Linking Australian Science, Technology and Business
A publication by ELWINMEDIA providing independent information on current developments in the Australian Innovation System

How to reinvent a nation

Recent reports and policy initiatives, such as the Australian Government's new Industry Innovation and Competition Agenda, have drawn attention to Australia's ongoing struggle with translating new ideas into real world applications.

In this dossier, we report on these events and provide a comprehensive review of Australia's innovation performance compared to the rest of the world.

Stories included in the dossier are:
  • Of leaders and laggers - and ARDR analysis of Australia's state of innovation;
  • Let's get competitive - on 14 October the Government released its Industry Innovation and Competitiveness Agenda;
  • Wasteful efforts - a Government discussion paper makes the case for the Industry Innovation and Competitiveness Agenda;
  • Hurray, a plan - on 2 September Australia's chief scientist released a proposal for a national strategy for science, technology, engineering and mathematics (STEM);
  • Growthly innovative - new Industry Growth Centres are to build bridges between industry and public research;
  • Repository of scitech wisdom - the former Prime Minister's Science and Engineering Council has transformed into a new advisory body on science, technology and innovation: the Commonwealth Science Council.
  • Prioritised efforts - At the end of May 2015, the Australian Government announced new national Science and Research Priorities, and corresponding Practical Research Challenges, across nine cross-discipinary target areas.

Nurtured success

The $482.2 million over five years Entrepreneurs' Infrastructure Programme announced in the 2014 federal budget is taking shape, with a phased delivery of services having commenced in July 2014.
nurtured business man
The 2014-15 federal budget allocated $484.2 million over 5 years from 2013-2014 for a new Entrepreneurs' Infrastructure Programme. It will be delivered through a single agency model by the Department of Industry. In parts the initiative replaces previous programmes that supported industry innovation. Their closure was announced in the 2014-15 budget and included :
  • the Australian Industry Participation programme;
  • Commercialisation Australia;
  • the Enterprise Solutions programme;
  • the Innovation Investment Fund;
  • Industry Innovation Councils;
  • Enterprise Connect;
  • Industry Innovation Precincts; and
  • the Textile, Clothing and Footwear Small Business and Building Innovative Capability programme.
(see also our story on the 2014 federal budget From clever back to lucky)

The programme will provide a national network of more than 100 private sector advisors, and comprises the three elements:

Services that have now started include:

More information:


Of leaders and laggers

Speaking at the 2014 PM Science Prizes ceremony may not have been his most comfortable moment, but Prime Minister Tony Abbott got his main message across: his Government wants more commercial outcomes for its investment in science and research.

Just prior to the event, Education Minister Christopher Pyne and Industry Minister Ian Macfarlane released a discussion paper on how Australia could better capitalise on its publicly funded research strengths. It complemented the Industry Innovation and Competitiveness Agenda announced two weeks earlier, and the chief scientist's proposed national strategy for science, technology, engineering and mathematics (STEM) released on 2 September.

Innovation is often misunderstood as R&D, which is nevertheless often closely tied to innovation outcomes. Innovation is a very complex set of activities that may be described as any action that creates or improves a product, process or service.

It is also a significant driver of multifactor productivity, which reflects the efficiency with which labour and capital inputs are transformed into outputs.

The reinvigorated policy push for a better return of commercial or 'greater good' benefits to Australia's research investment is not a major shift in goal posts. Rather it reflects concerns shared across the political spectrum that the nation will need to lift its innovation performance in order to improve its productivity and economic competitiveness. A major review in 2008 chaired by Dr Terry Cutler indeed highlighted that Australia is not making the most of its potential. This is also a concern of a current Senate inquiry into innovation, for which submissions closed in July (a report is expected in July 2015).

Based on data from the Australian Bureau of Statistics, Australia is indeed in need of a boost in productivity growth, which after a decade of strong gains turned into negative territory for most of the years since 2004-2005, and over the whole of this period declined by 0.8%.

The effects of this on the broader economy were largely masked by an expanding resources sector driving strong increases in gross national income. But investments in the resources sector are now in decline and this makes Australia's productivity issue harder to ignore.

However, it has to be noted that the task of determining and interpreting productivity data is a difficult beast to tame.

In the 2012 Australian Innovation System Report, University of Queensland economist Professor John Quiggin pointed out that the strong growth in productivity Australia experienced in the 90s was in parts due to a 'jobless recovery', as Australia came out of a recession and the existing workforce was simply forced to work harder. Entering a phase of more sustainable working conditions then led to slower productivity growth.

Professor Quiggin also noted that productivity growth was slowed as some of the vast amount of capital flowing into mining was invested in projects that would not have been economical at the prices prevailing in the past. Indeed, a recent report from the Productivity Commission shows that between 2011-12 and 2012-13 labour productivity and output increased by 2% and 2.2%, respectively, while labour input rose by just 0,1%. Yet, multifactor productivity fell by 0.8% as a result of a 6.1% increase in capital input - and the figures show that this was largely due to Mining recording an exceptionally high capital growth of 16% in that year.

But economists are far from being unison on what causes our current struggles with productivity, perceived or real, and in how far this even matters for Australia's economic future. For example, a discussion paper by economist Professor John Foster, also from the University of Queensland, questioned the validity of multifactor productivity estimates by the Australian Bureau of Statistics (ABS) and the Productivity Commission altogether.


The essential conclusion from his paper is this:

"There has been much discussion of Australia's supposed 'productivity crisis' based upon estimates of multi-factor productivity growth. It has been shown here that it is easy to establish that such estimates are invalid and preliminary evidence suggests that economies of scale, rather than multifactor productivity growth, are likely to have been driving economic growth.

Be it as it may, there is a growing body of national and international research that shows significant deficits in our capacity to innovate, and this limits not only Australia's economic potential, but also our progress in other areas of national wellbeing.

Dr Cutler's Review of Australia's Innovation System, which analysed the complex drivers and barriers of innovation in this country, revealed weaknesses in how we support the pathways of bringing new ideas to the market. The review formed the groundwork for the Rudd/Gillard Government's Powering Ideas: An Innovation Agenda for the 21st Century, which canvassed a longer-term vision for facilitating innovation, including how to better support innovative firms in the critical early phases of product development.

