TOWARDS GREATER ENTREPRENEURIAL DYNAMISM - INTERACTIONS OF INNOVATION AND EDUCATION SYNTHESIS REPORT INSTITUT FÜR ANGEWANDTE WIRTSCHAFTSFORSCHUNG TÜBINGEN SEGAL QUINCE WICKSTEED LIMITED AUGUST 2000 TOWARDS GREATER ENTREPRENEURIAL DYNAMISM - INTERACTIONS OF INNOVATION AND EDUCATION Synthesis Report Institut für Angewandte Wirtschaftsforschung Tübingen Segal Quince Wicksteed Limited August 2000 CONTENTS Page 1. Introduction........................................................................................................1 2. Policy implications............................................................................................2 Implications for Germany of UK experience........................................................................2 Pragmatic approach to business links..............................................................................3 Promoting business-higher education interactions..........................................................3 Innovation improved by Competition between HEIs........................................................4 Credit Accumulation and Transfer Schemes (CATS).......................................................5 Lectureships in entrepreneurship.....................................................................................6 Implications for the UK of German experience....................................................................6 Vocational education........................................................................................................6 Fachhochschulen.............................................................................................................6 The Steinbeis model........................................................................................................7 Regional networks to support university start-up companies...........................................8 Promoting opportunities for students’ interactions with business.....................................8 Issues for Germany and the UK to explore and take forward together................................9 Data..................................................................................................................................9 Higher Education System and entrepreneurship/innovation..........................................10 Ownership of intellectual property rights (IPR)...............................................................10 Careers guidance to students........................................................................................11 Length of degree............................................................................................................11 Students’ companies......................................................................................................11 Training in Information Technology (IT).........................................................................12 3. Innovation and education in Germany and the UK: An overview................14 Indicators of innovation......................................................................................................14 The education systems......................................................................................................15 Secondary education.....................................................................................................15 Vocational Training........................................................................................................16 Higher Education............................................................................................................17 4. The six elements..............................................................................................19 Element 1: The image of the entrepreneur in society and motivation for self-employment................................................................................................................20 Element 2: Practical relevance of academic training and Element 3: reinforcing and integrating subjects relevant to innovation................................................22 Element 4: Flexibility and adaptability of the education system and vocational training to new technical and commercial requirements...................................25 Element 5: mobility between research/education and business (and how industrially sponsored research is viewed by the education system)..................................................26 Mobility...........................................................................................................................26 Views on industrially sponsored research......................................................................28 Element 6: Conditions for setting up a business outside the academic world..................29 1. Introduction 1.1 This document is a synthesis report based on the outputs of two parallel studies exploring interactions between the education systems and innovation in Germany and the United Kingdom (UK). The UK study, commissioned by the Department of Trade and Industry (DTI), was undertaken by Segal Quince Wicksteed Limited (SQW) and the German study, commissioned by the Federal Ministry of Economics and Technology (BMWi) by the Institut für Angewandte Wirtschaftsforschung Tübingen (IAW). Both studies followed the same terms of reference which specified six topics for exploration. These topics were agreed by both Ministries following a joint Anglo-German ministerial conference on innovation in 1999. They were selected because they were considered to address important issues for wealth generation and also to raise interesting differences between the two countries. 1.2 The studies began with a literature review of the six elements and limited consultations with experts and interested agencies in the two countries. This was followed by the preparation of working papers and a workshop involving the study teams and the clients. Each of the study teams subsequently prepared country reports. This was followed by a further workshop with the clients and seminars with interested parties in each country. The current document has been prepared following discussion between IAW and SQW. 1.3 Following this introduction, chapter two presents policy implications, chapter three presents some statistics on innovation-related activities in the two countries and describes the education systems, and chapter four summarises information relating to the six elements. Whilst officials from both Ministries have been involved in reviewing the research during the project, the conclusions and policy recommendations included in the report are those of the authors and are not necessarily representative of government policy in either country. 2.1 The policy implications presented in this section are derived from a comparative analysis of experiences in the two countries relating to programmes and initiatives which work well and those which have been less successful. Cultural, social and economic differences between Germany and the UK mean that, with perhaps a few exceptions, it would not be sensible to attempt a simple transplant of schemes from one country to another. However, both countries provide insights and lessons which are valuable to the other and the policy implications are concentrated at this level. They have emerged from a consideration of each the six elements through a process of reviewing reports prepared by the two study teams and a number of workshops involving the study teams and both clients. Most of the policy implications will, however, have impacts on more than one of the six elements. In part this reflects connections between the six elements, but also the fact that the key to unlocking the education system’s potential in these areas is to enhance the quantity and quality of interactions with business and virtually all the factors discussed below have impacts on such interaction. The policy implications are presented in tabular form, at the end of the chapter, showing which of the six elements they would impact on. 2.2 In general, the UK can learn from German institutions and how they work, thus trying to improve the structural elements of its education system, while Germany can learn from the way processes work in the UK system. 2. Policy implications Implications for Germany of UK experience 2.3 There are initiatives in the UK, some of which have already been established for a long time (e.g. Young Enterprise; Credit Accumulation Schemes (CATS)) that have had a blue print role for Germany. Examples like “Junge Unternehmen initiieren - organisieren - realisieren (JUNIOR)” (and practice firms) as well as other projects at school level are running successfully in Germany now. In other areas new initiatives were implemented without having direct original counterparts in the UK (e.g. “Junge Innovatoren”, “EXIST - Existenzgründer aus Hochschulen”). Thus, in the German education system there has been substantial activity towards the initiation of an entrepreneurial spirit and innovative action. There is only limited demand for (further) policy action at present. Instead, some time is needed for the more recent initiatives to be established nation-wide and to show performance and efficiency, in order to be assessed and evaluated. Yet still areas can be identified where Germany could learn from UK experience. Pragmatic approach to business links 2.4 In the UK contacts between the education system and business seem to be almost natural at all levels. This means sponsoring as well as advice. Very often it does not happen on a highly formalised but more or less on an ad hoc basis. One of the more formalised ways are alumni organisations. This is poorly developed in Germany and faces bureaucratic as well as mental barriers and a lack of tradition. The UK shows positive - every-day - examples of co-operation. Promoting business-higher education interactions 2.5 As mentioned above this is key to almost all the elements. Interactions with business enable academics to become better informed of business needs and can therefore shape curricula and research agendas so that these needs are more likely to be met. For students interactions provide an opportunity to gain first hand experience of business and thereby to develop relevant skills and capabilities as well as becoming better informed of the career opportunities which are open to them. Higher education (HE)-business links in Germany are already substantial and have grown rapidly over the last decade. Nevertheless the impression is that higher education institutions (HEIs) in the UK care more about their students’ contacts with business. 