On the horns of a dilemma
Over the last two decades, Australia has welcomed uninterrupted economic growth which has resulted in improved living standards, better health outcomes, higher incomes and a growing investment in the environment, education and community.
The Organisation for Economic Co-operation and Development (OECD) have defined Innovation as the implementation of a new or significantly improved product (good or service), process, new marketing method or a new organisation method in business practices, workplaces organisation or external relations (OECD, 2005 )
In order to sustain this level of wealth creation and growth, ensure equal distribution of it in the future and continue to deliver ongoing benefits we will require a new approach in the coming decades. There will need to be more deliberate and purposeful approach by business and government.
Globally, economic and demographic changes have also shaped our world to be very different today than it was two decades ago. Most notably and relevantly the marked increase in the pace of innovation and technological change. This digital innovation has made almost everything tradeable – goods, services, skills and labour – such that competition is now global and all businesses must measure their competitiveness against the world’s best or risk being undercut and left behind.
New business models are being enabled by technology that evolve rapidly and challenge incumbents (think Uber and Airbnb), the Innovators Dilemma (Clay Christensen) is ever more relevant and present and businesses need to be ahead of the disruptive influences or find themselves undermined. In this globally competitive landscape we need to be vigilant against these forces – disruptive and tradeable technologies are typically simpler, more reliable and convenient than the more established technologies.
At the same time we are not standing still, Australia is changing, the emergence of an ever increasing ageing population that want to continue working and the changing patterns of work itself are impacting the issues we need to manage. Age related expenditure is increasing and growth in national income is slowing and will not continue to sustain Australia. The older population may also be more risk averse and less open to innovations.
We are also located in Asia – the area of the globe experiencing the fastest growth. It is clear that the Asian economies will take the lead and drive much of the global growth for decades to come. Their rapid urbanisation, continued investment and movement up the value chain will challenge many traditional supply chains and services delivery models.
With all of these force factors at play, Australia must be competitive in this global marketplace and we must find our sustainable place in global supply chains. In a world where over 70% of global trade is in intermediate goods and services, you must ensure you have a robust and sustainable position in this market – investing in and strategically managing your intellectual property and commercial partnerships will be critical.
Investment for the future
Much of our recent growth can be attributed to favourable terms of trade especially the increases in the prices for resources and the surge in capital investment. However, this rising tide has concealed some worrying trends. So as the tide of the mining boom goes out we are starting from a low base, and according to McKinsey & Co, our global competitiveness in key industry segments is not up to the mark. In order to be competitive we need investment to lift our innovation and agility.
By putting in place deliberate strategies to improve Australia’s competitiveness and our sustainable advantages built on world leading Intellectual property assets we can lift our performance to world standard.
Australia has globally competitive sectors such as mining, LNG, tourism and food manufacturing. With deliberate focus and activity, these areas are in a good position to scale and win.
McKinsey report highlights that Australia is not as trade driven as its peers, the 15 largest economies are typically the largest exporters, however Australia is one of top 15 economies which is not trade driven. Australia is ranked as the 12th largest economy but ranks only 21st for share of global exports.
The role of innovation entrepreneurship
Innovative entrepreneurship is an agent for change, it creates opportunities for the entrepreneur and many others.
Australian firms that undertake R&D are significantly more likely to exhibit higher growth and sales and productivity than similar sized businesses that do not invest in R&D. Australian Gross expenditure of R&D as a percentage of GDP sits at 2.12% a ranking of 14th, although increasing it is not increasing at the same rate as other OECD economies where R&D activity is intensifying.
OECD estimates that as much as 50% of economic growth in its member countries can be accounted for by innovation activity. (OECD 2015), however according to the Global Innovation Index 2015 Australia is less efficient than similarly developed countries.
Australia has some of the highest rates of entrepreneurship and start up activity among developed economies in the world. We have some of the best conditions for innovation entrepreneurship such as skills, education and economic freedom.
However our culture of innovation is poor, one explanation is insufficient outward orientation (see our trade orientation above) the second is lack of access to finance Australia needs to attract increased levels of capital especially in the early stages in the innovation cycle. Greatest barrier to innovation for young SMEs aged to 4 years remains lack of accept to additional funds.
As innovators and those that support innovation we must find and adopt the best practice from around the globe to help us become more agile and innovative, to compete will need to be more efficient and effective in recognising and evaluating the potential impacts of our innovations. This problem is being addressed by the use of big data prescriptive analytics. Using the power of digital transformation to access new and emerging trends in industries we choose to compete in.
These tools provide strategic decision making tools to evaluate and inform innovation options. These tools are in use in many of the most progressive firms across the globe, if we are not embracing these options we risk slipping further behind and missing the opportunities that are emerging or worse being undermined by global competitors who enter our markets.