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INNOVATION & PRODUCTIVITY: The Australian Business Foundation

February 2010

The productivity imperative

  • Australia’s productivity growth has declined in the last decade to 1.4%. This compares unfavourably with the Hawke/Keating reforms of the 1980s-1990s where productivity growth hit 2%. Turning around Australia’s productivity growth is a key imperative detailed in the Government’s 2010 Intergenerational Report.

  • The ‘big-bang’ productivity reforms of the Hawke/Keating government featured the floating of the dollar, tariff cuts and a concerted microeconomic reform agenda. These prescriptions have run their course and can’t just be repeated today.

  • The equivalent ‘big bang’ agenda to lift productivity today is innovation. But, not innovation defined narrowly as science, research and technology. The kind of innovation that counts is action that transforms Australia’s business capabilities, skills and competitiveness.
Business transformation is key to productivity gains
 Business transformation is key to productivity gains
  • Productivity gains are usually defined as efficiencies, when the reality is that transformations in business capabilities are the key.

  • Traditional measures of productivity centred on hours worked and output per hour are just the indices, not the determinants of productivity. That is, they are the numbers that show the productivity outcome of an economy, but not what actually drives these results. We need to ask what actually causes productivity improvements in the economy.

  • The Foundation has recent research from Cambridge Professor Alan Hughes on Australia’s productivity surge of the 1990s attributed to the high technology using sectors not the high technology producers. The business transformations and new capabilities behind their productivity gains came from use of enabling technologies like ICT, greater management competencies and capitalising on regulatory reforms. It is not generally the result of greater capital investment to replace labour. Productivity is not about doing more with less, nor about making people work harder for longer.

  • Transforming businesses and workplaces results in innovation-driven productivity. Innovative managers and workplaces create productivity by transforming the capabilities of their businesses: finding imaginative new ways of problem-solving; collaborating with customers, suppliers and even competitors; adapting existing technologies and processes to new uses; and devising fresh solutions to meet the needs of demanding customers.
Australia’s innovation policies are a generation old and need renewal


  • To unleash the productivity benefits, Australia needs to renovate its innovation policy based on better understandings of how innovation can drive productivity improvements in businesses and nations.

  • Most of Australia’s innovation policies date back to the 1980s when fax was the latest technology, mobile phones rare and the size of a house brick, most of the world economy was closed – Russia, Eastern Europe, China and the internet and Google were just a gleam in the eye.

  • The nature of innovation and our understandings of it have changed – rarely the orderly pipeline of R&D to commercialisation, from boffin to consumer. Often involves changes to business organisation and consumer behaviour, as much as to science and technology. Involves problem-solving, relies as much on users of innovation, as producers.

  • With the Cutler Review into Australia’s national innovation system and in the Powering Ideas white paper, the Rudd Government has taken the first steps to recognise and resource a more modern innovation policy.

  • The opportunity for the Rudd Government to break new ground on innovation-led productivity is to shift its innovation policy performance target from increased R&D spending to a critical mass of innovative Australian businesses and workplaces competing globally. To secure productivity benefits, action must go to boosting innovative practices directly in business enterprises and workplaces.
What’s needed
  • Action is needed to redesign existing innovation-related programs like Enterprise Connect and Commercialisation Australia so they enhance innovation capabilities in firms and skills in workplaces. In particular, four critical competencies need to be enhanced:

    • Innovation through problem-solving for customers.
    • Ability to absorb, manage and apply knowledge and thereby become a learning organisation.
    • Collaboration and connectivity to accelerate innovation and knowledge capabilities.
    • Mastery of business model innovation and the skills of managerial and organisational innovation
       
  • The Cutler Review recognised the importance of innovation by businesses responding to market and customer demands.  Such innovation serves to transform businesses not just with new products and technologies, but in their operations, relationships and business models.

  • The focus must shift from increasing the supply of research, to increasing the absorption of knowledge by firms to deliver more competitive products, services and solutions that attract paying customers worldwide.

  • The miraculous alchemy of innovation occurs close to the customer, says the Cutler Review. Therefore, to secure productivity benefits, action must go to boosting innovative practices directly in business enterprises and workplaces.

  • Action is also needed on the Cutler Review’s recommendation, so far overlooked, for the creation of a national centre for innovation research- a collaboration Australia-wide and linked in with knowledge sources globally. Similar to the UK Government’s initiative, backed by Cambridge University and Imperial College, this centre is designed to research and experiment with policy settings based on more comprehensive understandings of the changing realities of innovation and productivity drivers.

  • The Prime Minister at the Australia 2020 Summit in April 2008 called for ‘safe places’ for policy experimentation and learning. A national innovation research centre would be such a place.

  • The Australian Business Foundation is collaborating with partners at UTS, UQ and elsewhere to make this National Innovation Research Centre a reality in the form of Partners for Innovation Research in Australia (PIRA). The Government is invited to join us in funding this initiative, so Australia can take its place at the forefront of the new productivity agenda. 
February 2010

 

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