What is NESTA and how does it work?

NESTA is the National Endowment for Science, Technology and the Arts. It is an unusual source of finance for creative talent in the UK because it is structured as an endowment. It was endowed in perpetuity about 4 or 5 years ago to the tune of approximately €500 million. It therefore enjoys the very unusual privilege of being a source of finance which is not subject to the sort of immediate and voracious appetite of private investors for short-term economic return, and is also not subject to the political impatience of politicians for whom public money is sometimes come and go with relatively short attention span. NESTA can therefore, like many of the great endowments around the world, take long term bets on risky, early and speculative ventures in the creative field in the broadest possible sense. It really aims to leverage, to maximise its financial endowment by drawing as many other sources of finance - but particularly private finance - into a field where they otherwise would not go because the risk is too great. This is particularly the case in the area of the creative arts and in that of very speculative and early stage technologies.

A lot of innovation centres and innovation departments of governments have a very strong focus on technology and engineering. Even the European Union seems to have that slant. You seem to take a different angle?

Yes, that is quite right. It is of course implicit in the name; it is most unusual to find a body in which you find science, technology and the arts all in one name. But for us it is absolutely at the heart of where we think next generation innovation will take place. Much of our practical experimentation and much of our reflective research is suggesting that the next bounce of the ball, as far as innovation is concerned, will not necessarily take place within disciplines but between disciplines. We are increasingly seeing the practical implication of that in a whole variety of sectors, for example in the areas of medical devices and in architecture and construction. But you do not have to look further than the world of design to understand the extraordinary contribution that can be made when you bring different disciplines together. We have a particular prejudice for backing ventures, ideas and initiatives that are aimed to look at both the economic return as well as social wellbeing, bringing together the worlds of creative arts, science and technology.

Can you tell us a bit more about the history of NESTA? I heard that the foundation was originally funded with lottery money. How did its vision come about?

Amongst others, the vision originally came from Lord David Puttnam, the movie producer. He for example produced the movie ‘Chariots of fire', and ran Columbia Pictures for a while. Shortly after the Labour government came to power, in about 1999, there was a plethora of publicly funded building projects taking place in the UK, essentially to mark the millennium. So there was a rich source of public finance for what were then called Millennium Heritage Projects. Lord David Puttnam, with one or two others, suggested to the Prime Minister to create a source of finance, which would have as much to do with human capital, as with physical capital, in so far as both were associated with innovation and creativity. The call then was for a parallel source of finance. Putnam's genius was that he suggested that it should be constructed as an endowment rather than as a governmental annual or bi-annual distribution. Because once it is positioned two or three steps away from the public purse, the appetite for risk of a place like this can go up. So that was the origins of it.

The first sum of money was originally allocated, as you said, from the lottery, which was approximately 400 million euro. Subsequently, based on NESTA ‘s success, there have been three or four more injections of money. This time from the Exchequer, from Government expenditure, raising the total endowment to about 500 million euro. Since which time we have been very fortunate to attract a lot of private finance to many of our investments in innovative early stage businesses. At the last estimate we assess that for every pound that we invest or allocate to our ventures, we probably get five pounds of matching private finance. We think that this is the way in which this type of endowment should work.

Have you yourself been involved from the very beginning?

No, my own background is in a range of venture capital firms. I came to NESTA about a year and a half ago at a time that coincided with an appetite for change at NESTA. I have had the good fortune to be associated with that change, where we have aimed to do what we think is the right approach for an endowment of this type, which is one with fewer and more focussed activities. The important part of our approach is that it subsequently can be replicated, scaled up and rolled out, right across the country, by a whole set of other agencies. We are increasingly learning from all over Europe that that is how endowments of this type should best work. They should build demonstrative models of their approach to innovation and then aim to have them replicated and taken up by others.


NESTA'S THREE STRANDS OF ACTIVITIES

You said that the innovation of the future is not happening in one field anymore, but that it is happening in the connection between fields and that creativity is a major part of that. How do you implement such a vision?

Let me tell you about how we work. Our working assumption is that an innovative society is fuelled by three sources of capital.

One is human capital. That has a lot to do with the skills and the attitudes and behaviours associated with risk taking, creativity and problem solving. It is more an attitudinal thing than anything else.

Secondly it is fuelled by financial capital. In other words these are different pools of money that do different things, at different stages of the creative process.

Third and finally, we think that the innovative psyche is fuelled by intellectual capital - how a clear and cogent understanding of how innovation works and what makes it flourish, is incorporated into a country's policy framework - so that the policy framework supports both the human capital and the financial capital.

Which are implemented in three strands of activities...

