Becoming an innovation nation

By Lachlan Colquhoun

Author Donald Horne's 1964 book The Lucky Country described Australia as a nation whose affluence and development was attributable to its abundance of natural resources, not the creativity or endeavour of its people.

Despite flirting with new slogans such as the 'Clever Country' and the 'Education Nation' in the past few decades, Horne's assessment of Australia can still provoke arguments today. Australian commodity exports might be at record levels and the mining boom could have several more years to run, but key performance indicators on national productivity indicate a worrying trend.

Productivity Commission figures show that productivity growth has collapsed from 1.5 per cent a year in the 1990s to 0.4 per cent a year. Meanwhile, a Department of Innovation, Industry, Science and Research report recently concluded that despite some larger companies meeting global benchmarks, there was a "long tail of mediocrity" in small and medium enterprises (SMEs).

So, once all the minerals are dug up and exported, what is next for Australia, particularly now that the ongoing strength of the Australian dollar – another byproduct of the resources boom – is cruelling the nation's manufacturing sector?

In centuries to come archaeologists may sift through the rubble of modern Australia, marvel at how wealthy we were and wonder how and why it all deteriorated so fast. The answer could be, if we are not careful, that we were so self-satisfied in our brief period of affluence that we failed to foster the culture of innovation that would ensure prosperity after the boom finished.

Catherine Livingstone FCA, the current chair of Telstra – and among many other board positions, a former chair of national research organisation CSIRO – sees an economy going through "tremendous structural change" as a result of the high Australian dollar, globalisation, and the continuing fallout from the GFC.

"There are very few parts of the Australian economy which are not now going through tremendous structural change," she says. "In this environment, the concept is one of adaptation and that is why innovation is so important. Your ability to adapt is determined by your ability to innovate, and you need innovation in every sense of the word: technical, managerial, and in terms of process."

Australians, says Livingstone, are natural inventors and problem solvers but many of the ideas fail to make the leap to effective commercialisation and become innovations. It is this disconnect that needs to be addressed if Australia is to develop a critical mass of innovative industries and companies.

"We have the ability to do it though, to solve problems and come up with imaginative solutions," says Livingstone. "I think the Australian culture is strong on problem solving, but what we are short of is people with the management capability to execute. We have these people, but we just don't have enough of them with enough experience to execute, because at the end of the day you can have the greatest idea but it needs to be executed well."

It is not a question, she says, of whether there is enough government support or venture capital and angel funding (the federal government's $100 million Innovation Investment Fund is about to announce its fourth round of funding). "The issue is whether the businesses are there to start with. You need to get the business plan really focused on the market before you get true value from innovation, and I think there is an argument that good business plans can find good funding if they are good enough."

Entirely capable

There is little doubt that Australians are creative innovators capable of producing exciting new products.

This year's winner of the international £10,000 James Dyson award for inventors was Australian Edward Linacre, who developed a beetle-inspired device capable of extracting water from even the driest air. The previous year, Sydney's Sam Adeloju took out the award with a lifesaving bazooka capable of shooting an emergency flotation device 150 metres out to sea.

The cleantech industry is full of exciting new technologies in areas from tidal energy to bioenergy, and the government's carbon pricing regime can only hasten the sector's move towards commercialisation.

At leading property developer Mirvac, the company's chairman James MacKenzie FCA says Australians "are as hard wired with innovation as any other nation on earth." This is despite challenges such as being a "sub-scale economy in terms of population" and being a remote community, "with many remote communities within." To foster innovation, however, is not a problem we can solve just by spending money," says MacKenzie.

"This is a problem for the government to solve by having good policies, and I'd say we are something of a public policy void on this issue at the moment. The National Broadband Network (NBN) is a start, but now we need to use the NBN to drive the capability to compete aggressively in a world-leading way."

Martin Duursma has been on the cutting edge of innovation for several decades. Duursma sold his technology start-up to global information technology company Citrix Systems in 1997, and soon after joined Citrix as the first vice-president to be appointed outside of the United States.

Duursma agrees that Australians are natural innovators and problem solvers, but says that making the leap to commercialisation continues to be the issue. "My take on the Australian challenge is that if there is a challenge, Australians will be able to solve it with a can-do attitude," says Duursma, who is also an 'angel' investor in several start-up ventures. "We are one of the fastest adopters of technology in the world, and are very good at adopting innovative solutions and ideas."

The way forward for Australian innovators, he says, is to have a global mindset from the very beginning. "If you are starting any new business today you need to start global from day one," says Duursma. "The smart start-ups are not positioning themselves as Australian companies, they are positioning themselves as global companies which can be located anywhere at all." Catherine Livingstone's view on globalisation is that Australia's best and brightest need to go overseas, be exposed to international trends and bring that experience back to Australia.

"We want people to have this international experience and that will develop the managerial capability we need here," she says. "We want to get as many expatriates back as are leaving, but we need to make Australia an attractive place to work and do research. You can't have a Fortress Australia attitude, you need to adapt and anticipate global trends."

