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New report on stimulating business innovation investment

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Media release

20 February 2020

Modern Australian businesses are diversifying their approach to innovation, beyond research and development (R&D). These businesses experience higher revenue and job growth and are more likely to survive, says the Stimulating Business Investment in Innovation report released today by Innovation and Science Australia (ISA).

In speaking with Australian businesses across the country, ISA found that many did not see themselves as innovative, especially if they did not utilise R&D as a driver of their innovation. However there is an emerging trend of business investment in innovation beyond R&D. ISA calls these activities ‘non-R&D innovation’.

ISA recommends government re-balance its policy mix to better support business investment in non-R&D innovation, while continuing to support business investment in R&D.

Some examples of non-R&D innovation include investing in the development or adoption of software platforms that improve business productivity, or the reinvention of entire business models to take advantage of digital technologies. ISA’s Chair, Mr Andrew Stevens, says business investment in these types of activities provides growth benefits to businesses, regardless of their size.

“Our analysis of small and medium businesses that invest in non-R&D innovation reveals they grow their revenue 3.5 percentage points (ppt) per year faster and employment 5.2ppt faster than other small businesses,” Mr Stevens said.

“Similarly, small firms that adopt at least one productivity enhancing software application, in areas such as finance, human resource management, or marketing and sales, increased employment by 2.2ppt faster than those businesses that did not adopt any software.”

“For larger businesses, ASX200 firms that invested in innovation grew revenue 1.3ppt per year faster than the average ASX 200 firm, based on data from 2005-2016.”

“Australia has had a long history and focus on stimulating business investment in R&D,” Mr Stevens said. “We should continue to encourage greater business R&D investment, however this new research shows the value of additionally encouraging our businesses to invest in non-R&D innovation activities.”

If we are to achieve the Prime Minister’s objectives of being “a leading digital economy by 2030”, then re-balancing additional policy support towards non-R&D innovation will be a key element towards this goal.

The Prime Minister has also recognised the importance of non-R&D innovation, highlighting in a recent speech to the Business Council of Australia that “What we need is for a greater proportion of our businesses, in all sectors of the economy, to apply the digital technologies at the frontier.”

ISA’s report also recommends that government focuses on key growth sectors, encourage a growth through innovation mindset and ensure that all businesses have access to the right skills and capabilities to do the job.

Government is well placed to adopt additional initiatives which support the entire innovation spectrum, complementing existing R&D support mechanisms with measures to encourage non-R&D innovation investment.

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Read ISA’s full report

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