2.6 Some of the terms and conditions of employment in German universities may inhibit rather than encourage interactions. The most important of these is the status of professors and in particular the authority they have over junior staff, which inhibits junior staff from considering links with business because they are not allowed to conduct the research themselves. Professors themselves are, compared to the UK, under less pressure to secure external research funding, as all but the larger units can apparently operate without external funding. Changes to this status would promote a more outward looking stance and also enable any incentives to work with industry to function more effectively. 2.7 Germany de facto requires professors to have completed a Habilitation1 thesis before they can be appointed to a chair and the average age for Habilitation is around 40. This makes it virtually impossible for staff to move permanently from industry to universities and removal of this requirement would enable mobility. However, it is unlikely to promote movement on a substantial scale since other factors, for example salary differentials, are also major constraints. 2.8 The UK experience of advisory committees, comprising some industrial members, to university departments could also be relevant to Germany. The effectiveness of these committees depends on whether industrial members are engaged fully and this will tend to reflect the benefits a company expects to derive from links with the HEI. For this reason members tend to be drawn from companies with a range of linkages, for example research sponsorship, graduate recruitment and training services. 1 Virtually a second higher level PhD Innovation improved by Competition between HEIs 2.9 In Germany thinking in market terms is developed poorly at the universities. This is in contrast to the UK where market orientation is not an end in itself but a means to facilitate and improve the adaptation to changing requirements. Furthermore it is seen to promote the efficient use of resources. The fast adaptation is especially necessary and longed for (by students and employers), where the HEIs prepare for a job in business. Attention has to be paid to the soft-skills (e.g. social and communicative skills, entrepreneurial thinking). In the UK over the last years the pressure to behave in a competitive way has been raised. The funds for research and teaching are very much allocated according to achievement. So the funds are linked to the student number as well. This means that in order to get funds universities have to compete for students. Enrolled students provide the university with money also directly via a tuition fee. In recent times students have been required to make a means-tested contribution to this fee. As it is a fixed fee the differentiation between the universities is not promoted by higher fees with those universities which are already better off. 2.10 A first step to more market orientation in Germany could be to give the universities more autonomy and to free them from the idea of being a subordinate department to the Land government. The price of the autonomy would be a more achievement-oriented allocation of funds. Autonomy concerning the examination schemes means that the supervisory body only formulates minimal requirements, which a HEI can fulfil rather easily. So the HEI can add some features (e.g. practice-orientation, length of degree, internationality, theoretical claim). Following this there will be a development in the HEI which is obvious in the UK as well: the institution gains importance and the individual will be measured very much on its contribution to the success of the institution as a whole. 2.11 A second step might be the introduction of a general tuition fee as happened in the UK. This can supplement the strategy towards more market orientation of the HEIs. It can be seen as an additional tax to those joining a university. In contrast to much of the German discussion, in the UK the fee is not seen as a means to punish long-time students, but it is an instrument to bring money to the HEIs. As it should not be prohibitive there have to be financial subsidies to those economically not so well off. This would be as important in Germany as in the UK, as the part of the population finishing a tertiary education is no longer increasing. Paying a fee the students and their parents can be expected to become more critical customers to the university. 2.12 Such a fee increases in importance as internationality of academic training increases, of which the UK is far more aware. The absence of a fee might attract students from other countries for getting a cheap - not a good - education, while national students have very few incentives to study abroad. 2.13 As more freedom will also lead to more variety and confusion, a growing interest for rankings will be the consequence. The information should be easily accessible before introducing a fee. Nevertheless rankings bear the tendency to affirm the differences between the HEIs. 2.14 In both countries there are attempts to provide this information. These attempts are more popular in Britain, where the newspapers have published ‘league tables’ of university performance for many years. Partly in response to a real and growing demand from the public, the higher education funding councils have begun to develop performance indicators in close consultation with the HE sector. ‘Employability’ statistics will soon be included in these indicators. There is always a danger that indicators fail to measure properly their subject, but nevertheless influence strategies and behaviour. However, in the absence of such indicators the public will turn to other, usually less reliable, sources like the newspaper top-ten. As such there are sound reasons for the sector to participate fully in their development. 2.15 Following such competition HEIs might look for opportunities to make themselves and their training well known to employees from personnel departments, this way also collecting information on which qualifications are most important. Further education, where British universities are far more involved than German, might be one of these opportunities and to some extend also a possibility of earning some money. Putting German HEIs in competition with each another and liberating them from some administrative pressures might enable entrepreneurial thinking within the institution – a good precondition to train entrepreneurs. Credit Accumulation and Transfer Schemes (CATS) 2.16 A flexible scheme of modularised education and training by which individuals can acquire recognised qualifications, CATS has obvious relevance to lifelong learning adding on to vocational training or a first degree and enabling the workforce to update their skills and qualifications in line with changing demands. It is now well established in the UK with the active participation of many HEIs and other institutions but has not yet developed in Germany. We believe there is real potential for such schemes in Germany in the field of continuing education. Lectureships in entrepreneurship 2.17 The recently established UK Science Enterprise Challenge Scheme funds, amongst other activities, academic posts to teach entrepreneurship within the new enterprise centres. Similar funding has been available for chairs in Germany but few posts were established until recently. We believe the German scheme could be modified so that as well as funding full-time chairs it supported part-time teachers with direct experience of business start-ups. The UK may also provide useful lessons in the future as Science Enterprise Challenge develops. Implications for the UK of German experience Vocational education 2.18 The impressive performance of the vocational education system in Germany in part reflects the structure of secondary and tertiary education and would require radical change if it was to be replicated in the UK. However, the involvement of employers in the process of defining training requirements may well have lessons for the UK. This also reflects structural differences, notably the roles of the Chambers of Commerce and Industry, but the process itself is also important. We see merit in UK employers learning more about this process and believe an effective way to do this would be for National Training Organisations (NTOs) trade associations or perhaps the Confederation of British Industry (CBI) to act as observers to an actual process of defining training requirements in Germany. The German process also involves educational institutes and it would seem natural to include their UK counterparts in any study visits. Fachhochschulen 2.19 The Fachhochschulen provide differentiation in the German HE system which does not exist in the UK and they are much more focused on practical applications than the universities. There is a high level of demand for their graduates and they present a clear development path for school leavers interested in pursuing careers in business and other professions. As with vocational education we would not suggest that attempts be made to replicate their structure in the UK but we believe there is scope to provide elements of the Fachhochschulen educational experience within the current UK HE system. In practice this would mean alternative degree paths within a single HEI and probably within a single subject area/department. Curricula, subject matter and probably some of the lecturing staff would differ but the degree need not be of a lower status. There are in fact a few examples of combined Fachhochschulen and universities (Gesamthochschulen) in Germany. 2.20 The DTI is currently considering the development of Manufacturing Centres of Excellence which would involve universities and other organisations and whose primary function would be the provision of research and advisory services. We believe that the concept could be valuably extended to encompass teaching and that a Gesamthochschulen model would be an appropriate delivery mechanism. The Steinbeis model 2.21 The German Steinbeis Foundation (StW) is now engaged in a wide variety of initiatives relating to “technology transfer” broadly defined. Actual services are delivered through Steinbeis Transfer Centres (STCs) located at HEIs. StW gives a badge approving the quality of individual STCs and their appropriateness for and commitment to working with small and medium sized enterprises (SMEs). It also provides an efficient problem-solving network with firms’ requirements being passed from STC to STC. 2.22 There are already many UK initiatives to encourage technology transfer and applied research but many of these tend to focus on the traditional Universities with high academic ratings. At the same time those same Universities have, individually, developed Industrial Liaison Offices and, in some cases, free-standing commercialisation companies to enhance their research links with industry. They also have quite well developed procedures and structures through which academics can undertake consultancy assignments. Most of this consultancy and associated applied Research and Development (R&D) is undertaken for larger companies (though data are not readily to hand) rather than for small firms. 