Yes, we have a strand of activity that is all about a range of experimental programs designed to increase the appetite and the aptitude for creativity and risk in this country. Some of those programmes are directly aimed at young creative talent in which we back their ideas at the most embryonic of stages. Some of those programmes are in schools in which we are trying to bring together different elements of the school curriculum to solve problems in a new and different way. Another key focus for us is around what happens when you bring together very different organisations and disciplines. For example, we are currently helping develop relationships between Proctor and Gamble and independent designers and creative talent in order to find new ways of problem solving.

We have also brought together a whole range of institutional networks that had not worked together before. For example we brought together The Royal College of Arts, the School of Engineering at Imperial College and the Tanaka Business School in order to create an innovation incubator. This incubator is not necessarily for technologists or business entrepreneurs but for graphic artists, engineers and business school graduates to come together and see what products would emerge from collaborations like that. So, these are some examples that demonstrate how we aim to enhance and to stimulate the human capital associated with innovation.

Secondly, we have probably the largest single portfolio in the country of very early, risky ventures in early stage technologies. We are the largest single institutional backer of that very early, risky, speculative stage of innovation enterprise. Along with taking equity investments in some of these embryonic companies we also try to lever in sources of private capital, which are a little ambivalent about this stage of investment because it is too risky.

Thirdly, we probably have here the largest and most authoritative research agenda in the UK around innovation policy, how it works and how Government would be best advised to implement it.

Now, when you take these three strands together, the educational and collaborative dimensions of our work, the financial and investing dimensions of our work, and the policy and research dimensions of our work, what emerges from it is a most unusual combination at NESTA of being very active in the field on the one hand, and having a very strong research agenda on the other. It is very unusual to have a combination like that. There are some places that are very active in the field and there are other places that have a very strong reflective research agenda. It is very rare to have both in one place.


HUMAN-CENTRED DESIGN AS A TOOL FOR INNOVATION

Your name says "the Arts" but in fact you are dealing a lot with design. What does design mean to you and how is that integrated in NESTA's vision and the activities that the company is involved in?

Design to NESTA is a tool for innovation. Basically it is a problem solving process, which is highly visual and very human-centred because it starts with the needs of people. Design is key to good innovation. For NESTA, design and its visual processes allow the early testing of ideas, leaving space for early and relatively cheap failure and reducing the risks and costs for innovation. This design approach also makes sure that the testing and the prototyping are very human-centred. If people do not want the product or do not know how to use the product, if they cannot understand the product, you will never get it to market. Design is the process through which all of this happens.

Can we say that you have completely chosen for human-centred design?

Yes, very much so.

How do you implement this? Can you give some examples of that approach?

Yes - one example is the portfolio of young, creative companies we support through a programme we run called ‘The Creative Pioneer Programme'. In this programme we back the most creative talent coming out of the art schools and colleges. Very early on in their careers, we link these talents with business mentors, with people who understand consumer needs, and people who understand product development. Without this kind of support, there is a danger that the kind of creative talents who come out of some of the great schools that we have in this country, will become isolated from the ingredients that are required in order to get to market right at the beginning of their career.

We have about forty or fifty of some of the most talented creative people in the country in this portfolio, but more importantly the approach here, that is quite distinctive, is beginning to be taken up by a number of other public agencies up and down the country. An approach to commercialising the best of our creative talents whilst at the same time not allowing them to feel that they are selling out on their creativity in any way.


EXAMPLE PROJECTS

Out of these forty or fifty, can you give us some examples of projects that you have been involved in or feel are really good examples of this implementation of this vision?

One of the Creative Pioneers we support is working to design a whole set of products to improve conditions in hospital wards in the National Health Service. These products tend not only to be attractive and design-led but are very human-centred. Each product is designed to address a specific problem and carefully tested. The social entrepreneur behind the creative business has also had to develop a very clear strategy in terms of how to penetrate the National Health Service.

So how do you do that then, when on the one hand you have the National Health Service, which is a bureaucracy, as it is in any country, and on the other hand you have these young designers? How do you manage to end up with these beautiful and also very human-centred projects?

That is where some of the levers that we can pull become useful. We have learned that what so many of these young creative entrepreneurs suffer from is the lack of access to the right customer markets. We have the right type of relationships with the right types of markets, particularly when it comes to public procurement, to make the appropriate introductions to prototype some of these products. They have been enormously successful as a result. It needs some initial mentoring, some of those introductions and some of that networking. I think that one of the mistakes that is made by public sources of finance, when it comes to bringing great design of this type to market, is the assumption that the deficit is just money: as long as you are able to plug the financial deficit, ideas like this will reach the market. Of course, that is not true. Money is only part of it. One of the things that NESTA has learned from the experience of its own portfolio, is that it is able to complement finance and investment with all sorts of non-financial requirements for the early stage entrepreneur.

I can imagine that the National Health Service speaks a very different language than the designers do. There must be a need for somebody who manages these projects and who can understand the bureaucratic language and also the designer's language to bring these two very different groups of people together in a productive conversation.

