Evaluation of the Effectiveness of HEFCE/OSI Third Stream Funding (CBR project)

Culture Change and Embedding the Capacity in the Higher Education Sector towards Greater Economic Impact


Aims and objectives

This project consisted of two components. The first was carried out in 2008-2009 and was designed to assess of the extent to which HEFCE/OSI third stream funding has secured direct and indirect economic benefits, through embedding a culture and capacity within Higher Education Institutions (HEIs) that supports the transfer and exchange of knowledge between HEIs, business and the wider community. Following the completion of this original project HEFCE funded PACEC/CBR to carry out follow on research in 2009-2011. This work deepened understanding of the role of knowledge exchange within the overall set of universities analysed and extended the analysis to the USA.


The study adopted an innovations system framework for purposes of analysis. Within the innovation system, third stream policy operates at the interface between the science and engineering base, sources of new knowledge, networks and collaborative arrangements and firms’ ability to absorb knowledge and technology. It may be seen as an attempt to address institutional failure reflected in the inability of the innovation system to adapt to changed patterns of behaviour and rules or norms affecting inter-agent transactions which arise from broad underlying technological and other changes in the innovation system.

The evidence base and analysis

The third stream funding evaluation was carried out during 2008. The programme of empirical research was set within a traditional evaluation framework analysing the relevant inputs, activities, outputs and the resulting impacts. In addition, cost-benefit balance sheets were produced which compare the inputs to the outputs of knowledge exchange where it quantifiably possible.

Both secondary and primary data are used in the analysis. Secondary data sources include the Higher Education Business and Community Interaction Survey (HEBCI), HESA and other HEFCE sources such as HEI funding bids and annual monitoring reports. A primary data base was also assembled from case study research of 30 HEIs, survey responses from 1,157 academics and from 373 external organisations engaged in third stream activities with HEIs and from interviews with a range of stakeholders including Central Government Departments and the Regional Development Agencies.

The case studies were selected on the basis of a cluster analysis and six key clusters were identified, largely reflecting the scale of their research activity and ranged from the Top 6 HEIs, High Research HEIs, Medium Research HEIs, Low Research HEIs and Arts HEIs .

The follow on studies in 2009-2011 involved follow up surveys and interviews with Technology Transfer practitioners and a programme of interview based fieldwork in the US covering the full range of research active US universities in the Mid West, the South and the East and West Coasts.

Selected key findings

  • Total committed 3rd stream funding between 2000/01 and 2010/11 amounted to £1 billion (at 2003 prices) and increased for all HEI clusters except the Top 6 where it declined by 13%
  • There is now strong support for 3rd stream activities by senior HEI management and knowledge exchange is now a core strategic aim across all HEIs
  • There is widespread recognition of the synergies between 3rd stream activities and teaching and research with relatively little displacement
  • Government policy, a dedicated funding stream, leadership and financial pressures have been the main drivers of the increasing importance of the third stream mission
  • SMEs are the most frequent target for 3rd stream activity but for Top 6 and high research HEIs large corporations and the public sector are important
  • Knowledge exchange offices are becoming more professional and pro-active towards generating opportunities with external organisations, but most engagements are still initiated without the involvement of the KEO
  • Knowledge exchange offices face a number of constraints on their growth namely their ability to attract suitably qualified staff, shortage of finance and negative attitude of academics
  • Without HEIF many of the knowledge exchange facilities and infrastructure would not exist or would be of a smaller scale and quality.
  • HEFCE third stream funding has played an important role in bringing about positive cultural and attitudinal within HEIs towards knowledge exchange activities
  • There is a close alignment of academia and non-academic organisations on the importance of HEIs to the economy and society
  • Both supply and demand side barriers constrain engagement between HEIs and external organisations
  • Knowledge exchange activities of HEIs generated £1.94 billion in income in 2007 growing by approximately 12 percent per annum over the period 2001-2007
  • Income from non-commercial organisations such as the public sector and charities constitutes the largest proportion of knowledge exchange income with income from SMEs generating the least income for HEIs
  • Knowledge exchange income grew faster in the strong policy period compared with the weak policy period, for HEIs that initially received HEFCE third stream funding compared with those that did not, and for those that received relatively more funding over the period
  • HEIs believe that between 28% and 41% of knowledge exchange income in 2007 can be attributed to HEFCE third stream funding
  • Third stream funding has strengthened the link between the triad of teaching, research and knowledge exchange activities undertaken by HEIs
  • Most HEIs collaborate to gain access to complementary capabilities
  • The collaborative partnerships with large companies are beginning to go beyond the mere transactional towards a much more strategic partnership
  • US universities are experiencing similar pressures to those in the UK and have recently developed a relatively enhanced emphasis on a ‘holistic’ approach to commercialisation and knowledge exchange going beyond an emphasis on patenting and licensing and embracing State and local development strategies.

