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The Role of “Soft Companies” & Government R&D Contracts in Development of SMEs

Aims & objectives

This research was designed to provide the East of England Science and Industry Council with a detailed analysis of the role of ‘soft’ companies and customer-funded R&D contracts in the region, and to identify policy actions which East of England Development Agency (EEDA) might take to support these firms and foster economic development. Policy thinking on innovation and exploitation of the UK science base by young technology firms has been dominated by the needs of early stage, venture capital backed companies that are established to convert new technologies into proprietary products and IP which they then sell or license. We argue that another kind of R&D based business – the ‘soft’ company model – has been largely unrecognised, although such firms are responsible for the initial phases of many, and possibly even the majority, of the UK’s most successful science and technology companies. Soft companies are companies whose funding and revenues come mainly from carrying out ‘bespoke’ R&D projects for customers, or which go through a ‘soft’ phase of development before hardening into standard product. This provides a means of exploiting a range of potential applications of their technology prior to focusing on the best opportunities, as well as a funding mechanism. The term ‘soft’ therefore is used to signal the much greater flexibility and wider choice of early customers for these firms, compared with the rather fixed strategy of ‘hard’ companies.


The final report for EEDA’s Science and Industry Council appeared in professionally published form in February 2010 under the title Exploding the Myths of UK Innovation Policy: How ‘Soft Companies’ and R&D Contracts for Customers Drive the Growth of the Hi-Tech Economy. It has been disseminated to a range of policy makers, business leaders and academics in the UK and has attracted favourable comments from a range of sources in government and industry. The enterprise community in Cambridge has expressed wide support for the report’s findings.

The work fed into a NESTA Provocation essay written by David Connell and published in March 2010, entitled Scientists are customers too: how the SBRI can help Research Councils drive economic growth. It also informed the work by the Cambridge team on the FP7 FINNOV project into ways of financing business experimentation, in which co-author Jocelyn Probert is participating.

In May 2010, David Connell presented proposals for an EU SBRI programme, outlined in the report, together with the report’s analysis and conclusions, at two private meetings in Strasbourg with the EU Commissioners for Research and Innovation (Máire Geoghegan-Quinn) and Enterprise and Industry (Antonio Tajani) that were arranged by MEP Michael Harbour. In April 2011 David Connell spoke at a meeting of the European Competitiveness Council, comprising Industry Ministers of all EU member states and Vice President Tajani and chaired a break out discussion of ministers on finance for SMEs. He made a submission to the House of Lords Committee on Science and Technology Enquiry on Using Procurement to Stimulate Innovation in December 2010 and also gave verbal evidence to the Committee. He gave a presentation at a British Council organised symposium on innovation policies in Dubai in February 2011.

Academically the research was presented by Jocelyn Probert in November 2009 to an audience of university researchers and business people at the University of Adelaide and by David Connell at events organised by the UK~IRC. The draft of a journal article will be presented at the SASE conference in Madrid in June 2011. Future outputs will include contributions to the CBR working paper series on business models and on innovation by technology consultancies as a form of knowledge intensive business service.

David Connell has recently been invited to become an independent adviser to John Denham on the Labour Party policy review and organised a workshop with innovators and SMEs hosted by TTP Group in March 2011.

Research reports

Connell, D. (2010) Scientists are customers too: how the SBRI can help Research Councils drive economic growth. NESTA Provocation, No. 13, May 2010.

Connell, D. and Probert, J. (2010), Exploding the Myths of UK Innovation Policy: How ‘Soft Companies’ and R&D Contracts for Customers Drive the Growth of the Hi-Tech Economy, Research Commissioned on Behalf of the East of England Science and Industry Council by the East of England Development Agency; Centre for Business Research, Cambridge. 

Conference papers

Probert, J. (2009), Presentation at the University of Adelaide, November.

Connell D. (2009) EU Workshop on Precompetitive Procurement, Brussels, October.

Connell, D. (2009) Institute for Manufacturing Annual Technology Management Conference, University of Cambridge, September 2009.

Probert, J. (2009) ‘Customer-funded development contracts and the growth and sustainability of high-tech firms (revised version of paper)’, SASE Annual Conference, Paris, 16-18 July 2009.

Connell, D. (2010) ‘The University research treasure cave myth and the low hanging fruit’, presentation to UK~IRC workshop on Universities and the Knowledge Economy, in collaboration with the Cambridge Journal of Economics, Cambridge, 28-29 June 2010.

Probert, J. (2009) ‘Customer-funded development contracts and the growth and sustainability of high-tech firms’, UK~IRC Research Workshop, Imperial College, London, 11-12 June.

Media coverage

Connell, D. cited in article “Politicians have been misled by innovation myths”The Scientist, 2 March 2010

Probert, J. and Connell, D. cited in article “Call for customer focus to aid R&D spin-offs”Financial Times, 15 February 2010

Project leaders

David Connell
Alan Hughes

Other principal investigator

Jocelyn Probert

Project dates



EEDA and Newton Trust