Foundation For RS&T Briefing To The Minister
BRIEFING FOR THE
Investing in innovation
for New Zealand’s future
26 July 2002
Innovation will be central to the success of New Zealand in the 21st century. To regain a place in the top half of the OECD, New Zealand needs to transform itself from a slow-growing mainly commodity-based exporting nation to one with a diversified range of fast-growing, high value-added export products. At the same time, we need to address urgent social and environmental concerns and to build the capability to respond rapidly to changes.
Publicly funded science can contribute to making New Zealand a great place to live, learn, work and do business. The Foundation for Research, Science and Technology’s mission is ‘Investing in innovation for New Zealand’s future’. We are passionate about doing our best, and in so doing to contribute to a vibrant innovation system and future for New Zealanders.
This briefing package outlines the key issues that the Foundation believes will be important over the next three years in enabling the Foundation to achieve the Government’s RS&T goals. In some cases, we have suggested a course of action, but for the most part, solutions still have to be found. The Foundation will take the lead on some matters. Others will be led by the Ministry of RS&T, with our assistance.
The package is divided into four sections:
A snapshot of the
Foundation’s statutory role and its current
Strategic issues, and in particular the need for an RS&T strategy that establishes clear purchasing and ownership framework settings.
Operational and funding issues.
Items listed for your information, which do not need your action.
In addition, we have also provided three background documents:
The recently completed 2002-05
Statement of Intent, which is our medium term
The 2001 Progress and Achievements Report, which contains evaluation evidence and analyses of possible policy changes, some of which were funded in this year’s Budget.
A paper that details the national benefit principles on which the Foundation bases its decisions, a description of the investment process used and a review of the Foundation’s policy on the protection and commercialisation of intellectual property.
The Foundation’s Board joins with me in congratulating you on your appointment as Minister responsible for the most interesting and stimulating part of the creation of a truly knowledge-based economy. We look forward to working closely with you in order to help develop New Zealand’s future wealth and well-being.
The Foundation for RS&T – Briefing for the Incoming Minister
1 - A Snapshot of the Foundation’s Statutory Role and Its Current Position
Role - The Foundation is the largest of the public sector purchasing agents for RS&T. Its 2002/03 funding of $403 million is about half of the total public sector investment in science and a third of the NZ public plus private sector total. The only other organisations that invest in excess of $100 million per annum in RS&T in New Zealand are the Tertiary Education Commission / Ministry of Education (university research) and Fonterra.
The Act - The Foundation is governed by the 1990 Foundation for RS&T Act, which created a Board that is responsible for the following statutory functions:
The allocation of
funds for outputs relating to public good RS&T.
The allocation of funds for ministerial schemes. These currently comprise Technology NZ, the New Economy Research Fund, Grants for Private Sector R&D and Post-Doctoral Fellowships.
The provision of independent policy advice to the Minister on matters relating to RS&T.
Changes - Significant advances in 2001/02 have included:
The implementation of a new investment
process based on ‘national benefit’ principles. During
2001/02, the Foundation began a three-year process to
reinvest all of the funding in the New Economy Research Fund
(NERF) and Public Good Science and Technology (PGST) output
classes, which together comprise over 80% of its
The results from the first year have been very encouraging:
o Some significant shifts towards new cutting-edge, highly innovative RS&T, with an increased focus on biotech, ICT and other new growth opportunities.
o We are confident that the new process is more transparent, fairer and more focused than the processes it replaced.
The inception of research consortia (a form of private-public research partnerships).
The presentation of extensive evaluation evidence and six new performance indicators on RS&T in the Foundation’s first Progress and Achievements Report.
Better integration of the Foundation’s industry assistance schemes with Industry NZ’s.
Funding - About 70% of the overall funds are currently contracted to the Crown Research Institutes, 10% to universities and 20% to the private sector, research associations and others. Funding details by output class are provided in the 2002/03 Statement of Intent.
Staff - There are 63 staff (55 in Wellington, plus 8 Technology NZ staff in Auckland and Christchurch). The organisation’s core capabilities and competences are discussed in the Statement of Intent. The Chief Executive is Gowan Pickering.
