tend to be more innovative."

But if lack of customer insight and a silo mentality work against the successful commercialisation of ideas, so does the UK's short-term culture. "For the past 30 years we have been stuck in a 'get rich quick' mode rather than building long-term value through inspiration and perspiration," says Chris Wood, chairman of Corporate Edge, a branding, design and communications consultancy. "You can't reap the benefits of innovation overnight."

This short-term approach fuelled the boom in financial services over the past two decades. And there has been no lack of innovation there. But the meltdown in the sector shows just how fragile our supposed expertise in this area is. "In the 1980s, we lost much of our manufacturing industry, but we had financial services to help make up the shortfall," says Michael Kitson, senior lecturer in international macroeconomics at Cambridge University's Judge Business School and director of the National Competitiveness Network at the Cambridge-MIT Institute. "What do we have now to fall back on?"

Relying on financial services to shore up the economy was perhaps ill-advised, particularly at a time when countries such as the US and Finland were pursuing national strategies based on creating powerful collaborations between universities, venture capitalists, public policymakers and high-technology, high-growth businesses.
But it is not too late to redress the balance, says Kitson. High-tech manufacturing, the creative industries and higher education are all areas where we enjoy significant competitive advantage, but they need to be exploited urgently if we are to turn them into major generators of growth, he warns.

There are two ways to do this, Kitson believes. One is to improve "the inter-connectivity" between universities and business. The other is to secure long-term investment in technology. "It can take 15 to 16 years and £1bn to develop one drug, which then may not work," he says. "This is a high-risk area that needs government support if it is to thrive." As Kitson says, the industrial sectors where Britain is most successful, pharmaceuticals and aerospace, are supported by health and defence budgets. "We need the government to take the same long-term perspective with new technologies."

Yet the services sector shouldn't be dismissed, he argues. "Services account for more than two-thirds of the UK economy. They do add value and they do create jobs, but it is more difficult to measure the output from services than it is from manufacturing."

But Sir James Dyson believes the balance between manufacturing and services needs to be redressed in order to correct our balance of payments deficit. "We're running out of things to sell," he says. "Manufacturing accounts for half of our exports, but we import around £80bn a month more than we export. Making things is still the future."

Dyson had to scrap his plans to set up a school of design innovation aimed at creating more UK engineers after the government rejected his funding proposal. But Professor [Lord] Kumar Bhattacharyya, founder and head of the Warwick Manufacturing Group, believes that a welcome by-product of the financial services bubble bursting is that many graduate engineers who have traditionally been soaked up by the City on leaving university may now feel more inclined to enter industry.

But Kitson believes that will require a culture change. "The market mechanism may help it to work, but the pay and status of engineers needs to be raised, along with the profile of engineering as a whole," he suggests.

Part and parcel of that will be getting more engineers into boardrooms, as there are in countries such as Sweden and Germany, says Steve Harper, who trained as a car designer at the Royal College of Art and joined Volvo in Sweden in 2000 as chief designer. That culture change may be a while coming because of the lingering snobbery associated with industry, predicts Harper, who now runs his own design company in the UK. "It's a legacy of Margaret Thatcher's belief 30 years ago that our future was as a services provider rather than as a manufacturer."

Overall, concludes Kitson, there is "lots of good stuff going on". But there is no room for complacency, and he believes that the UK needs to raise its innovation game in two areas in particular: developing new technologies and growing large, high-tech businesses. Moves are afoot to address these challenges, not least a series of initiatives prompted by the Cox Review of Creativity in Business in 2005, which made three key recommendations. The first was that designers, businesspeople, and engineers and technologists should be educated together in order to develop mutual understanding and generate more successful innovation. The second was to help existing businesses harness the benefits of design. And the third was to foster a new approach to public procurement that would encourage suppliers to be more inventive.

Design London was set up in direct response. It brings together creativity and design skills from the Royal College of Art, engineering knowledge from Imperial College's engineering faculty and innovation expertise from Imperial College Business School. It is acting as the London Development Agency's delivery partner for the Designing Demand programme, aimed at helping SMEs become more design-oriented.

Design London is also guiding integrated design and business programmes for MBA and masters of engineering students at Imperial College and for MA students at the Royal College of Art. Students have to address a challenging idea with an invention-ready proposition, and the best proposals join the Design London incubator, which is funded by NESTA to the tune of £900,000.

