The 2017/18 report Process innovation: Bringing manufacturers to the frontier, published jointly by EEF (the manufacturers’ organisation) and Santander, shows that 95% of survey respondents are engaged in some form of ‘innovation activities’ — the same percentage as in the last Monitor of 2015/16.

EEF (www.eef.org.uk) economist Hela Mrabet said manufacturers cited satisfying existing clients and enhancing margins on existing products and services as top innovation drivers this year.

“This reflects how important innovation is in helping manu-facturers do things better and strengthen their position in existing markets. Innovation is also critical to building new opportunities.

“About half of manufacturers innovate to enter new export markets, and 40% innovate to seek new domestic markets; and while the development of new and improved products remains critical in meeting customer requirements and cementing manufacturers’ positions in global value chains, process innovation is becoming even more important.”

The report also says that, while two thirds of manufacturers have introduced process innovations in the past three years, only 45% have introduced information and communications technologies (ICT) to improve processes, and fewer than one in 10 have introduced ICT to improve delivery and logistics.

According to the OECD, this results in a widening productivity gap, because new technologies are not being ‘diffused’ quickly and widely enough across the manufacturing supply chain.

Ms Mrabet said the report also highlights a number of barriers preventing companies from making the most of process innovation, the main one being capabilities.

“Although firms have the appropriate set of skills, there is no incentive for them to spend time on process innovation. Moreover, companies over-rely on internal capabilities, with a sizeable proportion of them never involving consultants (44%), universities (43%) or Catapult centres (90%) when introducing new processes.”

Furthermore, one in three companies said that they underestimated what process innovation would involve, more than a quarter said they were uncertain about the outcomes, and 28% said they lacked the resources to implement new processes. By contrast, lack of external finance was less of an issue.

“The UK’s ‘long tail’ of not-very-productive companies requires more resources to be allocated to process innovation in order to enhance the adoption of new technologies and modern manufacturing techniques.

“The report outlines our main policy recommendations in order to correct the market failures associated with process innovation.”