Innovation as Inputs or Outputs

ein_web_iconMy father built a business based on innovation that lasted for over 50 years, and he didn’t know about government innovation policy!

Like other Australians, he thought he lived in the ‘Lucky Country’ that also looks upon itself as an ‘Innovative Country’.

No government department offered him any help over those 50 years or more. In fact, a few Local Governments tried many times to shut him down.

How things have changed. But have they changed for the better?

Near five years past, the Australian Government committed itself to an Innovation Agenda for the 21st Century with a ten year horizon to build a stronger national innovation system. To quote directly from Australian Government’s Innovation System Report (AISR) 2012:

“This undertaking involved the setting of seven national priorities on improving skills and expanding research capacity; increasing innovation in business, government and the community sector; and boosting domestic and international collaboration for the purpose of innovation and then on the production, diffusion and application of new knowledge”.

Half way into that time-frame, things are not looking good.

With government support, one could reasonably expect that the nation is ranked in the top ten most innovative countries.

The latest Global Innovation Index 2012 (a collaboration between INSEAD and the World Intellectual Property Organization), has compared the innovation activity of 140 countries on measures of national business activity. The Innovation Output Index captures two elements of innovative activities within the economy:  Knowledge and technology, as well as, Creative outputs.

Australia is ranked 23 in innovation output.

The results of that study tell us all is not well with Australian innovation.

Whilst this ranking is not of cellar-dweller status, it certainly does not fulfill the aspirations expressed in the AISR.

More disturbingly, our junior neighbour New Zealand, is eating Australia’s lunch on near all innovation measures.

The top ten innovation nations are: Switzerland, Singapore, Sweden, Finland, the UK, the Netherlands, Denmark, Hong Kong (China), Ireland, and the USA.

Not surprisingly, Europe accounts for nearly a quarter of our imports of elaborately transformed manufactures, that is, innovations.

Innovation Linkages

Innovation is built on a network of like-minded people, companies, academic/research institutions and businesses that get together to create, develop and commercialize a product. Strong innovation linkages between the large and the small members are important to stimulate market growth.

Australia is ranked 36 in Innovation Linkages.

Australian Universities are often members of these global research and development networks and are never shy about spruiking the success of their research on an innovative product – particularly in the pharmacology domain.

However, when one takes a closer look at the Australian University international network arrangements, one will often find that the Australian academic institution is nothing more than a junior partner validating prior findings rather than the lead research institution. More importantly, a closer look at the network and financial relationship arrangements will often show that the principal financial beneficiary of the innovation is rarely the Australian academic institution.

Why?

It is widely recognized that Australian academic institutions are not good at designing effective policies and practices for capturing the financial benefit in commercializing innovations and, as a consequence, they are less successful than they should be at fostering collaboration between universities and firms to create successful technology clusters.

Innovation Inputs

The Innovation Inputs Index reflects the resources injected into the innovation creation and commercialization process, such as: intellectual capital, financial resources, human capital and the like.

Australia is ranked 13 on Innovation Inputs – which is certainly not disappointing.

The top 10 economies on the Innovation Input Sub-Index are Singapore, Hong Kong (China), Sweden, Switzerland, the UK, Finland, Ireland, Denmark, the USA, and Canada. Nine of these countries were in the top 10 in 2011. Thus, the Indices appear to possess some consistency across the year-to-year studies.

Innovation Outputs

The Innovation Outputs Index ranks the product of capital expended in innovation creation and diffusion throughout the economy. The data from this Sub-Index confirm that efforts made on enabling economic environments are rewarded with increased innovation outputs

The top ten are Switzerland, Sweden, the Netherlands, Malta, Finland, the UK, Germany, Estonia, Denmark, and Luxembourg.

Australia’s rank on this Sub-Index drops to 31.

Simply put, Australia is burning money invested in innovation to minimal effect.

Over the years the Australia Government has thrown bags of money at stimulating innovation.

The important lesson here is that spending large sums of public money on innovation does not produce a higher level of innovation output.

The Australian System Innovation Report Systems states that there are more than two hundred innovation initiatives around the country and the Australian Government share of these initiatives is around 40%.

One may well ask, to what effect?

Thus, a large slice of innovation activity in Australia is driven by the Public Sector and the rest is divided between private corporations and the small business sector.

Innovation efficiency

Innovation efficiency is calculated as the ratio of the Output over the Inputs.

Australia’s innovation efficiency is ranked a tawdry 107.

This embarrassing outcome is evidence that an awful lot of public money is being wasted on innovation.