The incubator aims to create start-ups that can attract further funding and become self-sustaining, or create intellectual assets that can be licensed or sold to other firms. There are six current ventures, including Artica, a cooling system that uses five per cent or less of the energy of conventional air conditioning, and Fabrican, a spray-on fabric that can be used as anything from a nappy liner to a sterilised wipe to help fight hospital infections.

Other centres of excellence are planned for the rest of the country. But while such initiatives might address the new technologies demand highlighted by Kitson, they don't meet the scale test. Nick Leon, director of Design London, believes UK entrepreneurs are limited largely by their modest ambitions. "The idea of having 100 or 1,000 employees is common in the US and Asia," he says. "We can't change attitudes overnight, but we can give people the tools to produce great products and services."

But one of those tools is finance, and it is lack of funds, typically in the £50,000 to £250,000 range, that often proves the stumbling block for companies wanting to develop ideas further. Biofuels International is facing just such a challenge. Last year, it started to manufacture Leaf Logs—logs made from naturally fallen leaves—with the help of a £25,000 grant from the Central Technology Belt. Winning an extra £40,000 from the Shell Springboard scheme not only allowed Biofuels International to invest in plant and further research and development, but it also sparked interest and orders from all over the world. The company is now seeking a further £250,000 to invest in an automated production system.

"The market is screaming out for this product and we need to produce it in hundreds of thousands, not thousands," says director Sharon Warmington. The business secured £120,000 from the Bio-energy Infrastructure Scheme, but this needs to be matched by private investment.

Biofuels International has worked with universities in the past to develop prototypes of other products. "But when you get to the point of manufacture or production, there is no funding," says Warmington. "You can't get a batch done and start to market your idea, so you are dead in the water, allowing competitors with financial backing to come in and overtake you."

The green economy was highlighted by NESTA in a recent report as one of three key areas the government needs to invest in to address the short-term effects of the financial crisis and to refocus the economy on growth and innovation. The others are healthcare and digital media. Failing to invest adequately will cost us more than £44bn a year in lost revenue by 2013, warned NESTA.

NESTA chief executive Jonathan Kestenbaum welcomes the government's announcement of a £750m investment fund to support high-potential technology businesses. "It is the first time we have seen a firm statement about backing growth sectors," he says.

But of potentially greater significance would be a change to Whitehall's own procurement policy, says Stian Westlake, NESTA's executive director, policy and research. "The government spends about £125bn on procurement in areas from health to defence to IT every year, and it can do it in a way that encourages innovation, or not," says Westlake. "The bad old story is that they have looked for a very standardised product, with price being the main factor. But the better way is to give the private sector more say in determining how best to fulfil its requirements. That opens the door to more innovative providers."

The policy of requiring a percentage of tenders to go to SMEs is well established in the US, and the Technology Strategy Board is pursuing a similar approach in the UK, with its SBRI programme. Aviation procurement in the 1930s encouraged small, diverse suppliers, says Westlake, with planes such as the Hurricane and Spitfire being the direct result. Necessity, as they say, is the mother of invention. We have to hope that over the coming months and years, it will prove the mother of innovation, too.

A report from NESTA, The Connected University, argues that universities should take centre stage in a new-look UK economy, driving the development of high-growth sectors such as biotechnology and green technology by supporting the development of clusters of excellence. The model of a connected university is epitomised by Dundee University's success in pioneering research and business developments in life science. This has transformed the local economy, with high-quality firms, research institutions and scientists gathering around the university to create more than 4,000 jobs.

Another recommendation of the report is for universities to develop more "boundary spanners"—people with experience of both the public and private sector who can forge links between them.

Alan White, chief executive of the Central Technology Belt, says this could help break down cultural and structural barriers that have worked against effective technology transfer. "Culturally, academics are reluctant to get involved with businesses unless it supports their own research objectives," he says. "Outreach offices are supposed to help effect a greater congruence of interests, but businesses seeking to engage through these offices often have unhappy experiences, particularly with bigger universities, which tend to be more bureaucratic."

Michael Kitson, one of the report's authors, believes that there has to date been too narrow a view of the role universities can and should play in business innovation and growth.

"Yes, new firms, patents and licences have sprung out of the science/technology base, but that is only a small part of the way universities interact with businesses and will never make them very much money," he says. "While the science base is important, business schools are an important source of management practice, too. A better description of the relationship between the two sides is knowledge exchange rather than technology transfer."