SMEs to drive innovation, not startups: Microsoft

A new research paper by Microsoft has indicated that small and medium-sized enterprises are the drivers that will keep Australian globally competitive, with the potential to inject AU$6 million into the Australian economy.
Written by Aimee Chanthadavong, Contributor

Australia needs to pay particular attention to capitalising on small and medium-sized enterprises (SMEs) in order to stay competitive in the fast-changing international economy, according to a new research paper released by Microsoft.

The Joined-Up Innovation: Making the right connections across Australia's innovation ecosystem to support our future growth and international competitiveness paper, which involves views from Microsoft and a panel of local experts – including Intel director of interaction and experience research Genevieve Bell; Australian Information Industry Association CEO Suzanne Campbell; ATP Innovations CEO Hamish Hawthorn — concluded that there are seven steps that Australia needs to take to improve its capacity to innovate and to improve connections with local and global innovation ecosystems.

"Australia has amazing strengths," said Pip Marlow, Microsoft Australia managing director. "These range from our wealth of natural resources to our location in the fast-growing Asian region, our economic and political stability, cultural diversity and smart population.

"But if we want to maintain — and preferably improve — our competitive position, we need to reinvent our innovation ecosystem for the information age rather than sticking with models developed in the industrial age."

The paper suggests that innovation and productivity are co-dependent, and it features a particular focus on the potential for gains in the small and medium-enterprise (SME) sector.

"SMEs are often overlooked as a source of innovation in this country," Marlow said. "However, they develop more than one third of Australia's gross domestic product and account for more than half of private sector employment. Previous research has shown these businesses are less risk-averse than large companies, giving them a greater willingness and cultural capacity to innovate."

New findings from PricewaterhouseCoopers suggest transforming Australia's SME laggards to leaders in their use of technology specifically, could increase GDP by nearly AU$6 billion — or 0.4 per cent — in 2012-2013, increase real wages by 0.5 per cent and raise revenue in the economy by AU$11 billion.

The paper also indicated that Australia needs to focus on interconnections with the local innovation ecosystem by involving, governments, enterprises, academia, entrepreneurs, investors, and consumers. To do this, Microsoft suggested that existing silos need to be broken in order to create a more collaborative approach to innovation.

"We're only 2 percent of the world's economy, 2 percent of the world's R&D," said Professor Roy Green, dean of the University of Technology, Sydney and a participant of the paper. "We can't be excellent at everything — we have to find our sources of competitive advantage."

Green added that Australia could benefit from government coordinating efforts to identify future areas of competitive advantage and where Australia would like to be in another 20 years — and what capabilities will be required to get there.

According to the roundtable participants, the strongest areas are likely to lie close to sectors where Australia already enjoys global leadership, such as mining, agriculture and bio-medicine.

But in order for the transformation to occur, the paper indicated that culture changes to individual and business attitudes are needed.

As Alan Finkel, president of the Australian Academy of Technological Sciences and Engineering notes in the paper, fear of failure is limiting the flow of talented people between the tertiary education sector and private sector organisations.

"We've cut it off at the knees by having this tendency to think it's a failure if you leave the university and go into industry — and it's a double failure if you go from university to a start-up and the start-up isn't a successful one," he said.

The participants also discussed how Australia's tendency to prize self-reliance could prevent innovators from seeking advice and support. Some roundtable members felt this was particularly pronounced among older Australians.

"I find the younger generation just keeps asking questions about where we got our money, what we do with it and so on, whereas the older ones don't really," said Adam McArthur, ParcelPoint CEO and co-founder, in the paper. "They think they should know it so they don't want to ask."

At the same time, the paper said the country needs to cultivate the right skills in science, technology, engineering, and maths, as well as sales, which are currently being met by schools, TAFEs, and universities.

Encouraging mobility of individuals was the final factor that Microsoft and the panel of experts concluded would help push Australian innovation forward. The paper said while one of the main sources of innovation in Australia is big business there is little incentive for talented individuals to move from a proven area of business and into a riskier environment.

"If we want our major companies to play their potentially important role in driving national innovation, we must consider the rewards on offer and cultures in place within those larger businesses," the paper said.

Editorial standards