2 - Strategic Issues
The Need for an RS&T System Strategy for Wealth Creating RS&T
The Foundation is guided by the government’s RS&T goals and by the Growth and Innovation Framework (GIF) goal to lift our economic performance (as measured by OECD rankings). GIF has been instrumental in achieving greater government agency alignment of resources around common objectives, including the focus on biotechnology and on information and communication technologies as key enablers for building New Zealand’s future prosperity.
There is a need to develop and clearly articulate a strategy for RS&T, so that it can most effectively contribute to achieving the GIF goal. The Foundation wishes to participate in the development of this strategy, under the Ministry’s leadership. Our initial thoughts on what a RS&T system strategy would address include such issues as:
The role of RS&T vis-à-vis New Zealand’s strengths and
opportunities – indicating where RS&T investment needs to
act as a broad enabler of growth and in what circumstances
it should focus on supporting emerging
How the competing demands for RS&T to benefit New Zealand are managed alongside RS&T as an international business, with the growth of RS&T export services, including environmental sciences.
Identifying the gap between the current position and the desired future state and addressing consequential issues, e.g. the required rate of change to achieve targets.
The respective roles of Crown Research Institutes (CRIs), universities, the private sector, and purchase agents in building the future.
The RS&T strategy will help to guide and align purchase and ownership policies and will influence provider and user investment decisions. It will need to be developed with involvement of key stakeholders, including business opinion leaders. With this strategic overview, we believe that the Government will be better able to consider any process or structural adjustments to help achieve its goals.
Establishing Clear Purchasing Framework Settings
As with the new tertiary funding framework introduced by the tertiary education reforms, there is an urgent need to establish a framework guiding RS&T purchasing. Stakeholders are taking widely varying positions on the merits of the Foundation’s contestable investment approach, including suggesting ad hoc interventions to key policy settings. Intense debate over the purchasing policy distracts purchasers and providers from taking cohesive action to achieve government goals.
A purchasing framework would cover a range of issues, including:
Rate of change – setting expectations
around the pace at which funds can be shifted, taking into
account impacts on key science providers.
An expanded role for research consortia and other public / private partnerships.
Guidance on the mix of purchasing approaches, including the appropriate use of contestable processes, performance-based funding incentives, and negotiation.
Expectations about maintaining assets and capabilities of national importance, such as databases and associated research.
How best to maintain and extend system capabilities, e.g. through the role of Non-specific Output Funding (NSOF) in the purchasing framework.
The purchasing framework provides one of the key policy instruments to give effect to RS&T strategy, through changes in these and other policy levers, e.g. if an RS&T strategy objective was concerned with attracting overseas RS&T investment, a performance-based funding approach could be used to reward providers who attracted such investment.
To date, management of the policy levers has been fragmented. It is spread between Ministerial oversight and the Foundation’s Board. For example, the Foundation is developing funding policy for capabilities of national importance, while concurrently there is a Ministry review of NSOF with the view of better addressing capability development. To get the best outcome, it is important that the purchasing policy levers are reviewed as a coherent package, with input from all key stakeholders. Consideration needs to be given to the design of a process that enables an integrated review of the purchasing framework and achieves stakeholder buy-in. This is core to the Foundation’s business. The Foundation would like to take a leadership role to establish clear purchasing framework settings, under the Minister’s direction.
Ownership Framework Settings for Public Sector Science Providers
The ownership structure will influence how the purchasing framework is operated.
The majority of the Foundation’s funds are invested with public entities. It is important that the Foundation takes account of directions set for these organisations by government. The tertiary reforms have led to a review of tertiary organisation charters and will result in the development of associated funding profiles. The Foundation will co-ordinate with the Tertiary Education Commission to take account of any specialisations in the scope of tertiary businesses that may emerge from this process.
A similar framework is needed for the CRIs. It has been over ten years since they were established, so it is timely to consider how they might be optimised to contribute to GIF and RS&T goals, including reviewing:
The role of CRIs in the
CRIs’ business objectives and their associated key measures of performance.
Business scope, in particular IP expectations and role of CRIs in commercialisation.
The pace of change that is sustainable will be affected by CRI business scope and scale.
