This is the third in a series of blogs on the UK Industrial Strategy Green Paper published recently by the UK Government. In Blog #2 we articulated a new data-driven framework which addresses how the key strategic questions can be tackled.
This blog addresses the first 6 questions and questions 24 and 25 posed in the Green Paper:
1. How should the UK government identify the most important subsectors for delivering our objectives?
2. How should the UK government account for emerging sectors and technologies for which conventional data sources are less appropriate?
3. How should the UK government incorporate foundational sectors and value chains into this analysis?
4. What are the most important subsectors and technologies that the UK government should focus on and why?
5. What are the UK’s strengths and capabilities in these subsectors?
6. What are the key enablers and barriers to growth in these subsectors and how could the UK government address them?
16. What are the barriers to competitive industrial activity and increased electrification, beyond those set out in response to the UK government’s recent Call for Evidence on industrial electrification?
24. How can international partnerships (government-to-government or government-to-business) support the Industrial Strategy?
The key challenges in identifying the main areas of focus are:
- Untangling how markets, products and technologies are characterised.
- Defining markets and market structures more precisely.
- Characterising technologies more clearly, which we will discuss in more detail in Blog #4.
- Choosing the Selection Criteria which drive the choice of specific market spaces and technologies
- Describing the priority areas for UK Industrial Strategy
- Defining market-space-centric value chains for the priority market spaces
- Understanding where the UK excels and where international partnerships hold the key to growth
Industry sector and sub-sector definitions are becoming less useful as technology is blurring boundaries. For example, in the healthcare & lifesciences industry, medical devices, bio-pharma products, new data-driven products and services, and new digital therapies are creating real problems in how markets are defined and quantified; the same is true in many other complex market spaces, including electric vehicles and associated services which are transforming how the automobile industry is defined.
We believe the robust response to this is to more precisely describe Market Spaces, using Vector E1 in the Triple Chasm Model: the concept of market space goes beyond historic definitions of industry sectors and tackles the structure of current and emerging markets explicitly, based on the definition of market-space-centric value chains, which turn Micheal Porter’s work on its head, enabling a clearer understanding of how value is created (and destroyed), modified and delivered to customers. This enables more accurate estimation of the size of market opportunities. However, this means that the way that the government sources and analyses data will need to change.
Market-space-centric value chains based on a clear definition of system boundaries provide a clear way to articulate how value is created in any market space. They also enable the UK’s strengths in specific parts of the value chain to be explicitly articulated, while at the same time defining areas where we are weak, where it makes sense for us to partner internationally.
Previous thinking on industrial strategy has tended to conflate markets with technologies, based on a misconception about how technologies can affect different market spaces. This requires a more nuanced approach to supporting technologies than the technology determinism implied by ideas such as the 8 Great Technologies. We discuss this in more detail in Blog #4.
Clarity in defining market spaces, market structures and technologies provides a solid foundation for deciding where the UK should focus its intervention resources, but this decision depends on defining the Selection Criteria and their relative importance, which depend on ‘ideological’ choices made by the government consistent with their overall political priorities.
The major priorities of the new Government as set out in the paper on securonomics, are focused around two key themes: net zero and clean energy; economic security and resilience
The actual choice of the 8 key focus areas, however, is a curious mixture of markets, technologies and value-adding elements:
- Advanced Manufacturing, which is neither a market space nor a technology, but constitutes a key value-adding component across multiple market spaces (ranging from batteries to medical devices).
- Clean Energy Industries, which are part of the Energy Market Space, covering Energy Generation, Storage and Distribution.
- Creative Industries, which are largely synonymous with the Media & Entertainment Market Space, although it could be argued that creative skills are an integral part of product design across many marketspaces.
- Defence, which actually covers a very wide range of technologies and market spaces, including aerospace, cyber security and lifesciences (biological warfare).
- Digital and Technologies which is a very curious label, which in theory covers all technologies ranging from pervasive digital technologies (e.g. AI) to new lifescience technologies (e.g. genetic manipulation).
- Financial Services, which in theory covers a wide range of banking and investment market spaces.
- Lifesciences, which in reality covers the entire lifesciences and healthcare market space, addressing everything from the development of new diagnostics and therapeutics to new workflows in the NHS.
- Professional and Business Services, which could relate to all market spaces, but presumably refers in this context to legal, accounting and advisory services.
We believe that greater clarity is required in defining the key target areas, especially given some of the other priorities in terms of understanding regional variations in value creation, the need to identify regional clusters, which we discuss in Blog #9 and also understand where to compete internationally.
Analysis based on the Triple Chasm Model has already defined 16 high-level market spaces, each with a multitude of distinct market-space-centric value chains. These market spaces are illustrated below, where we have highlighted in red 8 key market spaces which we believe the UK should focus on. These explicitly include Electronics, Computing & Software, Engineering and Telecommunications, which address critical UK infrastructure provision.
Suggested UK Market Space Focus
Once we have defined the key market spaces, Vector E2 in the Triple Chasm Model enables any Proposition to be mapped against the appropriate market-space-centric value chain, clarifying the precise focus of the innovation; it also provides a structured basis for understanding the competitive environment and the regulatory backdrop. For example, this enables greater clarity about the constraints posed by different regulations related to markets, products and technologies.
This approach can be illustrated by looking at the value chain describing the structure of the Automotive-EV market space. For example, this value chain can provide a robust basis for the UK to decide on its strategic and financial commitment to battery design and manufacture relative to the development and deployment of charging infrastructures.
Example Market-space-centric Value Chain: Automotive-EV
We believe that DBT, working with industry, should define the market-specific value chains for all the areas of interest so that they can guide national priorities around investment, regulation and broader interventions.
This framework provides a more strategic national criteria in defining which market spaces & technologies to focus on. Understanding where the UK should focus its resources will require a more detailed analysis, but there are several key points worth noting:
- The UK should focus on where it already has strengths, recognising that we don’t need to occupy every single part of the value chain in any market space.
- This principle provides a stronger basis for designing regional partnerships than the rather vague discussion about ‘levelling up’.
- This same principle can also be applied to drive international collaboration through identifying key partners across the value chain. An area we will discuss further in Blog #8
- This approach also suggests a more strategic way of tackling regulation and competition policy, which we all tackle in more detail in Blog #8.
We suggest that DBT undertakes detailed consultation with the key market spaces for the UK economy as a matter of urgency before significant resources are committed. There is also clearly a need for greater collaboration between DBT, UKRI, Innovate UK, the National Wealth Fund and the British Business Bank on this subject.