Monetising innovation

The UK, however, continues to slip further behind in the fabrication and manufacture of these products, with a recent IBISWorld reportshowing a nearly 3% annualised drop in production over the last 10 years – which is forecast to continue over the next 10 years. The reasons for this are generally economic in nature, with manufacturers continually moving production to lower cost regions such as Eastern Europe, China and the Far East. Although there are some signs of a slowdown in the rate of production growth in China – due to the introduction of minimum wages and growing standards of living – the UK is always likely to be a more expensive geography to manufacture in.

Although the prospects for mass volume production remain challenging, the outlook in research and development is looking healthier. To understand why, it is necessary to take a step back and look at the nature of complex modern systems. For example, within the medical electronics sector, new diagnostic and powered surgical systems – when taken from a 30,000-foot perspective – appear largely as software systems. Indeed, the boundaries between software and electronics continue to blur to the point where many recent graduates in electronic engineering, when commencing work, do not know how to solder proficiently. In fact many companies now have informal lists of universities where they can still expect graduates to have plenty of hands-on experience.

Should this trend worry UK plc? On recent analysis, the answer is 'yes' and 'no' in equal measures, depending on your viewpoint. Electronic systems are moving more and more to a model where a defined set of highly complex modules – often implemented in the form of an ASIC or complex board – are replicated in high volume at a low-cost centre. To build a small-footprint, high-function device it is now economically unviable to try to design the complex circuitry and software from scratch. Indeed, it is highly unlikely for any company – including large multinational consumer companies – to design a Bluetooth module and software stack, let alone contemplate building a processor. As these critical components gain in power, the number of ancillary components falls – leaving less for the electronics engineer to add and pushing more and more functionality implementation on to software engineers.

This is an area, however, where the UK excels. To design the core functional blocks requires teams of highly educated engineers whose input is critically leveraged by manufacture in high volumes, often outside the UK. As the output is amplified by mass production, the importance of absolute wage levels and company overheads is far less significant. Engineers hired into such companies are gated by technical performance not, generally, salary level caps.

In addition, the UK also has a well-proven and effective legal system which allows the protection of designs and, critically, their monetisation through licensing. This infrastructure is as essential as the top-class engineers in turning brilliant design into profit.

ARM is the poster child of this approach, generating highly complex IC designs which are licensed for others to actually build. ARM is known to the public as an electronics company but, if you visit, you would be hard pushed to know this – what you would actually see are engineers working hard using computers. To the untrained eye they could be doing anything – critically, there are no soldering irons or machines populating PCBs. This model is replicated in ARM's backyard, with a similar story being played out from companies such as CSR and the large Cambridge contract research and development companies such as Cambridge Consultants – where the use of complex modelling and design simulators is where the really difficult work takes place, with actual builds being used to confirm designs.

Given this is the reality of the modern electronics world, the UK should embrace and leverage further the advantages and critical mass it has. The increasing blurring of software and electronics should be encouraged rather than shied away from – it is true that most electronic designs are controlled by software but it is critical that this software is written by engineers who have a firm understanding and feeling for the realities of physical implementation.

To summarise, the UK electronics industry is highly effective where complex designs are replicated in lower cost manufacturing centres, with income being returned through the use of IP licensing. The good news is that many industry sectors are moving in a direction where this business model is particularly applicable.

Within medical electronics, for example, a current theme is the movement of diagnostic and patient management closer to the patient and away from secondary care centres. With many patients having long-term health issues, accurate monitoring of known conditions – as opposed to a wide range of diagnostic tests – is leading to an increase in patient independence and a lowering in health costs. In general, any system which can reduce the time and frequency of patient visits to hospital can show significant cost savings. Such systems have two major requirements – firstly, to maintain diagnostic accuracy and, secondly, to reduce the cost of manufacture. This creates an environment where a fundamental knowledge of measurement principles, coupled with a design excellence in condensing complex behaviour into a small number of significant components, creates a competitive advantage. This falls firmly into the areas the UK does well in – complex design which can be manufactured with income returning through IP agreements.

Transport is another area with significant growth potential for the UK. The growth of the electronic and hybrid vehicle sector is leading to complex and critical control systems that require manufacture in high volume. In addition to this, conditions similar to the medical sector exist where the enforcement of licensing is relatively straightforward – a major automotive manufacture will require traceability of parts, particularly those that are critical for safety and performance.

Wireless communication again provides a fertile environment where the UK's strengths can be applied. The combination of high volume and high-complexity parts offering significant functionality provides an ideal situation to leverage engineers where technical ability and a critical knowledge base of staff can be used to deliver performance and cost improvements for end users. Such analogies can be extended to the development of smart cities and the ubiquitous 'Internet of Things' where complex cost-sensitive parts manufactured in high volume are changing the technological landscape.

Although the UK is well positioned to maintain its global position in the development of such complex systems monetised through the protection of IP licensing, it should not rest on its laurels. China, for example, is producing 20 times the number of skilled graduates as the UK – and India eight times. The UK currently has the critical mass and incumbent position but needs to concentrate on developing and attracting key talent as well as the legal frameworks necessary to ensure a safe place to develop long-term critical components.