2.23 We believe that this model could be given consideration in the current consultation on the development of regional manufacturing centres of excellence. The UK could benefit from: ¦ a mechanism to draw in teachers from the more technically focused institutions and encourage/assist them personally to become risk-taking entrepreneurs employing staff. This could include staff from further as well as HEIs ¦ independent vetting of aspirants and subsequent training to help them set out a realistic business plan and acquire the key skills to make it a success ¦ raising the profile and credibility of those that do get going through use of a recognised and respected brand – which also brings referral business through the brand network ¦ a focus (not an exclusive one) on manufacturing SMEs. 2.24 There may be a strong case, either at regional or national levels for a scheme (perhaps similar to the now defunct DTI voucher system) to provide some subsidy to firms seeking help with technological problem solving. This certainly seems to have been important in Baden-Württemberg where the Steinbeis scheme originated. Regional networks to support university start-up companies 2.25 There is an extensive range of SME support services in the UK but few are dedicated to new start-ups and even fewer to academic spinouts. Germany has comparatively recently launched the EXIST programme to provide such dedicated support. The scheme was competitive and five programmes have been supported so far. These share a number of common features: ¦ they are regionally based which means they can tap effectively into existing networks and also draw on Länder support ¦ they all involve more than one HEI in the region. This enables the schemes to exploit economies of scale and supply expert advice and services ¦ services have been contracted out to non-HEI organisations. This has widened the pool of expertise on which the initiatives can draw and the external organisations do not appear to have encountered serious problems in relating to the HE sector. 2.26 We believe this approach contains valuable lessons for encouraging spinouts in the UK and in particular for Regional Development Agencies’ strategies towards their local universities. Promoting opportunities for students’ interactions with business 2.27 The review of German experience provided few insights into how these interactions might be promoted in the UK but it could represent an additional criterion when considering applications for funding for other purposes. More specifically explicit consideration could be given to: ¦ the extent to which applications for Reach Out funding feature student interaction with business ¦ the extent to which proposals for collaborative funding, for example under the LINK scheme, have built in opportunities for industrial participants to lecture to students on topics such as how the research outputs are expected to contribute to the company’s development. 2.28 We would not expect these actions to have major impacts on opportunities for students and they should not distort the primary aims of the programmes into which they are incorporated. Nevertheless they could have beneficial impacts at the margin. Issues for Germany and the UK to explore and take forward together Data 2.29 To promote research on entrepreneurship and to assess the importance of start-up activities to the economy in a realistic way a reliable statistical data base is needed. These data should be easily accessible to enable researchers to work with them. The official data on start-ups in both countries are either deficient or not precise enough. In order to avoid the implementation of new statistical surveys, more effort is needed to refer to and to exploit existing databases of institutions involved in the start-up process. In Germany one of these institutions is the Deutsche Ausgleichsbank (DtA) a development agency of the federal government. This bank is regularly involved if a start-up needs a higher amount of money. It offers funds at better conditions than the commercial banks. 2.30 There are three areas where data is deficient and where missing data have restricted research into the six elements of the study: ¦ academic spinout companies. While universities have been the subject of intensive study in both countries in the last years there is a lack of comprehensive data covering the whole sector and similarly a lack of time series data. Difficulties are also encountered in attempts to aggregate data from different studies because of inconsistencies in the definition of spin-outs ¦ several programmes exist to raise awareness of, and promote, entrepreneurship, amongst school and tertiary level students. However, comparatively little is known as to when attitudes towards entrepreneurship are formed. While it seems likely that some early exposure to the general concept is essential it may be that schemes could be better targeted if more was known about how attitudes change with age. We therefore see merit in a longitudinal study of attitudes towards starting a business ¦ whereas in Germany elaborated surveys are undertaken to show what occupations are being taken by graduates (including self-employment), in the UK data merely exists on the first destination of graduates in terms of which sectors they enter. There is comparatively little information on the occupations they undertake within these sectors and less on how these change over time. Such information could be valuable in seeking to identify the most appropriate balance between subject specific and more generally applicable personal skills. Higher Education System and entrepreneurship/innovation 2.31 Unsurprisingly the joint studies identified a number of further issues which both countries are grappling with and there is considerable scope for the relevant agencies in the two countries to exchange information and work together on resolving these issues. These are described below but we would note two more general points. 2.32 First, the aim must be to encourage the education systems in the two countries to address issues related to entrepreneurship and innovation but without diverting them from, or compromising, their core educational missions. This requires a careful blend of top-down direction and incentive structures and we have no doubt that a continuing dialogue between agencies in Germany and the UK would be mutually beneficial. Second, the education sector should also participate in this dialogue and the UK Committee of Vice Chancellors and Principals (CVCP) has expressed a strong interest in establishing links between UK and German HEIs to consider and address some of the issues identified during the current study. Our view is that this could make a very substantial contribution to making progress in both countries. 2.33 There are five more specific issues which are outlined below. Structural or cultural differences may limit the scope for joint action or even exchange in some of these areas (e.g. career guidance) nevertheless each country should recognise the common concern and consider the best course of action. Ownership of intellectual property rights (IPR) 2.34 As was discussed above the current position is radically different in the two countries but also an issue of some concern. Obviously the legal regulations can be dissatisfying however they are, therefore changing regulatory terms in order to enforce commercialisation ranks second. Priority belongs to making academic staff aware of opportunities gained from a commercialisation of intellectual property to himself as well as for the institution and society as a whole. Information and supporting help in exchange for part of income from commercialisation should be made easily available in HEIs. It is unlikely, though, that an optimum solution exists for Germany and the UK but a joint analysis of current practice is likely to reveal valuable lessons for both countries. Careers guidance to students 2.35 There are concerns in both countries over the adequacy of advice given to students. More specifically these relate to whether careers advisory services have sufficient contact with SMEs in order to inform students fully of the opportunities and demands and whether self-employment as a career option is properly presented. Length of degree 2.36 The length of degree is another issue which Germany and the UK are approaching for different positions and there is therefore scope to learn from one another. Our view is that the optimum lengths are likely to depend on subject area and intended career and the requirement is for greater flexibility and diversity. If so the scope to analyse the wider experience of two countries could prove valuable. Students’ companies 2.37 Experiences in both countries show that initiatives like Young Enterprise (UK) and JUNIOR (Germany) are highly accepted by pupils and students. They can be seen as an effective way of learning. It may efficiently create entrepreneurial thinking with pupils through action in reality rather than on a virtual basis, thus also promoting a realistic and positive view of the entrepreneur as such. Both initiatives are worthwhile promoting further. They should not be restricted to secondary education but also extended to further education and vocational training. In any case, the foundation of a pupils’ or students’ firm should not be the only element by which young people learn about processes in an economy and the role of entrepreneurs. These topics ought to be allocated more space in curricula in the first place. 2.38 In addition research into new technology based businesses in Germany and Britain shows that early internationalisation of businesses has a positive impact on innovation and growth. Led by Young Enterprise UK, a pilot programme has just been completed by Young Enterprise Europe to facilitate international trading between the school enterprise projects across Europe. These links provides pupils with a broader cultural experience, as well as exposing them to the potential economic benefits of international cooperation and trade, and therefore should be encouraged. Training in Information Technology (IT) 2.39 This is an issue of real concern to both countries. In Germany the system of vocational qualifications has been modified to reflect the needs of the business sector as it evolves and very rapid increases in the numbers of trained staff are expected. Nevertheless, there are real concerns that excess demand will persist especially with university-graduates. In the UK the DTI is playing a key role in co-ordinating initiatives designed to increase trained personnel. 