Project team

  • Alan Hughes
  • Barry Moore (PACEC)
  • Tomas Ulrichsen (PACEC)
  • Anna Bullock
  • Isobel Milner

Project dates

2008-2009 (extended to 2011)




Journal articles

Hughes, A. (2010), ‘Entrepreneurship and innovation policy: retrospect and prospect’, Political Quarterly, 79:133-152.


CBR/PACEC (2010) The Higher Education Knowledge Exchange System in the United States. A report to HEFCE by PACEC and the Centre for Business Research, University of Cambridge, July. (Executive Summary)

CBR/PACEC (2010) Knowledge Exchange and the Generation of Civic and Community Impacts. A report to HEFCE by PACEC and the Centre for Business Research, University of Cambridge, April. 

CBR/PACEC (2010) Synergies and Trade-offs Between Research, Teaching and Knowledge Exchange. A Report to HEFCE by PACEC and the Centre for Business Research, University of Cambridge, April. (Executive Summary)

CBR/PACEC (2010) The Intellectual Property Regime and its Implications for Knowledge Exchange. A report to HEFCE by PACEC and the Centre for Business Research, University of Cambridge, January. (Executive Summary)

CBR/PACEC (2009) The Evolution of the Infrastructure of the Knowledge Exchange System. A report to HEFCE by PACEC and the Centre for Business Research, University of Cambridge, December. (Executive Summary)

CBR/PACEC (2009) Evaluation of the Effectiveness and Role of HEFCE/OSI Third Stream Funding. A report to HEFCE by PACEC and the Centre for Business Research, University of Cambridge.

Abreu, M., Hughes, A., Grinevich, V. and Kitson, M. (2009) Knowledge Exchange between Academics and the Business, Public and Third Sectors. CBR and UK Innovation Research Centre.

Book chapters

Hughes, A., Moore, B. and Ulrichsen, T. (2011), ‘Evaluating innovation policies: a case study of the impact of Third Stream funding in the English higher education sector’, in M. Colombo, L. Grilli, L. Pisutello and C. Rossi Lamastra (eds). Science and Innnovation Policy for the New Knowledge Economy, Edward Elgar Publishing, Cheltenham (forthcoming).

Hughes, A. (2010), ‘Entrepreneurship and innovation policy: retrospect and prospect’, in V. Uberoi, , A. Coutts, A. McLean and D. Halpern (eds) (2010), Options for Britain II: Cross Cutting Policy Issues – Changes and Challenges Wiley-Blackwell, Oxford.

Conference/Workshop papers

Hughes, A. (2010) ‘Growth, innovation and the science base: from cargo cult to industrial activism’, Plenary Keynote Address 3rd International Innovation and Enterprise Conference Tsinghua University Beijing 8 July. 

Hughes, A. (2009) ‘Innovation and the “science” base’, Cabinet Office Seminar, 23 September.

Hughes, A. (2009) ‘Innovation policy, university-industry links, open innovation and the new production of knowledge’, paper presented at the Symposium at Noors Slott: Changes of Science and Policy, 16 October.

Hughes, A. (2010) ‘The science and research base: activities, interaction and the public good’, presentation at the BIS Science and Research Seminar: Science, The Economy and Society: An Overview of the Research Base and the Role of Government at BIS, 1 Victoria Street, London, 15 January.

Hughes, A. (2010), ‘Growth, innovation and the science base: from cargo cult to industrial activism’, Joint Economic and Social Research Council and British Academy Event Does innovation produce economic growth?, One Great George Street, London, 16 March.

Hughes, A. (2010) ‘System thinking, market failure and the development of innovation policy: the case of Australia’, International Schumpeter Conference, Aalborg University, 21-24 June.

Hughes, A. (2010) ‘A vision for UK research and innovation policy’ Modelling Futures: understanding Risk and Uncertainty, Mellon Sawyer Seminar Series, CRASSH, Cambridge, 28 May.