Most of these issues lie outside the direct responsibility of the Foundation but have an impact on the Foundation’s ability to fulfil its role, as well as implications for its freedom to make decisions. The Government needs to consider the mechanisms that could be used to better align its ownership and purchase interests. We would like to participate in a planned process, led by the Ministry, to achieve this alignment.
Review of the Foundation’s Act
The next five-yearly review of the Foundation’s Act is due to be made in 2003/04. The Act was written so as to permit reasonable operational flexibility within broadly defined constraints. Opportunities exist to amend the Act in ways that will lead to significant operational efficiencies and improvements in strategic focus. It may also need to be materially changed if the Minister, following a detailed assessment of the costs and benefits involved, decides on substantial system changes, such as:
To the currently separate policy
ministry / purchase agent / provider structure;
Away from using a contestable funding process when it is practicable to do so.
There are always long lead times involved in legal reviews. The Foundation expects to participate in a review that will be led by the Ministry.
3 - Operational and Funding Issues
The Scope of Investment
The Foundation’s Act permits it to fund both research and development. Investment in the PGST output classes does not go beyond the ‘proof of concept’ or ‘first prototype’ research stage into pre-commercial development. The Government has recently encouraged venture capital investment at the ‘seed’ stage through the Venture Investment Fund, but there is still a gap between research and commercialisation that many good ideas fail to bridge. This presents an opportunity to develop a coordinated, integrated strategy to support innovation from the generation of potentially useful new knowledge through to commercialisation.
The Foundation proposes to work on this with MoRST and Industry NZ. Issues include:
merits of contingently repayable grants or other new
Encouraging providers to spin off new firms to commercialise potentially valuable intellectual property, when no competent NZ-based firm is available.
The commercialisation of work that is primarily public-good or environmental in nature, but which may lead to a new service or product.
New instruments or substantial policy changes would need Ministerial approval. The Foundation will do more work in this area, in consultation with the Ministry. We will jointly bring agreed proposals to the Minister’s attention.
The Research Strategy Development Process
The Foundation’s current research strategies were developed following extensive Foresight consultation with stakeholders. They comprise 26 ‘strategic portfolio outlines’ (SPOs) or broad science areas. These are further divided into 72 portfolios, which are used as a management tool in the investment process.
The SPOs do not align well with the output class structure in the Vote. Few of the strategies have been updated since 1999. Some RS&T also cuts across several areas, e.g. RS&T on possum and tuberculosis control, sustainability, Antarctic research, and biosecurity, thereby adding to the complexity.
The Foundation intends to update the existing strategies and to simplify the strategic portfolio outline / portfolio structure over the next two years. The Foundation will take the lead but will keep the Minister informed on progress, through the monthly meetings initiated by the previous Minister.
Research, Science and Technology Funding
The funding of public sector RS&T has stayed relatively level as a percentage of GDP over the past decade, at about 0.7% of GDP, which is close to the OECD norm. Since 2000, additional new policy funding for the Foundation has been provided to:
Technology NZ, Maori research and scholarships.
Establish the Grants for Private Sector R&D scheme.
Fund five research consortia.
Fund additional work in selected high-priority areas, such as climate change.
Enable better RS&T management, e.g. through establishing an evaluation unit.
Most of the new funding has taken place at either end of the research spectrum, i.e. NERF and the Marsden Fund (basic research) or business assistance. Much of the work in the PGST output classes is of national importance. There is now an urgent need to review the requirements of some of these areas, e.g. infrastructure research and nationally important databases, collections and other assets. In addition, the quantum of research investment in both social research and Maori knowledge and development research is insufficient to meet the social needs of New Zealand. The level of funding in these two output classes needs to be reviewed. The Foundation expects to take the lead on the development of some Budget proposals and to assist the Ministry to develop others.
Five research consortia are currently progressing through the due diligence process, which covers governance arrangements, co-funding and business/science plans:
Methane (reduction of
methane from ruminants).
Meat based bioactives (new products from the meat industry).
Lactopharma (biomedical technology platform from milk).
Pastoral genomics (plant gene technology focusing on clover genes).
Wood quality initiative (new products from wood).
A further $1million per annum has been earmarked for a tender later this year in the Information and Communications Technologies area.