2.40 The table over the pages sets out the relationship between the six elements and the policy implications. H, M, and L indicate high medium and low relevance. Relationships between policy implications and the six elements Element 1: the image of the entrepreneur in society and motivation for self employment Element 2: practical relevance of academic training/ Element 3: reinforcing and integrating subjects relevant to innovation Element 4: flexibility and adaptability of the education system and vocational training to new technical and commercial requirements Element 5: mobility between research/education and business (and how industrially sponsored research is viewed by the education system) Element 6: conditions for setting up a business outside the academic world Implications for Germany of UK experience Pragmatic Approach to business links M M L L Promoting business-higher education interactions H H M H M Competition between HEI H H Credit Accumulation and Transfer Schemes (CATS) M H Lectureships in entrepreneurship M M H Implications for the UK of German experience Vocational education H Fachhochschulen H L L The Steinbeis model L M M M Regional networks to support university start-up companies M H Promoting opportunities for students’ interactions with business L H L Issues for Germany and the UK to explore and take forward together Data H M M Ownership of intellectual property rights (IPR) H Careers guidance to students M M Length of degree H L Students’ companies H M Training in IT L H 3. Innovation and education in Germany and the UK: An overview Indicators of innovation 3.1 It is not the intention in this report to provide a comparative analysis of innovative activity in Germany and the UK. However we begin this chapter by providing some background statistics intended to inform subsequent discussion. Many of these suggest a higher level of innovative activity in Germany than in the UK but we would not suggest that these reflect differences in the education systems. The key comparisons are: ¦ self-employment, excluding agriculture, accounted for around 13% of total employment in the UK in 1996 and around 9% in Germany1. However, the UK share has been declining since 1989, whereas in Germany the share has been rising steadily after 1990. This development may have been influenced by reunification ¦ start-ups are being established more quickly in the UK than in Germany but the number expecting significant employment growth is higher in Germany than in the UK. This is discussed in more detail in the next chapter ¦ UK manufacturers spend just over 3% of turnover on innovation (Research and Development but also design, training etc) compared with around 4% in Germany. However, UK service firms spend with around 4% of turnover, more than their German counterparts (around 3%). This translates into manufacturing performance with around 70% of German manufacturers bringing a new product or process to the market and only around 60% of UK manufacturers. For services UK enterprises are behind their German counterparts with around 40% claiming innovations compared with 48% in Germany despite the lower levels of expenditure in Germany2 ¦ the UK also patents far less than in Germany especially in relation to European (EU) patents. Germany takes out nearly four times as many patentsat the EPO3 and twice as many US patents per million of the population as the UK4 ¦ gross expenditure on R&D as a percentage of Gross Domestic Product5 (GDP) is lower in the UK (1.8% in 1997) than in Germany (2.3%). Whereas there is a declining trend in the UK in Germany the trend points slightly upward since 1997. Defence related R&D is however much higher in the UK (0.3% of GDP in 1997) than in Germany (0.1%) ¦ business spends more on R&D in Germany than in the UK. Over the period 1993-97 German business expenditure on R&D was 1.4% of GDP, the equivalent figure for the UK was 1%1. 1 Source: OECD 2 Source: Community Innovation Survey 3 European Patent Office 4 DTI UK Competitiveness Indicators, 1999 (which quotes the US Patent and Trademark Office, and the European Patent Office) 5 Source: OECD (German figure an estimate) The education systems 3.2 One of the major differences between Germany and the UK is the system of Federal Government in the former. With the partial exception of Scotland and Wales there is no equivalent level of governance in the UK. The sixteen Länder have substantial authority, and financial responsibilities, in relation to many areas, including education. They regulate and fund all levels of education and, for example, have a direct influence over the creation of Professorial Chairs and appointments within higher education. They also have economic development responsibilities and some view education, and higher education in particular, as an important engine of local development. This has tangible effects, for example the establishment and funding of technology transfer offices on a Länder basis. But it has also led to the establishment and nurturing of Länder-based networks involving HEIs and business. Our impression is that these have led to close but frequently informal relationships between HE and business which have proved to be valuable channels for HE to become informed of business needs. In spite of considerable differences between the Länder, the structural components of the education systems which are discussed below are similar. The UK education system is regulated by central government and its agencies and although individual educational institutions have considerable management autonomy there is a high level of uniformity in many respects. 3.3 In the UK the recently established Regional Development Agencies (RDAs) have a role to play in encouraging regionally based networks and partnerships. Secondary education 3.4 The German system is characterised by an early differentiation according to levels of achievement. After the fourth form, there are three different types of schools: Hauptschule, Realschule and Gymnasium. Children will be sent to one of them according to their achievements and there is a very high correlation between type of school and subsequent career. Pupils finishing Hauptschule at the age of 15 or 16 (after 9 – 10 years of schooling) will probably go on to vocational training, most in crafts or industry. Pupils finishing the Realschule (after 10 years of schooling) take the “Mittlere Reife” exams. With this secondary degree most apply for a vocational training in business or in the non-academic parts of the health service (nurses etc.). With the Abitur, taken at the Gymnasium, students either apply for vocational training (around one third) or study at a HEI. The Abitur is normally required for entry to HE. Graduates of vocational training without Abitur can acquire access to HE if they obtain a Meister degree or an equivalent degree of further (vocational) education. Many of those with Abitur who go on to vocational training do so in the field of commerce and there are some professions which are known to restrict entry to applications from “Abiturienten”, although there is no formal requirement to do so. 3.5 The UK school system is far less differentiated. Most secondary schools in the public sector are "comprehensive" and ability does notgenerally influence admission, although a minority continue to select on the basis of ability and demand for places at these schools is generally high. Attendance to age 16 is compulsory. The main exam taken during this period is the General Certificate of School Education (GCSE) and students on average will take between 8 and 10 subjects. After 16 most students will either go on to further vocational oriented training or take A levels over a two-year period. Those intending to enter HE will take only three or four ‘A’ levels, a much more specialised curriculum than in Germany. Vocational Training 3.6 The majority of young people in Germany entering vocational education start an apprenticeship in the ”Duales System der Berufsausbildung”. While in the Duale Berufsausbildung apprentices are employed by a company where they spend 70% of their time. The remainder is spent in a vocational school. This training normally takes three years and leads to an examination validated by the chamber of industry and commerce (Industrie- und Handelskammer) or the trade (crafts) corporation (Handwerkskammer). Although it is not formally required most employers will insist on this qualification. In order to train apprentices one has to obtain a Meister degree or an equivalent qualification, both adding onto basic vocational education. 3.7 Owing to rapid changes in the work place it is crucial for vocational training to adjust to changing requirements. Job outlines are defined on the federal level jointly by employers, trade unions, the government and experts from a federal research institution (Bundesinstitut für Berufsbildung) as well as professional bodies. The chambers of industry and commerce and the chambers of crafts, respectively, of which all companies are obliged to be a member are also very much involved in the system of vocational training in terms of being a feedback interface to SMEs' demand for new qualifications. The curricula of the vocational schools naturally have to be adjusted, when job outlines change. 3.8 The UK vocational educational system is less structured. Most training leads to National Vocational Qualifications (NVQs) which can be taken in a very wide range of occupation-based subjects and also at different levels. These are entirely competency-based which means students need to demonstrate what they can do rather than what they know. As a result there is no written examination. There are around 70 “National Training Organisations” (NTOs) which are employer-led and define required competencies. The NVQs themselves are validated by a national organisation, the Qualifications and Curriculum Authority. There are two major differences from the German system: first, German employers more explicitly insist on the employee having a formal qualification in order to offer career prospects if not employment. Second, students in the UK need not attend colleges to obtain NVQs, although many will attend “Further Education” Colleges. All training can be done within companies and they may appoint their own assessors to judge whether a competency has been attained. Modern Apprenticeships offer a more structured work based learning route to qualifications (NVQs and Key Skills). Young people undertaking Modern Apprenticeships follow a rigid framework of training which has been set by employer representative organisations to ensure they get the skills that employers need. The UK Government is currently consulting on how to introduce reforms to Modern Apprenticeships including increasing the element of taught off the job training. 