How can Australia boost innovation?

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Focus on these three areas to shape innovation

Earlier this week BridgePoint Group attended the AFR Innovation Summit in Sydney. The highly anticipated summit focused on what policy settings Australia should have in place in order to achieve our ambitions and goals as a nation.

As it stands, Australia is lacking in certain respects. Currently, our R&D investment is less than 2% of GDP. Compare this with the likes of Germany, that has R&D investment of 4% of GDP.

Still not convinced? Then put it this way: In 2018, Amazon spent more on R&D than all of the companies in Australia combined.

It’s not all doom and gloom. Australia is uniquely positioned with a highly skilled workforce. With the right policy settings in place, the Lucky Country can once again prosper during Industry 4.0.

With guest speakers from the global innovation community we uncovered the 3 things that will shape innovation in Australia.

1. Government has an important role to play

It’s ironic that in a room full of entrepreneurs whose companies have thrived under capitalism that the focus of the conversation kept shifting to Government. Again and again, the who’s who of the innovation community (Cochlear, Facebook, Catapult Sports) pressed upon the important role Government has to play in creating an environment that provides Australia with competitive advantage to compete on a global scale to ensure R&D is conducted onshore.

This includes Government providing:

a. Better avenues for the private sector to collaborate with universities;

b. Stable and consistent policy that provides certainty for long term investment; and

c. Continued incentives to conduct R&D onshore.

The message at the summit was loud and clear. Government needs to step up and help fill the void where the private sector cannot. The innovation lifecycle requires companies to look decades into the future. It’s tough planning for this when the election lifecycle is every three years.

The Government’s stance and commitment to innovation in Australia will play a major role in the years to come.

2. Incentives grease the wheels of innovation

I believe it was Dig Howitt, CEO of Cochlear, that said it best – incentives grease the wheels of innovation.

Initiatives that incentivise innovation in Australia are grouped into two distinct buckets – direct and indirect incentives.

Direct incentives are designed to have an immediate impact and influence returns to investment directly. Think of Government grants/co-investments for projects that are yet to commence with dollar for dollar funding between Government and a company.

Indirect incentives are generally sector agnostic and provide an incentive after the project or financial year has come to an end. The main indirect incentive in Australia is the Government’s R&D Tax Incentive program.

The largest incentive currently available in Australia is the R&D Tax Incentive. In FY18 it accounted for $2.8bn of Government expenditure. For FY20, Government want this lowered to $2.3bn. Government aims to achieve this reduction in expenditure by having the program’s regulators (AusIndustry and the ATO) be more assertive when auditing the self-assessed claims. This planned reduction in expenditure sends a message to the innovation industry.

Many of the guests who spoke on this topic during the summit agreed that there needs to be a balance between direct and indirect incentives in Australia. There’s no silver bullet or one size that fits all approach.

There needs to be a range of consistently administered incentives that the private sector can turn to help alleviate some of the burden of conducting R&D onshore.

The flow on effects by way of trickle-down economics and the development of a highly-skilled workforce far outweighs any short term monetary outlay in the budget.

3. Scale edges to drive transformation

Duleesha Kulasooriya, Managing Director of Deloitte’s Centre for the Edge in Silicon Valley provided one of the most engaging sessions of the summit. His real-world examples highlighted the need for companies to “scale the edge” in order to drive innovation.

This concept of “scaling the edge” is predicated upon the understanding that rapid advancements in technology, the Big Shift, is changing the economy and creating new opportunities for innovative companies.

“Scaling the edge” is based upon a company focusing on edges rather than the core of a company, having change agents that can better identify, and in turn capitalise on, Big Shift forces. It involves leveraging external resources and low-cost technologies to move quickly through the change initiatives.

“Scaling the edge” focuses on accelerating learning as opposed to short term outcomes, whereby edges will eventually pull the organisation toward it and become the champions of transformation that help today’s companies innovate and tap into tomorrow’s opportunities.

Australian companies need to adopt a mindset whereby we are always scaling the edge. Keeping abreast of Big Shift forces that can substantially alter the industry. Ensuring that we are pioneers in our fields, instead of chasing the wave that has already passed.

The key takeaway from the AFR Innovation Summit was that Australia, although somewhat hindered based on its geographic location, population size, and lack of investment in R&D as compared to other OECD nations, is still punching above its weight.

Think about it – Australians have developed Wi-Fi, polymer bank notes, the black box flight recorder, cochlear ear implants, and many other innovations.

If, as a nation, we can focus on the future and align our policies to maximise our innovation spend then we’ll be more than just the Lucky Country – we’ll be a key player in the global innovation space for generations to come.

If your business is innovating and needs assistance with planning your innovation budget, navigating the R&D Tax Incentive or ESIC guidelines, contact Alan at BridgePoint Group on 1300 656 141.

 

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