CSIRO and Australian innovation: a business commentary.

SUMMARY

The Australian Business Foundation's view of the role of CSIRO in Australia's innovation system is predicated on a shift in perception about what constitutes innovation. Innovation is the smart application of knowledge to transform businesses, driven by market and customer demands, not just by the commercialisation of intellectual property from science and research. This reinterpretation, based on the Foundation's own research, and its adoption necessitates a shift in Australia's innovation policy from the current emphasis on increasing the supply of science and research to one that supports the 'demand pull' of business engagement with customers and markets. This wider angle on innovation policy maximises the benefits to Australia in terms of productivity and economic development. It also serves to expand, not diminish, CSIRO's role as a catalyst for Australian innovation.

KEY WORDS

innovation; research and development; business transformation; knowledge economy; technology; policy; commercialisation

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Ten years ago the Australian Business Foundation (ABF) was founded and funded by business (not government) as an independent, apolitical and non-partisan body to undertake evidence-based research about what makes Australia competitive and what will support Australia's enduring economic prosperity, levels of employment and enhanced living standards. The Foundation's research probes deeply to understand business realities and to detect earlier the 'soft signals' of issues likely to have most impact on the long-lasting competitiveness and capabilities of Australian enterprises.

The Australian Business Foundation's research focuses on business innovation, new models of competitiveness and opportunities arising from a knowledge-based economy. The commentary on CSIRO and Australian innovation presented in this article is distilled from the findings and insights of the Australian Business Foundation's body of research and related intelligence. (1)

The Australian Business Foundation concludes that for the CSIRO to fulfil its potential as a catalyst for enduring and valuable Australian innovation, a significant change must be made in our perspective on what constitutes innovation policy in Australia.

One common and persistent understanding is to equate innovation with expenditure on research and development, with new scientific or technological discoveries, or with radical and novel inventions and products. This view lends itself to analyses of Australia's mediocre performance to date based on business research and development, number of patents registered, especially in the USA, and numbers of scientists and engineers. Similarly, concerns are expressed both about the adequacy of CSIRO's investment in fundamental science and research and about its revenue from commercialisation and the depth of its linkages with industry.

Equating innovation with science and research is at best an incomplete picture and misrepresents where the greatest benefit from innovation can be created and captured for Australia. This narrow view of innovation results in opportunities that are lost or insufficiently exploited and myopia about the leadership roles potentially open to the CSIRO--not only in the creation and application of socially and economically useful knowledge but as a vehicle for learning about the policies that work best to boost Australia's level of innovation in the long run.

The Australian Business Foundation's alternative view is that the smart application of knowledge to transform businesses is the key to achieving innovation, both for firms and for nations. The current dominance among policymakers of the 'science, technology and research push' approach to innovation should be replaced by one that supports business engagement with markets and customers, i.e. a focus on the 'demand pull' dimension of innovation.

The objective of Australia's innovation policy needs to be redefined. The aim should not be merely to increase the supply of science and research but also to bolster the capacity of internationally competitive private firms resident in Australia to absorb and use all sources of knowledge in a way that transforms their capabilities and business offerings to better meet market needs.

The Australian Business Foundation supports this view from its research findings in relation to:

* the reality and potency of the knowledge economy and its pervasiveness beyond frontier and high technology sectors; and

* the often unrecognised patterns of innovation and competitive behaviour widely displayed in Australian business enterprises but which narrow definitions of innovation simply fail to detect or to value.

These research insights from the Australian Business Foundation are elaborated on in the following sections and the article concludes with a discussion of the implications for Australia's innovation policy and the roles to be played by CSIRO.

WIDER ANGLE ON BUSINESS INNOVATION

Knowledge economy realities

The Australian Business Foundation's inaugural study, The High Road or the Low Road? Alternatives for Australia's Future (Marceau, Manley and Sicklen 1997), drew on both contemporary economic theory and business practice to make the case that knowledge and innovation are crucial ingredients of the growth and prosperity of modern industries and nations. This analysis, backed by subsequently-commissioned studies (Allen Consulting 1997; GBN Australia 1999; Marceau and Manley 1999; Marsh and Shaw 2000; Hall 2003; Dodgson and Innes 2006), pointed to:

* knowledge as a crucial business resource, significant in how enterprises deliver value to customers and make sustained profits;

* the increasing domination of world economic growth by knowledge-intensive goods and services;

* knowledge as the key input into the production process, one at least as important, if not more so, than capital and labour; and

* knowledge-creating activities absorbing a higher proportion of firms' expenditure.

These analyses also substantiated the changing reality of a globalised, connected and fast-paced knowledge economy, showing a quantum leap in the competitiveness challenges facing businesses--more intense global competition and opportunities, new work and business patterns, the transformational effects of new technologies, shifts in power relationships between firms and their customers and suppliers and greater regulatory, governance and social responsibility expectations of enterprise operations.

In the face of these challenges, competing on the basis of knowledge and innovation, rather than on price, becomes critical. The knowledge and relationships that firms possess become intangible assets that can make them distinctive, competitive and profitable. But it is important to understand that this economically useful knowledge is not restricted to scientific discovery or to the products of research and development. It is more likely to rest on learning and problem-solving by firms.

Learning, not research and development

The contention that learning, not R&D, is the key to innovation is argued by Professor Keith Smith in his writings for the Australian Business Foundation on innovation and the knowledge economy (Smith 2004, 2005). Smith cautions against being blind to the knowledge-intensity of low technology and traditional industries in both services and manufacturing and to the importance of non-research and development contributions to innovation capabilities.

Smith further argues that, although high tech industries (usually defined as industries with R&D to Sales ratios of more than 4%) are very important, they form a relatively small part of most OECD economies, including Australia's, providing only around 3% of Gross National Product. More attention must therefore be paid to understanding and supporting the role of major low and medium technology industries in both manufacturing and services, such as food processing, timber products, textiles and clothing, mechanical engineering, hospitality, transport, health and finance services. Such industries perform little direct research and development, yet many of them are innovating, using knowledge intensively and growing rapidly.

The knowledge behind the innovation in so-called low-tech, low research and development industries is not readily visible in commonly-used innovation statistics. These industries innovate through knowledge that comes from learning, not from discovery. They are not necessarily involved in discovery of new technical or scientific principles but rather in activities that integrate or recombine existing forms of knowledge, notably design and trial production, to generate new knowledge. The installation and operation of new machinery or equipment is knowledge-creating because it results in new capabilities. Similarly, firms can purchase licences to use protected knowledge created or discovered by others. Firms also explore and learn about markets, acquiring knowledge to help shape new products and services in the form of inputs and expenditure on market research, training and skills development, strategic alliances and the like. Finally, firms can gain the benefit of scientific research knowledge indirectly from their association with others, especially through personnel movements, inter-firm cooperation, use of engineering consultants or standards organisations, links with professional bodies, industry associations and universities and research institutes.