This led to a review of our intellectual property (IP) system and initiatives especially targeting smaller and medium sized companies (SMEs) in their development - such as the R&D Tax Incentive and (the now again axed) Commercialisation Australia.

The Australian Innovation System Report series began to monitor improvements in the system, and the annual reports showed in detail that Australia was indeed not doing well in producing original goods, with very little high-tech products making their way from here to global markets.

This is despite Australia having closed in to the OECD average in terms of overall spending on R&D (GERD) relative to its GDP.

Australia's spending on R&D: Gross expenditure on R&D per GDP was 2.20% in 2010 compared to 2.35% for the OECD average. This was largely driven by increased spending by businesses on R&D (BERD), which grew at a compound annual growth rate of 11% since 1992-3 to $17.9 billion in 2010-11, and again in 2011-12 by 2% to $18.3 billion (for more details read our story 'Fly like a BERD').

The export of goods and services more than doubled in value from $146 billion in 2003-04 to $315 billion in 2011-12, and also rose as a percentage of GDP from 15.6% in 2000 to 16.2% in 2012. But they were not a result of more new innovations sold to the world.

Rather, they were largely due to growth in the export of raw commodities as the export of minerals and fuels more than quadrupled from $35 billion to $161 billion. Their share in Australia's GDP almost doubled in the span of just five years (5.9% in 2007 to 9.6% in 2012). By contrast, according to the 2013 Innovation Systems Report the absolute value of medium to high technology exports (Elaborately Transformed Manufactures, ETMs) increased by just $1 billion between 2001 ($26 billion) and 2011 ($27 billion), and their share in total exports dramatically declined from 17% in 1999-2000 to 9% in 2011-12.

Recent international analysis, including by the 2014-15 Global Competitiveness Report, the Global Innovation Index and the German Innovation Indicator, underscore that Australia's transition away from a resource based economy towards a knowledge-based economy is hamstrung by many factors. These include deteriorating macroeconomic conditions and issues of too much regulation providing significant barriers to our innovation.

But the reports consistently demonstrate there are systemic weakness in the way we capitalise on new discoveries and ideas, and these may root deeply in cultural issues with a lack of innovative drive in our businesses being at the core of our low innovation performance. There appears to be an entrenched culture in our business leadership that is too risk averse and lacks scientific epertise in its decision making. But the reports also suggest that our publicly funded research is missing focus on marketable outcomes, despite an often cited relatively high research output.

In 2012, Australian scientists authored 3.9% of the world's publications, and we had a share of 5.3% of publications in the top 1% highly cited natural science and engineering journals) suggest that little of this work is transformative leading to commercial applications.

Slippery slope

The 2014-15 Global Competitiveness Index (GCI) indicates that Australia's economic competitiveness is steadily loosing ground against other leading nations.

According to the Global Competitiveness Report, the relative importance of innovation for productivity gains depends on the stage of development an economy has reached.

GCI stages of economic development
Click image to enlarge.

It defines three broad stages of economic maturity:

  • Factor-driven economies compete primarily based on low- skilled labour and natural resources;
  • Efficiency-driven economies operate in a higher wages environment and must begin to improve productivity through more efficient production, such as better training, efficient goods markets, well-functioning labour and financial markets, the ability to harness existing technologies, and a large domestic or foreign market.
  • Innovation-driven economies are most advanced, and sustain higher wages and standard of living through the production of new and/or unique products, services, models and processes.

Indicators or 'pillars' of productivity underpinning 'Basic requirements' and 'Efficiency enhancers' of economies are important, especially in the earlier stages of economic development, but have limits to which they can be improve productivity, by contrast to innovation.

There are 35 countries that have reached the innovation-driven stage of development, including Australia, although its strong reliance on the export of resources and basic commodities is more a feature of less advanced factor-driven economy.

According to the GCI report, countries in which mineral products make up more than 70% of total exports are in the less advanced factor-driven category.

The annual report series by the World Economic Forum compares countries based on the quality of their institutions, policies, and other factors that determine the level of their productivity. Australia achieved its best result in 2009, when it was ranked 15th. It has since slipped down the list and was ranked 22nd out of 144 assessed countries in the 2014-15 GCI update. Placed at the lower end of the second tier of the world's most competitive countries there is now a significant gap to the best performing countries.

The GCI summary report describes Australia's economy as a highly regulated labour market, an assessment supported by surveys with business executives, who identified restrictive labour market regulations as the greatest impediment for doing business in Australia.

Notably, though, five out of the ten most competitive economies (Sweden, Finland, Japan, Germany and the Netherlands) also scored low in this area.

For example, Australia and Sweden were similarly ranked in the indicators 'Flexibility of Wage Determination' (132 vs 134) and 'Hiring and Firing Practices' (136 vs 100). Yet the emphasis in the broader assessment of both countries is quite different.

In the case of Australia, the GCI report notes the strength of its financial system (6th) and its education system (11th), although Australia scored low in its science and maths education (38th) - skills particularly relevant for innovation.

While the Swedish higher education and training system was ranked lower (14th) than that of Australia (11th), the WEF report notes that Sweden has created the right set of skills for an innovation-based economy, with ICT adoption among the highest in the world and firms performing among the highest in the world in terms of innovation capacity.

In contrast to Australia, Sweden strengths are in areas most relevant to advanced economies. Thus the GCI report finds that Sweden:

"has managed to create the right set of conditions for innovation and unsurprisingly scores very high in many of the dimensions that are key to creating a knowledge-based society."

Against the 144 assessed countries, Australia's economy ranked 17th in the subindices Basic Requirements and 15th in its Efficiency Enhancers. Importantly, though, it ranked only 26th in its innovation and business sophistication, indicators of particular importance for the competitiveness of advanced economies. And this particular weakness becomes even more pronounced in a direct comparison with the top performing countries as shown in the figure below.

GCI Australia compared to the top ten countries
Click on image to enlarge -
The importances of certain subindices of competitiveness depends on the stage of economic development...

While the Global Competitiveness Index (GCI) attends to broader economic conditions, the Global Innovation Index (GII) has a more narrow focus on parameters that underpin a country's innovation activities.

