Building Innovative Capability Roy Green, MGSM University of Adelaide, October

 NIS review: Why, what and how of innovation  Can public policy translate this to innovative capability and performance at the enterprise level?  TCF review: Policy prototype for capability building

Venturous Australia building strength in innovation Report and overview available online at /innovationreview

“Ultimately, the purpose of a national innovation system is to transform knowledge and resources into dynamic capabilities at the level of firms and organisations, which are then better placed to contribute to the innovation performance of the economy as a whole” Business Council of Australia/SKE, New Pathways to Prosperity, 2006

Global ranking dashboard

Components of Growth in Australian Living Standards Trends in productivity and GDP growth

Why innovation Innovation drives productivity growth and competitiveness of firms Innovation promotes social inclusion through expanded opportunities Innovation will contribute to achieving environmental sustainability

What drives innovation Innovation might mean new products or processes, or new organisational or business models But the key to successful innovation in companies is investment in knowledge and innovative capability

Australian government support for science and innovation

Government spending on R&D (OECD)

Investment in Knowledge (R&D, Higher Education, Software), % of GDP, 2004

The world is not flat (Tom Friedman) … it’s ‘spiky’ (Richard Florida)

“Knowledge creation and diffusion are at the core of economic activity. Knowledge is embodied in people, and it is the quality of the human resources that will determine the success or otherwise of firms and economies in the years ahead.” Enterprise Strategy Group, Ahead of the Curve, 2004

Share of high and medium high technology industries in manufacturing exports (%) Source: OECD

ICT trade balance (%) Source: OECD

EU Lisbon strategy: “the most competitive and dynamic knowledge- based economy in the world by 2010” US: “Rising above the Gathering Storm” UK: “Race to the Top” Canada: “Benchmarking against Global Best”

Broad approach to innovation Non-linear with multiple sources More than science and technology Incremental as well as breakthrough Low tech and high tech industries Driven by collaboration not silos  But…

“The problem is… that the Lisbon strategy has become too broad to be understood as an interconnected narrative. Lisbon is about everything and thus about nothing. Everybody is responsible and thus no one. The end result of the strategy has sometimes been lost. An ambitious and broad reform agenda needs a clear narrative…” High Level Group, Facing the Challenge, 2004

Findings of the NIS review Australia's innovation system will require: –greater international engagement –a more open and collaborative approach –a substantial increase in investment (private and public) –a more coherent and strategic ‘whole of government’ approach

Recommendations 1: research Increase funding for PFRAs and the university research system (to 93/94 levels) Full funding of university research Increase stipend for PhD students Substantial infrastructure funding - NCRIS successor Open access to research and collections

Recommendations 2: business New innovation support programs – Competitive Innovation Grants Program, Linkage Voucher Scheme, Knowledge Connections Continue existing programs – IIF, PSF and COMET Single interface for accessing program information across Australia Standard program design principles Innovation Australia to be central delivery agency for business programs

Recommendations 3: taxation Replace the system of R&D tax concession with an R&D Tax Credit Firms < $50million turnover – 50% credit Firms > $50million turnover – 40% credit Current 125% concession provides an effective benefit of 7.5 c/$ A 40% credit for large firms = 10c /$ A 50% credit for small firms = 20 c/$ The 175% premium tax concession and the tax offset would be abolished Definitions to be tightened

Recommendations 4: governance Replace PMSEIC with a National Innovation Council New Office of Innovation Assessment New Research Coordination Council Minister for Innovation to be joint signatory on all innovation Cabinet proposals New National Centre for Innovation Research Framework of principles for innovation interventions as basis for COAG process

Proposed governance framework

Setting priorities for innovation 1.Leveraging Australia’s natural endowments or competitive strengths 2.Identifying areas with Australian solutions to globally relevant challenges or markets 3.Creating scope to transform or reinvent existing industries and service delivery 4.Internationalising Australia’s innovation system through global integration and supply chains 5.Investing in innovation capabilities and supporting infrastructure at all levels

Workplace of the future (TCF) new products and services, drawing on sources of knowledge within and outside the enterprise new operational processes, including relationships in global supply chains new business models within the firm and in the ‘extended enterprise’ of networks and clusters new approaches to marketing and sales as part of strategic repositioning new work organisation, with high performance work and management systems

Australia’s emerging narrative Shift from ‘structural adjustment’ to the development of innovative capability at the level of the firm and workplace “In the 21 st century, innovation policy is industry policy” – Minister Kim Carr But innovation policy is also a leadership and organisation strategy, requiring deep cultural change.