Understanding the importance of innovation and productivity in the UK

Innovation and productivity are key to improving living standards, as they lead to higher incomes and improved public services. Although measuring innovation is challenging, getting more companies to innovate is crucial for boosting productivity in the UK, especially with recent estimates showing productivity has struggled to recover post-pandemic.

The Department for Culture Media and Sport (DCMS) commissioned the National Centre for Social Research (NatCen) to investigate how innovation supports productivity in its sectors, and what influences it.

The study used multiple methods including a Rapid Evidence Assessment (REA), 8 in-depth interviews and a workshop with 12 industry practitioners. Insights from the REA were used to create four case studies. Four broad policy recommendations were also formulated to support innovation and productivity in DCMS sectors.  

Innovation in DCMS sectors

Our research found that innovation in DCMS sectors leads to productivity in two ways:  

• Streamlining processes and improving efficiency: by streamlining workflows, removing unnecessary steps, and using advanced technologies, organisations can reduce their costs and improve productivity. For example, AI-driven automation in sectors such as tourism, journalism, sound design, and civil society speeds up production and reduces the need for manual labour, lowering labour costs. Methods like 3D printing in design and virtual production in film and TV enhance efficiency and boost productivity.
• Boosting engagement, sales and revenue: creating new or improved products and services helps organisations meet changing consumer demands, increasing customer retention and revenue, which improves productivity. For example, technologies like Augmented Reality (AR) and Virtual Reality (VR) in museums and games, as well as smart technologies and voice assistants in tourism, offer unique experiences that engage customers, improve satisfaction, and encourage repeat visits. Diversifying service offerings also creates new revenue streams and reduces reliance on a single customer group. For example, performing arts and sports organisations attract wider audiences and customers by offering innovative activities to attract various demographics. These innovations enable businesses to remain flexible and resilient in a changing market. 

Technological innovations are more common than non-technological innovations, especially in the creative and cultural industries, tourism, and gambling. For example, VR, AR, and Artificial Intelligence (AI) are used in multiple sectors. VR and AR support innovation in film, museums, games, and tourism, while AI is used in tourism, civil society, journalism, and sound design. However, the complexity of technology applications varies across sectors. Charities often use basic AI chatbots for routine tasks, while the creative and cultural industries and tourism use AI for more advanced activities like generating music and providing complex guest services. These examples show how the same technology is applied differently across sectors, either to create innovative products and services or to support production, indicating different levels of technological sophistication. 

Non-technological innovations are less common, and mainly found in sports, civil society, and the creative and cultural industries. These often involve co-production and collaboration to optimise resources and foster growth. For example, charities and sport clubs use open innovation to engage stakeholders, share knowledge, and co-create initiatives to better meet community and organisational needs.  

Barriers and enablers to innovation in DCMS sectors

Our research found three factors that can either help or hinder innovation: 

1. Individual and organisational attitudes and values;
2. Access to finance and funding;
3. Access to knowledge, skills, and training. While the literature often mentioned lack of finance and skills, the evidence was mostly qualitative, and the few quantitative findings were not widely generalisable.  

How DCMS sectors adapt to innovation

Our research found limited examples on how organisations in DCMS sectors adapt to innovation. These examples can be broadly grouped into three categories of adaptations:

• Technological adaptation involves organisations updating software and integrating new systems with existing ones. For example, film and TV productions invest in ready-to-use software systems for virtual production, while hotels upgrade their technology to integrate voice assistants.  
• Organisational adaptation refers to changes in structures, strategies, and operations in response to innovation. In film and TV, the shift to virtual production has led to hybrid work models and redesigned workflows. Organisations using AI change their workflow to include human feedback and oversight. Civil society and sports organisations adopting open innovation need flexibility to incorporate feedback from various stakeholders at different stages of service delivery.  
• Skills adaptation involves upgrading skillsets to effectively integrate innovation. For example, the creative and cultural industries require mentoring, bootcamps, and accredited training. In the tourism sector, comprehensive training and continuous learning are essential to overcome employee resistance to change.

Policy recommendations

Through our research, we formulated four broad recommendations that could support innovation across DCMS sectors:

1. Improve workforce digital skills: Future policies and initiatives like Skills England and the Digital Skills Inclusion Plan should focus on the digital skills needs in DCMS sectors. Encouraging dialogue between employers, higher education, and further education organisations will help keep educational programmes relevant to industry requirements. An accreditation and certification system should be established to maintain the quality and relevance of education and training courses. Encouraging small and medium-sized organisations to collaborate on training and development programmes will enable them to pool resources and reduce costs effectively.
2. Provide guidance to employers on the use and adoption of technology: Connecting DCMS organisations with leading innovative companies for inter-sector exchanges can facilitate skill and knowledge transfer. Forming agreements with countries excelling in digital innovation will enable structured collaboration. Supporting capacity-building initiatives where practitioners receive training from experts will further enhance these efforts.
3. Foster a supportive environment and culture for innovation: Developing social media campaigns to promote innovation and entrepreneurship, using charismatic influencers and thought leaders can inspire adoption. Establishing awards and recognition programmes to celebrate outstanding innovation and publishing case studies showcasing successful examples will further encourage innovative practices.
4. Enhance financial support for technology adoption: It will be important to ensure that funding is available for innovative ideas still in their early stages, even without evidence of viability or commercialisation strategies. Funding applications should include upgrades to technologies and skills. Subsidising access to essential technologies like cloud services and cybersecurity software will further support DCMS-sector organisations. Simplifying government funding processes and providing personalised feedback to unsuccessful applicants will make accessing necessary funds easier. Establishing a mentorship programme pairing successful applicants with those whose applications were unsuccessful will foster a collaborative environment and encourage knowledge sharing.