From the invention of the boomerang to the medical application of penicillin and the invention of the Cochlear bionic ear, Australians have shown themselves to be an inventive lot. If necessity is the mother of invention, the impacts of the Covid-19 pandemic should produce a resurgent wave of Australian innovation across industry, government and the wider community. A sustainable future will demand collaborative partnerships and a national drive for scalable innovation in healthcare and critical growth sectors, with coherent public policy providing necessary cohesion. However, several obstacles lie in the path of the required collaboration.
Alignment of partner needs
Australia’s scientific researchers are among the world’s best, with the OECD ranking the country 6th for research publications per capita. Yet, the nation is ranked last when it comes to vital cross-sector (industry, tertiary education, government and public research institutions) collaboration for scalable innovation. Current policy settings promote transactional, end-user type R&D relationships, however longer-term, co-creative partnerships provide greater opportunities for scalable innovation and its economic benefits. The growing international trend towards co-creative partnerships reflect the benefits of greater science-industry knowledge transfer and two-way mobility of researchers.
Such scalable partnerships are vital to the national interest as commercialisation is a collectivised and cumulative value-creating process, with economic benefits peaking at the 15-year mark. A recent example is the CSIRO venture with Meat and Livestock Australia and James Cook University that produced a breakthrough innovation in a near-zero methane emission feed additive for cattle. The spinoff entity that will commercialise the invention, holds the global rights, exclusively to the patents of the IP partners.
Industry innovation performance gaps
According to a study the Australian Institute of Company Directors, Australian boards lag behind their international counterparts in prioritising innovation. More precisely, there is a considerable lack of technical skills within boardrooms. The focus on short-term shareholder value, increasing venture risk aversion and a general decline in reinvestment, incline corporate strategy towards M&As and industry consolidation rather than innovation.
The investment hurdle
A country’s ability to commercialise innovation is a key factor in attracting venture capital. According to the Australian Investment Council, Australia’s share of Asia-Pacific private equity and venture capital has declined to 3% and is ranked 6 out of 8 for total assets under management (AUM). Furthermore, a lack of partnerships to scale innovation and a significant decline in local private investment since the mid-2000s and remain barriers to foreign investor appetite.
Regrettably, Australia is ranked at the bottom of the OECD table for direct public investment in Business Enterprise R&D (BERD) in high-potential growth sector enterprises, a strategy that helps ensure an innovation’s market access, scalability and sustainability. Surprisingly, despite its publicised ideological aversion to government intervention, the USA is ranked 3rd. Strategically applied public investments in key growth sectors boost employment and encourages private investment, producing multiple economic benefits.
Public funding is particularly needed for early-stage scientific research, where private investment appetite is lowest. CSIRO’s development of Wi-Fi technology, utilised today by 5 billion devices, unlocked incalculable commercial value, though it is difficult to argue that Australia has received optimal economic benefits from the invention. Cross-sector partnerships help assure investors that value created equals value captured.
While an increase in public funding does not necessarily correlate with commercial success, it provides investors with a measure of assurance relative to other destinations. And such comparisons do matter to the competitive and dynamic nature of capital markets.
As an example, Australia should significantly increase public research funding of nascent Artificial Intelligence technology and apply its findings across critical sectors. By its own estimates, the government forecasts AI to be worth AUD 315 billion to the Australian economy by 2028. Although AI could improve performance across all growth sectors, public funding remains dismal in comparison to most advanced economies. According to Monash University research, the US government’s Defence Advanced Research Projects Agenda (DARPA) will spend AUD 3 billion over the next five years addressing limitations in AI technology, with Germany leading investment at AUD 5 billion and South Korea with AUD 3 billion. Singapore, a country of under 6 million people, will invest three times our commitment.
Understanding partnership roles
Fundamental to all effective partnerships is a shared understanding of purpose and each partner’s role. The government’s lead role is crucial as has the means to design innovation’s operating environment, through a mix of 21 financial, regulatory and soft policy levers (e.g. diplomatic trade missions, delegations, conferences, etc.) that should coherently complement each other. While Australia does well across regulatory and soft policy, public funding (direct and tax support, % GDP) places it 8th behind OECD countries like Ireland, Korea and Belgium.
The traditional academic rewards scheme encourages research publication over collaborative research and entrepreneurial partnerships, producing misaligned partner agendas. Yet, the cross-sector process of commercialisation offers widest socio-economic benefits, leverages collective knowledge capital and validates education’s central role as the socio-economic driver of a knowledge-based society. Australia’s tertiary education sector researchers are among the best in the world.
Innovation ecosystem architecture
With its established infrastructure capital, both physical and cognitive, tertiary education institutions (TEIs) are ideally placed to house innovation accelerators. Leveraging the value of this integrated asset would arguably provide a greater return on public investment than that currently contained in less integrated state government start-up hubs. Such a focus would multiply industry access to R&D and unlock the full spectrum of innovation, including non-R&D innovation, across product/service, business process improvement, marketing and new business model development. TEIs could effectively offer a comprehensive one-stop-shop for research, workforce development, venture funding and partnerships with SME entrepreneurs, who are often at risk of departing for more conducive overseas development environments.
Place-based system architecture also provides a practical policy focus and functions as a galvanising point for cross-sector collaboration and human capital/knowledge transfer. Studies show a correlation between innovation and proximity to TEIs. Such an innovation hub could also form a local community nerve centre of cooperation in times of emergency response.
The COVID-19 crisis provides an imperative focus to address the conceptual, policy and funding gaps that too often stifle potentially scalable innovation. The national mission for economic recovery should broaden the traditional focus on transactional, end-user R&D relationships towards strategically aligned, scalable partnerships. A logical starting point would be establishment of those partnerships that address the nation’s diminished manufacturing base, across critical national security industries.
What can be done to improve performance towards scalable cross-sector partnerships?
The immediate addition of an Industry Growth Centre (IGC) for tertiary education would provide a conduit to policy development and act as a knowledge transfer hub that interlaces the other six IGCs[1]. Such a mechanism would provide practical validation of tertiary education’s role as a key growth sector partner and address the opportunities and challenges of its particular industry. Key outputs should include a 10-year education sector growth plan to ensure sustainability and international competitivity.
A national focus on scalable innovation in critical sectors such as healthcare, agriculture and cybersecurity would help mitigate future crisis, leverages existing strengths and should produce value-added exports. The R&D tax concessions currently under review could be better aligned to encourage support of these critical sectors and be later broadened to stimulate scalable innovations in other sectors.
Company and academic councils must urgently review their skills composition and ensure innovation partner representation, either at the board or committee level. Technical skills gaps can thus be quickly addressed. Management needs to be made accountable for the establishment of an innovation road map that includes partnerships and meets the board’s agenda. Specialist skills in partnership management can be brought in, acknowledging that integration and governance of innovation partnerships do require resourcing.
The spur to US innovation was the Soviet threat, Israel the hostility of its surrounding states, the Nordic countries their diminishing resource fields, while Singapore responded to the limitations of a resource poor island state dependent on its neighbours. Australia’s leaders across sectors cannot waste the opportunity the COVID-19 crisis provides for the emergence of an innovative nation and the future proofing of the economy.
[1] The government has tasked the six Industry Growth Centres with leading cultural change in their sectors. The IGCs comprise Advanced Manufacturing, Cyber Security, Food & Agribusiness, Medical Technologies and Pharmaceuticals, Mining Equipment/ Technology & Services, and Oil Gas & Energy Resources. They focus on:
- increasing collaboration and commercialisation
- improving international opportunities and market access
- enhancing management and workforce skills
- identifying opportunities for regulatory reform