Man and woman looking at a robotic hand.

Improving Australia’s capacity to be resilient and to grow the economy requires more innovative small businesses scaling up to medium-sized businesses, according to a new report released by Industry Innovation and Science Australia (IISA). 

The report found the capacity and capability to invest in, adopt and scale innovation is constrained by Australia's industry structure. Small businesses (93% of Australian businesses) have low levels of free cash flow, limited human capital, and predominately focus on Australia’s small domestic market. 

Industry Innovation and Science Australia Chair, Mr Andrew Stevens, said: 

‘Australia’s industry structure and business size composition – our mix of small, medium and large companies – is the elephant in the room. Australia has a ‘shrinking middle’ in its industry structure. We have a scale-up problem, not a start-up problem.’ 

‘More Australian businesses need to innovate in ways that are ‘new to the world’. It is this type of innovation that will support efforts to transform and diversify our industry and build our economic complexity. However, few businesses are accustomed to, or don’t currently perceive the need to, innovate in this manner.’ 

IISA recommends that the Australian Government effectively identify businesses with the need to innovate and focus interventions on building business and management capabilities. ‘We need to support our businesses to develop internationally-focused strategies based on value-adding activities. This needs to be backed by a long-term policy environment with the objective of scaling Australian ingenuity and growing small business into mediums.’ 

IISA also highlighted the need to improve measurement on the outcomes of investments in industry-research collaboration, for example, linked to businesses’ growth in revenue and market share based on ‘hard data’. This will better inform policy settings for industry-research collaboration that addresses industry needs. It also emphasises that programs and strategies to support innovation could be better aligned across agencies, levels of government and electoral cycles. This would maximise the programs’ impact in achieving industrial transformation and provide businesses with clarity and certainty. 

Mr Stevens emphasised the important role IISA continues to play as the Australian Government’s independent advisor on industry innovation: ‘As demonstrated through this report, IISA continues to draw on the industry expertise of Board members to provide new perspectives on problems such as Australia’s diminishing economic complexity, barriers to commercialisation and Australia’s disappearing band of medium sized businesses.’ 

The report’s insights are already having an impact, informing the design of the Australian Government’s new $392 million Industry Growth Program. Launched by Minister Husic on Monday, the program provides targeted advisory services to support the development of business capabilities and will fund innovative projects and support the scale-up of small businesses in priority areas of the economy.