That is absolutely right and there is a critical role for ourselves to act as mediators. It is also one of the reasons why, as part of our programmes, we have an extensive set of partnerships with organisations like the National School of Government through which we work with some of the senior civil servants associated with procurement to help them understand the role of innovation in general and innovative design in particular.

Who leads the processes of coming up with these new products and services?

We work with a whole set of experts in the fields and have a strong set of partnerships both in the public and the private sector. We would never back an idea or a company without putting in a lot of mentoring and support alongside it.


THE DESIGN LONDON INCUBATOR

Could you give another example of a project that you feel is representative of the implementation of NESTA's vision?

Yes, I want to highlight the new incubator that we have backed which is literally just about to open. A few years ago the UK Government looked very hard at the way in which we commercialised types of knowledge that emerge from our higher education institutions. The Government commissioned a report that became known as the Lambert report, named after its issuer Richard Lambert, the editor of the Financial Times. This report gave birth to the investment in technology transfer in this country, transferring technology out of university laboratories and into the market place for economic return.

The homes for all of that technology transfer have been the science parks and the incubators that were built throughout the country. What we learned from looking at these incubators, successful though they are, was that they were quite one-dimensional. They tended to attract and to be accessible only to those who were looking to commercialise science. Whereas the opportunities which would come out of interdisciplinary collaborations, i.e. the types of products and ideas which would come out of bringing together disciplines of science, elements of technology, and the fields of creative arts, simply didn't have a home here in the UK.

We sat down with the heads of the Royal College, Imperial College and Tanaka Business School who were planning to support interdisciplinary projects on a major scale and discussed the formation of an incubator for some of these projects - projects that would be the result of the integration of design, engineering, science and business. Across the organisations involved in what has been named ‘Design-London'], several million euros have now been invested and we have managed to get that matched by Government. This month the incubator and rest of Design-London will open and be the first of its type, bringing together artists, engineers and business graduates- to all work on new product development. We expect to see the first results of this new product development over the course of the next twelve months.


NESTA CONNECTS AND CREATES

You have also developed a program called ‘ NESTA Connect'. Can you tell us about this programme?

NESTA Connect, of which Design-London is a part, is probably the most experimental programme in the UK. It looks at how different organisations, institutions and networks can collaborate to develop new solutions to some of the great problems of our age. What we are starting to do is connect different regions; use some of the networks associated with the Internet; and initiate collaborations between corporates and the types of individuals that corporates don't normally bump up against. Next week, for example, we are launching the project with Proctor and Gamble, where we will help the multinational giant innovate with a diverse group of creative entrepreneurs and designers outside of its own labs to come up with new product innovations. This ‘open innovation' approach is completely different to the more classical, linear way that most corporates pursue innovation.

Is it similar to the project that the Royal College of Arts has been involved in its work with international companies, but then on a bigger scale?

Yes, that is right. If this pilot with Proctor and Gamble and the community of young, creative entrepreneurs in the UK is successful, there will be many more informal collaborations of this type facilitated by NESTA in the future.


SUPPORTING DESIGN MANAGEMENT IN COMPANIES

Are you also working with small and medium sized companies (SME's)? A few years ago the British Design Council was active in working towards the SME's but in the last few years it seems that NESTA has been more active in this area. How does this balance out?

I think there is no question that the UK a number of years ago lead the world in identifying the creative industries in as broad as possible a sense, as a source of economic growth. The UK did some very good work in identifying the creative industries as an opportunity for policy in a wider sense. This has created a huge appetite at the smallest end of the start-up market. And it's that that gives buzz and creativity to so many British cities at the moment such as London, Birmingham, Manchester and Glasgow, Belfast and others. But I think that what we are learning is that to sustain this development and to increasingly compete with other countries around the world who are building their own creative strategies, there needs to be as much a commitment to growth as there has been a commitment to start up. This is beginning to happen at places like NESTA and others.

Can we say that NESTA's commitment lies more in taking the design management skills, that organisations like the Design Council help establish, forward into growth and larger projects?

Yes, that is exactly right. NESTA has the knowledge on how this process works on the basis of our research, as well as the financial clout to be able to make investments. This is a very interesting combination.


THE ROLE OF CITIES AND REGIONS

How can cities and smaller regions use design in an effective way to have a sustainable impact on local or regional innovation?

We know how cities are transforming. In the nineteenth century British cities were all about being centres for industry, in the twentieth century they were all about being centres of trade whereas in the twenty-first century they are more about being centres of ideas. If innovation is partially about the conversion of ideas into economic prosperity and quality of life, then that places cities right at the heart of that exercise. There are probably three issues that we have come up with here at NESTA in our work with cities in the UK.

