There is a largely unheralded link between successful business performance and where an enterprise is physically located.

Successful businesses are good not only at the basics of competitively and efficiently meeting customer needs, but responding well to fast-paced change and disruptions in their business environment. The ability to do this depends on the right mix of people and skills, access to markets, customers and infrastructure, and flows of knowledge and capital.

These, in turn, are the ingredients for innovation – turning new ideas and ways of working into commercial successes – which is fundamental to the productivity and resilience of both businesses and communities.

A new Australian index from the Bankwest Curtin Economics Centre measures innovation performance at a local level and helps us understand what makes some locations more innovative than others.

In short, the index shows that proximity matters. The internet and social media are powerful communications tools, but local contact is key to forging the close connections, shared ideas, collaboration and trust which underpin business growth and prosperity.

The index authors comment:

The most innovative regions are usually in the largest cities and are typically near other innovative regions and relevant infrastructure that supports innovation, such as business districts, universities and research institutes….

Cities are the mechanism which facilitates the creation and dissemination of knowledge leading to better innovation performance. Universities increase the innovation performance of surrounding areas through direct research and innovation outputs and by improving the human capital of workers. Similarly, city centres and surrounding areas attract highly-skilled graduates.

The message is that cities as natural agglomerations, providing scale and diversity, are natural locations of innovation. This gels with the importance placed on cities policy, where Angus Taylor, the Australian Assistant Minister to the Prime Minister for Cities, has said:

‘Cities policy is the biggest transformative lever you can pull to improve people’s lives and economic productivity.’

But, it is not just a matter of bigger is better. Cities suffer from problems of transport and housing stress, congestion, pollution and mismatch between the location of jobs and residents. The answer is often expressed as designing smart cities, where technology and intelligence from big data is integrated and used for policy actions aimed at making cities more workable, liveable and sustainable.

Professor Marcus Foth of the Queensland University of Technology delves deeper into what makes a smart city.

Foth advises that big data algorithms intentionally filter data for similarity, which is good if you are planning transport journeys by fastest speed or shortest distance. It is not so useful if other more intangible factors are influencing your choice, like preference for slow backroads or the most scenic route.

Professor Foth argues for the diversity advantage of cities, offering possibilities, opportunities and choice. He quotes Ethan Zuckerman who thinks of cities as ‘serendipity engines’:

By putting a diverse set of people and things together in a confined place, we increase the chances that we’re going to stumble onto the unexpected.

The key is capturing the benefits of serendipity. Citizens and businesses alike are exposed to new ideas and contrary viewpoints, have space for reflection and discussion and the opportunity to form new opinions and courses of action.

The secret of smart cities is, in Foth’s words, ‘getting lost and getting to know strangers’. If this is true, it can drive both business success and quality of community life.


Alan Duncan, Rebecca Cassells and Steven Bond-Smith, Location, location, location: what’s holding back an Australian ideas boom? The Conversation, March 23rd 2016.

Peter Hartcher, City slicker PM hitches ride on urban express, Sydney Morning Herald, March 12-13 th 2016.

Marcus Foth, Why we should design smart cities for getting lost, The Conversation, April 8th 2016.