DD2299 BEIS Business Basics Programme – AI

The Mayor’s Economic Development Strategy states that promoting innovation and the adoption of cutting edge digital technologies across our economy will be key to raising productivity.

The forthcoming London Industrial Strategy will build on this, outlining how technology can improve productivity across all of London’s economy, as well as increasing the size of the market for innovative companies themselves.

Most businesses view Artificial Intelligence (AI) as new and complex, and do not understand the impact it can have on their productivity . Moreover, as McKinsey found in 2017 as a result of their survey of 3,000 companies, most businesses don't know where to find AI products, how to integrate them, or how to assess the return on investment. McKinsey found that there is a business case to be made, and that AI can deliver real value to companies willing to use it across operations and within their core functions. In their survey, early AI adopters that combine strong digital capability with proactive strategies have higher profit margins and expect the performance gap with other firms to widen in the next three years.

The GLA (as part of a consortium as described in paragraph 1.5 below) is launching the ‘AI in London’s Retail and Hospitality Sectors’ project (the “Project”) which aims to discover what is the best means of encouraging adoption of AI technologies in Small and Medium-sized Enterprises (SMEs). This will be achieved by trialling two methods and comparing the results against a control group who will receive no assistance. The first method is an event series where SMEs will be able to see product demonstrations and meet vendors. The second method involves providing grant funding (provided by the GLA) to SMEs so that SMEs can test the AI products directly, with the support of a caseworker.

The Project will be delivered by a consortium consisting of the GLA, CognitionX Ltd., the AI expert research house and authors of London: The AI Growth Capital of Europe; Capital Enterprise, the not-for-profit startup and scaleup network and London Co-Investment Fund partners; as well as The London School of Economics’ (LSE) Centre for Economic Performance who will act as evaluation partners for the Project.

In order to take part in the Project, SMEs will need to meet light-touch eligibility criteria set out by the LSE ensuring: they are a SME according to standard number of employees and turnover thresholds, they are a UK registered business with a headquarters in Greater London and can provide a Companies House number. If they are registered for VAT, we will also request their VAT number in order to ensure long-term assessment and tracking of the impact of the Project. SMEs who meet the criteria will be allocated by LSE randomly into either method one, method two or the control group.

The grant funding for the Project is being provided by the Department for Business, Energy and Industrial Strategy (BEIS), and is administered through Innovate UK as part of the ‘Business Basics Fund: Trial Strand’. The consortium applied for the funding through an open application process, involving both a written submission and an in-person interview.

The objectives of the Project are:

- To drive adoption of new advanced technologies amongst SMEs in London’s retail and hospitality sectors;

- To conduct a 12 month Randomised Control Trial (RCT)-quality experiment with the involvement of the London School of Economics, in order to discover the most effective, and cost-effective means of driving technology adoption amongst SMEs;

- To create greater awareness amongst SMEs in these sectors (as well as sectors with similar business-to-customer models, such as leisure, music and sport) about the technologies which could improve their productivity and competitiveness;

- To inform future policymaking on how to drive technology adoption and raise productivity UK wide.

Overview of the Project:

- The Project is based on testing two methods of catalysing the adoption of AI technology amongst SMEs in retail and hospitality. In addition to the issues around driving adoption of any new technology, AI is particularly poorly understood, multi-faceted and does not have a well-developed standard means of calculating ROI.

- The Project is divided into two streams, each of which will serve 75 SMEs.

• Stream 1 is an event series, which will involve introducing SMEs to AI vendors, and allowing them to demonstrate their products – based on the notion that AI vendors themselves are best placed to drive adoption.

• Stream 2 is a more targeted intervention - based on the notion that more support, and access to independent expertise is needed in order to increase uptake of AI amongst SMEs. It will therefore involve the granting of £1,000 funding to SMEs to test the products directly, plus access to an expert caseworker. This comparative structure is a requirement of the funding received by BEIS.

- The two streams will test the difference in achieving the objectives outlined above by addressing the following barriers to adoption of AI technology by SMEs: (1) a lack of knowledge and a lack of motivation by introducing SMEs directly to AI vendors who can demonstrate their products and explain the potential impact on their business (addressed in Stream 1); and (2) risk aversion and real or perceived financial constraints by offering a financial incentive and support to overcome (addressed in Steam 2).

- The remaining SMEs (at least 150) will form the control group, who will receive neither treatment, but will still be incentivised to be involved through the ‘Guide to AI for SMEs document’, which is a resource to be created by CognitionX Ltd.

- The AI vendors who will be involved in the Project will be sourced by CognitionX.

- The Project will focus on capabilities which augment the power of existing workers rather than automate their jobs, and will ensure that the baseline and end of project research undertaken by the London School of Economics contains questions which monitor the impact on jobs and the sentiment towards automation.

The Project will be managed with existing resource within the Economic Development team – led by the Senior Policy Officer for Technology, working with the LEAP and Growth Hub team. Innovate UK have appointed a monitoring officer who will convene regular monitoring meetings, as will be set out in the consortium agreement which will follow this decision.

