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Executive Summary

CRIs play a pivotal role in New Zealand’s innovation system

Crown Research Institutes (CRIs) matter to New Zealand. Their importance is increasing as science plays an ever more critical role in the nation’s economic development. Research and the other services provided by CRIs help address New Zealand’s most pressing issues: achieving economic growth by making the tradable sector more productive; improving the sustainable use of natural resources; and managing exposure to risks that could otherwise destabilise society, the environment and the economy.

Research and development generates profound and enduring benefits for New Zealand society. Ongoing government investment is essential. The Government established CRIs to improve the economic, environmental and social wellbeing of New Zealand, and they are delivering substantial benefits. However, the evidence received and our deliberations have led us to conclude that CRIs can and should contribute much more.

CRIs have the potential to be powerful engines of economic growth, forging national and international collaborations at the cutting edge of research and science. CRIs already attract international attention because of their strong links to business, government and other science organisations. We believe, however, that through greater collaboration CRIs can perform much better. Such collaborations will, the Taskforce believes, become more important in delivering benefits to New Zealand.

What needs to change so that CRIs contribute more to New Zealand?

We do not believe changing the number of CRIs, their ownership status, or their employment arrangements will significantly improve their contribution to New Zealand. The question is not how many CRIs New Zealand should have, but what structures will best provide research services that address the problems and opportunities New Zealand faces. It is our opinion that the main factors impeding CRI performance relate to their funding, ownership and governance arrangements, as follows:

• Currently, it is not clear if a CRI’s objective is to create value for itself, as a company, or to generate value for New Zealand. Current ownership arrangements seem to place undue emphasis on research and development that produces outputs that individual CRIs can capture in their statements of revenue and balance sheets, rather than on research that contributes to the wellbeing and prosperity of New Zealand. This can reduce quite significantly the overall impact of government investment in CRIs.
• There are multiple lines of accountability that dilute the CRIs’ sense of purpose and direction. Each CRI is accountable to the shareholding Ministers, directly and through the Foundation for Research, Science and Technology (the Foundation), the Crown Ownership Monitoring Unit in Treasury (COMU), and the Ministry of Research, Science and Technology (MoRST). Each agency has its own perspective and requirements.
• CRIs are heavily dependent on competitive contracts, which are often short-term relative to the time frame in which science produces results. This makes it difficult for CRIs to operate strategically.
• We believe that existing funding and governance arrangements for CRIs inhibit collaboration, position natural partners such as universities and firms as competitors, and interfere with CRIs’ adoption of best-practice research management. Governance and institutional arrangements can be considerably simplified so that CRIs have a stronger sense of purpose and direction.

Key Actions

The Taskforce believes that the Government must be more explicit about what it wants each CRI to achieve and must fund the CRIs accordingly, so that they can deliver more for the national benefit. CRIs can do this if the Government encourages them to plan and operate for the long term, cooperate with complementary components of the New Zealand, as well as the global, research and innovation system, and use diverse and creative approaches to transfer knowledge to those in New Zealand best able to use it. This means having talented people in top leadership and management positions, giving them the authority they need to take strategic decisions and then holding them to account for the performance of their CRI. The measure of a CRI’s success should be the positive impact it has on New Zealand – be that economic, social or environmental – not the commercial return a CRI has been able to achieve.

To set this up, we propose the specific set of actions listed in the recommendations, summarised as follows:

• CRIs were set up to address enduring challenges and opportunities that New Zealand faces. CRIs are still needed to do this, but the Government needs to clarify in a Statement of Core Purpose the exact role each CRI should play in delivering benefits to New Zealand. The Statement of Core Purpose should recognise the distinctive role of each CRI relative to other research organisations, including universities.
• The Government should fund CRIs to achieve their core purpose. A significant proportion of CRI funding (much greater than at present) should be allocated directly, on a long-term basis, to support the delivery of the core purpose activities of each CRI. The current level of contestable and ‘at risk’ funding renders CRIs vulnerable as businesses, creates uncertainty and undermines their ability to act strategically.
• CRIs face unnecessary compliance from an excessive number of contracts. Core purpose funding should be consolidated into a single contract, as soon as practicable. The core purpose funding should be negotiated against a rolling five year research strategy that is developed in consultation with relevant stakeholders and agreed with the Government through the CRI’s Statement of Corporate Intent.
• A greater degree of certainty will enable CRIs to retain and develop capability, manage risk, and operate within a longer time frame to deliver excellent and relevant research.
• Contestable, open access funding should remain an important element – albeit on a smaller scale – of Vote Research, Science and Technology (RS&T) funding. This is vital to generate competing ideas and new entrants. However, we believe the system should put less emphasis on contestable processes as a way to drive better performance. Instead, more emphasis needs to be placed on holding organisations accountable to deliver benefits as defined in their Statement of Core Purpose, rather than allocating funding against promises of activity. Reducing the proportion of contestable funding is consistent with the findings of the 2007 OECD review of our innovation system, which found it to be too competitive and fragmented.
• A portion of Vote RS&T funding should be set aside for major national collaborative challenges, akin to the funding available to the Centres of Research Excellence. This would provide incentives for collaboration in new multi-disciplinary areas of research.
• In return for moving to reduce the proportion of contestable funding, CRIs need to be more accountable for delivering value to New Zealand. There is a need for the Government to improve the upfront surety of funding and to balance this with the following measures to improve performance:
• Strengthen board accountability, by having public Annual General Meetings and annually monitoring and evaluating performance against the core purpose and Statement of Corporate Intent
• Measure CRIs against more balanced and comprehensive performance indicators. Primary responsibility for monitoring all aspects of CRI performance should rest with one entity. Performance indicators should explicitly include:
• technology transfer as a core and measurable responsibility for all CRIs, so that the benefit of their ideas contributes to the wealth and well–being of New Zealand and not just the CRIs’ balance sheets
• measures that ensure CRIs remain financially viable and accountable for all government funding. There is a current perception, not reflected in practice, that CRIs are always expected to meet a nine percent return on equity target
• tailoring the approach to setting financial targets to reflect a need to be financially viable, as opposed to financially profitable
• expectations and targets around collaboration with international and national components of the research and innovation system.
• Measures of scientific excellence, to be assured through the greater use of independent expert science panels.
• Making a percentage of CRI core funding ‘at risk’, subject to performance against agreed milestones, if boards do not manage appropriately.
• To address the currently diffuse governance, investment and monitoring arrangements facing CRIs, the Government should combine its long-term CRI investment, ownership and policy responsibilities into one entity. The entity should also be responsible for managing contestable funds and funding infrastructure.
• CRIs are just one part of the research and science system, alongside private research organisations and universities. The Taskforce concluded that for some issues a wider view of the system is needed. We recommend a national research infrastructure strategy to rationalise and ensure open access to major research infrastructure, where it is clear that national economies of scale apply.

In making its recommendations, the Taskforce intends to make better use of the funds available through Vote RS&T and not to advantage and/or disadvantage any particular parties. An underlying theme of our recommendations is to strengthen and improve the effectiveness of the linkages between CRIs and all their stakeholders. These linkages are critical for deriving economic and other benefits from CRI research.

Making these changes will give CRI boards greater clarity and control over their funding. The changes will give them a stronger mandate to set strategic priorities and give them the authority to respond flexibly and quickly to the complex environments they operate in. We believe our recommendations will give CRIs greater certainty of purpose and provide the right settings for them to deliver greater benefit to New Zealand from the Government’s investment in RS&T.

Implementing the recommendations will provide enhanced confidence and attractiveness for increased operational and equity funding from government.

The Taskforce notes that many of the recommendations we have reached are consistent with the views held by the Prime Minister’s Chief Science Advisor.