3.9 Due to the differences in vocational training the proportion of population who complete upper secondary courses (to which vocational training belongs) differs strongly. In Germany 84% and in the UK only 60% of the 25-64 year olds have achieved at least an upper secondary level qualification. 1 Source: OECD Higher Education 3.10 Higher Education in Germany is offered mainly by Universitäten and Fachhochschulen (Universities of applied science). 1.3 million students are enrolled at the universities and approximately half a million students at the fachhochschule. The fachhochschulen teach a more limited range of subjects (mostly engineering, business and public administration, social work), they stress the practical applicability of teaching and are open to some people from the system of vocational training who are not admissible to universitäten. The minimum time to complete HE courses is 4 years but there are very few courses of study which are completed in the scheduled time. The average length of an undergraduate degree at a fachhochschule is four and a half years and six years at a universität. Owing to this long duration of studies, the usual 13 years of primary and secondary education and - for men - one additional year of military or social service, the average age of a graduate is 28 years. In the UK most undergraduate degrees will be completed in three or four years and completion rates are also much higher in the UK than in Germany where the dropout rates are around 30%. 3.11 In contrast to the secondary level, the proportion of population having completed a tertiary education is almost identical in the UK and in Germany at about 23%, slightly above the OECD average (21%). 3.12 UK higher education is less formally differentiated. Until 1992 a distinction was made between Polytechnics1 and Universities but the distinction was then abolished. However, while there is no formal differentiation in the UK there is nevertheless substantial diversity within the system. Public funding for research is distributed by a mechanism which rewards research excellence and is very tightly focused - some 30 institutions gain 75% of public research funds, a degree of selectivity comparable to the USA. At the same time not all UK universities are considered equal and there are quite widely held perceptions of differences in quality between them. This contrasts with the German system where an undergraduate degree offered by one university is considered more or less a perfect substitute for that offered by another. 3.13 Underpinning some of these differences is the level of competition between institutions. UK HEIs compete with one another for core funding from the higher education funding councils, for both teaching and research, and also for students. Whereasin the UK HEI may select their students with institution specific application procedures, the German universitäten are regularly required to take all applicants who have the necessary formal qualifications. If there is excess demand for places then decisions are made by a central agency partly on criteria other than academic achievements. 3.14 In both countries the HE sector plays a similar role in relation to research. In the UK HEIs perform almost 20% of total R&D in the country2. In Germany the figure is around 18%. The share of industry funding of university R&D is also similar at around 11%. A substantial share of publicly funded research in Germany is undertaken outside the HE sector. The Max-Planck-Gesellschaft (MPG) has to be mentioned as an organisation to perform basic research and there also exists the network of Fraunhofer-Gesellschaft (FhG) institutes. 3.15 These are more involved in applied research and work more closely with small firms than either the universities or the MPG. SMEs play a key role in relation to entrepreneurship and innovation but represent a sector which is problematic for HE to relate to since their requirements are often for routine technical services and small contracts rather than research projects. There are important reasons for building links between HE and SMEs but the FhG represents an effective means of meeting SME technical needs. However, the UK has no equivalent to institutions like these and therefore the share of basic research performed by German universities will be lower than in the UK. 3.16 There are major differences between the two countries in the subjects which students are graduating in. In 1996/7 22% of German HEI students graduated in Engineering and Architecture while the proportion in the UK was only 13%, close to the European average of 15.5%. The humanities, social sciences and education are far more often studied in the UK than in Germany. In Germany these courses of study count for 34% of graduates, in the UK for 58%. The differences are most significant in humanities and education, with 29% of British students graduated as against 12% in Germany. 1 Fachhochschulen and the UK Polytechnics are often compared. However, while there were important similarities there were also major differences and it would be misleading to equate the two. 2 UK Higher Education Statistics Agency 4. The six elements 4.1 The six elements which are the subject of this study reflect wishes, in both countries, that their education systems should make a greater direct contribution to wealth creation. For some elements the potential contribution of the education system relates to raising students’ awareness of business and entrepreneurial opportunities and requirements and equipping them better to meet these requirements. In other cases it relates to the (higher) education systems’ abilities to undertake research of direct relevance to the business sector and to commercialise knowledge both through transfer to existing companies and by the establishment of new knowledge-based businesses. 4.2 These demands on the education systems need not conflict with their traditional roles in the economy and society. Indeed business-education links have expanded over at least the last decade in both countries and we would argue that they can reinforce traditional academic missions. However, two major considerations need to be borne in mind. 4.3 First, the fundamental requirement of the education system is to provide well-educated people for business and other employment. The concept of what constitutes "well educated" has begun to change. Many surveys have highlighted employers’ demands for recruits possessing ‘key1’ skills and entrepreneurial attitudes. These skills will be relevant to students intending to take up employment within established organisations as well as for those few who might start up their own businesses. Nevertheless, a core requirement is still for students with subject skills and the ability to put these into practice in the work environment. At the same time both countries expect their higher education institutions to undertake a substantial volume of the basic research funded by public sources, especially in the UK where there is no equivalent of the German MPG or FhG. Such research contributes both directly and indirectly to wealth creation but in many subject areas the connections are complicated and the time lags between knowledge creation and commercialisation may be lengthy. 4.4 Second, the education system cannot be expected to address all the issues relevant to the six elements and certainly not without entering into partnerships with other players and stakeholders. This is evidently true of Elements 1 (image of the entrepreneur) and 6 (conditions for setting up a business outside the academic world). 4.5 The first case depends on a complex mix of social factors and the ways in which these are transmitted by the media; other players, such as the financial sector, have key roles in relation to the latter. But to varying degrees it is also true for the other elements where the willingness and ability of the business sector to interact with the education system is crucial. 4.6 The implication is that the education systems need to diversify their missions and extend their interactions with business if they are to realise their full potential in relation to the six elements. This at a time when the systems in both countries have recently faced restrictions on funding in terms of resources per student, particularly in the HE sector. Throughout both education systems there has also been increasing pressure to expand curricula and concerns from some quarters, including business, that the quality of output does not suffer through dilution of the curricula as a result of unwarranted additions to core subject areas. 4.7 It is difficult to impose such changes in a top-down fashion. The ‘entrepreneurial and innovation’ dimensions of educational institutions’ missions should not divert and compromise their other roles. Instead, the aim should be complementarity and there are numerous examples in both countries which demonstrate that this can be achieved successfully. This requires encouragement and promotion of relevant activities with appropriate incentives for both institutions and individuals. Cultures and attitudes within education also need to change and while there have undoubtedly been shifts over the last ten years this will ultimately prove the major challenge. 1 Team working, presentational, IT etc. Element 1: The image of the entrepreneur in society and motivation for self-employment 4.8 This is an important topic for two reasons. First, both countries wish to promote start-ups and this obviously requires individuals who are motivated and equipped to establish businesses. Second, entrepreneurial skills are also of relevance to established businesses and other organisations. They are becoming increasingly valued by employers not least because of the tendency towards out-sourcing and internal markets within large organisations. 4.9 This section draws heavily on the Global Entrepreneurship Monitor (GEM)1 which provides comparative data on a number of countries including the UK and Germany. GEM data indicates that start-up rates per capita in the UK are about 50% higher than in Germany although both, as is the case with many of the positive indicators produced by GEM, are substantially below USA levels. However, the rate of forming start-ups which expect to grow to 20 jobs within five years is about 70% higher in Germany than in the UK and at levels approaching those of the USA. 4.10 Possible reasons for this are discussed below but this statistic clearly indicates that wealth creation policies need to respond to more complex demands than simply maximising the number of start-ups. In particular, increased motivation is not on its own sufficient and there are issues revolving around the ambitions of founders as well as mechanisms to support growth and development. 