In its 2014 update, the project assessed 143 economies across 81 indicators and its results reveal the close relation between economic competitiveness and innovation capabilities. This is especially the case for advanced economies. Eight out of the top ten countries in the GCI were also in the top ten of the GII (see figure below), with Switzerland heading both lists.

GCI and GCI leaders
Click image to enlarge; The top ten best performing countries in the 2014-5 Global Competitiveness Index and the 2014 Global Innovation Index.

What sets these innovation leaders apart from the pack is that less advanced economies are more dependent on technology transfer than they are on original R&D.

Australia 17th position overall was based on a relatively strong performance in its innovation inputs (see insert) , in which it was ranked 10th, while its innovation outputs came only 22nd, demonstrating the low efficiency of Australia's innovation system, which overall achieved a score of 0.70, below the average of 0.74 of all 143 countries.

The GII evaluates in the inputs category factors including infrastructure, institutions, human capital and research, market sophistication and business sophistication, while outputs are based on knowledge and technology outputs and creative outputs. The relationship between inputs and outputs is then described as the efficiency of an innovation system.

The essence of this is that we sustain very competitive fundamentals of innovation, such as our public research base and highly ranked research organisations, but we do not use these advantages for outcomes that are on par with the most competitive countries. In fact, on this measure we are outclassed by countries such as Malta, Estonia, and also China which now tops the ranking of patents filed since 2011.

Australia particularly struggles in the broader areas of Business sophistication (placed 26th) and Knowledge and technology outputs (placed 31st), which is in broad agreement with the findings in the GCI and other similar studies.

Despite being ranked 12th in the per capita output of scientific and technical articles, the generated knowledge has low impact. Its firm base has a low share of high and medium-high-tech manufacturers (54th), and a low percentage of its total trade stem from original high-tech exports (56th). And the general diffusion of knowledge into the economy is also comparably low (78th).

Adding another perspective to this is the German Innovation Indicator, which is conducted by a consortium of reputable European research organisations led by the German Frauenhofer ISI.

Released as a report and in form of an interactive web-based tool it compares the innovation capacity of a selected group of now 35 of the most advanced economies. These are assessed across 38 indicators which fall into five subcategories: economy, science, education, governance and society. here to expand. it culture, is it size?

It is quite clear that Australia struggles in areas that are crucial for productivity growth in innovation-driven economies, such as the capacity to produce new and different goods and technologies, and the development of sophisticated production processes and business models.

The capacity of countries depends on a complex system in which various players - business, government, research organisations and consumers in domestic and external markets- interact with each other.

However, the private sector plays the central role in driving innovation capability, and weaknesses in this area can override strengths in other areas of the system. Thus the OECD's Oslo Manual states:

"the most significant innovation capability is the knowledge accumulated by the firm, which is mainly embedded in human resources, but also procedures, routines and other characteristics of the firm".

IP Australia's second Intellectual Property System Report makes the important observation that while Australia's businesses are very competitive in their overall investment as a percentage of business value added, most of the money is spent on fixed physical assets such as machinery equipment.

Australian businesses are far less competitive in their investment into so called 'intangibles', a broad term that encapsulates firm assets and activities including software and databases, R&D and IP products, the economic value of design, branding and firm-specific human capital.

Based on the OECD definition of intangibles, Australia's investment in intangibles was 7.9% of business value added , ranked 16th out of 21 countries in the OECD (see infographics below).

Yet, as the IP report points out, intangible investments are significant drivers of productivity, accounting for around 20% of productivity growth in the US and the EU.

business total investments and investments in intangibles as a percentage of value added
Click image to explore the infographic - Business investment in intangibles

Nevertheless, Australia's business spending on R&D (BERD) has increased significantly over the past decade - a measure that generally correlates with a more competitive economy (it is one of the indicators against which competitiveness is assessed). But this relationship is complex with numerous variables determining the actual impact of potential innovation resulting from such investments.

According to ABS data, Australia's level of product and process innovations remained steady or declined since 2006-07, while that of less technological managerial, organisational and marketing innovations increased.

Notable is also that the increase in Australian BERD occurred mainly in Mining and the Financial and Insurance Service industries, which lifted their combined share in total BERD from 26% in 2006 to 37% in 2012. Consequently, the contribution of Manufacturing, the sector typically associated with higher end technological products, declined from 36% to now 24% over this period (shown in infographic below).

Business spending on R&D
Click image for an interactive infographics

However, much of Australia's apparent problem with business innovation may be rooted in the structural characteristic of the Australian business landscape, in which 99.7% of all firms are small to medium size entperprises (SMEs). Collectively they account for 58% of national output and 71% of employment.

While this is quite comparable with other innovation-driven countries - for example in both Sweden and Germany SMEs make up around 99.5% of all firms (OECD Factbook 2013), Australia has a higher percentage of micro-businesses of less than ten employees, which is second only to Greece in the OECD (OECD Science, Technology and Industry Scoreboard 2011).

A policy brief on SMEs released by the OECD in 2000 suggests that only a small subset of SMEs (5%-10%) are exceptional innovators that drive new product development, and these are usually found in knowledge-intensive sectors (such as IT or biotechnology). Often they are located in regions of intense economic activity and clustering and may be part of formal or informal networks of firms, which are more likely to attract venture capital investment. While for firms operating at small scale the removal of regulatory burdens is clearly an important step to spur development, for these exceptional innovators to be successful, access to venture capital investment in the early phase of product development is crucial. However, this type of funding entrepreneurial activity is volatile by nature and not only dependent on access to well functioning capital markets but also on high-quality management capable of dealing with financiers.

The OECD brief highlights, though, that for many manufacturing SMEs networking and collaboration has been the avenue to become internationally competitive. For this to occur it often requires government assistance, such as through export credits and promotion agencies, but it also relies on certain managerial capabilities that are often missing in smaller sized firms.

Various reports have indicated that Australian businesses are poor collaborators relative to businesses in other countries in the OECD, which to some extend is caused by the relative distance to international markets, a hurdle that makes it particular difficult for SMEs. Thus, according to 2006-2008 data presented in the 2012 Innovation System Report, the proportion of Australian businesses collaborating on innovation ranked only 26th out of 30 OECD countries.

That size does matter has been consistently shown in reports by the ABS. Smaller firms more often encounter barriers such as lack of access to financing, difficulties in exploiting technology, limited managerial capabilities, and are less capable of forming international collaborative networks.

