Australia’s quest for national prosperity and high standards of living and wellbeing revolves around whether Australia can be a maker or taker of industrial policy.
That is, a choice for government between being hands-on and activist in selectively supporting local industries, or being minimalist, getting the factor conditions right (e.g. trade liberalisation, capital flows, microeconomic reform) and getting out of the way.
The latter approach has been favored in recent decades, with Australia being a taker, i.e. doing what it is good at and buying in the rest.
There are signs now, however, that the tide is turning.
The pandemic has demonstrated that it is important to be a country that makes things. Not just being agile and capable in rescuing the nation from a crisis, but in investing in the skills, capability and infrastructure for the industrial transformation that underpins resilience.
Political and community expectations are shifting towards government leadership, making and shaping industrial policy by more decisive and direct spending and intervention to safeguard local jobs and create new economic opportunities.
But this approach—‘picking winners’—is often said to run the risk of distorting markets, becoming a form of hidden protectionism and tempting self-serving industries to game the system.
How to mitigate this risk? The literature and practice of innovation management has lessons to make it more likely that activist industrial policy can avoid the traps and succeed in lifting the nation’s enduring economic performance and social wellbeing.
What is innovation management?
Innovation management has been defined as “the strategies and practices that can be used to improve organisational (and community) benefits from innovation” (Dodgson et al, 2013).
Innovation management covers a wide research field, drawing from an array of perspectives including science, economics, engineering and psychology. Similarly, innovation covers a broad sphere from the traditional topics of R&D, intellectual property, technology and creativity to the emerging initiatives in design, social networks, open and social innovation, and innovation in business models.
Innovation management studies seek to explain how value from innovation is created, captured and deployed. From a wealth of research and experience, Bessant (2022) summarises understanding of the dynamics of innovation as making change happen and creating value from new ideas.
Innovation management highlights the experiences and performance of business enterprises. But this is now being extended to innovation practices in non-profits, public policy, public sector service delivery and solving large complex societal challenges.
In short, innovation management is the study of how innovation works to make a positive impact on organisations and the community at large.
Innovation management and industrial policy
Innovation management is relevant to industrial policy as it is the means by which manufacturing enterprises, sectors and the industry as a whole redress decline; develop more productive and valued business offerings; open up new market opportunities and revenue sources; and become more technologically adept.
The Commonwealth Government has established a $15 billion National Reconstruction Fund providing investment in priority Australian manufacturing projects through loans, equity and guarantees. It has also announced a feeder initiative, the $392 million Industry Growth Program providing grants and professional advice for young start-ups and SMEs, as a pipeline for investment-ready projects for the National Reconstruction Fund.
These are significant initiatives aimed at a more potent industrial policy for Australia. Lessons and insights from innovation management can usefully help in their design and implementation.
Lessons from innovation management
Learning, not ‘light bulbs’
The imperative is not more advanced technologies or discoveries, but to ensure a critical mass of adept, agile enterprises, competing globally and able to solve problems that matter to customers or communities.
Success through new-to-the-world technologies and discoveries is rare. More likely, the capabilities that lead to success come from learning by doing; learning by absorbing and using existing knowledge and advanced technologies; and learning by regularly interacting with others, including customers and competitors.
Most importantly, performance and productivity gains are realised when these innovation capabilities are brought together in a business model change, a recipe for giving customers superior value and earning a premium from doing so.
Knowledge flows, better than knowledge stocks
Innovation in industry development is not a solitary pursuit. Much mission-critical knowledge is held by others. Collaboration becomes a vital skill.
Collaboration covers the ability to share information and to learn, to be outward and forward-looking, and to solve problems by cross-fertilisation of knowledge and expertise. It involves managing relationships, building trust and shared interests, negotiating diverse opinions and outlooks, and brokering industry clusters, innovation eco-systems and communities of practice.
Encouraging flows of knowledge is more important for capability-building than increasing stocks of knowledge held by individuals and organisations.
Don’t forget the everyday economy
It is important that the benefits of innovation and activist industrial policy extend beyond high tech specialists and knowledge workers to ordinary people in the everyday economy.
Innovation should not be a rarefied concept, either ignored or feared by the public at large, because it is irrelevant or else, brings job losses and service closures.
Innovation must be managed to benefit the wider population, including those who are most likely to become the casualties of economic transformations.
A good starting point is with essential work and workers of the everyday economy, those providing the goods and services that sustain our daily lives. They include nurses, teachers, aged care and child care workers, those in retail, transport and the like.
The everyday economy impacts on innovation because everyone, irrespective of income, is involved and a significant element of the everyday economy is learning, caring and social support work. This work reinforces the social ties and human interactions crucial for social cohesion, resilience and a sense of belonging and community identity.
Strengthening the performance of the everyday economy is an innovation strategy—because it unlocks the untapped potential of communities. This has been referred to as ‘the economics of belonging’.
To conclude, the key message for kick-starting a robust and transformative industrial policy through the Industry Growth Program and the National Reconstruction Fund is to prioritise the human, user-centred dimensions of innovation, as opposed to just increasing the supply of technology, science and research.
Successful innovation hinges on execution and impact, not just leading-edge technologies or creative ideas.
This means a prime focus on demand and capability at the level of the business enterprise, its management and workforce. Equally important is engagement in a healthy innovation eco-system of other business enterprises, regulators, researchers, customers, suppliers, policymakers and the like for shared learning, cross-fertilisation of knowledge and skills and collaboration.
REFERENCES
Dodgson, M., Gann, D.M., Phillips, N. (2013), Oxford Handbook of Innovation Management, Oxford University Press
Dodgson, M. (2018), Innovation Management. A Research Overview, Routledge
Bessant, J. (2022), Managing innovation: creating value from ideas, various publications and resources. See https://www.johnbessant.org
Nieminen, J. (2018), Innovation Management—The Ultimate Guide, viima, June 25th 2018
Reeves, R., Tomaney, J., Williams, K. (2019), The Everyday Economy: why it matters and how to rebuild it, London School of Economics and Political Science, April 7th 2019. See https://blogs.lse.ac.uk
Sandbu, M. (2020), The Economics of Belonging, Princeton University Press
Atkinson, R.D. and Green, R. (2023), Can Australia catch up in the race for advanced industries? InnovationAus.com, April 13th 2023
Based on a paper authored by Narelle Kennedy AM in response to a call for Capability Papers from InnovationAus.com.
The Kennedy Company 