4.11 There is little difference between the two countries so far as perceptions of new business opportunities are concerned although both are below the European average. Skills to start up and run a business are however, more abundant in Germany than in the UK. A higher proportion of the population in Germany than in the UK have business management experience and expert opinion gathered by GEM suggests that entrepreneurial skills in Germany were significantly above the European average while significantly below in the UK. We suspect that these skill differences, which may derive from the relatively greater importance of medium sized manufacturers in Germany, explain the far higher proportion of German start-ups expecting high employment growth. 4.12 GEM asked several questions relating to motivation towards entrepreneurship and these indicated some interesting differences between the two countries: ¦ only around one-third of UK respondents thought that starting a company was a respected activity, apart from Japan the lowest rate in the survey, whereas nearly 75% of German respondents agreed with this statement ¦ similarly only one-third of UK respondents felt that friends or families would start a business if the business opportunities were good, whereas over 50% of German respondents agreed with this statement. 4.13 This is consistent with other surveys which suggest relatively high levels of motivation within Germany. However, given the rate of actual start-ups it would appear that motivation is not translated into action. In both countries fear of failure appears to be a factor inhibiting start-ups and European attitudes are often contrasted with those in the USA in this respect. For this reason the DTI has recently taken steps to reduce the period of time for which bankrupts are prevented from becoming company directors but attitudes in society will also need to change for this to be fully effective. 4.14 In contrast to the data on entrepreneurial skills (which may be acquired outside the formal education system), GEM identified education for entrepreneurship as a major constraint in both countries although expert opinion tended to place the UK ahead of Germany. There is a perceived need to introduce the topic at all levels from schools to universities and a belief that it should play a more central role in the latter. Concerns were also raised over the capacity and willingness of teachers to engage in this activity. The findings from GEM are echoed by many other studies but we also believe that there are differences between Germany and the UK. At the schools level UK students experience more interaction with business than their German counterparts as a result of compulsory work experience at age 15. Many schools also undertake projects with businesses on an ad hoc basis. The Young Enterprise Scheme also provides UK pupils with real experience of setting up and running a business. This scheme has a direct counterpart in Germany - the "Junge Unternehmer initiieren - organisieren - realisieren (JUNIOR)" scheme. 4.15 It is more difficult to generalise at the higher education level but we would note the recently introduced Science Enterprise Challenge Scheme in the UK which supports the teaching of entrepreneurship to students. Further initiatives, including University Challenge and the Higher Education Reach Out fund are also providing support to universities topromote the commercialisation of research, including spin-out companies, which should also help drive a more general enterprising, pro-business culture in academe. Further developments have recently been set out in the Government’s Science and Innovation White Paper1. 4.16 In contrast to the UK in Germany entrepreneurship has become an area for research and teaching at universities only recently. Following a federal initiative 10 professorial chairs in entrepreneurship have been established. About a dozen more are in preparation and at fachhochschulen there are some chairs to be started as well. Studies show that the willingness to establish a company has risen significantly in the last years. Not least because of the numerous successful examples in the new market. There are indications that the willingness of students to consider establishing a business is significantly lower after they had completed their degree than before. This may relate to the length of the degree in Germany and the need to generate income and minimise risk after a long period without earning. 1 Global Entrepreneurship Monitor 1999Reynolds P D, Hay M, Camp S M. GEM undertook surveys in Canada, Denmark, France Israel, USA Japan and Finland as well as the UK and Germany Element 2: Practical relevance of academic training and Element 3: reinforcing and integrating subjects relevant to innovation 4.17 The second element concerns the practical relevance of academic training and refers to the skills, aptitudes and attitudes which graduates take with them into the workplace and how they relate to the actual experience of work. The third element - that of reinforcing and integrating subjects relevant to innovation - concentrates more on the technical and subject specific knowledge which graduates take with them into the workforce. Both elements are of vital importance. Most students expect to be prepared in some way for work by studying at university and society invests resources in education from which it should expect a return. This section therefore considers how students can best be developed to meet the needs of the workplace. As there are many overlapping issues the two elements have been considered together for much of the study. 4.18 The evidence from both Germany and the UK is that employers place great emphasis on key skills, especially when recruiting for non-technical posts. Key skills (also known as core skills) relate to a person’s ability to operate in a workplace, alone or with others. Employers value them because they facilitate flexibility in learning and work. The six key skills are often described as: communication; working with others; application of number; improving own learning and performance; problem solving; and information technology. Alongside these developments there is also some evidence to suggest that employers are seeking greater commercial awareness in recruits from higher education, especially in the science and engineering areas. 4.19 The two countries’ higher education sectors have responded differently to these demands. In the UK many HEIs have sought to incorporate the teaching of key skills into their mainstream curricula and it is common for engineering students to study modules in business methods. These represent individual responses although some were seeded by a government programme1 which provided funds for HEIs to develop new approaches which would enable them better to equip students for the world of work. At the central level the Engineering and Physical Science Research Council funds a number of PhD programmes which require the students to collaborate in various ways with business. TCS2 should also be mentioned. Under this scheme graduates undertake a project, supervised by academics, for a company over a one or two-year period and this is widely recognised to provide high quality training opportunities. 4.20 There appear to be far fewer formal activities within German universities than in the UK and we believe this reflects two main factors. First, the fachhochschulen in Germany are far more practically oriented than most HEIs in the UK. They provide a clear pathway for students seeking such an education, leaving the universities to concentrate more on conventional academic teaching and research. Nevertheless various surveys of German university students have revealed significant student dissatisfaction with their courses with many citing too much theory and too little practical experience. A large-scale survey of students graduating between 1994 and 1995 covering students in the UK and Germany also provided evidence to support this hypothesis. The key results are presented in the following table. 1 “Excellence and Opportunity – a science and innovation policy for the 21st century” Available at http://www.dti.gov.uk/ost Evaluation of courses (% who rated as very good or good)3 Germany (universitäten) Germany (fachhochschulen) UK Contents of teaching 39 47 71 Practice-relevance of teaching and learning 13 37 47 Advice by teaching staff in general 22 38 28 4.21 The second factor relates to the absence of competition between German universities for students. As was described in chapter 2 in the UK system achieving the minimum level of grades for university entry does not guarantee admission and universities select which students to admit. Funding is related to student numbers and there is therefore an incentive to fill all available places. Students, and their parents, are increasingly concerned to enter a university which will equip them to enter a career quickly after graduation and this provides an incentive for universities to offer courses which are valued in the labour market. There is no such competition in the German system and therefore no direct financial incentive to deliver relevant curricula. 4.22 Career perspectives can be an effective criterion for applicants and their advisors to discriminate between universities. Therefore they need to get robust information on whether there are significant differences between universities in relation to employment prospects. The information which is currently available is far from perfect in this respect. Various newspapers publish ‘league tables’ on universities which are often misleading and always criticised by the universities. However, the higher education funding councils are developing indicators of various aspects of universities’ performance and the intention is to cover ‘employability indicators’ in the next round of published indicators. 4.23 For both systems extension of the curricula places additional demands on staff and students which may be difficult to accommodate. Employers have also voiced concerns over dilution of the core subject curricula. Key skills are valued, but employers also insist that graduates have studied subjects in adequate depth especially those recruiting for specialist technical positions. This is a particular problem in the UK where most degrees are completed in three years and there have been longstanding concerns in science and engineering subjects that core subjects are not covered to the same depth as in parts of the rest of Europe. We would note that similar pressures are being exerted on the school systems where students are expected to acquire new skills and also cope with an increasingly crowded curriculum. 