QTPA Member Alert |Innovation Declines in 2012-13, Hampered by Lack of Funds and Skills

Innovation Declines in 2012-13, Hampered by Lack of Funds and Skills

(AIG Economic Weekly 22 August 2014)

Business innovation is a key component of current business investment (‘capital deepening’) and a key driver of future productivity improvement (moving out from the ‘technology frontier’), but it can be difficult to quantify and compare. The best guide to innovation measurement is currently the ‘Oslo manual’ on innovation concepts, developed by the OECD and followed in Australia by the ABS. This helps to ensure ABS data are comparable to OECD equivalent datasets.

The latest ABS data on this topic was released this week, for 2012-13. These data indicate that just over a third of all Australian businesses (37%) introduced some sort of innovation in 2012-13, across areas such as goods and services production, operational processes, organisational processes and marketing methods. This was a lower proportion than a year earlier (41.3% in 2011-12) but a similar proportion to earlier years. There appears to be a slight positive trend towards a growing proportion of businesses undertaking innovation over the past decade, although the annual data are highly variable and, in some years, incomplete.

Across all Australian businesses in 2012-13:

• Large businesses were more likely to innovate (67% of businesses with 200+ employees and 58% of businesses employing 20-199 people) than smaller ones (29% of businesses with less than 5 employees).

• Businesses in the wholesale trade, retail trade, and IT & telecoms industries were the most active innovators (close to 50% of businesses in these industries reported an innovation) with transport the least innovative (24%). Changes to organisational or managerial processes were the most common type of innovation (20.2% of businesses) followed by changes to goods or services (20%), marketing methods (19%) and operational processes (17%).

• Not all innovations required expenditure. Indeed, 39% of innovators said there was no expenditure associated with their innovation in 2012-13. Another 34% said they acquired new machinery or equipment and 28% spent something on training. 27% spent money on marketing activities to introduce new goods or services.

• Collaborative innovation activities were relatively rare in 2012-13, with just 14% of all businesses undertaking any form of collaborative arrangement (38% of businesses employing 200+ people). 6% of businesses undertook some type of joint marketing while 5% undertook the joint production of goods or services and 4.6% undertook joint R&D activity. For the innovation collaborators, their partners included clients and customers (44% of collaborators), suppliers (42%), consultants (28%) and other businesses in the same company group (22%). Of the 14% of businesses that undertook collaborative innovation, just under 10% partnered with a university and 5% partnered with a government research agency.

• 6% of all businesses abandoned (that is, ceased without completing) an innovation activity during 2012-13. Manufacturers were more likely than businesses in other sectors to have abandoned an innovation (almost 10%).

• The most common reason for undertaking innovation in 2012-13 was ‘profit related reasons’ (72% of innovators). Other frequent reasons (as well as profit) were ‘to increase responsiveness to customers’ (51% of innovators); ‘increase market share’ (43%); ‘establish new markets’ (35%); ‘improve product quality’ (38%); improve efficiency of supply (34%) and ‘improve safety and working conditions’ (22%).

• Ideas for innovation came from a wide range of sources including: from within the company or group of companies (59% of innovators); from company clients or customers (40%); competitors (30%); research sources such as journals and publications (30%); suppliers (26%); professional conferences (23%); consultants (19%); or industry associations (17%).

• 90% of businesses that introduced an innovation reported a benefit from doing so in 2012-13 (although this included 29% who said it was too early to identify the exact nature and size of the benefit). 43% improved their customer service, 40% improved their revenue and 28% ‘gained a competitive edge’. 19% reduced their costs.

• Barriers to undertaking or increasing innovation in 2012-13 included lack of funds (20% of all businesses), lack of skilled personnel (17% of all businesses), uncertain demand of new goods and services (15%), government regulations and compliance (13%) and adherence to standards (4.5%).