Saturday 1 July 2006

Driving Economic Growth by Improving Business Investment in R&D


Driving Economic Growth by Improving Business Investment in R&D

The difficulties of research commercialisation

It is said that “marketing a university invention is the process of finding the discrete business problem that fits the discrete university solution while overcoming the barriers of limited market knowledge, limited contacts, early stage of development, costly patent protection, high expectation of inventors, and perceived risk of new business ventures”. No wonder commercialisation outcomes from research are so hard to achieve!

One role of the Australian Institute for Commercialisation (AIC) is to help increase the deal flow from Australia’s publicly-funded research institutions into commercial outcomes. In doing so, it seeks to share leading practices in commercialisation among its stakeholders, and to build scale and better interactivity among industry, the Australian states and territories, and research institutions. The AIC’s core business is to help identify ideas, seize opportunities, and create innovation outcomes.

To us, ‘commercialisation’ is little more than the well understood stage of product or process development followed by business development. In companies, these stages are usually well ‘gated’ to weed out failures early. However, ideas from public research institutions are usually at a very early concept stage and therefore generally lack capital, channels to market, and often, clear market application or customers. In such cases, the gates are usually uncontrolled and irrelevant, their existence and purpose generally not even recognised until too late in the development process. Such ideas must be ‘commercialised’ in order to satisfy a potential market.

Unlike industry-sponsored research, the discovery process in publicly-funded research organisations will frequently not follow a business-driven agenda i.e. to seek a solution to a known problem. To achieve commercial outcomes from publicly-funded research is usually an afterthought, rather than the primary driver. This is the classic problem of ‘technology push’.

Business R&D drives profitability and economic growth

Improving research commercialisation is critical for Australia. Governments, on behalf of the taxpayer, invest over $5 billion in research at institutions across the country. This investment is frequently justified by the human capital and skills that are developed and the capabilities it infers, but direct commercialisation outcomes are also part of the equation. Research and development (R&D) can be of great benefit to industry as well: the 30 top R&D spenders in Australia had a five- year weighted average return on shareholders funds of 17.1 per cent compared with 7.7 per cent for the nation’s Top 1000 enterprises, more than double!
But as a nation, we lag seriously behind in business investment in R&D. Ironically, the task is not made easier by Australia’s economic performance, which has been exceptional in the past decade-and-a-half, surpassing most other developed economies. But this performance has been driven by tremendous macro-economic reform and productivity improvements, and more lately through the commodities boom, rather than through the growth of knowledge-based industries.

To maintain and enhance this performance into the future requires a concerted effort to raise business spending on R&D, and to greatly improve the efficiency with which publicly-funded R&D is converted into commercial and economic outcomes. To achieve the full potential from our investment in research, it is essential that an even greater focus be placed on commercialisation, particularly at the very early stage of research when market input can be accommodated with minimal cost and adjustment.

Of course, business R&D cannot be raised simply by wishing it were so. Taxation incentives have proven to be an important driver, but so too can efforts that enable business easier access to research or development that is ‘business ready’. By helping businesses articulate their development needs, by identifying available know-how that can meet those needs, and by simplifying access to it, the task of businesses undertaking, adopting, and adapting R&D is greatly simplified. The AIC’s TechFast program, by leveraging publicly funded R&D to seed business R&D, has enabled over 25 new business R&D initiatives with universities and Cooperative Research Centres (CRCs) in the past 12 months.

Some in industry have recently argued that international comparisons should not apply to Australia’s laggard performance in business R&D investment because of structural differences in the make-up of business from country to country. The case of Finland and Nokia is frequently cited i.e. Finland leads the world in business investment in R&D because its industry contains technologically based companies like Nokia.

How easy it is to confuse cause and effect! In 1989, Finland was at risk of becoming an economic basket case because it had lost its Soviet markets. Nokia was a mere rubber goods and forestry company. The Finnish Government’s strategic decision that year to begin investing heavily in R&D, and Nokia’s well-timed choice to invest in new product innovation, was to create the most robust of the European economies. Finland would still be in dire straits had it heeded such arguments! The Finnish R&D sector in fact provided a pool of new discoveries that were to become the foundations of successful industry restructuring.

Tackling the problem of low business involvement in R&D

The real question for Australian industry is this: what needs to be done to find and incentivise those leaders from Australian industry prepared to find and engage those in the research sector who can help build competitive advantage through innovation?

If larger Australian established businesses aren’t hungry for investment in R&D, many small companies are. These are enterprises that know their markets and have identified niches, but their challenge is often to find the research, technologies, and new developments from which they can benefit, and then establish effective ways of working with researchers and developers.

We believe that existing government programs do not adequately encourage and facilitate knowledge and technology diffusion from research organisations to existing small to medium enterprises (SMEs). A consequence of this is that university commercialisation offices frequently create their own start-up companies instead. But with limited capital and the need to establish distribution channels from scratch, most will fail. A market gap exists regarding the way in which university research and technology can be used to enhance the competitiveness of existing SMEs. The AIC is helping to fill that gap through its TechFast program.

TechFast represents an evolutionary development needed for the commercialisation of Australian intellectual property (IP). University technology transfer offices have proliferated since the Bayh-Dole Act was passed in the US in the 1980’s. Their technology push approach has diffused extensively around the world, to the extent that the practice is now leading policy. However, since that first impetus and the creation of the first model, there has been no further evolutionary development from the simple technology-push model.

TechFast is unique in three key respects:

  • It is a market-pull approach, turning the problem around. First, technology receptive SMEs are helped to articulate their real business problems; then, a technological solution is sought from across the entire research sector (the process of IP farming).
  • It focuses on existing Australian SMEs as the recipient of know-how. Australian knowledge-based SMEs are key to creating new high tech jobs, exports, and national wealth, since due to their small size and decentralised organisational structures they can radically change strategic direction in response to changes in markets and technologies.
  • It involves an independent third party intermediary in the technology transfer process to kick-start the commercialisation process. Market failure is frequent in commercialisation, because imperfect knowledge on the part of potential exchange partners (universities and firms), the lack of appropriate skills, and the mismatch in size all work against achieving a successful commercialisation outcome.

Working with commercialisation offices and industry partners, TechFast is generating a significant increase in the national technology transfer rate between the research sector and small companies. In addition to its primary benefit of helping the firm to compete in the market, increase its profits, and grow in size through product or process innovation, the AIC is observing a number of secondary benefits, such as increased firm to firm collaboration and the establishment of ongoing research partnerships.

Conclusion

Innovation is the wellspring of economic growth. Australia cannot continue to live on the fruits of its natural endowments. Increasingly in the 21st century, a nation’s prosperity and competitiveness will be derived from its ability to create new products and services, adapting continually to remain ahead of its competitors.

Establishing Australia as a ‘first-tier innovator nation’ requires a systematic upgrade to the national innovation and commercialisation environment. Such an environment is a result of a combination of factors such as well-trained people, an innovation-oriented corporate investment climate and greatly improved collaboration between research organisations and businesses.

Fortunately, Australia’s research capability is often world class. Where it performs less well is in the process of converting its excellent research into social and economic capital, new businesses and new jobs. The AIC is working to help improve the skills required to better commercialise intellectual property, and working with key stakeholders to build industry collaboration with the research sector

Dr Rowan Gilmore, CEO, Australian Institute for Commercialisation


< Back

AIC Commercialisation Masterclass - Brisbane - 28th July 2011

This workshop will assist participants to derive full value from their research and is designed for those with an understanding of commercialisation principles.

more

Testimonials

“An excellent workshop...”

Desley Absolon, Cyons House Inc.