4.24 Incentives to institutions and individual members of staff can stimulate practice-orientation. The absence of competition in the German system, and also the terms and conditions of staff employment, means there are few incentives in Germany but there are also issues to be addressed in the UK. Although competition does provide an incentive its effect is limited for two main reasons: 1 Enterprise in Higher Education Initiative 2 Formerly known as the Teaching Company Scheme 3 TSER – Research Project ”Higher Education and Graduate Employment in Europe”, Graduate survey 1998/99 ¦ the financial incentives are biased towards research rather than teaching and those HEIs with research breadth and depth will adopt strategies which focus on maintaining and extending these strengths rather than on innovative approaches to teaching. This point is discussed further below in relation to Element 5 ¦ although teaching relevance and quality may be key criteria when selecting universities in the UK information on these characteristics is not readily available or simple to interpret. 4.25 Practical relevance of academic training means also flexibility and diversity between degree paths. Since aptitudes and career aspirations will vary between students a single degree path may not be appropriate. In particular there may need to be flexibility in the depth of study and the extent of practical orientation which may well translate in differing lengths of study for different subjects. Germany achieves flexibility through the dual system of fachhochschulen and universities but there is no such distinction in the UK. Some flexibility does exist, for example through the opportunity to add a one year masters, and the new Graduate Apprenticeship Scheme will enable students to obtain practical skills through additional study modules. However, there may be scope in both countries to provide more varied curriculum choices within a single institution and subject. 4.26 There are also differences between UK and German universities in governance and staff terms of employment. All UK universities have external representatives, including from business, on their governing bodies. However, of more importance in the current context is the system of departmental advisory bodies. Although not compulsory it is relatively common for engineering departments to establish advisory committees or panels with business representation. Their precise functions vary but they will typically review some aspects of the curriculum. More generally the advisory panels can provide an important channel for regular communication between industry and the department and enhance many aspects of interactions between the two. This means they can provide the university staff with information which skills are mostly needed in business and they might give opportunities to collaboration and exchange of personnel. Element 4: Flexibility and adaptability of the education system and vocational training to new technical and commercial requirements 4.27 Following the rapid changes in the world of work, the ability of the education system to adapt quickly and efficiently to changing requirements becomes more and more important. These adaptation processes do not only have to happen with higher education but with professional training in general. As these processes might vary between different economic sectors, it was decided at the outset of the study to restrict the exploration of this element to two subject areas: biotechnology and information technology, computing and electronics (ITCE). These two subject areas illustrate important differences in the ways in which vocational education systems in the two countries respond to changing demands. 4.28 The factual necessity to hold a certified qualification in order to practice most trades, the co-operation of different stakeholders in defining the job outlines and the rather strong position of the chambers of industry and commerce are reinforcing the strength of the German system of vocational training. Our impression is that such bodies have enabled business to articulate its requirements more effectively to government and the education system than is sometimes the case in the UK. This has promoted effective interaction with the education system in areas other than vocational training. 4.29 This mix of requirement, widespread participation and the subsequent need to change vocational schools curricula means that the system can be slow to adapt to changing skills requirements. This proved to be the case with ITCE. However, once agreement has been reached and curricula modified the system responds quickly. Agreement on new ITCE specifications was reached in 1997 and in subsequent years the number of trainees in these professions almost exploded. Starting off in 1997 with 4,195, last year (1999) 12,837 beginners were registered.1 This means an annual expansion of about 75%. Further growth but on lower rates is expected. 4.30 Another strength of the German system is that the formalised and relatively lengthy training results in standardised and high level knowledge. This assists employers to make accurate assessments of recruits’ training levels but there may also be other benefits. Germany, unlike the UK, does not appear to have encountered significant problems in recruiting technicians into the biotechnology sector. In part this is because technician level employment appears to enjoy a higher status and reward but many of the new entrants moved from allied employment, for example in the medical field, and it was not considered a bottleneck to get adequately trained people. This mobility may have been facilitated because of the formal and standardised nature of vocational qualifications. 4.31 In the UK there are efforts to strengthen the vocational training. For example, the NTOs which define competencies are in the process of benchmarking their qualifications against other European countries in order to facilitate comparisons. We have not investigated this process in any detail but it could lead to UK qualifications moving closer to other European countries including Germany. 4.32 There are some aspects of the UK system which promote flexibility and are largely absent in Germany. The most important of these are Credit Accumulation and Transfer Schemes (CATS). Under such schemes credits are awarded for individual modules of study and a qualification is obtained when sufficient numbers of credits have been gained. CATS are largely concerned with achieving higher levels of qualifications than NVQs and typically involve universities in the validation and accreditation of training if not its actual delivery. The schemes provide a means for individuals to spread study over time (and place) and to add to prior qualifications as the need and opportunity arises. There is no reason why study needs to be restricted to educational institutions. Other training, for example in-company, can also bring credits provided courses are properly validated by an educational institution. Experimental or practice based learning can be accredited as well. As such these schemes greatly facilitate lifelong learning programmes. 1 BMBF: Berufsbildungsbericht 2000 Element 5: mobility between research/education and business (and how industrially sponsored research is viewed by the education system) Mobility 4.33 There is a general recognition in both countries of the benefits of movement between HE and industry. For academic staff a period in business can: ¦ help to ensure that curricula remain relevant to business needs, both in terms of technical content but also key skills ¦ inform their HE research agendas funded from mainstream sources such as the research councils ¦ provide access to technical expertise in business ¦ expose them to business management practices which may be relevant to HE ¦ more generally, help to establish contacts which can lead to further collaboration in both research and teaching. 4.34 The benefits to business from secondments to HE chiefly revolve around becoming better informed as to what the institution can offer and an opportunity for staff to update their knowledge of subjects and reflect on their own practice. Companies may also enhance their prospects of recruiting the most able graduates. 4.35 There is little data on mobility in either country but our strong impression is that it is very low in both despite the potential benefits. The main caveat to this being that it is a requirement for staff in the fachhochschulen to have previously worked in industry reflecting the practice-oriented nature of their teaching. 4.36 However, staff seldom return to industry from the HEI. There is a need to identify more precisely the barriers to mobility but we believe the following to be important: ¦ the difficulties, on both sides, of replacing key staff for short periods ¦ difficulties in identifying partner organisations ¦ the importance of conventional academic research for university career progression and the difficulties of combining this with work in the business sector. For younger staff in particular, where mobility appears to be lowest, there are strong pressures to focus on conventional academic research ¦ in Germany, the de facto requirement that university professors hold a habilitation degree which is virtually impossible to obtain after a career in business ¦ and perhaps concerns within HE that close contact with the private sector will result in the loss of staff from HEIs. 4.37 There would appear to be limited scope for policy intervention to have significant impacts on mobility, although we note the introduction of the Higher Education Reach Out fund in England is helping to support staff exchange programmes - either through buying out an academics' time to free them up to work with business, or buying in business experts to teach staff/students. We would draw two broad conclusions which apply to both countries: ¦ most importantly, general HE-business interactions concerned with research, continuing education etc. are a valuable substitute for mobility per se ¦ actual mobility is likely to require well-developed personal networks and there may be scope to build these around alumni associations. Views on industrially sponsored research 4.38 In the UK industrially sponsored research is generally viewed positively for a number of reasons including: ¦ in some subject areas the business is at the leading edge of technological development and academics need to relate to the business scientific community in the same way they relate to other academics ¦ it is perceived as a means of keeping informed of business needs. This in turn is important in informing the mainstream teaching and research agendas ¦ it can provide an important source of income, although in practice there are often difficulties in persuading industrial, and other, sponsors to make a reasonable contribution to overhead costs within the HEI. 4.39 Despite these fairly widely held views, the incentive systems are often perceived as not favouring industrially sponsored research. In the UK, as in Germany, the key issues revolve around the excellence of the research rather than which organisations are sponsoring it. Incentive systems within HEIs tend to be biased towards conventional academic publications rather than reports to companies, patents or 'grey' literature more generally. This is due to a perception that the Research Assessment Exercise (RAE) discriminates against industrially sponsored research and that conventional academic publications will be rated higher than industry sponsored research resulting in patents etc.1 4.40 The next RAE will be undertaken in 2001 and the explicit intention is to address these perceptional problems and make clear that all research outputs are valued equally, whether in the form of published papers or patents. A new category has also been added in the assessment process to allow research carried out in confidence for business to be rated alongside other forms of research. This will help ensure the full panoply of research outputs are covered in the exercise whether funded by the public sector or by business. 