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Strategic recommendation 3

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ISA recommends that Government and businesses develop and encourage a 'growth through innovation' mindset and the business processes required to implement this mindset, among shareholders, directors and managers.

Government and business need to change the way they think about innovation to encourage firms to develop a 'growth through innovation' mindset. Only a third of Australian firms report spending money on some form of innovation.[52] This indicates that there is scope for more firms to become innovation active.

Through ISA’s engagement with over 180 Australian firms, we found many firms did not see themselves as innovative, and many focused on R&D as the primary driver of their innovation. Many firms focused predominantly on product innovation but did not see business process innovation, marketing and branding, and creating new business models as part of their innovation strategies. This limited perspective on the scope of innovation activities and lack of a 'growth through innovation' mindset limited their ability to effectively commercialise, scale and grow to be globally competitive.

The global environment has shifted, and highly innovative global firms are already attuned to the critical need to focus on these other innovation activities to successfully capture market share.

Government support is critical for the development of this mindset through proactive industry policy and fostering the industry ecosystem in which firms operate. Through its engagement with firms of all sizes and sectors, ISA identified four key characteristics of firms that are successful innovators.[53] These firms:

  • take a considered and deliberative approach to decisions about investing in innovation
  • have highly engaged staff and investors, supported by their organisational structures and leadership
  • know and respond to the needs of their customers and potential customers
  • engage extensively with their industry ecosystem of suppliers and potential collaborators.

Firms need all of these characteristics to be consistently successful, so they are useful for understanding why investment in innovation is low in many firms in Australia. The extent to which these characteristics exist or are at a mature level across the Australian business landscape differs considerably between businesses.

Firms see the drivers of investment in innovation as internal and acknowledge the importance of a growth mindset to drive investment

Throughout ISA’s engagement, firms acknowledged the importance of a growth mindset. This was acknowledged not only by the leaders and staff within businesses but also by investors and shareholders. A key driver of innovation investment was a desire for business growth and having the skills and capabilities to deliver it.

Export orientation was also considered an activity that focused businesses on a 'growth through innovation' mindset. Global trade has seen an increased emphasis on global value chains, which account for more than two-thirds of world trade, where countries trade not only products, but know-how, as well as collaborate on innovation. There are significant opportunities for countries and firms focused on export and technological advancement.[54]

The World Bank recommends promoting policies conducive to building the export skills of local manufacturers and nurturing relationships between technology providers. These policies will ensure businesses are prepared for digital exporting, as well as an opportunity to participate in global value chains in the future.

Government as an enabler of a 'growth through innovation' mindset

The Nous report (Appendix B) provides an insight into businesses’ views on the role of government. Firms saw government as an enabler, coordinating activity in the economy, and acting across state and territory boundaries to ensure a shared and consistent vision of innovation policy.

Firms felt estranged from the government innovation agenda due to the perception that it focused on radical innovation, high-tech sectors and cutting-edge industries, typically located in capital cities. The volume and complexity of government programs increased the cost of engagement and hindered awareness of programs by firms. Also, uncertainty about policy and regulation was found to hinder investment and development of an innovation mindset.

To achieve critical mass in areas of comparative advantage, firms identified an opportunity for government to foster collaboration with business, which would support the development of the 'growth through innovation' mindset. Government should develop a more inclusive innovation narrative, articulate a strong industry policy vision, coordinate with industry to build on Australia’s key growth sectors and achieve scale in those sectors.

Other ways to encourage and accelerate the development of a 'growth through innovation' mindset include working with firms to boost their training in business management skills, connect businesses with export opportunities and build their global networks.

There are limits to how much government can influence internal business mindset, and this needs to be acknowledged. Business-led initiatives are critical to changing the mindset and developing industry ecosystems. There is a substantial opportunity for larger firms to shape their industry innovation mindsets. Goldman Sachs, for example, funds a small business program in the US and UK to provide high-quality, practically focused business and management education to small firms with the potential for high growth.[55] The program is delivered over 12 sessions in four months. In Australia, the ANZ Business Growth Program, delivered by the University of South Australia, provides business customers with workshops and seminars to develop the business growth strategies and management skills of its customers.[56] These are examples of larger firms building and supporting the SME ecosystem underneath them, behaviour that should be adopted by other large businesses.

Examples of government-led initiatives

Example G. Increased training to meet the needs of an innovative economy

ISA recommends that the government provide businesses with incentives to purchase accredited training focused on growing their business. This training could include topics such as the role and impact of non-R&D investments, how to effectively grow their business, digital and data literacy, and the measurement of innovation.

Investment in our people is critical to ensure Australian firms can compete against global economies that are increasingly characterised by intangible investments and are more services oriented. A key driver of successful intangible asset investment is the stock of skilled labour with technical or tertiary skills, because most types of intangible assets are human-capital intensive. There is a need to invest in our human capital if we are to achieve a critical mass in certain sectors and be globally competitive.[57]

Example H. Greater alignment and coordination among governments on innovation policy and programs

ISA recommends that the government review Commonwealth innovation programs and, where possible, align them with state and territory innovation initiatives.

Apart from the unnecessary duplication of program initiatives, more coordination could improve the quality of program responses and the effectiveness of innovation strategies. Excessive duplication or competition among jurisdictions could undermine the capacity to achieve scale with government interventions. There are also significant opportunities for policy makers to learn from other jurisdictions and to enable greater awareness of innovation programs offered by governments to businesses.