Last year, a global survey on innovation, the General Electric (GE) Global Innovation Barometer, reported that 92% of Australian respondents believed SMEs could be just as innovative as large companies. While this would suggest that the existing barriers to SMEs need not to be prohibitive to innovation, the report also highlighted that for smaller firmst to jump the hurdles the framework conditions have to be favourable.

In many ways they are not. For example, 89% of respondents believed that the Australian financial environment should be more open to venture capital, and only a third believed that Australian private investors support business innovation, which is far below the global average. Australia's lower company spending on R&D, unfavourable taxation policies and incentives for R&D and training, and lower Government procurement of advanced technology were all identified as areas requiring attention.

Notably, the availability of science and engineering skills ranked lowest on a list of relative strengths of the Australian innovation market. Attracting and retaining talent was indeed cited by 83% of Australian respondents as the most important barrier to successful innovation - 10% higher than the global average. And the GE report authors remarked that the inability to convert a high-quality education into a population of scientists and engineers indicates a growing need to encourage the next generation to understand the opportunities associated with a career in the sciences.

Consecutive Australian governments have pursued policy strategies, such as the 2010 innovation agenda Powering Ideas and now the Industry Innovation and Competitiveness Agenda, that aimed to induce a more innovative culture in the broader Australia's business landscape, including through initiatives tailored to the needs of SMEs.

There are sound arguments for governments to focus on SMEs, and less on their larger counterparts, not only because of their overwhelming presence in the Australian economy but also because they are likely to be more reliant on government help and hence are likely to be more responsive to government support.

According to 2011-12 ABS survey data on Australian business innovation, innovation-active business are around twice as likely to report an increase in productivity, with other positive effects such as greater export capability and employment. But smaller firms benefit more yet engage less in innovation than larger firms as shown in our infographic below (see also stories 'Fly like a BERD' and '...with the right performance enhancers').

In 2011-12, around 47% of businesses undertook some form of innovation, but it was reported for only 39% of micro-businesses against 76% of large businesses. This is also reflected in the spread of business expenditure on R&D (BERD). While BERD has increased significantly over the past decade, investments are heavily concentrated in larger businesses of 200 or more employees. These make up only around 1% of all business but accounted for 66% of Australia's BERD in 2011-12. More than 85% of innovation-active businesses spent less than $50,000 on R&D in 2010-11.

Business spending on R&D
Click image for an interactive infographics

...the human factor

While the size of organisations may matter to overcome certain barriers, there is a growing acknowledgement that the 'human factor' especially the effect of leadership, is the main overarching driver of innovation (see insert), and of course this is influenced by cultural and historical characteristics of a country.

The 2014 Global Innovation Index report emphasises the importance of the human factor for driving innovating. And it concludes that nurturing of human capital at all levels, and retaining as well as attracting talent are crucial elements of a well functioning innovation system. At the same time, the migration of skilled workers, often feared as a 'brain drain', should be seen as brain skills circulation as human resources become remote-although-accessible assets of expanded networks.

The report further points out that knowledge, innovative skills, and personal qualities (such as entrepreneurship, leadership, creativity, and risk propensity) need to be developed from early childhood, and education systems in which the focus is too narrowly focussed on test results may fail in stimulating creativity, critical thinking, and communication skills that innovative societies require.

From the list of the ten best performing countries in the GII ranking, it cannot be ignored that most - including the seven European countries and the US - have developed a culture for innovation over a long time, and this is likely to have translated into business practices that are conducive for driving new ideas to the market.

In 2009, the Australian Management Practices and Productivity global benchmarking report suggested that a large proportion of Australian firms are mediocre, especially in their approach to people management.

"This is a key differentiating factor between Australia and better performing, more innovative countries".

And a subsequent conference report concluded that large companies were generally much better managed than small ones, also in their approach to innovation.

The Innovation Systems Report 2012 includes an analysis suggesting that around 70% of businesses of our businesses have some degree of innovation culture, but 44% have an adhoc approach and 6% do not practice it despite having a strategy in place. Only 18%, mostly large businesses, are strategic innovators.

And a key message of the GE Global Innovation Barometer report for Australia is that "Australian business leaders are risk-adverse and struggle with responding to an ever-changing global environment." It is a message that reverberates through most related domestic and international reports.

And as highlighted in the 2014 GII report, important attributes of leadership need to be nurtured from early childhood.

Underlying this is that firms do not operate in isolation, but are shaped by attitudes and characteristics of the broader society, which in the case of Australia has built its wealth primarily on the exploit of primary goods rather than high end technology exports.

Very much the same message is given in a study by the University of Melbourne and the Australian Institute of Management, which concluded from a survey of 2,400 business professionals from all sections of industry and government that poor leadership is the main reason organisations fail to innovate. The report Innovation: The New Imperative, which was published in October 2013, identified three main barriers to innovation that were all leadership related. It found that:

The report's focus is on the systematic innovation capacity of Australian organisations, which it says requires a holistitic and integrated approach. And the survey highlights that this approach leads to substantial benefits showing that businesses with a proven innovation are threefold more likely to have higher revenue growth, profitability and productivity.

One of the key messages of the report is that innovation performance is correlated with certain practices, which, although not as such specified, can be broadly described as part of the 'intangible capital' of organisations.

They include:

Further building blocks of innovation success are culture and communications; operations and partnerships; and knowledge and technology (see list of predictors of business performance).

Interestingly, the report identified innovation leaders (top 25%) and laggers (bottom 25%) across a set of indicators but did not find significant differences related to size, sector or location.

However, the report was able to discern certain indicators that predict innovation leaders.

Among the most signficant predictors is the assignment of a person or a team responsible for innovation. Leaders were almost three times more likely to have done so, and their managers were also getting far more involved in innovation projects.

There are also notable differences in the customer focus, in that leaders were found to more actively seeking feedback and input from customers and they were three times more likely to collaborate with outside partners.

Leaders were four times more likely to have strategy for managing risk in place, and were three times more likely to take on calculated risks.

And how significant cultural aspects may play a role in innovation success is also indicated by the finding that teamwork was far (almost ten times) more emphasised in leaders, which also were far more inclined to use employees as a source of ideas than laggers.

