It's not all about government, business managers can foster innovation too

Innovation is often associated with new products created by businesses in high-tech manufacturing and internet services. Indeed, Australian businesses in these sectors have developed highly innovative products, such as the cochlear implant and precision medical instruments.

But these industries are only a small part of the economy. High-tech manufacturing contributes less than 1% of Australia’s total output. The entire manufacturing sector accounted for only 6.8% of 2015 output.

Improving Australia’s standing as an innovative country will clearly require a greater focus on innovation by business managers in all industries – services, agriculture, mining and resources – and in many medium- and low-tech manufacturing sectors, such as food processing.

Beyond the glitter of new

Innovation is a much wider concept than new products; the OECD defines it as including new or significantly improved services, marketing or organisational methods. These types of innovations are essential for increased productivity and competitiveness in many industries.

Service, marketing and organisational innovations require few, if any, of the traditional inputs important in high-tech manufacturing, such as formal research and development departments or a reliance on patents.

Consider Bellamy’s Organic, a Tasmanian company founded in 2003. Its major innovation consists of a hospital-based marketing network for selling baby formula in China. Since floating on the Australian Stock Exchange in 2014, Bellamy’s market capitalisation has increased nearly ten-fold to just under A$1 billion.

Some pointers for what business managers need to do to improve Australia’s innovation performance can be found in comparisons with other countries. We know, for instance, that high wages are rarely a barrier to innovation or competitiveness because high-wage countries, such as Denmark and the Netherlands, have built up highly innovative and export-focused agricultural sectors.

Despite high wages, countries such as Denmark and the Netherlands have built up highly innovative and export-focused agricultural sectors.Nom & Malc/Flickr, CC BY

Back to basics

But the lessons we need to learn in this country may be more basic than that. According to recent research, Australia has a poor business innovation culture. That results in low levels of investment in important innovation activities, such as design and marketing, as well as insufficient collaboration.

This latter includes both collaboration on technology between publicly funded research organisations, such as universities and the CSIRO, and collaboration on other aspects of innovation with networks of suppliers and customers.

To build an innovative business culture, managers have to establish systems that search for market opportunities. And they need to search continuously for new technologies and organisational methods that can help exploit these opportunities or improve how they serve their markets. Internet-based technologies are excellent for this because they provide opportunities for improving links with customers, who are a valuable source of good ideas.

Importantly, for the majority of Australian businesses and for most problems requiring innovative solutions, new technologies, services and processes don’t need to be developed in-house. In fact, it is often a waste of resources to do so.

Adopting existing advanced technology or best-practice processes and organisational methods is often the best strategy – and one that can help minimise risk. But, technologies and methods usually need to be adapted and integrated into the business’s own systems. And this requires informal “as needed” research and development, or collaboration with external experts – on technology, design or marketing.

The right collaborations

The dominance of many Australian industries by small and medium-sized firms means few businesses have the financial resources to fund in-depth research anyway. The answer lies in collaborating with public research institutes, such as universities, or with competitors or suppliers.

The Australian aquaculture sector, for example, funds basic research for controlling diseases, but aquaculture businesses compete on methods for improving productivity and quality. This model, also common in the agricultural sector, may have applications in other sectors, such as services.

Innovative businesses also encourage their staff, at all job levels, to suggest ideas – and they take those ideas seriously. Many managers of small and medium-sized Australian businesses try to brainstorm ideas with their staff, but they’re often too busy to implement an effective system for encouraging and evaluating ideas. Making an internal innovation support system a priority is a small but effective step in the right direction.

The next steps require managers to continually improve their business’s innovative capabilities. For some businesses, this will result in breakthrough innovations. But for many businesses commercial success can be built on continual improvement and adaptation.

This should be good news for managers who may have avoided developing an innovation strategy because they thought innovating was too difficult for their business. It isn’t.

This article is part of our series Why innovation matters. Look out for more articles on the topic in the coming days.

Anthony Arundel receives funding from the Australian Research Council, the Commonwealth Department of Industry, Innovation and Science, DG Enterprise of the European Commission, and Eurostat.

Kieran O'Brien receives funding from the Commonwealth Department of Industry, Innovation and Science.