May 2020
Firm-level innovation is a main driver of business competitiveness, and many will associate this with performing R&D. But significant benefits can also come from innovations that do not involve R&D.
According to a recent report from Innovation and Science Australia (ISA), such ‘non-R&D innovations’ can include, for example, developing a new business model, implementing new software capabilities or improving marketing practices.
In February, outgoing chief executive officer of Innovation and Science Australia Dr Charlie Day emphasised the distinctiveness of the Australian innovation system, which similar to a natural ecosystem, will not experience step changes upwards, but downwards, such as in the 2000 tech crash and the 2008 Global Financial Crisis.
In a speech to the Australian Academy of Technology and Engineering, he said that there is no 'silver bullet' in innovation policy, but there is also not an argument for inaction - a veiled criticism of the Australian Government's failure to follow on with a "second wave" of the 2015 National Innovation and Science Agenda.
NISA was an intense burst of policy activity, Dr Day said, citing funding for CSIRO's digital research network Data61, the creation of the $500 million Biomedical Translation Fund, and the roll-out of the Business Research and Innovation Initiative as major outcomes.
However, while NISA stimulated positive change, including a healthier Startup/Venture Capital ecosystem, Dr Day raised concern about the low levels of business investment in innovation.
"Across the board Australian business is not investing in innovation at the rate that we need to drive future productivity growth. "It’s a complex problem, and one where the distinctiveness of our innovation ecosystem (and our economy) needs to shape our thinking.
Notably, the Australian Government also cut back its support for science, research and innovation, while global isolationist trends present an emerging risk to Australia's innovation system.
Directed at Canberra policy makers, Dr Day argued that rather than 'alternating between flood and draughts' there should be a consistent approach to stimulating innovation in Australia.
There are opportunities, though, and Dr Day mentioned Australia's hydrogen strategy as an example. Also, Government procurement could present a major driver of demand for innovation in Australia.
Both R&D and nonR&D innovations create 'intangible' assets that are difficult to measure, in contrast to investments in 'tangibles' that can be easily accounted for, such as a new factory or a new piece of equipment.
But intangible assets bear great value for businesses, also as they tend to be scalable, and even can potentially create 'winner takes all' scenarios, ISA reports.
Internationally, there has been a trend towards creating such assets to increase business value, including through non-R&D innovation.
In Australia, however, the focus of Government support for business innovation has largely been directed at encouraging R&D, including through the R&D Tax Incentive. Non-R&D innovation has been largely ignored, as their potential value for business performance may not be fully understood.
ISA's analysis shows that busines benefits from investing in innovation are significant whether it involves R&D or not, suggesting that investing in any type of innovation can result in a boost to revenue or job growth.
Especially small-to-medium sized businesses were found to gain, with SMEs investing in non-R&D innovation growing on average 3.5 percentage points in revenue than those that did not.
ISA therefore recommends to re-balance Australia's innovation policy mix in a way that provides better incentives for non-R&D innovation in businesses, while maintaining the current level of support for R&D.