Definitions of R & D : report with evidence.

  • Great Britain. Parliament. House of Lords. Science and Technology Committee.
Date:
1990
Catalogue details

Licence: Open Government Licence

Credit: Definitions of R & D : report with evidence. Source: Wellcome Collection.

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    23 November 1989] [Continued [Chairman contd.] breakdown—and it varies between industries. I think that is an important thing. Secondly, I believe the UK problem is, in fact, that there is not enough development and therefore you need to separate development from research to understand how much is done in relation to, say, similar countries. So I certainly do wish to see recommended a breakdown between the research and the development elements. 100. As I understand it, if you conform to SSAP 13 you do not necessarily do that? (Mr Yates) No, I think you need to go beyond it really. I believe so. Lord Chorley 101. Are you saying SSAP 13 is inadequate? (Mr Yates) In two ways. It does not differentiate between the research and development, it aggregates them. Secondly, a company literally interpreting it might not, or would not, necessarily include the costs put into its overheads. For instance, the Ministry of Defence would allow certain charges into overheads which would not appear in the profit and loss account, so we would miss that element and so could understate it; likewise that which could be done under subcontract to the company—declaring under SSAP 13 would not necessarily put that in. In fact, it would not. Chairman 102. If you look at the totals that industry gives, those include both R & D. You reckon from that you could judge the degree to which they were putting effort into innovation? (Mr Yates) It is a very good indicator. There are others—if you have got the numbers employed in an area—but if you want a single best indicator I think the amount of money spent is the best. 103. I know when we talked to OECD they very much made the point that they wanted to try and find some way not just to judge input but to judge whether the output from R & D was actually producing the innovation expected. Is that a practical thing to do? (Mr Yates) Extremely difficult, I think. You then get into a very fine degree of differentiation, for instance there is a difference between what I might call industry based on chemistry and industry based on physics. We are in the latter, which is manufacturing industry, and it is technologies which effectively form the building blocks for the ultimate product. That is why I think the ratio between research and development spend in those two types of industry are different, and I think you have to notice there are quite wide variations in the spend, if you take it as a percentage of sales or turnover, between say electronics, where research and development (like pharmaceuticals) can be in double figures, 10 per cent. plus, and other companies, such as Aerospace, where putting an aircraft together means you are putting together a lot of things like engines (which already have he R&D in the price when you buy them) so that tends, looking only at the aircraft manufacturers’ expenditure, to understate a total R&D, and you have to be very careful about this. 104. Why does the city take fright if they see the R&D figure is high in the annual statement, which happened to Glaxo lately I understand? (Mr Yates) I think there could be two elements to this really. It is generally understood the city does not like surprises, and you could say that suddenly came as a surprise and produced the reaction, or over- reaction. The other element is that generally speaking the whole, what I would call the development investment cycle—or process of doing research and then taking it forward to the beginnings of a product and then into development and then into manufacturing—is not really understood properly, either in its various parts or the amount of time you spend in each phase. Consequently, I think the return you get on investment is not properly understood and therefore we under-estimate, I think, as a nation the importance of making those investments and the growth which comes from it. 105. In spite of the fact we have all these clever young people who are supposed to have studied science at university going into the city? _ (Mr Yates) Bringing their numeracy and ability to think, which is a great advantage to them. I tried to find a model of what I have just described in economics text books or in any of the schools of economics, and I could not find one, and I had to spend money on_ constructing this whole development investment cycle. Very often economists do not view research and development as an investment which leads to growth, but it comes in as a cost. 106. So it is the economists who need educating? (Mr Yates) And we are spending a lot of time on that. Lord Flowers 107. Not least the business schools? (Mr Yates) Yes, indeed. If you look at most of the schools of economics they are mostly associated with social sciences or accountancy and not engineering. Lord Dainton 108. Some research is insurance protection, is it not, in the sense that a firm becomes aware and ready to take advantage of other people’s discoveries? (Mr Yates) That is right, and that would increase the initial spend on research or even in the early development stage where you might wish to make one prototype of one thing if you wish to move out quickly. 109. The difficulty is knowing how to classify? (Mr Yates) It would appear if a firm was normally reactive, it would do that and that would appear in its total sum of spend. If one found one was doing half as much as one’s rivals, I would be worried. Lord Shackleton 110. Take a working system, say, of your new aircraft, are you able in view of the various components (a) to say how much is production and (b) how much is R and how much is D? When it comes to an unsuccessful project, like the electronic equipment that was going into the Nimrod—I do not