Blind spot with a hefty price tag
Research is largely ignored by companies, much to our detriment, writes Rowan Gilmore
PERHAPS the most telling indictment of Australian research is that most Australian businesses think it’s irrelevant. Indeed, 49 out of every 50 firms think this way, according to the Australian Bureau of Statistics.
When innovation is becoming the new mantra for firm sustainability and growth, and when there is a renewed push for a third wave of national economic reform centred around productivity and innovation, one may think that businesses would be clamouring to collaborate with the research sector to find new products and services to remain competitive in an increasingly global economy.
After all, the evidence is overwhelming that companies that innovate enjoy substantially higher profit margins than those that do not. Recent surveys by the Boston Consulting Group and Arthur D. Little both indicate that profit margins can be as much as four percentage points higher for innovative firms.
Recognising this, a National Innovation Agenda was proposed by the Victorian Government earlier this year. It was further discussed and embraced at a recent meeting of state and territory government representatives, together with other supportive bodies such as the Business Council of Australia, the Australian Business Foundation, and the Australian Institute for Commercialisation.
The agenda, which seeks to establish a platform for innovation leadership by all Australian heads of government through the Council of Australian Governments forum, has five pillars that would strengthen Australia’s innovation system, and through it seek to lock in future national prosperity: Increase business innovation. Provide the infrastructure innovation. Develop skills for the innovation economy. Create a better regulatory environment for innovation.
Forge better collaborations.
Where is research in the list, one may ask. It’s buried in there, but many businesses appear to have forgotten to ask the question.
Evidence presented by the ABF at the discussion forum indicated that only 2 per cent of innovating businesses in Australia collaborate with the research sector, compared with 6 per cent to 7 per cent in similar economies such as Ireland, Sweden and Denmark, and 26 per cent in Sweden.
With only one Australian firm in 50 working with the research sector, the question of relevance needs to be raised. Levels of collaboration with customers are no better in Australia and stand at only 12 per cent, compared with typical values of 25 per cent to 28 per cent for similar economies. Collaboration with suppliers is equally poor.
Such is the disparity that many businesses are questioning the role of R & D in innovation completely. The suggestion is that although research is important for some, the majority of Australian firms innovate through new processes or business models.
This notion that innovation has become too
and R & D- centric, and the low level of industry collaboration with research, points to a fundamental failure within the innovation system. What can be done?
Two government reports released this year set the context. The first was a report released in March by the Productivity Commission into Public Support for Science and Innovation. To the relief of most in the research community, the commission economists concluded that strong rationales for public funding of research did exist, and that such support produces sizeable benefits.
But the report also found problems in commercialisation and knowledge diffusion mechanisms, many of them identified by the AIC in its submissions to the commission. It went on to argue that public funding of commercialisation was less justified than it was for funding the basic research itself, because the economic benefits from commercialisation tended to be captured by more confined interests: those companies that commercialised the intellectual property.
In other words, although commercialisation is laudable, public support for it needs to be carefully balanced.
The second report, the National Survey of Research Commercialisation, was released in August. Although some headline results appear encouraging, the inflation- adjusted income received from licences, options and assignments halved from $ 112 million in 2000 to $ 58 million in 2004.
What is important is that licence income represents one measure of the value — thus relevance — of research to industry and is a measure of industry engagement.
The reduction in its value would be less discouraging if research organisations had decided to licence their IP for free ( indicating there was still knowledge transfer and industry engagement). However, this is not the case, for the total volume of licences executed per year actually decreased over the period. Because the investment in public research rose significantly over the five- year period, the number of licences per research dollar executed with businesses each year dropped by half. Worse still, the licensing income per research dollar dropped by a factor of three to a low of about 1 per cent, compared with 3.3 per cent in the US.
Thus on the one hand we have the Productivity Commission saying businesses need to commercialise publicly funded research on their own, but on the other hand the national commercialisation survey indicating businesses are not.
Organisations such as the AIC are at the forefront of seeding business collaborations between the research sector and companies, using intermediaries to bridge cultures, improve access and build trust, but that takes support on a much greater scale than is currently made available. It also requires receptive businesses on the demand side and participative researchers on the supply side.
Boards of companies need to recognise innovation as a driver of growth, and include it as a standing item on their board agendas. Boards stacked with auditors will excel at managing risk, not innovation.
Research institutions, too, need to nurture a culture supportive of commercialisation and provide proof of concept funding. The goal of the national innovation agenda is to set the environment and infrastructure so that collaboration occurs naturally.
For our future, it will need to.