As leadership and organisational culture shifts into the focus of analysis why our business are underperforming innovators, Griffith University researchers and collaborators are now conducting two new projects to investigate aspects of leadership in Australian businesses, and how it can guide technological innovation, reduce business risks, and enable more effective mnagement.

It seems likely that changing a pervading culture won't be an easy task, and will need more than just tinkling at the edges of macroeconic and regulatory settings. Rather, it will require a long-term vision for cultural change, in our businesses and across broader society.

More information: *a 2014 update of the GE Global Innovation Barometer is now available, while the latest country specific report for Australia was released in 2013.


Hurray, a plan!

2 September 2014 - Australia's chief scientist Professor Ian Chubb has proposed a national strategy targeting Australia's capacity in science, technology, engineering and mathematics (STEM).

The Science, Technology, Engineering and Mathematics: Australia's Future report builds on a previous position paper in 2013 Science, Technology, Engineering and Mathematics (STEM) in the National Interest: A Strategic Approach report covered in our story 'Strategic desert'.

The Science, Technology, Engineering and Mathematics: Australia's Future report remarks that Australia is currently the only country in the OECD without a long-term strategic approach for science and technology, yet this has been fundamental for the economic prosperity of many advanced economies. The paper refers to the US as a prime example where science and technology contributed to roughly half of all economic growth over the past 50 years.

Australia does not belong to the group of economically most competitive and innovative countries, which are generally characterised by a strong basic research base with deep international links, a culture of risk, reliable pipelines of STEM graduates and established career pathways for scientists. In addition, the broader population in these countries tends to have a high level of STEM literacy supporting discovery and entrepreneurship.

The paper's basic proposition is that Australia not being able to compete with the most advanced economies is neither due to size or geography. Rather, the nation has a poorer capacity to organise and grasp opportunities the STEM fields present.

Prior to the release of his proposal, Professor Ian Chubb wrote in an editorial in Science Magazine: "My real concern, however, is the lack of a strategy that would help us maximize the value of the science resources we do have."

To change this the current fragmented policy approach for science and technology and the monitoring of innovation outcomes that is split across many levels and portfolios of government needs to improve. For this the chief scientist proposes the implementation of a long-term strategy with progress measured by periodic reports.


The initiative broadly aims to :

The report also takes aim at the often claimed superior performance of Australia's research base, which is said to 'punch above its weight'. In reality, Australia is outperformed by many of the most innovative countries in the OECD. Worse still, there is not enough in innovative output materialising from the produced knowledge.

There is considerable investment in STEM but to maximise its returns individual actions would have to be:

Global progress relies on a continuous flow of new ideas and their application, and Australia's STEM practitioners need Government support, long-term ambitions and direction. Also needed are certainty for investors and positive signals for students in the STEM fields.

Public investment in large-scale research infrastructure and basic research does not crowd out private activity but lowers the risk for investors.

And through the development of strategic research priorities currently developed a proportion of research investment should go into areas of identified national importance (it is here noteworthy that already in 2013 the chief scientist proposed a set of Strategic Research Priorities for the previous Government) .

Improving international engagement is an important target of the strategy. For example, it proposes a fund that supports international collaboration through fostering strong government-to-government linkages, with its focus directed on establishing an Asian Area Research Zone. STEM engagement could also be leveraged by providing a framework for science diplomacy.

science strategy cartoon

But the primary concern of the paper is that the current lack of a coherent national strategy for science, technology and innovation has negative flow on effects for our businesses, and their capacity to produce innovative outputs such as new knowledge, better products, creative industries and growing wealth.

Just 1.5% of Australian firms produced new to the world innovations in 2011, compared to 10-40% in other OECD countries. Australian businesses are less engaging with research organisations, with large business and small-medium sized businesses ranking 28th and 27th, respectively, on business to research collaboration in the OECD.

The report notes a culture of risk aversion and inward focus in the nation's businesses, with little recognition for the value of scientists as employees. Only 30% of Australian researchers work in industry, which is just about half the average across OECD countries.

The chief scientist wants Australian Governments to address this through mechanisms that lift the uptake of STEM across the workforce, but especially in businesses. He also advocates to encourage a greater participation of women and marginalised sections of society such as Indigenous students.

Assistance programmes raising awareness and use of STEM capabilities, and the teaching of commercialisation skills in research training programmes are among the suggested initiatives that could help increase the share of scientists in the business workforce.

Cultural deficits around entrepreneurship include a comparably poor collaborative culture. The paper notes that through encouraging more collaboration businesses could find a way to potentially spread risk, access new markets, stimulate investment in Australian R&D and stay informed about global technology trends.

And as intellectual property issues are frequently cited barriers to collaboration, Austalia needs a flexible IP framework with capabilities such as open access regimes and agile use of patent and technology transfer strategies.

The chief scientist recommends to encourage an entrepreneurial culture through measures such as targeted university courses, or by facilitating new ways of equity funding and the inclusion of innovation and entrepreneurship into mainstream school curicula and assessments.

Many of the paper's recommendations are based on intiatives in other countries, such as the United Kingdom's Technology Strategy Board, which through a single body approach concentrates investments in areas most likely to produce economic outcomes.

Another example is the US Government's Small Business Innovation Research Programme, which makes the US Government the biggest venture capital funder in the world. This, the chief scientist proposes, could be drawn upon to establish a national scheme that fosters growth in Australian SMEs.

There should also be mechanisms in place, including services under the Government's Entrepreneurs' Infrastructure Programme, that link industry to STEM capabilities, and incentives for bringing ideas to global markets.

The chief scientist proposes an Australian Innovation Board, a single agency that is to bring together existing Australian programmes with the aim to better coordinate and drive business innovation.

Among its responsibilities would be to identify and support innovation priorities, the establishment of new models for collaboration, and supporting innovations by local companies.

While business is most important for creating marketable outcomes from research, the chief scientist emphasises that optimal returns on STEM investments are made when the whole spectrum of research - from basic to applied - is fully supported.

The cultural issues around Australia's STEM capacity extend to the broader society, though, and the chief scientist proposes avenues for better communication between those practicing in STEM fields and the community.