4.41 Chairs are treated very differently in the two systems. In Germany each chair will have postgraduate researchers/junior lecturers and access to equipment attached to it enabling professors to undertake some research without recourse to external funds. Furthermore, they are required only to deliver eight hours of teaching per week. Junior staff are usually not able to apply for external funding themselves and must obtain the permission of the professor. In general, academic employees do not profit from doing industrially sponsored research in terms of income. Despite all that, the volume of industrially sponsored research has grown considerably in the last years. 4.42 UK chairs are not resourced in the same way, although professors can carry much influence, at least in science and engineering they need to obtain external research funding. Junior staff are also permitted to seek external funding independently of their professors. 4.43 There is no suggestion that one system is better than the other in terms of the volume and quality of research outputs. However, there would appear to be less scope within the German system to influence behaviour by changing incentives. More specifically, since German professors have less need to access external funds there is less scope to encourage interaction with industry through making this a condition of funding. Also the more limited autonomy which junior staff in Germany enjoy can make it more difficult for them to develop a track record of working with industry unless this is consistent with their professors’ research agendas. Element 6: Conditions for setting up a business outside the academic world 4.44 This element is concerned with the establishment of companies by academics to exploit technologies developed within the higher education system. Interest derives from the importance attached to knowledge-based SMEs and the special role they play in relation to innovation and the diffusion of new technologies. Data is patchy, in both countries. The evidence suggests however that they account for a relatively small proportion of the total number of start-ups in both countries but, as might be expected, they are relatively more important in relation to technology-based start ups. 4.45 Research in Germany and the UK indicates five key areas influencing the rate of academic start-ups. First, we would mention the obvious but important consideration of academics’ attitudes towards running a business. In many ways the issues here are similar to those relating to the population as a whole. However, individuals with sufficient qualifications to become an academic had, in many cases, a wide range of choices at the beginning of their careers but nevertheless opted to become academics. For many this will have represented an explicit rejection of business related activities in favour of traditional academic pursuits. Attitudes can of course change over time and much will depend on the cultures of individual HEIs and the existence of successful role models. 4.46 In this context it is interesting to note the results of a survey of staff at Cambridge University undertaken by one of the authors of this report. Academics were asked about attitudes towards commercialisation and dissemination of their results. Almost a third thought becoming an entrepreneur would be “good or very good” and nearly a fifth “bad or very bad”. The equivalent figures for licensing were 56% and 9% and for publishing 99% and 1%. Cambridge is one of the leading UK universities so far as spinouts are concerned and the University is more positively disposed toward such activity than most. 4.47 Nevertheless, there are widespread reservations amongst academic staff when it comes to starting a business. The length of the German degree may be a serious consideration in the current context since research indicates that entrepreneurs are likely to take the decision to start a company at a relatively young age but after a period of employment. So the decisive period, where it is attractive to become an entrepreneur, is very short in Germany. 4.48 The second area relates to identifying business opportunities arising from research. In some cases individual academics are well placed to do this because of their knowledge of a specific sector. However, more often a wider commercial knowledge and experience needs to be brought to bear especially when commercialisation requires the combination of intellectual property from different sources. In both the UK and Germany universities have established organisations to exploit their intellectual property but it is difficult for these organisations to contain a sufficiently wide range of knowledge of business opportunities. 4.49 One response in Germany has been to establish organisations relating to more than one university and thereby seek to exploit economies of scale. In the UK many universities work with the BTG plc on the exploitation of their intellectual property.1 More generally, universities need to look outside for assistance in identifying commercial opportunities and to facilitate access to their researchers by organisations with greater commercial knowledge than resides within the HEI. 4.50 The third area relates to direct support for academic spinouts. Many of their needs for assistance are not different from those relating to other start-ups but some are. These include a focus on knowledge-based start-ups and the special marketing and finance requirements these imply and the likelihood that many founders wish to maintain some association with the university. Both countries have some support programmes focused on academic entrepreneurs but we would note in particular the following: 1 An especially important consideration here is the Research Assessment Exercise (RAE) which determines the allocation of research funds by the higher education funding councils for research infrastructure and it has become the major driver of research strategies in most HEIs. ¦ the German EXIST- Existenzgründer aus Hochschulen programme is an interesting example of a programme which capitalises on existing regional networks but is targeted on promoting the academic spin-outs ¦ there are few examples in either country of incubator units targeted specifically at academic spinouts, although Germany does have programmes to provide HEI researchers with space and other resources to develop ideas through to commercialisation. This may reflect the relatively small number of spinouts which are likely to be generated by any single HEI and therefore the relatively high costs of provision. 4.51 The fourth point is related to the last and concerns the possibility of running a start up business while retaining an academic position and thereby reducing substantially the risks to the individual. Whereas in Germany professors may start up a business but may not by law own and lead a company, in the UK the terms and conditions of academic employment permit this. There are of course in both countries restrictions on the amount of time academic staff can devote to their business activities. 4.52 The German Steinbeis model is of interest in this context since it assists entrepreneurial academics to deliver consultancy and applied research services, mainly to small businesses. The academics are not required to form a company but there are aspects of the delivery mechanism which are similar to company formation. As such the Steinbeis model is a substitute for company formation positioned at the boundary of the academic and business worlds. 4.53 Finally there is the issue of incentives. The German and UK systems differ radically so far as ownership of intellectual property rights (IPR) is concerned. In Germany rights to results from publicly funded researchare in principle assigned to the professor undertaking the research while in most UK universities they are owned by the university1. In both countries questions have been raised as to what is the most appropriate system for maximising the commercialisation of research results. The German system provides a very direct incentive to the individual to commercialise research results but also gives them a good deal of control over exploitation and problems can arise when the inventor lacks the expertise to manage exploitation effectively. For these and other reasons the German system is currently under review. The UK system provides fewer direct incentives to the individual but does facilitate the management of intellectual property by dedicated organisations. The incentive issue is typically addressed by a framework of university regulations which enable the inventor to benefit personally from any commercial regulations. Both countries are concerned to ensure that, wherever commercial potential does exist, academic research is to be exploited. Their experiences underline the fact that there is no simple solution and also that many other factors in addition to ownership need to be considered. 4.54 There is little evidence to suggest that one system is superior to the other. Indeed a review of the way IPR are assigned suggests that ownership per se is not the main issue and that issues to do with control and the role of technology transfer organisations also need to be considered. 1 Until a number of years ago, the National Research and Development Corporation (NRDC) had a first right of refusal to all research results in UK universities arising from work funded by the research councils. NRDC became The British Technology Group which was then privatised in 1992, and preferential access to research was removed. 1 In practice in both countries ownership of IPR will depend on who sponsors the research. In particular, industry sponsors will often seek to negotiate some share of ownership or control.