One of the important benefits of the 2012 reforms to the Performance-Based Research Fund (PBRF) was a change to the External Research Income (ERI) component. Most research funds make grants through highly competitive bidding processes. And, if the award comes from a business or other commercially-focused organisation, it’s likely that the research proposal will have been carefully assessed to make sure it contributes real value to the firm. This means that the record of a university in gaining ERI is a measure of the quality of its research programme. So, when the PBRF was created, part of the fund was to be awarded on the basis of each institution’s share of the total ERI across all the institutions participating in the PBRF.
In the 2012 reforms, the share of the PBRF pool allocated to the ERI component was raised from 15% to 20%. And a loading was attached that would give an additional weighting to ERI that comes from New Zealand non-government organisations.
And with that funding loading, will come better information than we have ever had on the source of our universities’ research revenue.
Why is research funding from business so important?
Research in universities has important educational purposes. A university’s research programme helps build innovative capacity; if graduates are exposed to research as part of their education, they gain high-level enquiry and analysis skills. Higher-level teaching needs to be informed by research if it is to give students up-to-date insights into their discipline. All of which means that universities need to build research capability. In most countries, New Zealand included, universities house a majority of the country’s researchers and produce a high proportion of the country’s research.
Because university research has an educational purpose, much of that research will be “blue skies” research – which is exploratory, innovative, curiosity-driven, fundamental research, usually investigator-led, rather than strategic or commercial, goal-driven research.
While blue-skies, investigator-led research is an important part of any university’s programme, governments try to capitalise on their research funding of universities by encouraging part of that research capability to focus on strategic and economic purposes.
There are famous examples of why. The US responded to German leadership in military technology during World War 2, and to Russian superiority in space technology in the 1950s, by pouring vast sums into research, most of it in universities, to great effect. And universities were important catalysts of the explosion of the Californian ICT and medical technology industries.
It’s now widely recognised that research and development plays an important role in fostering innovation and, ultimately, productivity, particularly in certain types of industries. Therefore, all governments in developed countries see university research as important to national development.
Data from Statistics New Zealand’s biennial R&D survey tells us that NZ businesses spent around $1.8 billion on R&D in 2018, up from $1.0 billion in 2014. Of that spending, only 2.4% was spent on contracts with tertiary education organisations. But we can’t dig into that data any further, in large part because of a confidentiality agreement between Statistics NZ and Universities NZ.
But while it’s clear that university research is important for our national strategic and economic development, the universities have been remarkably diffident – even secretive – about the commercialisation of their research, mostly relying on anecdotes and case studies to promote their work, and avoiding comprehensive data. Writing in 2010, University of Otago researchers noted that there is:
… scant quantitative data on which to form an opinion on the relative performance of New Zealand universities in [technology transfer and commercialisation]. It could be argued that this lack of data and the unwillingness to disclose data is unacceptable because it denies the public who fund universities the opportunity to understand the commercialisation performance of universities, and it denies researchers in the field from undertaking critical analysis … (Collier A and B Grey, 2010, The commercialisation of university innovations – A qualitative analysis of the New Zealand situation, Centre for Entrepreneurship Research Report, School of Business, University of Otago).
Apart from that Otago paper, there has been one other systematic published study of New Zealand university commercialisation in the past, and one study of university ERI, but both are well out of date.
We can find out something of university performance in strategic research (that is, research focused on nationally important priorities) because the government allocates funding to strategic research projects through competitive funding rounds and publishes the results of those funding rounds. But for commercially focused research …?
That’s why the 2012 PBRF ERI component change is important. Because most non-government ERI (most of which will come from businesses or industry-focused organisations) receives a loading in the calculation of the ERI funding, universities now have to disclose their business ERI to the Tertiary Education Commission, meaning that we can see how each university has performed in building research-based linkages with industry and we can trace that over time. Of course, business ERI is only one index of the transfer of knowledge from institutions to business. Commercialisation also involves patents, invention disclosures, licensing of IP rights, the creation of spin-off companies that commercialise inventions, … But this is a start.
If we look at total ERI – from all sources, including government – we see significant growth over the life of the PBRF. Between 2005 and 2018, total ERI in the eight universities more than doubled (from $282.5 million to $582.4 million). The growth was especially high at Victoria and AUT, where ERI trebled (growth of 242% and 213% respectively). The universities of Auckland and Otago between them, have earned the majority of ERI – ranging from 56% to 61% in the fourteen years to 2018.
Figure 1: External research income, from all sources, New Zealand universities, 2005-2018
Source: Tertiary Education Commission
Figure 1 shows the influence of changes in government policy on research and science funding. Towards the end of the 2000s, the government changed the funding system to provide more core funding for Crown Research Institutes (CRIs), leading to a flattening of the university share of government research funds. Since 2014, funding for research and science has been reorganised and increased; the universities have captured a significant share of that growth.
The new PBRF data splits ERI from 2015 and later into four groups:
- government contestable research funds
- research contracts for government agencies
- research funding from overseas
- other New Zealand-sourced research revenue.
The fourth category – other New Zealand-sourced research revenue – includes research contracts with firms, contracts with industry associations (for instance, the Foundation for Arable Research and DairyNZ, which are both funded from commodity levies paid by farmers) and research funds provided by charities (such as the Neurological Foundation, whose annual funding for research is about $1.5 million to $2 million). This means that it isn’t purely industry-funded research, but it’s a reasonable proxy.
Over 2015-2018, the years for which the data has been broken down, funding for research from non-government New Zealand sources has risen 18%, with especially large increases at Canterbury (122%), Waikato (78%) and Auckland (56%).
However, given the lumpy nature of research funding, and the length of time for research contracts, it makes sense to analyse the data for the four years 2015 to 2018 in aggregate.
