Graeme Philipson
July 24, 2016

ABS tallies slip in business smarts

Business

ABS tallies slip in business smarts

Not so clever: Australian business is not as clever as it thinks it is

The Australian Bureau of Statistics has produced a detailed report quantifying the level of innovation in Australian business. The results are not good.

The amount of innovation being undertaken by Australian businesses declined in 2014-15, the year measured in the data. The decline is slight and the numbers are 12 months old, but the findings do not bode well for our much vaunted innovation nation.

The pushback from conservative elements of the Coalition after the government’s worse than expected election result against innovation policy has already begun. Innovation is a dirty word in some quarters. Unfortunately, that would seem to include many Australian businesses.

The data published by the ABS is comprehensive. It shows that 38.2 per cent of Australian businesses introduced some type of innovation in 2014-15, down from 42.5 per cent the year before.

Innovation is much more popular with larger organisations – two thirds (64.7 per cent) of companies with more than 200 staff were innovative, compared to less than one third (30.7 per cent) of those with less than five staff.

The ABS admits that it is difficult to measure innovation, because it is a continuous process and aspects of it can be intangible. It uses a framework called the 'Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data', which was developed jointly by Eurostat and the OECD to assist in measuring the process of innovation.

The framework forms the basis of the ABS’s annual Business Characteristics Survey (BCS), which collects information about the broad types and status of innovation undertaken by Australian businesses in a 12 month reference period, and upon which the data is based.

The BCS covers four broad types of innovation – goods or services, operational processes, organisational and managerial processes, and marketing methods. Innovation was evenly spread across all four categories, with just under 20 per cent of all companies introducing innovations in each (many companies innovated in multiple categories).

The most innovative industry was Wholesale Trade (with 50.5 per cent of companies innovating), and the least was Transport, Postal and Warehousing (just 19.7 per cent).

Industries we like to think of as being innovative, such as Information Media and Telecommunications (36.5 per cent) and Financial and Insurance Services (38.4 per cent) were in the middle of the pack.

The data is published as ‘Innovation in Australian Business, 2014-15’. It is readily accessible on the ABS website (Catalogue number 8158.0).

The ABS just reports this stuff. It does not make judgements as to why it is so. But we at InnovationAus.com can make some observations.

The first is that the internal critics of the government’s innovation policy are in some ways correct. Innovation is not an issue that resonates in the conservative heartland – conservatism and innovation are, after all, diametrically opposed concepts.

Every time Malcolm Turnbull mentions innovation or agility these people groan. They are not interested in start-ups, they are interested in shut-downs – of old-style industries and their traditional way of life.

The National Party, supposedly the friend of the agricultural industry, is fighting tooth and nail against the move towards greater efficiencies in the farming sector (agriculture was one of the worst performing sectors in the ABS data).

Another observation we can make is on the size of innovative companies. The data shows quite clearly that the bigger the company, the more likely it is to be innovative. This may be counter-intuitive – smaller companies are supposed to be more agile, after all – but when you think about it, it makes sense.

Most small businesses are struggling to survive. Their owners and managers don’t have time for smart theories and speculative activities. They come later, when you are a bit bigger and have some breathing space. Look at the really big companies like the banks and the telcos. They have the resources to be innovative.

As the government refines its innovation policy post-election, and as the Prime Minister and his newly minted innovation team develop the strategies that will see them through the next electoral cycle and (we hope) propel Australia into a post-industrial future, they should bear that in mind.

The ABS data confirms what we know. Innovation is not primarily about small companies innovating. It is much more about larger companies, those who have done the hard yards and gained the experience and the skills to turn the concept of innovation into real live products and services.

That is where the policy levers need to be pulled. Malcolm Turnbull is quite correct – innovation is the key to Australia’s future.

The Prime Minister must stare down the Neanderthals on his own side of politics, but he and Greg Hunt also need to develop policies that truly favour innovation among the real drivers of economic growth in this country – the great mass of clever mid-tier companies that are making things happen.

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