Changes across all levels of the education system are needed to lift the general level of STEM literacy. Thus, curricula and assessement criteria should be used, from primary to tertiary level, to promote the development of long-lasting STEM skills. This will also be required to establish a reliable pipeline of a STEM skilled workforce.

Importantly, businesses need to be more engaged in this process to ensure that STEM graduates are aligned with actual workforce needs.

And the report underscores the crucial role that teachers play in preparing a skilled workforce and lifting STEM literacy across society. At present there is a shortage in qualified teachers and the Government will have to address this. Thus the reports suggests to provide incentives that are designed to raise the attractiveness of STEM teaching careers.


Growthly innovative

The Industry Growth Centres are a key component of the Australian Government's Industry Innovation and Competitiveness Agenda. Their objective is to assist business innovation, although their reach will be restricted to selected areas of the economy.

The industry-led initiative, which is based on similar examples overseas, such as the US Small Business Administration's Regional Cluster Initiative and the UK's Catapult Centres, will primarily focus on the poor collaboration record of Australia's industry sector.

This is believed to be a major impediment to Australia's innovation output, and will also be a major issue to be considered by the newly established Commonwealth Science Council (for details see Repository of scitech wisdom).

Industry Growth Centres are expected to:
  • develop priority actions for improving competitiveness in their sector;
  • assist in improving the regulatory environment;
  • assist the formation of commercial partnerships;
  • enhance industry capabilities, such as their ability to enter global value chains and improving workforce skills
  • inform the research sector of industry needs and commercialisation opportunities.

The Government will invest a total of $188.5 million in initially five Industry Growth Centres targeting industries in which Australia is presumed to be especially competitive. These are:

Following a staged rollout from 2015, the centres will run as not-for-profit organisations. Each will be funded with $3.5 million per year, although they are expected to become self-sustaining after a four year period. If successful, the Government will extend the programme and seek to establish further centres.

The Government will also provide $60 million for grants delivered under the new $484.2 million Entrepreneurs' Infrastructure Programme for the commercialisation of promising ideas. Individual grants of up to $1 million will be offered but will need to be matched by the company.

The announcement of the Industry Growth Centres, which have similar objectives to the ceased Innovation Precincts program initiated by the previous government, received a mixed response.

According to an article by Louise Yaxley, published on the ABC news website, Industry Minister Ian Macfarlane said that some of the existing ARC Centres of Excellence could be replaced with the Growth Centres, and the initiative may also affect Cooperative Research Centres (CRCs) programme.

More information:


Let's get competitive

Wasteful efforts

The Australian Government complemented the release of its new Industry Innovation and Competitiveness Agenda with a discussion paper, Boosting the Commercial Returns from Research (submissions closed 28 November full story

14 October 2014 - With its Industry Innovation and Competitiveness Agenda (IICA) the Australian Government has delivered an overarching plan that is embedded in a broader economic agenda and proposes initiatives that touch on aspects of industry, science and research, as well as education and broader social policy areas.

While the often used description of an 'innovation system' is not spelled out in the document, it nevertheless encapsulates the sense of the term by highlighting the numerous factors that determine the success of R&D and innovation, and ultimately drive economic prosperity and competitiveness.

Its broader objectives overlap with many of the former Governments 'Powering Ideas' innovation agenda, although it differs markedly in its scope and emphasis.

The IICA's four overarching ambitions are:
  • less regulation, lower taxes and more competitive markets;
  • a more skilled workforce;
  • better economic infrastructure; and
  • industry policy that fosters innovation and entrepreneurship.
Key initiatives include:
  • changes to the Employee Share Schemes, which in parts restore legislation in place prior 2009;
  • the establishment of Industry Growth Centres (see Growthly innovative;
  • a reform of the vocational education and training system;
  • the acceptance of international standards and risk assessments for certain product approvals;
  • enhanced 457 and investor visa programmes.

As expressed by its title, the agenda has a strong focus on industry policy, with the aim to drive innovation and entrepreneurship while reducing industry dependence on government 'handouts'. Through this the Government intends to stimulate better commercial returns for its investment in science and research (at present around $9 billion per year).

Many of the policies supporting the agenda have previously been announced. They include the $484 million Entrepreneurs' Infrastructure Programme (see insert below) and the $476 million Industry Skills Fund, which are to be delivered in a streamlined Single Business Service approach through The programmes will take on some of the functions of previous separate industry programmes, which include Commercialisation Australia, the Innovation Investment Fund and Industry Innovation Councils and ten skills and training programmes. Their closure was announced in the 2014-15 federal budget and provided the Government with substantial overall savings (see 'From clever back to lucky' .

Nurtured success

nurtured business man
The $482.2 million over five years Entrepreneurs' Infrastructure Programme announced in the 2014 federal budget is taking shape, with a phased delivery of services having commenced in July full story

Together, this set of programmes is meant to provide mechanisms that will facilitate a better supply of skills and improve collaboration between industry and research organisations.

The IICA also includes $188.5 million for the establishment of Industry Growth Centres, which will have similar objectives to the previous Government's proposed Innovation Precincts. However, they potentially also overlap with the ARC Centre of Excellence program and the Corporate Research Centre program (see insert below).

Growthly innovative

The Industry Growth Centres are a key component of the Australian Government's Industry Innovation and Competitiveness Agenda and will assist business in selected areas of the economy.

The prime objective of the industry-led initiative is to strengthen collaboration between industry and research organisations. The Government will invest a total of $188.5 million in initially five Industry Growth Centres full story

Issues around taxation and government regulation take up a considerable part of the agenda. The Government intends to improve the business environment by reducing red (and green) tape including through the previously proposed One-Stop Shop system for environmental approvals (see story One for all for details.

And in a new policy initiative Australian regulators will be directed to not impose additional requirements on the approval of products or services that have already passed trusted international standard and risk assessment processes. Exceptions would then require a demonstrated good reason.

While broader changes to business taxation are expected to result from a White Paper on the Reform of Australia's Tax System, the Government has proposed to improve the tax system treatment of employee share schemes (ESS) from 1 July 2015, at a cost of $200 million. These schemes provide incentives for employees through shares or share options in the company they work in, and the paper refers to studies which show that such ownership schemes can improve workforce productivity.