As my father would say, it is a national disgrace!

One only has to look at the Innovation landscape in Australia to see why it is not working.

Innovation as Corporate Australia

Innovation in Australia is both corporatized and bureaucratized. It is heavily over-serviced by Agencies, Programs, Committees, Awards bodies and the like that are often in competition with each other for the public dollar and/or a seat at the innovation funding table.

Many of the Chairs of the Agencies or Committees are drawn from a pool of retired corporate leaders, most of whom have had no experience whatsoever in innovation creation and/or commercialization.

Innovation in Australia is treated as a systematic replicable process, whereas it is primarily an organic process.

Not the stuff of innovation!

Over the past decade or so, Australian Private Sector Corporations have been amazingly effective at capturing and controlling larger and larger slices of core product markets and squeezing out the smaller and more innovative small business sector. Thus, large corporations have no incentive to innovate to compete – they already control the market!

Needless to say, small niche businesses are successfully capturing or creating product markets.

Corporate operations and big ticket marketing is not innovation!

When asked: “How do you compete with the major corporations?” My father would answer: “I ignore them!”

He was right, within the decade both major corporations controlling his market both closed their doors! They could not compete with the more agile small business.

Information/Communications Technology

At most levels, Australia has good standing in the Information/Communications Technology market.

It is ranked 11.

This is one area where Australia has held its own for decades.

On the Human Capital development and deployment front (including education and research) high-income countries have succeeded in creating productive innovation ecosystems where investments in human capital has created impressive levels of innovation outputs. Australia is a high-income country; however, being ranked 24 indicates it has not enjoyed the same level of success as other similar countries.

As for general and tertiary education, Australia is ranked 39 and 29 respectively – neither ranking is acceptable. Thus, recent initiatives to improve the standing in general education is most certainly timely, but needs to be cloned for the tertiary education level.

Success in the Knowledge Domain

In relation to the knowledge domain, the AISR strategic brief proposed the production, diffusion and application of new knowledge.

At the Human Capital level, the number of Knowledge workers in the Australian community ranks the nation at number 7; which is its highest ranking on all the rating scales.

However, the product of Knowledge falls far short of what could (or should) be expected: Australia’s Knowledge Creation effort is ranked 31.

The most disturbing aspect of the Knowledge domain is that Knowledge Diffusion is ranked an appalling 83.

Clearly there is a massive gap between the generation of knowledge and diffusion throughout the economy. Equally disturbing is that Knowledge Absorption Index (i.e.’ the productive uptake of productive knowledge) ranks Australia at 61. Even more disturbing is that on the Knowledge Impact Index Australia is ranked at 50.

Clearly, the lowly Knowledge Sub-Index rankings are greatly disturbing. They indicate that there are massive problems in Australian Knowledge productivity, deployment and commercialization.

Knowledge that is of low impact has limited prospects of being diffused and profitably commercialized: It just will not resonate with the consumer in a competitive marketplace.

Australia is paying a high cost for knowledge creation that is of little value to the nation.

Yes, there are small pockets of success in the commercialization of innovation, but nothing like what Australia should expect for the monies being spent!

As for Australia’s global position in the innovation domain, it is a country tinkering around at the edges with stuff of minimal impact!

What has happened to our country?

Australia is a nation of smart people who, from the thirties to the fifties, created many base technologies that were eventually purloined and commercialized by other nations.

Why Is Australia in this situation?

As a nation, Australia trails much of the developed world (and up-and-coming developing economies) in delivering innovative outcomes. It is predominantly an Innovation Inputs-Driven economy and just can’t seem to extricate itself from that morass.

A more likely explanation is that economic activity is concentrated in, and controlled by, the hands of a few major corporations, thus, there is no creative stress to drive innovation. In fact, some sectors of the economy are so tightly controlled by a few corporations that innovation is killed off before it has any chance to take root.

Most importantly, Innovation in Australia is seen as a Public Sector responsibility.

For example, the Australian automotive industry have sat on its hands for decades watching their market share collapse, but then demand the that the Public purse shore up the industry when the going gets tough.

Substantive innovation has not been the Australian automotive industry’s forte!

Time to shut down the cosy Corporate Innovation Club?

The time is ripe to unleash the creativity of the Australian nation unfettered by the strangulation of bureaucracy, and the market power of the corporate giants.

As my father would say: “Time to stop wasting our hard-earned money!”

And I am also sure he would have muttered: “Is the Corporate Innovation Club the solution, or the problem?”

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