Australia has a new impetus to innovate led by Prime Minister Malcolm Turnbull who said:

‘The Australia of the future has to be a nation that is agile, that is innovative, that is creative…. We have to recognise that the disruption that we see driven by technology, the volatility in change is our friend if we are agile and smart enough to take advantage of it.’

This resets Australia’s innovation agenda with a new-found optimism and sense of opportunity. It has galvanised many ideas to address Australia’s economic and social challenges—new ways of doing business, strengthening skills and education, investing and collaborating in leading-edge technology and research. All with the end goal of making Australia’s economy stronger and more resilient and the Australian people better off.

The proposals to make this innovation a reality—from business, the labour movement, financiers, universities and researchers, among others—seem to focus on entrepreneurial start-ups, access to capital, commercialisation of research and technology, partnerships between universities and businesses, and better education in science, technology, engineering and maths.

All good, but something’s missing—a focus on encouraging the vast majority of typical Australian businesses and their workforces to innovate.

Unlike Silicon Valley and other global knowledge hubs, Australian business is not characterised by large numbers of technology producers, high-growth start-ups, or multinational corporations with substantial R&D labs and budgets. To the contrary, Australia is over-represented with small and medium sized enterprises (SMEs), most providing established business offerings predominantly to local not international markets, and whose size brings scale, information and resource constraints.

Typically these Australian businesses are competent and steady performers, not high-growth ‘gazelles’. Their size and stability tends to lock them into ‘tried and true’ business practices, and this limits their appetite and ability to innovate. This picture is reinforced in evidence provided to the recent Senate Inquiry into Australia’s innovation system, which lists among the impediments to innovation the lack of an innovation or risk culture and the lower level of innovative activity in small and medium sized firms compared to larger businesses.

This reality must be the starting point for re-setting Australia’s innovation policy. Rather than giving entrepreneurs, technologists and scientists alone the starring role, mainstream Australian business enterprises must be the centrepiece of innovation action.

So, how do we motivate and enable a critical mass of Australian SMEs to become successful and sustained innovators?

The answer lies in the evidence that innovation can take many forms, not restricted to high tech business offerings or ‘new to the world’ discoveries. The same Senate Inquiry refers to innovation broadly as “ideas successfully applied”. Such innovation goes beyond new products and technologies to innovation in customer experiences and problem solving, workforce management and skills, organisation of supply chains, as well as innovation in the overall recipe for business success by re-designing better ways of doing business and of anticipating and serving customer needs.

The key feature of innovation that drives productivity and prosperity is the transformation of business practices and capabilities that create superior value for customers by doing something new, and earning a premium from doing so.

Australia’s innovation policy must shift its perspective from just increasing the supply of technology and research to actions that boost the demand that makes it attractive for SMEs to gain the knowledge and capacity to innovate, despite the cultural and structural obstacles.

To have maximum effect on the innovation performance of typical Australian businesses, priority should go to actions that:

  • Provide opportunities for enterprises to experiment safely with the different types of innovation best suited to their business. In particular, this means helping them make ‘small bets’ on real-time trials and to pivot away quickly from failures to the next new ideas and offerings.
  • Expose enterprises to diverse and deep sources of subject matter knowledge relevant to their industry, including advances in technology, market intelligence, changing customer behaviours and expectations, potential disruptions and foresighting. Open up the possibilities for collaboration for knowledge sharing and problem-solving with other organisations and clusters.
  • Strengthen the ‘absorptive capacity’ of enterprises, i.e. the ability to identify, assimilate and capitalise on new information, to learn, and to respond in an agile manner to emerging opportunities and threats. Importantly, this includes assisting enterprises to invest in growing the distinctive competitive skills and capabilities of their people.


Senate Economics References Committee, (2015), Australia’s Innovation System. Interim Report, August 2015, Commonwealth of Australia.

Tim Mazzarol, Startup nation: the rhetoric and the reality, The Conversation, September 29th 2015.

Don Scott-Kemmis, If we want to promote innovation we need to focus on businesses, The Conversation, October 20th 2015.