Virtuous cycle

In the new globalised world, multinationals can also play a role in fostering innovation in Australia. Citrix, for example, has a division of its Citrix Labs research and development program located in Sydney, in the Ryde technology corridor.

"Citrix have a campus in Santa Clara in California but the Citrix Labs funding is global, and good start-ups in Australia can take advantage of the funding we are providing for very early stage development," says Duursma. It's all part of what he says should be "virtuous cycle" which can ensure a continuous drive for innovation.

"I see a cycle which begins with a multinational like Citrix training people on the global approach and giving them experience. Then they leave and form their own start-up, and then that start-up becomes a candidate for acquisition by one of the multi-nationals. So you have this cycle of investment, training, entrepreneurship, and then the whole thing just happens over and over again."

The good news for innovators, says Duursma, is that it has never been easier to create an innovative new company than it is today because the barriers to entry are so low. "If you were a start-up 10 years ago you would have to spend $7-$10 million on infrastructure," he says. "Today, with the advent of the Cloud it is very easy to just rent services from any number of providers and just pay as you go, and this allows you to scale up quickly on a global basis, and then you can just add capacity from that Cloud.

"That is hugely different from 10 or 11 years ago. Today you can start a great business with around $500,000 to $600,000, and you would have needed millions 10 years ago." It is not purely the responsibility of the private sector to foster start-ups, however. Collaboration with the tertiary sector is vital, as universities should be hotbeds of research that can then receive private sector funding and move to the commercialisation phase.

Australia does not score well by international standards. In terms of public expenditure on education – as a percentage of GDP – Australia ranks 25th out of 33 OECD nations. When it comes to collaboration between tertiary institutions and business, Australia ranks 27th in comparison to the European Union's 27 nations. The EU average is almost four times the Australian measure.

Martin Duursma is enthusiastic about the work of NICTA – National ICT Australia – which was founded in 2003 with the goal of being one of the world's top 10 ICT research centres by 2020. Four state and territory governments and seven eastern seaboard universities are involved in NICTA, which has already spawned six new companies, created a substantial intellectual property portfolio and supplies talent back to the ICT industry through a PhD program.

Centres of excellence

Another model that could lead the way forward is the newly opened headquarters of hearing technology company Cochlear on the Macquarie University campus at North Ryde in Sydney.

Cochlear has not only moved its global headquarters and principal manufacturing facilities into the new building, opened in 2010, but will also collaborate with the university in creating an adjacent $150 million centre of excellence in hearing research, dovetailing with Macquarie's Australian School of Advanced Medicine.

It's just the kind of collaboration that Mirvac's James MacKenzie says is the way forward. "I've seen a lot of tax incentives and grants in my lifetime, but I've never seen them work effectively," he says. "You can't have policies which artificially direct resources to what you hope is going to be innovation, because it just ends up being a waste of money.

"The universities are one of the main keys, and we need to get them more involved in research and development, because research is the backbone of innovation and right now our unis are – compared with North America and Europe – starved of these funding opportunities."

At the CSIRO, Catherine Livingstone was the chair of the organisation when it began its flagship initiative in 2003. This was further complimented more recently in a "precinct strategy", around the idea of creating clusters of innovation where resource, talent and infrastructure could be centralised to create critical mass and momentum.

The idea was to create an Australian version of California's Silicon Valley. The North Ryde corridor in Sydney, with all its technology companies, was looked at as a potential model but lacked the strategic intent and connectivity to deliver the momentum the strategy was seeking. The other missing piece to innovation, says Livingstone, is the role of the SME sector, but SMEs continue to do it tough. "The engine room of the economy is the SME sector, but the reality is that they are carrying a very heavy load, probably way beyond their capability,' says Livingstone.

"Many SMEs are so exposed in a risk sense that they struggle to focus on innovation. And it is only through innovation that they will preserve their comparative advantage." This is an area where government can help, she says. As many other Chartered Accountants will attest, a labyrinth of state and federal regulations are, in many cases, adding significantly to the cost of doing business for SMEs and weighing them down with compliance.

"The regulatory load on small business is just extraordinary," she says. "Of course, one of the strengths of the Australian economy is its institutional framework and its transparency and I'm not arguing against that: I'm asking if we understand that there is a layering of costs which come from the regulations, which are an avalanche.

"We need to ask if there is a different way of doing what the regulations do to create the same outcome at lower cost." For the future, Livingstone is optimistic, but only in the sense that Australia has the capability for innovation. "I'm not necessarily optimistic that we are sufficiently alert to the challenge facing individual businesses, and there's more work to be done on providing a solution for that," she says.

Martin Duursma is more positive. "I don't see any barrier," he says. "There are countless opportunities, it is just a question of what to do with those opportunities, how to commercialise them and bring them to market."

Article last updated 31 January 2012