The first one is that some of the more progressive cities are increasingly understanding the idea of their own ecology, i.e. the degree in which innovation in a city thrives on the basis of a range of unusually strong networks that produce a complex set of relationships between institutions, sources of capital and public and private bodies. Progressive cities can make a unique contribution because of their rich ecology of interlocking networks that bring with them these large amounts of non-financial capital that cause a sort of multiplier effect. For example a city like Manchester has these interlocking networks and complex set of relationships that cause this multiplier effect right across its economy.

The second thing that we are learning about cities is the importance of a specific type of knowledge they have, which Michael Porter [of the Harvard Business School] calls "tacit knowledge". It is a type of knowledge which is codified, hard to transfer. It is the kind of knowledge that is unique and distinctive to the residents of a city; it is the glue that holds those networks together; it is really the hallmark of the innovative economy. It is very difficult to impart outside of the context because it is very much linked to that ecology. Porter suggests that this un-codified, tacit knowledge is a greater contribution to the innovative capacities of a city than anything else. It finds its natural home in great cities that have that kind of shared identity, that shared natural purpose, that multiplier effect. And that is why people, and politicians in particular, who perennially write articles about how we can create another Silicon Valley anywhere in the world, do not understand the significance of that difficult to impart and un-codified knowledge, the context, the ecology within which great creative cities can emerge.

The third trend in terms of how cities make a distinctive contribution to innovation is when they concentrate on their core strengths. There is a lovely book by David Rosenberg that is called ‘Cloning Silicon Valley' in which he looks at a variety of cities around the world which are associated with innovative capacities, such as Cambridge, Helsinki, Tel Aviv, Bangalore and Singapore. What they have in common is that they all worked to deploy their core strengths in very skilful ways. The ways in which Tel Aviv has done it is very different than the way in which Helsinki has done it. When you look at the regional strategies of the UK for example, you will find nine regional strategies that all aim to do the same things. This is not possible; a nation has to concentrate its core strengths in different ways across different cities. Those core strengths allow for specialisation and differentiation, which are the two things that create aspects of innovation.

The correlation between creative talent and wider economic growth has already been well charted. Where there are greater concentrations of creative talent there are increasing correlations with wider economic growth. But equally, what we are increasingly learning, is that progressive cities that are using design in a progressive way are very skilful at attracting and retaining that creative talent. There is a kind of circular effect between urban designer cities recruiting, creating and retaining creative talent and generating economic growth.

In terms of design innovation policy, you have said that one of the mistakes that regions are making is that they are copying identical policy or innovation plans across the country, without taking into account local differences and strengths. Are there also any other mistakes made according to you?

Yes, and I think that it comes down to a design issue that is very much linked to the traditional root. This traditional root thinks first of all about physical infrastructures and physical architecture and then, after that, they think about human beings and how they will use that physical infrastructure and architecture. If you look at some of the post-war housing across Europe for example, you can clearly see that. If you look at what is happening in terms of urban development in China, you can see that. We know the reasons why, the pressures in terms of urban migration, but equally we know that for cities a good process starts from people and not from buildings. It is visual, functional and does a lot more for a city in terms of its identity, in terms of its ability to attract creative talent and in terms of its sense of purpose, than simply allowing for more buildings to house more people. You can't underestimate the contribution that that makes to a city's or a region's sense of ambition and purpose. Increasingly you can see the degree to which the type of urban design that I have suggested to you, is linked so closely to a city's sense of aspiration, ambition, pride and confidence.


THE FUTURE

Looking at the future, do you have some recommendation for Turin?

I will give you a nice British example but it is very transferable. In the middle of the nineteenth century Manchester was the largest city of its type in Europe. It was the home of the industrial revolution and it had a huge impact on the economic development of the UK. Yet it did not have one thing that its key regional competitors did - cities like Liverpool, Newcastle and Belfast - at that critical time in the mid-nineteenth century when industry needed it. What it did not have was access to the sea and therefore it did not have the ability to engage in the big shipbuilding and ship-repair industry.

So, like any great innovative city, it did a very simple thing. Because Manchester could not get to the sea, the people just decided to bring the sea to Manchester. So in the middle of the nineteenth century, Manchester did something crazy: they built, what is now called, a ship canal. And they brought the ships to the city through the ship canal and engaged with the ship building industry. As a result of that the city almost completely reinvented itself.

Extraordinarily, a hundred and fifty years later, Manchester that was once the city of cotton mills and ship repairs, has once again totally reinvented itself. This has been done by virtue of a powerful set of higher education institutions that have drawn in a huge amount of creative talent. Manchester has become one of the hot beds in terms of Britain's creative industries and knowledge economies.

In short, when a city is able to focus on core strengths and reinvent itself in line with the real economic challenges of the day, it can be highly innovative and it will have a huge multiplier effect on the attitudes of the people that live in it.