Blind spot with a hefty price tag

Re­search is largely ig­nored by com­pa­nies, much to our detri­ment, writes Rowan Gil­more

The Weekend Australian - Review - - Research Round - Up -

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

to

con­nec­tions

en­able

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.

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