• Australian Business Foundation interest in innovation dates back to 1997 with our inaugural research study, The High Road or the Low Road? by Professor Jane Marceau et al.

• This study pioneered ideas that competing on the basis of innovation and know-how would create greater growth and prosperity, than a focus on efficiency reforms and cost-cutting alone.

• Not entirely unprecedented, but The High Road or the Low Road brought a fresh analysis, drawing from international economic scholarship and management literature to identify the characteristics of high growth, high return economies. It stacked Australia up against these characteristics and found some fundamental flaws.

• For example, business expenditure on R&D was low by international standards. More low paid, low skill jobs were being created than the opposite. And Australia's trade patterns and industrial structure were skewed towards low tech, low growth areas of economic activity, contrary to trends elsewhere in the OECD.

• The Australian Business Foundation updated this work about 12 months ago with a study by Professor Marceau and Dr Karen Manley called "Innovation Checkpoint" to stocktake Australia's innovation performance and see how far we had progressed down the high road or the low road.

• The results were mixed. Good progress in the growth of knowledge-based services industries, rises in venture capital, more investment in machinery and equipment and faster growth in high skilled jobs compared to low skilled ones since 1996.

• But, Australia still lagged world class innovation performance on a number of important measures:
  - fewer manufacturers involved in product and process innovation;
  - substantial falls in business R&D expenditure and personnel;
  - indications of Australian managers underperforming as skilled managers and adopters of innovation, compared to their global counterparts;
  - a low and falling training commitment by Australian employers; and-trade and industry patterns still concentrated in the lower technology, lower growth areas of economic activity.

Innovation Summit and Commonwealth Government's "Backing Australia's Ability" Innovation Statement, 29 January 2001

• Australian Business Foundation studies, including a visionary Alternative Business Futures study looking at different scenarios to the year 2015, influenced our contribution to the Innovation Summit, and are the slide rule we use to judge the Commonwealth Government's recently announced Innovation Statement.

• Australian Business Foundation's verdict is that it's an advance, but not inspirational. It provides additional resources to elements of the innovation system, with a focus on the education and research infrastructure.

• It crosses several functional areas of government and recognises the need for partnerships between science, academia, government and the business community. And it puts science, technology and innovation on the political radar screen – with a bit of help from the Opposition's attention to the concept of the Knowledge Nation as a policy platform.

• But, the Government's Innovation Statement fails to rise to the challenge of how to unleash innovation that does not come from formal R&D, from unis, or laboratories. This innovation is more about harnessing the know-how and adapting and improving operations to build business productivity and encourage businesses to take risks, upgrade technologically and capitalise on new opportunities, markets, products and services.

• Australian Business Foundation's research draws us to the importance of an operational definition of innovation, namely reinventing your business as the market changes. At the heart of innovation is rediscovering where the real value to the customer is in your business and reflecting this deliberately in the business strategy. What is it that gives a business the edge; makes customers want to buy and keep coming back for new and better offerings; the essential ingredients that are hard for others to copy or to substitute, or at least gives a good head start on the imitators.

• Our focus is on business behaviour as the linchpin of innovation. We applaud the new investments in major research infrastructure and facilities, tax concessions, educational initiatives to reverse the brain drain and efforts to increase innovation awareness and entrepreneurship. But, they are necessary not sufficient, conditions for innovation.

• Unleashing the innovation that lies beyond just the scientific breakthroughs and the high tech start ups similarly involves turning knowledge into new capabilities. But, it is a wider definition of knowledge and a more diverse set of vehicles needed to bring a commercial return.

• I'm referring to fostering innovation through mechanisms for clustering, collaboration and linkages which diffuse new ideas and knowledge so that they inform and guide business decisions and build new capabilities that lead to growth and high returns for Australia on the global stage. The Innovation Statement has little to say about this, except for the Centres of Excellence initiatives and the limited New Industries program.

• A yawning gap is the Statement's failure to use government purchasing power to foster innovation and build local industry capability. This is a direct lever in government's control which they don't seem prepared to use to "back Australia's ability". It's a real blind spot.

Australian Business Foundation studies on fostering innovation

• Paradoxically, Australian Business Foundation research supports two seemingly contradictory theses on innovation. Firstly, that innovation lies in enterprises recognising, creating and mobilising their own distinctive sources of know-how and customer value. And secondly, that strategic collaboration and knowledge-sharing are increasingly decisive in sustained superior business performance in a world of continuous innovation, shorter product cycles, free and fast flows of information and increasing globalisation.

• Two recent studies commissioned by Australian Business Foundation illustrate how innovation and collaboration are intertwined.

They are the report by John A Mathews of the Macquarie Graduate School of Management, entitled "Encouraging Knowledge-Intensive Industries: What Australia can draw from the industrial upgrading experiences of Taiwan and Singapore", and the study by Professor Ian Marsh and Brendan Shaw of the Australian Graduate School of Management on "Australia's Wine Industry: Collaboration and Learning as Causes of Competitive Success".

From different examples – Taiwan and Singapore on one hand and Australia's successful wine industry on the other – they demonstrate the institutional arrangements that foster collaboration and serve to put companies in touch with the know-how, resources, technologies, skills and motivation that encourages innovative business decisions and pushes companies along a strongly competitive, productive and high growth path.

Both studies suggest various effective tools and strategies – collaborative planning mechanisms like the wine industry's Strategy 2025; the deliberate systematic technology scanning, diffusion and deployment partnerships between the public and private sectors in Taiwan; opportunity and supply chain audits by industry associations; and alliances for global marketing and export promotion.

The point is that there are many more potent tools at our disposal to share visions and risks and to build scale, capability and critical mass across all industries than we should expect to see in a government innovation report, or that we should require from expenditure of taxpayers funds.

The way forward?

• Innovation must be more about unleashing the animal spirits of entrepreneurship, rather than just the purse strings of Treasury. If I can continue the analogy of the high road or low road from Australian Business Foundation's original work on innovation, we all need to share the driving.

• In my view, that means governments and their bureaucratic advisers should stop agonising over the proper role of government, defining more and more limitations whether based on ideology or on the aversion to public spending. Rather, governments should start governing aggressively in the national interest, being the catalyst for building the vision for Australia's future and bringing all parties together to achieve this.

• Business needs to replace its cost cutting and downsizing mentality with efforts aimed at creating new opportunities and markets, continually keeping ahead of the game if not as initiators then as fast followers.

• Education and research sector – by all means go into bat for more resources, but don't stop there. Make your research, teaching and commercialisation activities harmonise so that we have the skills to attract and retain the emerging industries and enabling technologies of the future.

• And, what about some real time, affordable skills transfer from our lawyers and accountants to innovative start-ups and microbusinesses. So they don't get fleeced on their intellectual property and can engage in international joint ventures without "selling off the farm" or losing the high value adds-on to their work and discoveries.

• And business, industry and professional organisations are not immune. Get out of the junior league and into the major tournaments. Spend less time on yesterday's business challenges and more on tomorrow's unimagined opportunities. Take the lead on innovation audits of your sector and its supply chains, pursue action agendas for new markets and redefined businesses, manage the diffusion of new ideas and technologies gleaned from worldwide scans to all in your sector, even the smallest SME, and foster the collaborative strategic alliances that will bring the best returns both to individual firms and to Australia as a whole.

Australia really does have the potential to be the "brand" of the 21st century – youthful, inventive, energetic, clever, adaptable and reflecting our cultural values of openness, ingenuity and giving everyone a fair go.