The 2016 edition of the Australian Innovation System Report series has been released.
This year's theme is the evolution of Australia's innovation indicators used to identify points of the strength and weaknesses in our innovation system. It includes new indicators focussing on the economic value of innovation:
Businesses that innovate consistently outperform businesses that don't innovate. They are 40% more likely to increase income and profitability; twice as likely to export; and two-to-three times more likely to report increased productivity, employment and training.
The frequency of innovation also matters. Thus, persistent innovators significantly outgrow other businesses in terms of sales, value added, employment and profit growth.
Between 2008-09 and 2010-11, they generated: 18 times the value added growth of intermittent innovators; four times the employment growth of regular innovators; and five times the sales growth of regular innovators.
Various government measures have therefore tried to encourage more businesses to innovate. Yet, the percentage of innovation-active businesses in Australia has barely changed over the past decade. In fact, in 2014-15 it went backward to 45%, down from 48% in the previous year.
According to the report, innovation accounts for an estimated 50% of economic growth in the OECD. However, not all innovation - which can include making a new product but also may mean introducing a new organisational method - has the same economic impact.
The report reveals data from a 2014 business survey in which 47% of respondents indicated that their most important innovation in 2014 related to organisational or managerial processes , while producing new goods were the least common innovation, cited by only 14% of respondents.
Only 5.5% of surveyed businesses reported delivering new-to-market goods and services.
Australia can therefore be considered an innovation follower, rather than an innovation leader, with businesses often adopting different types of innovation in complementary ways.
Accordingly, Australia generates a comparably low portion of its total income through the sale of innovation goods and services (7.2% compared to 19.1% average for the top five OECD countries in 2014-15). On this score it ranked only 20th out of 23 countries in the OECD in 2014-15.
This may be surprising, though, as we have a relatively high proportion of innovation-active businesses in this country (5th out of 30 OECD countries in 2014-15).
But as the report points out, of these relatively few are engaged in R&D, and this may relate to the large number of smaller firms in Australia.
According to the report, R&D accounts for around 75% of total factor productivity growth once externalities are considered. But Australia's expenditure on R&D as a percentage of gross domestic product has actually been declining since 2008-09, as its largest contributor - the business sector - has been pulling back on spending.
It runs parallel to the decline of the mining sector, where R&D expenditure is down from $4.3 billion in 2008-09 to $2.8 billion in 2013-14.
However, the mining sector was also the main driver behind the increase in R&D spending prior to the global financial crisis. Back then, business expenditure on R&D (BERD) steeply increased, and the BERD to GDP ratio reached 1.37. But with the end of the mining boom, Australia's this ratio has again declined, down to 1.19 in 2013-14.
By contrast, the top five OECD countries pushed their BERD to GERD ratio to now 2.78.
Also indicative for where Australia's business innovation is heading is the business expenditure on experimental development, which relates to producing new materials, products or processes.
In this area of R&D, Australia's businesses have increased spending as a percentage of GDP from 0.57% to 0.75%, which is now just about OECD average. By conparison, the top performers in the OECD increased their business expenditure on experimental R&D from 1.2% to 2.2% over the same period.
While the cyclical nature of Mining is behind the up and down swings in Australia's BERD, Manufacturing is still the largest contributor to R∓D in terms of net expenditure. In absolute terms, the sector has even increased spending on R&D by $1.1 billion between 2005-06 to 2013-14, and as a result its R&D intensity rose from 3.5% in 2005-06 to 4.8% in 2013-14.
Nevertheless, its share in BERD has declined from 36% in 2005–06 to 26% in 2013–14.
The Professional, Scientific and Technical Services sector has overtaken Mining to become the second larger spender on R&D, investing a total of $3.75 billion in 2013–14 - a 45% increase over a period of five years. Notably, R&D expenditure in this sector has been driven by SMEs.
A persistent problem in Australia remains the low collaborative activity within the business sector and between business and university research, the system's bright spot: Australian academic publications accounted for 3.9% of the global market share in 2015. Australia now ranks 9th in the OECD on this measure, and contributes over 7% of the world’s top 1% most highly cited publications across all disciplines.