The proposed changes include that options would not be taxed anymore at the point of being received but at the point of being actually converted to shares by the employee, as was the case prior to legislative amendments in 2009. The move is expected to especially benefit smaller firms and start-ups, which also will benefit from other changes to the ESS arrangements.

There is also a pledge to increase domestic and international competition. In addition to pursuing free trade agreements, such as with Japan, South Korea and China, the Government is proposing to develop a 'trusted trader' programme through which customs procedures could be streamlined for 'trusted' exporteurs.

It may here be noted that a Competition Policy Review is currently underway, with a draft report released on 22 September 2014. It is likely that its final report on will result in further regulatory changes.

Access to a skilled labour force has been a consistent barrier to innovation in businesses, and several initiatives in the agenda are targeted towards addressing this. The Government has previously announced measures such as the $439 million over five years Trade Support Loans programme supporting apprentices, and also the $476 million over four years Industry Skills Fund, which will become effective from 1 January 2015 to support especially small and medium sized businesses in their training needs.

As we detail in an accompanying piece on Australia's innovation (Of leaders and laggers), these smaller firms often lack managerial capacity and access to skills necessary for them to benefit from innovation opportunities. As with the Industry Growth Centres, the Industry Skills Fund will also prioritise certain areas of the economy in which Australia is more competitive or has special advantages (see insert 'Growthly innovative'.

The Government has now also announced that it will invest an additional $12 million in science, technology, engineering and mathematics (STEM) education. The move was welcomed by chief scientist Professor Ian Chubb as it follows on from his recommendations in his STEM Strategy Paper (see insert below).

Hurray, a plan!

2 September 2014 - Australia's chief scientist Professor Ian Chubb has proposed a national strategy targeting Australia's capacity in science, technology, engineering and mathematics (STEM). full story

In addition, the Government intends to facilitate better access to skills provided from outside the country, through changes to the 457 visa programme and the Significant Investor visa programme, which is in accordance with recommendations by the Review of the Integrity of the 457 Programme.

The paper foreshadows that other observations and recommendations made by the chief scientist will find consideration, including through the work of the newly established Commonwealth Science Council (see story Repository of scitech wisdom). This includes further policy changes to provide greater incentives for collaboration between research and industry, and the promotion of intellectual property arrangements that facilitate rather than hinder collaboration and commercialisation efforts.

More information:


Repository of scitech wisdom

As part of its Industry Innovation and Competitiveness Agenda, the Australian Government has transformed the Prime Minister's Science and Engineering Council into a new advisory body, the Commonwealth Science Council.

Chaired by the Prime Minister, the council will advise the Government on areas of national strength, current and future capabilities, and ways to improve the connections between government, research organsiations, universities and business.

In addition to standing members - the Minister for Industry (the deputy chair), Education and Health, and the chief scientist - the council will include five scientists, researchers and educators and five business leaders.

The new council's appointed members are:

Timothy Davis Professor Timothy Davis

Ian Frazer Professor Ian Frazer

Nalini Joshi Professor Nalini Joshi

Tanya Monro Professor Tanya Monro

Brian Schmidt Professor Brian Schmidt

Ken Boal Ken Boal

Michael Chaney Dr Michael Chaney

Jackie Fairley Dr Jackie Fairley

David Knox David Knox

Catherine Livingstone Catherine Livingstone
More information:


Wasteful efforts

The Australian Government complemented the release of its new Industry Innovation and Competitiveness Agenda with a discussion paper, Boosting the Commercial Returns from Research (submissions closed 28 November 2014).

The discussion paper refers to recently released global assessments, including the Global Innovation Index (GII), which suggest that Australia has problems in capitalising on its relative research strength. In 2013, Australia contributed 3.85% of the world's research publications with 0.3% of the world's population, which ranked it 9th in the OECD. And it ranked 11th in the OECD against its gross R&D expenditure as a percentage of GDP.

Key government investments supporting public and private R&D include in 2014-15:
  • $2.7 billion for competitive research grants and other research support;
  • $1.9 billion through performance based block funding;
  • $2.4 billion for the R&D Tax Incentive; and
  • $1.8 billion for Australian government research activities.

Additional announced initiatives include $150 million for extending the National Collaborative Research Infrastructure Strategy (NCRIS) and (subject to yet to be secured funding) a new Medical Research Fund with a targeted capitalisation of $20 billion by 2020.

But while Australia performs relatively well against innovation 'input' factors, the GII ranked it 81st out of 143 assessed countries against its innovation efficiency, which takes into account the output of knowledge and product or process innovations (see story 'Of laggers and leaders' for details).

One of the major factors behind this is believed to be the low proportion of businesses that collaborate with higher education and public research institutions on innovation: In the OECD, Australian large businesses rank 29th and its small to medium sized businesses (SMEs) rank 30th against this indicator. According to the Australian Bureau of Statistics report Innovation in Australian Business 2012-13 , just 3% of Australian innovation-active businesses sourced their ideas from higher education institutions, and 9.7% reported collaborative arrangements with higher education institutions.


The discussion paper suggests that there could be a role for intermediaries to help connect research and business in Australia, similar to the German Frauenhofer Institutes and the UK's Technology Strategy Board and Catapult Centres.

Other indicators highlighting the poor transfer of knowledge from publicly funded research to the private sector include:
  • Australia has a comparably low proportion of researchers working in business, with around 60% working in higher education (compared to just 30% in Germany, Canada and Sweden;
  • Australia ranks 23rd out of 32 OECD countries on the percentage of total research publications that are co-authored by industry and the research sector;
  • Australia ranks second last of 17 OECD countries on new-to-the-world innovation.
Australian public research organisations that strongly promote collaboration with industry include:
  • the CSIRO, which works with around 3,000 clients each year, incuding more than 20% of the ASX top 200 companies and 1300 SMEs; and
  • the Cooperative Research Centres, which link researchers with business and other end users across a range of sectors.
  • Note from the editor: While the paper highlights the importance of CRCs and the CSIRO for fostering business-research collaborations, these largely publicly funded organisations were nevertheless subject to significant cuts in the 2014-15 budget.

But there are also significant road blocks hindering the direct flow of public research into the business world, which is highlighted, for example, by Australia being ranked lower than the US, Europe, Canada and the UK in the number of public research spin-off companies. The discussion paper links this to a generally less entrepreneurial culture within research organisations.