Figure 2: External research income, from non-government New Zealand sources, New Zealand universities, 2015-2018
Source: Tertiary Education Commission
However, if we control for the size of the universities, the picture changes. Figure 3 shows the research earnings per full-time equivalent academic staff member (using the staffing numbers provided in the PBRF academic staff census). On this measure, Lincoln University, with its close research relationships with the agricultural industry, has the greatest earnings.
Figure 3: External research income per full-time equivalent (FTE) academic staff member, from non-government New Zealand sources, New Zealand universities, 2015-2018
Source: Tertiary Education Commission
Note: The FTE data was calculated by the author from the TEC’s publication Improving Research Quality The interim results of the PBRF 2018 Quality Evaluation
Lincoln also had the highest total ERI per FTE over those four years. However, Auckland had the highest revenue per FTE from government contestable research funds and the highest from overseas sources.
How does NZ compare
While our universities were reluctant to disclose the sources of their ERI in New Zealand until the 2012 PBRF policy change, they have happily supplied that data to the UK publication Times Higher Education (THE) for its university rankings. THE calculates “knowledge-transfer activity by looking at how much research income an institution earns from industry … scaled against the number of academic staff …” That measure counts for 2.5% of each university’s score in THE’s World University Ranking.
Figure 4 shows the performance of the eight New Zealand universities on that measure in the 2019 THE rankings, while Figure 5 puts those data alongside the scores of the 35 ranked Australian universities.
Figure 4: Times Higher Education (THE) industry income score, 2019, New Zealand universities
Source: THE 2019 World University Rankings.
Notes: 1 The score is calculated from the research income from industry in US dollars at purchasing power parity, divided by the number of academic staff in the university
2 The scores are created using a cumulative probability function using a version of z-scoring. Each university’s score represents the probability that a randomly chosen university falls below that university.
3 The median of the distribution is 39.4.
Figures 3 and 4 show different results. The reason for this is likely to be a consequence of differences in the specifications for the data behind them, as well as differences in timing. THE possibly has a narrower definition of “industry income”, while the staff count – the denominator in each case – will be different.
Figure 5: THE industry income score, 2019, Australian and New Zealand universities
Source: THE 2019 World University Rankings
Notes: See Figure 4
Colour Coding: Black: New Zealand universities. Gold: Australia’s elite Group of 8 (G8) universities. Green: Other Australian universities
While research and development spending by New Zealand businesses has grown significantly over the last five years, faster than any other source of research spending, it remains relatively small in comparison to most developed countries. And, as noted above, universities capture only a relatively small share – around one dollar in 40 – of that business research expenditure. So, New Zealand’s highest ranked university on industry income, the University of Auckland, makes it into the top 200 (to be precise, 194th) on that measure. Nonetheless, three of the eight New Zealand universities have industry revenue per staff member in the top 300 of the 1,258 universities ranked by THE and five are above the median score.
The level of business ERI is a measure of the extent of a university’s direct engagement with commercial firms. The ability to earn business ERI over time is an indicator of a university’s ability to maintain business relationships.
However, as noted above, that is only one measure of university research commercialisation. Universities house many of a country’s most inventive people; they are repositories of expertise and innovation that can have commercial value. This is why universities were catalysts of the flowering of the Californian ICT and medical technology industries from the 1970s. So, to get a full picture of the value of New Zealand university commercialisation would need data on each university’s revenue from the licensing of university inventions and on the value generated by each university’s spin-off companies – information that is hard to come by, given the current attitude of the university commercialisation offices.
One other aspect of commercialisation that it is possible to measure is the universities’ patenting activity. The patents database of the Intellectual Property Office of New Zealand (IPONZ) shows that the University of Auckland, through its subsidiary Auckland Uniservices Ltd, has been responsible for 58% of all New Zealand university patenting activity in the last thirty years (compared with 11% for Otago and 8% for Massey, the two next largest patenters).
Figure 6: Patenting activity of New Zealand universities 1990-2019
Source: IPONZ patent database.
Notes: 1 The data in this graph counts all patent and provisional patent applications except those abandoned or withdrawn.
2 It includes all patents that cite, among the applicants. any NZ university or any commercialisation subsidiary of a NZ university (such as Auckland Uniservices, Lincoln Ventures, Canterprise, VictoriaLink etc)
However, patenting is an imperfect measure of commercialisation. Patents tend to be used most in fields like engineering and medicine, favouring institutions with engineering and medical schools. Measures like business research income are also discipline-specific, but less so than patents. Patterns of patenting data also suggest that intellectual property management policies vary between universities, meaning that the relative performance of institutions on this measure may reflect university management priorities, as much as the inventiveness of researchers.
This analysis also counts only inventions where the institution was centrally and directly involved in the development and so doesn’t recognise innovations made by people who acquired inventiveness at an institution and use it in their careers.
No one suggests that universities should orient their research completely towards business. Universities exist primarily to build human capital, to develop higher level skills and the capacity for analytical, critical and innovative thinking. They exist to create a higher-skilled population, to lift the capability of our workforce, to advance our understanding of our culture and identity. Those roles need to be underpinned by research capability in, and research activity by, their staff.
Much university research will be focused on matters that have little practical application. Some may turn out to be of practical value unthought of at the outset. Some will be focused on nationally important problems and challenges – such as health, climate, environment – that have little immediate financial return but have national strategic value. Others will be commercially valuable. Each strand has its place.
We need to understand better how the country’s university system performs in each strand. This new PBRF data on the source of external research income gives only a first, partial view of each university’s business research engagement. But it is a start. Perhaps the university research commercialisation offices ought to start thinking about how they might round out the picture.