Ailments in our innovation system

James Riley
Editorial Director

The Senate committee looking at the Australian Innovation System has published its interim report, outlining a troublingly stubborn list of ailments that undermine the nation’s productivity and economic performance.

The committee was to have completed its report by mid-year, but has now extended its deadline until December. The interim report does not shed much light on these annoyingly familiar roadblocks and inhibitors.

But a discussion paper commissioned by the Committee and written by the University of Technology Sydney’s Roy Green – the Business School Dean – puts some welcome economic and social context around the problems our innovation system faces.

You can read the interim report and Roy Green’s observations here.

Professor Roy Green: welcome economic and social context around the problems our innovation system faces

Perhaps it is just as well that the committee has delayed its full report. The change of government leadership has already put some of Professor Green’s observations out of date.

The changes to the machinery of government – especially the movement of digital economy policy to the Industry department, and whole of government service delivery (and data policy) to PM&C – will certainly have an impact on the way some of these things are looked at.

And Professor Green puts forward some ideas for consideration that are certainly worth reading, the best around cultivating design skills, improving collaboration (including the need for more and better language skills), and new thinking to bolster the advanced manufacturing sector’s standing in global supply chains.

Interest in this area is not lacking. The inquiry received more than 180 submissions (interestingly, only one of these came from the finance/funding sector, usually the noisiest of lobbies.) From these submissions, the inquiry identified barriers to the flow of ideas, mobility and funding between public and private sectors.

I have listed these inhibitors below. But they are well known. The more interesting stuff is contained in Professor Green’s work. In no particular order, here are some key points of interest.

Firstly, he notes that an Innovation System is about the relationships between knowledge creating organisations (such as research and teaching organisations) and knowledge adopters (like industry, and the businesses that constitute it) and the government (in its policy, funding, enabling, and regulatory roles).

There are many other organisations that plug into the system, like financial organisations (including VCs), innovation intermediaries, professional advisers, and consultants who play enabler and integration roles.

But nothing is straight-forward. The reason this innovation connectivity is such an issue in Australia is because it is complex. It is difficult.

“The Innovation System cannot be said to work ‘systematically’,” Professor Green says. “It is dynamic and multidimensional and relationships are constantly changing.”

“For example, policies determined and decisions taken in one part of the System that might seem like a good idea by some could have potentially adverse effects in other parts of the System and impact on the course of technological progress”

Professor Green is considered one of our brightest thinkers on connecting innovation islands, and developing our eco-systems. It is certainly worth understanding his more economy-wide view of all the moving parts that make up a successful innovation eco-system for Australia.

On STEM: He notes international research by STEM educators that found 75 per cent of the fast growing occupations require STEM skills and knowledge, with employment in these occupations growing at twice the pace of non-STEM.

Many of these STEM skills relate specifically to computer science and software engineering. The concern for Australia is that the enrolments in computer science peaked during the dotcom boom at the turn of the century – and despite strong and growing demand for graduates, parents are not encouraging their kids to enter the industry.

On Digital Literacy: This “is becoming a key requirement for economic and social progress in this digital age. It is reflected not only in the industries built around traditional industrial production (manufacturing, mining, energy, transport) which are going through a process of what is often referred to as digital transformation, but also in the services sector (construction, banking, finance, health, government) and in the creative and cultural industries.”

On ICT (and its transformative role across all industries): “On its own, ICT makes up only five per cent of the economy. But its influence is much more pervasive. It is an important enabler of innovation and influences all aspects of the innovation process. It makes a major contribution to productivity growth.”

On Advanced Manufacturing: “The reality is that making things has become a lot more complex than the image of an industrial assembly line (even if it is populated by robots). Making things involves the input of value added services created in a broad range of complementary industrial categories. These can be highly specialised and ‘knowledge intensive’.”

“A ‘manufacturer’ may now be entrepreneur, a ‘brand manager’, or an ‘integrator’ that does not actually own any physical capital.”

Roy Green’s discussion paper provides a good platform for another round of consultations. If nothing else, it should encourage those sectors that have not had much input into the inquiry to get engaged.

Specifically, the finance sector’s silence on this speaks volumes. It is a concern that the VC and Private Equity lobby, AVCAL, was the only submission received on this. Where are all the multitude of financial institutions that should be engaged in this sector?

The agriculture and food production sector was not well-represented in the submissions either – and this should be an area of the economy where we have a competitive advantage (if we do things right).

Finally, Professor Green has challenged the status quo thinking of the Chief Scientist. The Office of the Chief Scientist has been a champion of the elevation of STEM as a national issue. But it has not been especially interested in the information sciences and their applicability to industrial change.

This is a great contribution to the discussion.

In the meantime, here is the dismal list identified by the Senate Committee of things that ultimately limit or impede innovation:

A lack of an innovation culture and appetite for risk – as innovation is largely about market experimentation, risk of failure needs to be accepted or at least tolerated.

Low levels of mobility between business and public sector research and development – only 30 per cent of researchers in Australia work in industry. This figure compares to the OECD average of 60 per cent and the United States figure of 80 per cent.

Translating Australia’s highly-regarded research into economic outcomes – the limited commercialisation and conversion of research for economic advantage, and the need to ensure that research addresses the industrial, social and economic priorities.

Lower innovative activity amongst SMEs when compared to larger firms – 74 per cent of large businesses in 2012–13 were classified as innovation active, compares to 51 per cent of businesses with 5–19 employees.

An unconducive climate for innovators – such as a lack of support from financial markets; limited skills in business management; difficulty in accessing global supply chains, and a poor intellectual property strategy.

Declining participation rates of Australian students in science subjects and of tertiary students studying science and engineering – Australian ranked 73rd of 143 countries in the Global Innovation Index 2014 in terms of the percentage of total tertiary graduates that studied science and engineering.

Challenges in measuring the contribution of the creative industries (including traditional arts, design and architecture sector, new media and digital growth areas) and the importance of cultivating creative skills and linking designers with researchers, educators, enterprises and government.

Do you know more? Contact James Riley via Email.

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