Partnering for innovation-a road map to economic resilience

Following is a longer version of my article published in The CEO Magazine 22nd May 2020. See comments for CEO Magazine link

From the invention of the boomerang to the medical application of penicillin and the invention of the Cochlear bionic ear, Australians have shown themselves to be an inventive lot. If necessity is the mother of invention, the impacts of the Covid-19 pandemic should produce a resurgent wave of Australian innovation. Resilience will demand collaborative partnerships, a national drive for scalable innovation in healthcare and critical growth sectors, and coherent public policy providing necessary cohesion. However, several obstacles lie in the path of necessary collaboration.

Alignment of partner needs

The OECD ranks Australia’s scientific researchers 6th for research publications per capita. Yet, the nation is ranked last for cross-sector (industry, tertiary education, and public research institutions) collaboration. The current policy promotes transactional, end-user type R&D relationships, rather than co-operative partnerships for scale and greater economic benefits. The growing international trend in co-creative partnerships reflects the benefits of science-industry knowledge transfer and two-way mobility of researchers.

Such scalable partnerships are vital for commercialisation, a collectivised value-creating process, with economic benefits peaking at the 15-year mark. A recent example is the CSIRO venture with Meat and Livestock Australia and James Cook University producing a breakthrough in a near-zero methane emission feed additive for cattle. The spinoff entity will commercialise the invention, retaining the global patent rights exclusively with partners.

Industry innovation performance gaps

According to a study by the Australian Institute of Company Directors, Australian boards lag behind their international counterparts. The report exposes a considerable lack of technical skills within boardrooms. The focus on short-term shareholder value, increasing venture risk aversion, and a decline in reinvestment incline corporate strategy towards M&As and industry consolidation rather than innovation.

The investment hurdle

A country’s ability to commercialise innovation is a key factor in attracting venture capital. According to the Australian Investment Council, Australia’s share of Asia-Pacific private equity and venture capital has declined to 3%, ranking 6 out of 8 for total assets under management (AUM). Furthermore, a lack of scalable partnerships and a significant decline in local private investment since the mid-2000s and remain barriers to foreign investors.

Australia is ranked at the bottom of the OECD table for direct public investment in Business Enterprise R&D (BERD) in high- growth sector enterprises, a strategy that helps ensure an innovation’s market access, scalability, and sustainability. Surprisingly, despite its ideological aversion to government intervention, the USA is ranked 3rd. Strategically applied public investments in key growth sectors boost employment and encourage private investment, producing multiple economic benefits.

Public funding is particularly needed for early-stage scientific research, where private investment appetite is lowest. CSIRO’s development of Wi-Fi technology unlocked incalculable commercial value, though it is difficult to argue that Australia has received optimal economic benefits from the invention. Cross-sector partnerships help assure investors that value created equals value captured.

While increased public funding does not necessarily correlate with commercial success, it provides investors with a measure of assurance relative to other destinations. And such comparisons do matter to the competitive and dynamic nature of capital markets.

As an example, Australia should significantly increase public research funding of nascent Artificial Intelligence technology to benefit critical sectors. By its own estimates, the government forecasts AI to be worth AUD 315 billion to the Australian economy by 2028, yet public funding remains dismal in comparison to most advanced economies. According to Monash University research, Germany leads investment at AUD 5 billion and South Korea with AUD 3 billion. Singapore, a country of under 6 million people, will invest three times our commitment.

Understanding partnership roles

The government’s role is crucial here as it has the means to design the operating environment for innovation, through a mix of 21 financial, regulatory and soft policy levers (e.g. diplomatic trade missions, delegations, conferences, etc.) that should coherently complement each other. While Australia does well across regulatory and soft policy, public funding (direct and tax support, % GDP) places it 8th behind OECD countries like Ireland, Korea, and Belgium.  

Traditional academic rewards schemes encourage publication over collaborative research and entrepreneurial partnerships, producing misaligned partner agendas. Yet, the cross-sector process of commercialisation offers widest socio-economic benefits, leverages collective knowledge capital, and validates education’s central role as the socio-economic driver of a knowledge-based economy.

Innovation ecosystem architecture

With its established infrastructure capital, both physical and cognitive, tertiary education institutions (TEIs) are ideally placed to house innovation accelerators. Leveraging the value of this integrated asset would arguably provide a greater return on public investment than less integrated state government start-up hubs. Such a focus would multiply industry access to R&D and unlock the full spectrum of innovation, including non-R&D innovation, across product/service, business process improvement, marketing, and new business model development. TEIs could effectively offer a comprehensive one-stop-shop for research, workforce development, and partnerships with SME entrepreneurs.

Such a place-based system architecture provides a practical policy focus and functions as a galvanising point for cross-sector collaboration. Studies also show a correlation between innovation and proximity to TEIs. Innovation hubs could also form local community centres of cooperation in times of emergency response.

The COVID-19 crisis provides an imperative case to address the conceptual, policy, and funding gaps that too often stifle innovation. The national mission for economic resilience should broaden the traditional focus on end-user R&D relationships towards strategically aligned, scalable partnerships. A logical starting point would be the establishment of those partnerships that address the nation’s diminished manufacturing base, across critical national security industries.

What can be done to improve performance towards scalable cross-sector partnerships?

•  The immediate addition of a tertiary education Industry Growth Centre (IGC) as a conduit to policy development and a knowledge/human capital transfer hub that interlaces the other six IGCs[1]. Key outputs should include a 10-year education sector growth plan to ensure international competitivity
•  A national and state focus on scalable innovation in critical sectors such as healthcare, agriculture, and cybersecurity to mitigate future crisis, leveraging sector strengths to produce value-added exports
• The R&D tax concessions under review could be better aligned to encourage critical sectors and be later broadened to stimulate scalable innovations in other sectors. Competitive bidding between applicants for public funding of Business Enterprise R&D (BERD), financed by the lowest interest rates in modern history, would provide fairness and fiscal efficiency
• Company boards and academic councils should ensure innovation partner representation to fill technical skills gaps. Management needs to be made accountable for the establishment of an innovation road map that includes partnerships. Specialist skills in partnership management can be brought in, acknowledging that innovation partnerships do require resourcing.

The spur to US innovation was the Soviet threat, Israel the hostility of its surrounding states, while Singapore responded to the limitations of a resource-poor island state dependent on its neighbours. Australia’s leaders across sectors cannot waste the opportunity the COVID-19 crisis provides for the emergence of an innovative nation and the futureproofing of the economy.

[1]               The Australian government has tasked the Growth Centres with leading cultural change in their sectors. These centres focus on:

•            increasing collaboration and commercialisation
•            improving international opportunities and market access
•            enhancing management and workforce skills
•            identifying opportunities for regulatory reform.