Innovation and Science Australia (ISA) has released its latest report calling for the Australian government to place equal attention and support for businesses investing in non-research and development (R&D) innovation.
In the Stimulating business investment in innovation [PDF] report, ISA said how Australia's business sector is falling behind in the global innovation race, noting that those who experience higher revenue and job growth, and look beyond research and development, are more likely to survive.
"Our analysis of small and medium businesses that invest in non-R&D innovation reveals they grow their revenue 3.5 percentage points (ppt) per year faster and employment 5.2ppt faster than other small businesses," ISA chair Andrew Stevens said.
"Similarly, small firms that adopt at least one productivity-enhancing software application, in areas such as finance, human resource management, or marketing and sales, increased employment by 2.2ppt faster than those businesses that did not adopt any software."
"For larger businesses, ASX200 firms that invested in innovation grew revenue 1.3ppt per year faster than the average ASX 200 firm, based on data from 2005-2016."
ISA has defined non-R&D innovation as those "innovation activities that don't stem from a scientific method or involve R&D".
Specifically, it said non-R&D innovation includes "investment in the development or adoption of software platforms that improve business productivity, or the reinvention of entire business models to take advantage of digital technologies", which also includes branding and marketing, and new staff capabilities.
ISA encourages the government to "rebalance the policy mix" so the focus is not predominantly on the supply of R&D activities.
"This can be achieved by increasing the use of more direct measures (such as innovation grants to high-potential firms) and include approaches that drive demand for innovation (such as procurement and missions)," ISA wrote in the report.
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The report also recommended for government and businesses to prioritise the key growth sectors where Australia has -- or could have -- a comparative advantage, such as in advanced manufacturing, food, and agribusiness.
"Australian governments must deliver effective policies to help level the international playing field. Without more active, well-targeted engagement to foster business innovation investment, Australian firms risk falling further behind their international competitors," ISA warned.
"The Australian Government should continue to commit to and concentrate its support for key growth sectors that have built, or are likely to build, our comparative advantage. This could be achieved by expanding the current sectoral policy approach and considering investment in new and emerging growth sectors."
ISA also recommended for the government and businesses to change their mindset about what is considered "innovation", highlighting that over 180 Australian companies it engaged with did not see business process innovation, marketing and branding, and creating new business models as part of their innovation strategies.
"This limited perspective on the scope of innovation activities and lack of a 'growth through innovation' mindset limited their ability to effectively commercialise, scale, and grow to be globally competitive," the report said.
The fourth and final recommendation ISA put forward was for government to facilitate the access, and attraction, of innovation skills and capabilities that cannot be found in the local market.
The report acknowledged that while the government's Global Talent Scheme has been a "good start", ISA believes it will be necessary for government to be flexible when designing visa schemes in order for it to quickly respond to technology developments.
Stimulating business investment in innovation is the first of two reports that ISA will be delivered to the government, following a request made by Minister for Industry, Science and Technology Karen Andrews in February 2019 for ISA to provide advice on opportunities to increase investment in innovation.
This latest report by the ISA comes just over two years after it released its 2030 strategy report which warned Australia to accelerate its pace of change to catch the leaders of innovation if it wanted to avoid falling further behind.