Ministers have warned that unless UK business leaders become better at fostering innovation they risk being out-gunned by international rivals.

Speaking at the UK Technology Innovation and Growth forum, Ian Pearson, science and innovation minister, urged business leaders to embrace a culture of innovation. UK businesses have made huge strides in becoming more innovative over the past 10 years, but they still lag international competitors, he added.

"We must unlock the talent and become an innovation nation," he said.

Pearson commended the strong track record British universities have in research and development, and suggested more needed to be done to harness the ideas coming out of universities.

He also confirmed the government watchdog, the National Audit Office, was being tasked with evaluating how the public sector could embrace innovation, Pearson revealed. "The public sector is very risk adverse and we need the NAO to detail ways we can increase our risk taking," he said. "Innovation depends on people that are prepared to take the risks that innovation needs."

One of the biggest problems facing UK businesses was how to sustain an entrepreneurial spirit, suggested Colin Tenwick, chief executive at people management software firm StepStone.

There was a tendency for UK firms to become markedly more risk averse once the company founders had moved on, he said. “This is fundamentally different to what happens in the US and sets aside the UK and the rest of Europe,” he added.

Pearson also suggested that the UK had much to learn from the US in helping companies make the transition from entrepreneurial start-up to international heavyweights. “There is an issue of how we grow small businesses into big business and we need to get hold of this in order to compete with the US,” he said.

Part of the solution would be to look at ways to improve the access UK companies get to venture capital, Pearson said – although he noted the crisis in financial markets was likely to make raising capital more difficult in the short term.

The calls for greater innovation will strike a cord with IT professionals. Recently, global consultancy Capgemini highlighted the leading role IT should play in delivering business innovation.