These objectives will be achieved through the following outputs:

The table below sets out how the grant funding will be used:

The table below sets out the funding split for the overall Project:

Under Section 149 of the Equality Act 2010, as a public authority, the Mayor of London must have ‘due Regard’ of the need to eliminate unlawful discrimination, harassment and victimisation as well as to advance equality of opportunity and foster good relations between people who have a protected characteristic and those who do not.

Gender Equality and Equal Opportunities are enshrined within the GLA’s programmes and activities according to the Mayor’s Framework for Equal Life Chances (June 2014) and the Mayor’s draft Diversity and Inclusion Strategy.

The programme will be promoted through a wide variety of channels to reach out to underrepresented groups, and we will ensure that when the baseline survey is sent out to the SMEs at the beginning of the process, we also collect the appropriate diversity and inclusion metrics.

The allocation of SME treatment between Stream 1, Stream 2 and the control group will be randomised, as is necessary for an RCT-level project. If there is a surplus of applicants, the additional companies will be placed into the control group.

Key Risks and Issues

The below risk register outlines the major risks to the Project:

Procurement and State Aid

CognitionX will be sourcing and briefing a number of AI vendors for inclusion in the Project. These 4-6 companies will have products aimed at the retail and hospitality sector and will be suggested as companies at which the SMEs can use their grant.

This is necessary because of the lack of information or ability to undertake due diligence on the part of the SMEs – which is the basis of the need for the Project. However, in order to avoid the creation of a state aid or procurement issue, there will be no requirement that the grant must be spent at one of these companies, and on request, further suggestions will be made available.

Agreement between the parties

In order to ensure the completion of the Project, the consortium members are required to enter into a consortium agreement which deals with the terms between parties, and the ownership of the IP. This will go through the appropriate legal guidance and approval following the signing of this Directors Decision.

Links to Mayoral Strategies and Priorities

The Objectives and outcomes of this programme are in line with the Mayor’s Economic Development Strategy, which prioritises the adoption of cutting edge technologies to improve productivity in London’s economy. Specifically, this directly addresses the consultation responses to the strategy which called for more support for SMEs to understand the implications of the development of new technologies and support SMEs with technology adoption.

The programme will also inform the design of policies emerging from the London Industrial Strategy, creating a robust evidence base for policy interventions.

Building on London: The AI Growth Capital of Europe, this Project will help drive market creation for AI vendors in London, further boosting the capital’s AI sector – the majority of whom themselves are SMEs.

This work is directly aligned with other ongoing work aimed at increasing uptake of new cutting-edge technologies across London’s ‘everyday economy’. Though the Project is sufficiently unique in that it takes the required format of a randomised control trial, and that it is time-bound and limited in scope, we will ensure that the work as agreed by the LEAP programme board on the 1^st November 2018[1] is branded and presented consistently.

The total budget for this project is £189,549, of which the GLA will receive and spend £79,267, specially upon 75 x £1,000 small grants and staff time. The funding will be received from the BEIS Business Basics Fund (as detailed within the main body of this report). As per table 2.6, the other consortium members will receive (where applicable) and spend their element of project directly.

The foregoing sections of this report indicate that:

(a) the decisions requested of the director concern the exercise of the GLA’s general powers, falling within the GLA’s statutory powers to do such things considered to further or which are facilitative of, conducive or incidental to the promotion of economic development and wealth creation, social development or the promotion of the improvement of the environment in Greater London; and in formulating the proposals in respect of which a decision is sought officers have complied with the Authority’s related statutory duties to:

• pay due regard to the principle that there should be equality of opportunity for all people;
• consider how the proposals will promote the improvement of health of persons, health inequalities between persons and to contribute towards the achievement of sustainable development in the United Kingdom; and
• consult with appropriate bodies.

In taking the decisions requested, the director must have due regards to the Public Sector Equality Duty; namely the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited by the Equality Act 2010, and to advance equality of opportunity between persons who share a relevant protected characteristic (race, disability, gender, age, sexual orientation, religion) or share it and foster good relations between persons who share a relevant protected characteristic and persons who do not share it (section 149 of the Equality Act 2010). To this end, the director should have particular regarding to section 3 (above) of this report.

Officers have indicated above that the funding required for the Project is being provided to the consortium by BEIS (administered through Innovate UK) as part of the ‘Business Basics Fund: Trial Strand’. Officers must ensure that they are content that the GLA and the other members of the consortium can comply with any conditions to which the funding is subject and in any event no reliance should be placed upon such funding until there is a legally binding commitment from BEIS to provide the same.

Officers have also indicated that the GLA intends to award grant funding to SMEs in order to achieve the outcomes detailed above. Officers must therefore ensure any funding is distributed fairly, transparently, in accordance with the GLA’s equalities and in manner which affords value for money in accordance with the Contracts and Funding Code.

Officers must also ensure that an appropriate funding agreement is put in place between and executed by the GLA and the recipient(s) before any commitment to fund is made.