R&D OK, but There’s Much More to Do in an Innovative Aussie Way

11 July 2006

The Canberra Times

By Katie Lahey
Chief Executive
Business Council of Australia

Innovation has always been important to our economy, and to the ability of business to stay ahead of the competition. Australian businesses are now participants in a highly competitive and rapidly changing global market. As the pace of change quickens and the global economy moves increasingly towards knowledge and service-based economies, the ability of Australian businesses to innovate will be crucial to the country's future capacity to compete and prosper.

The Business Council of Australia believes when it comes to innovation, Australia is doing some things very well, such as medical research. But of course there are areas where we can improve performance and develop capabilities. For this reason, the council believes it is time for public and private sectors to develop a new approach to innovation.

The council's New Concepts in Innovation report, issued in March, found innovation within a business covered a much broader range of activities than the traditional perception of innovation defined as highly specialised knowledge brought to bear on research to develop cutting-edge technology.

The report underlined the importance of people, their skills and their ability to work together as fundamental drivers of innovation in the workplace.

This more ''democratic'' approach to innovation has created a good deal of public discussion about the nature and future of innovation in Australia. The council welcomes this debate. In supporting the case for a new national innovation policy, it recognises that alternative views and criticisms need to be carefully considered. However, in this debate there have been some claims made which have incorrectly represented the council's views.

It has been argued that its approach downgrades the importance of technological advance in favour of short-term corporate strategy. While some have claimed the council's position excuses what is viewed as a ''lower than desirable level of spending'' by business on research and development activities in Australia. This is not the case.

The council recognises that R&D spending and the implementation of new technologies make an important contribution to innovation in Australia. Indeed R&D is a vital input into the innovation process.

However, while R&D is undoubtedly important, business innovation is far more than just R&D. Therefore we need a broader understanding - and debate - around how business uses innovation to create markets and drive competitiveness.

Business Week and Boston Consulting Group recently issued their annual list of the world's 25 most innovative companies, derived from the results of a global survey of more than 1000 senior managers.

The results underline the validity of the council's broader approach to innovation, by showing that the most innovative companies are active across many genres of innovation.

Indeed, out of the top 10 companies only one, 3M, was considered primarily a product innovator, the others identified as leaders in process or business model innovation. For example, the No. 1 ranked firm, Apple, not only displayed superior design innovation with its iPod technology, but also developed innovative business models and software platforms to create an unrivalled user experience for iPod consumers.

The Business Week/Boston Consulting list also emphasised that innovation need not be associated with traditional product innovation at all. For example, firms in the top 25 list, such as Virgin, eBay, Wal-Mart and Southwest Airlines, were not considered to be product innovators at all, but revolutionaries in the innovation of their operational process and business models.

Furthermore, Thomas Barlow, author of The Australian Miracle and a recent guest contributor to this space (May 8), argues that by concentrating policy effort on improving R&D expenditure there is a risk we ''may be overlooking other more important features that affect the ability for firms to innovate. These include policies relating to company tax, capital gains tax, competition, the protection of intellectual property, and the pricing of high-tech goods''.

To this list, I would add infrastructure improvement, regulation reform, personal taxation reform, and importantly, education and training policies that ensure Australians have the skills and experience to be as innovative as possible.

A comprehensive approach to innovation policy is necessary if Australia is to lift its ability to be an innovative nation. The most important issue is not who owns or shapes the innovation debate, but whether the policy outcomes that result lead to an increase in Australia's productivity, competitiveness, wellbeing and future growth.



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