The Foundation will invest about $9 million annually in these six consortia, matched equally by funds from the consortium partners, many of which are private sector firms. This more than commits the $6.1 million in new funding provided to date. There has been considerable interest in the concept from other groups of users and providers. Details on consortia are being included in all of the PGST requests for proposals being issued this year. In order to maintain the initial momentum for a programme that offers excellent prospects of delivering new exports and other benefits to New Zealand, the Foundation will seek further funding, to place consortia on a controlled expansion path.
Scholarships and the Human Capital Review
The Foundation is the major provider of postgraduate scholarships in RS&T. It administers them on behalf of Vote: RS&T and Vote: Education. The Foundation plans to complete in 2003/04 an in-depth review of the scientific human capital New Zealand will need for the development of a vibrant knowledge-based economy. It will consult widely with stakeholders. This will lead to the development of a human capital strategy for the Foundation. This is likely to generate policy recommendations in this term.
4 - Items for Your Information
Evidence-Based Evaluations and Contract Monitoring
Evaluation is used to provide objective evidence of outcomes achieved and to identify performance issues. The Foundation has recently developed a set of evaluation tools that include performance indicators, case studies, user surveys and a stakeholder survey. These are providing a valuable range of evidence on what are highly complex RS&T performance factors. A summary of evaluation findings is reported annually to the Minister in the Progress and Achievements Report.
Through its funding contracts, the Foundation requires researchers to report annually against milestones and objectives. Comprehensive new contract profiles of baseline information were established in 2002. All such reporting is now Web-based. Fully effective monitoring will require a substantial cultural change in the purchase agent / provider relationship, as well as the input of significant time, effort and resources. We believe that establishing a robust performance monitoring system will allow our purchasing decisions to move significantly from proposal appraisal to performance assessment.
The Foundation is seeking to advance outcomes for Maori in two main ways:
Through the Maori Development and
Advancement output class.
In all of the other output classes, as a strategic ‘balance’ factor.
The 2001/02 funding renewals resulted in a significant increase in RS&T with a meaningful level of Maori involvement. This has doubled to around $9 million over the past two years.
The Foundation has also increased its effort to actively engage Maori owned enterprises in Technology NZ. It is working with other agencies to facilitate a coordinated case management approach to Maori commercial initiatives and to develop a Maori innovation plan. This plan may have funding implications.
The Foundation will reinvest part of the Maori output class in 2002/03. Maori outcomes will also receive particular emphasis in the 2002/03 Seafood and Sustainability reinvestments.
The 2002/03 Funding Programme and Strategic Reviews
About $100 million of funding contracts will be contestably reinvested in 2002/03 as the second year of a rolling three-year programme for the reinvestment of all of the NERF and PGST contracts. In addition, seven strategic reviews will be undertaken to direct research investments, some for 2003/04 reinvestments:
Funding Programme Strategic Reviews
o Sustainable development (which is over half the 2002/03 total) – PGST
o Seafood – PGST
o Animal industries – PGST
o Biotechnology – NERF and PGST
o Impacts of technology – PGST
o The built environment – PGST
o Energy – PGST
o Socio-economic factors – PGST
o Maori– PGST o Sustainable development
o Maori advancement and development
o Natural ecosystems
o Advanced foods
o Infrastructure (hazards and minerals)
o New wealth-creating enterprises (NERF)
A Revised Strategy for Possum and Tuberculosis Research
The Foundation is responsible for the National Science Strategy Committee for Possum and Bovine Tuberculosis Control (NSSC). The NSSC recently released a draft strategy to about fifty stakeholders. It wants to complete the consultation process by October. Key points are:
The dependence on poisons and traps
for pest control for the next decade justifies ongoing
investment in improving current control methods.
Improving the specificity of poisons for possums to allay public concern over their use, especially 1080, is a high priority.
Vaccination research should focus on the vaccination of possums, rather than cattle and deer, against tuberculosis.
Research on biological management has reached the stage at which specific biological management tools can be assembled and tested.
The five funding partners (the Animal Health Board, Ministry of Agriculture and Forestry, Department of Conservation, Landcare Research and the Foundation) should maintain annual funding at the current $13 million.
Dr Peter O’Hara, the Chair of the NSSC, will
brief you on the strategy and funding