Example I. Optimisation of service delivery and a renewed focus on improved customer experience in navigating the innovation ecosystem

ISA recommends that the government improve access to information on innovation programs through improved service delivery in areas such as government websites, benchmarking tools and concierge services. Service delivery optimisation could use data across Commonwealth and state jurisdictions to deliver an improved customer-focused experience. In addition, there is scope to showcase innovation case studies relevant to potential customers.

There is extensive policy and program support for business innovation across Commonwealth, state and territory governments. An audit by a subcommittee of the Council of Australian Governments identified 552 policy and program initiatives at the time of reporting.[58]

A high proportion of businesses consulted by the ISA and the Nous Group were often overwhelmed by the number of government programs available. They were not aware of many of these programs or found the administrative process (specifically significant duplication in applications) burdensome. Businesses were also often unsure how Commonwealth and state grants interacted with one another.

There is a significant opportunity to overcome this information asymmetry, reduce the complexity of applying for innovation support, and leverage the complementarities provided by other governments’ investment in innovation. Addressing these issues will help businesses become more aware of the depth and breadth of support offered by the current innovation ecosystem.

Example J. Enhance business export opportunities and capabilities

ISA recommends that the government works with multinationals to build the export skills and capabilities of Australian SMEs; this could be achieved by facilitating global connections and showcasing potential export opportunities.

In a globalised world, where firms fiercely compete to buy and sell products and services, Australia needs to ensure our firms, especially our large number of SMEs, are globally competitive.

Australia lacks the scale to support a large number of industries. To date, export-focused industries have predominantly been in the mining, agriculture and tourism sectors. The exception is higher education, where a successful export industry was built on the platform of the large domestic (and largely publicly funded) industry. Exports are key to ensuring Australian businesses develop scale by applying their knowledge and technology to a larger customer base than would be possible in Australia.

Australian firms benefit in other ways from exporting and being globally oriented. Firms that export have a higher probability of survival and greater business performance, employ more people and pay higher wages than those that do not export.[59]9

Examples of business-led initiatives

Example K. A role for business leaders to boost awareness of the place and importance of innovation in their businesses

ISA recommends that the Australian Institute of Company Directors (AICD) strengthen their course for company directors by expanding the content on innovation. This could include content aimed at assessing and understanding the value of non-R&D investments. This material could emphasise the importance of innovation, and digital and data opportunities.[60]

The AICD report, Driving Innovation: the Boardroom Gap, identified that innovation was often missing from boardroom agendas and decision-making. For example, 57 per cent of directors were not aware of the percentages of their organisations’ total expenditure allocated to R&D and innovation activities. Only three per cent of directors held science and technology expertise, and a similar percentage had international experience.

The AICD, a national organisation with large membership, delivers education to existing and potential directors and executives. The opportunity exists to deliver training content that not only emphasises an understanding of risk and governance but also articulates the importance of innovation and disruption and boosts directors’ technology and digital literacy.

Example L. A role for business to build capability and experience to support thriving industry ecosystems

ISA recommends that key business influencers (e.g. large corporates) be encouraged to mentor and train less experienced businesses (through programs similar to the Goldman Sachs and ANZ Business Growth programs) to build the capabilities of their industry ecosystem.

Businesses that engage with their ecosystem are more likely to innovate. The challenge for governments is to preserve competition while permitting the type of collaboration that leads to innovation. Individual businesses will underinvest in the common property that defines the industry ecosystem – such as standards, market reputation, the pool of skilled and specialised labour, supporting data and physical infrastructure. This lack of engagement can lead to a zero-sum approach rather than building a thriving industry ecosystem that provides benefit to all businesses.

Key business influencers and stakeholders can play a significant role in creating these ecosystems. A focus on mentoring and training less experienced businesses is relatively low in cost and could lead to spillover benefits for industry.

Case study 3: Fastbrick Robotics

The innovation journey of Fastbrick Robotics (FBR) demonstrates the value of a 'growth through innovation' mindset and the importance of strong leadership and governance in driving innovation. Read Case study 3: Fastbrick Robotics.

Footnotes

  1. Deloitte Access Economics. (2019). (external download) ACS Australia’s digital pulse 2019 – blooming today but how can we sustain digital workforce growth?. Website: ACS Australia’s digital pulse 2019 overview.
  2. AlphaBeta. (2019). Australian business investment in innovation: levels trends and drivers, p.9.
  3. Nous. (2019). Policy directions to increase business investment in innovation, p. 1.
  4. World Bank. (2019). Global value chain development report 2019 – technological innovation, supply chain trade, and workers in a globalised world.
  5. Read more about the 10,000 small businesses program.
  6. Read more about the ANZ Business Growth Program.
  7. Thum-Thysen, A., Voigt, P., Maier, C., Bilbao-Osorio, B., & Ognyanova, D. (2017). Unlocking investment in intangible assets in Europe. Quarterly Report on the Euro Area (QREA), 16(1), p. 25.
  8. In 2017, a subcommittee of the Council of Australian Governments (COAG) took a snapshot of policy initiatives and programs, across all levels of government, directed at industry innovation, research and development.
  9. Tuhin, R., & Swanepoel, J. (2017). Export behaviour and business performance: Evidence from Australian microdata. Research Paper, p. 7.
  10. The Australian Institute of Company Directors. (2019). Driving innovation: the boardroom gap.