The Government argues that incentives for the commercialisation of publicly funded research need to shift, including through adjustments in grant funding mechanisms. Also relevant will be to articulate national priorities of research that focus Australian research efforts on areas of comparable strength or national importance. Indeed, many innovation leaders have developed such targeted strategies. For example, Germany established a High-Tech Strategy 2020 that directs research resources towards the areas climate/energy, health/nutrition, transport, safety and communication.

Australian universities are at present strongly focussed on academic excellence, and outside of the health and medical research area there is little researcher mobility between public and private research organisations. The lacking focus on industry is also reflected in PhD programmes that place limited focus on industry relevant skills.

As industry experience and the solving of industry problems are not generally part of the metrics demonstrating academic exellence, researchers often face an opportunity cost if they spend more time on enrepreneurial activities.

And there are also potential disincentives for researchers to embark on commercial activities as universities generally assert their ownership of IP created by their staff members. By contrast, revenue sharing arrangements could provide better financial incentives for researches. The paper mentions a scheme at the University of Cambridge, which developed an IP licensing arrangement under which net income for the first 100,000 pounds is directed to the researchers at a rate of 90%.

Key initiatives and discussion points through which the Government seeks to address Australia's innovation weakness include:
  • the Commonwealth Science Council established to advice on important science and technology issues facing Australia (see Repository of sci-tech wisdom;
  • the development of 'national priorities for research' that align areas of national research excellence with Australia's industrial strenghts.
  • changes to competitive research grants and research block grant arrangements to achieve greater focus on industry and end-user engagement.
  • leveraging of more collaboration between public research and industry;
  • adjustments to the R&D Tax Incentive to encourage research-industry collaboration;
  • the development of a roadmap for long-term research infrastructure investment and strengthening the existing focus of the National Collaborative Research Infrastructure Strategy (NCRIS) on outreach to researchers and industry;
  • a range of initiatives relating to intellectual property (IP), which will be supported through the release of an IP toolkit and include the strengthening of IP guidelines for researchers, the examination of a potential to link research funding to the dissemination of IP, and the establishment of an online point of access to commercially-relevant research for business; and
  • increases of industry relevant research training option, including the recognition of PhD candidates with existing industry experience.

Adding another perspective to this is the German Innovation Indicator, which is conducted by a consortium of organisations led by the German Frauenhofer ISI.

Released as a report and in form of an interactive web-based tool, the project compares the innovation capacity of a selected group of currently 35 of the most advanced economies, which are assessed across 38 indicators of innovation capacity.

The project differs from the GCI and GII in the methodology in how innovation capacity is assessed and the weight it gives to factors that determine innovation.

Nevertheless, the latest 2014 edition of the Innovation Indicator corresponds with the GCI and GII in three of the five top ranked countries (Switzerland, Singapore and Finland). Also, in each case Switzerland is heading the list. And similar to the GCI and the GII, the Innovation Indicator ranked Australia's economy 17th out of 35 countries (see figure).

Click image to enlarge...

Here more of interest, though, is how the Innovation Indicator assesses Australia's innovative capacity against other economies across certain categories or subsystems, which comprise industry, state, science and research, society and education. Each category represents aggregates of certain relevant indicators, of which some contribute to several of the subsystems.

For the purpose of this article we determined for each category Australia's score as a percentage of the average score of the top ten countries. The graphic representation of this analysis reinforces the view that Australia has comparable advantages through its education system, ranked 7th, although, as in the GCI assessment, its maths and science education was rated lower, ranked 16th. Its society, which includes the public's generally positive attitude towards new technologies, is also rated highly - ranked 3rd.

However, Australia significantly lags in the three other major categories, and this includes the area of science where we often are said to be 'punching above our weight'. On the positive side, Australia ranked 6th in the number of scientific articles (covered by the Scientific Citation Index, SCI) published relative to the size of our population, and the country's share among the top 10% of most highly cited publications also ranked highly (8th, as did the quality of our research institutions (8th).

However, Australia was only 18th in the number of publications that were part of an international collaboration, and 18th in the field-specific impact of its published material, a measure that takes into account how often work is cited by other researchers in the field.

Notably, though, Australia was ranked 14th in the number of patents per capita stemming from public research, suggesting that Australian research is less focussed on potential commercial applications as is the case for many of our competitors.

Some elements of government activities, analysed under the State category, are less conducive to innovation than in the best performing countries. This includes the demand for advanced technological innovations through government organisations (rank 21) but also relate to government investments in public education and skills development.

Prioritised efforts

At the end of May 2015, the Australian Government announced new national Science and Research Priorities, and corresponding Practical Research Challenges, across nine cross-discipinary target areas.
These comprise*:
*A detailed description of the areas can be obtained in a fact sheet accessible here

In announcing these areas, the Government emphasised the need to strategically target the finite funding resources available. Thus, over time an increased proportion of government research investment will be allocated towards projects addressing these areas, with the intention to build critical mass and scale.

The Science and Research Priorities and Practical Research Challenges were developed in consultation with Australia's chief scientist Professor Ian Chubb, industry and science and research sectors.

They will be reviewed every two years to allow for new initiatives to take effect and to ensure that issues being addressed are still the most pressing for the nation.

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GCI stages of economic development
The scheme from the Global Competitiveness Index report depcits how the impact of factors contributing to productivity depends on the stage of economic development
Scheme from the WEF 2014-15 Global Competitiveness report

GCI Austalia vs top ten economies
The importance of the GCI subindices of competitiveness depends on the stage of economic development. Countries may do well in subindices important to their stage but lag in others.
The figure compares Australia's performance against the top ten most competitive and innovation-driven economies. It reveals that Australia is doing well in drivers that determine basic functioning and efficiency of the economy, but it significantly lags the top tier in its business sophistication and innovation performance (average performances are indicated with dotted line).
ARDR analysis of data from the WEF 2014-15 Global Competitiveness report.


The image compares the top ten performing countries in the 2014 German Innovation Indicator, 2014-15 Global Competitiveness Index and the 2014 Global Innovation Index. Despite the difference in scope, emphasis and methodology, six countries were in the top ten of all three assessments (bold regular font). Indicated in italic black font were countries represented in two, while countries in grey italic were represented in only one of the assessments.