Investment in local technology innovation key to Australia’s future

Australian firms too often relied on subsidies rather than developing R&D capabilities, says TechnologyOne, whose success story illustrates the potential of the ICT sector to drive economic growth.

With sufficient support from government policy setting, technology innovation can play an important role in Australia’s economic growth

Reforming government procurement processes and incentivising local innovation can unlock the full potential of Australia’s Information and Communications Technology (ICT) sector to become a more significant player in driving economic growth.

Australia’s ICT sector is already a critical engine in the local economy, contributing nearly 10 per cent of GDP and generating more than 830,000 high-skilled jobs.

It is also one of the most research and development-intensive industries, attracting substantial foreign investment.

But a landmark federal government discussion paper released in February highlighted a stark decline in Australian research and development over the past 15 years.

Local investment in R&D is now only 1.66 per cent of GDP, well below the OECD average of 2.7 per cent.

This decline stands in stark contrast to the performance of peer nations, highlighting a systemic issue within the country’s innovation ecosystem. The report found that the main cause of the local decline was falling business and government R&D expenditure.

Insight Economics director Melanie Kelly said the ICT sector’s ability to contribute further to economic growth was being undermined by a failure to fully integrate ICT procurement into broader innovation and industrial policy.

“Our ability to transform innovation into economic growth and improved standards of living has been weak,” Kelly said, pointing to the World Intellectual Property Organisation’s Global Innovation Index, where Australia ranks 30th for knowledge and innovation outputs.

“R&D is low relative to our international peers and now it is on the decline. We have had this hollowing out of Australian industry, with the decline of medium and large companies.

“We have so much assistance targeting SMEs but we are not thinking strategically of how we build that industry capability,” she said.

She argues a more strategic approach to strengthening Australia’s industry capabilities is necessary, particularly by focusing on developing medium-sized businesses, crucial for fostering innovation clusters.

TechnologyOne chief technology officer Chandan Potukuchi

The federal government’s Future Made in Australia agenda is mostly geared to trying to ignite innovation activity among Australia’s large ­businesses and foreign-owned multinationals.

TechnologyOne’s chief technology officer, Chandan Potukuchi, a former senior executive at SAP, said Australian firms too often relied on government subsidies rather than developing the necessary R&D capabilities internally.

“The private sector in Australia has got too used to the perks from the government,” Mr Potukuchi said, stressing that businesses needed to shift their mindset if they were to thrive through continuous R&D.

“If you want to have an R&D centre here for continuous value creation, you need a different mindset. It can’t be driven by just profit and margin. The capital costs are high and the payback periods are long and uncertain. That is hard for business. So a strong will and determination is required on this from the senior leadership teams in companies.”

He said it was essential companies engaged with their technology suppliers early in the R&D process, ensuring that innovation efforts were directly informed by real-time market needs.

This customer-centric approach, he said, would help the ICT sector offer Australian businesses more ­effective, fit-for-purpose solutions.

TechnologyOne’s success story illustrates the potential of the ICT sector to drive economic growth when the right frameworks are in place.

The company’s SaaS platform has revolutionised the software implementation process, delivering faster, more efficient solutions that benefit its customers, and reducing the risks associated with technology implementation.

“For the past two years, any new capability that is important for one of our customers requires them to join us on the development journey. Our team building a piece of software must do it in partnership with a customer. So it is a fit for purpose outcome,” Mr Potukuchi said.

The chief executive of Co-operative Research Australia, Jane O’Dwyer, said governments also needed to be more “demanding customers” in ICT procurement to push for higher-quality, innovative solutions from local suppliers.

This would help unlock the potential of Australian innovation and encourage SMEs to scale up to ­medium-sized businesses, addressing the “missing middle” in Australian industry.

“In every one of the national policy innovation forums we have held over recent months, the issue of procurement has come up front and centre,” she said.

“Governments need to be more demanding of those that they are procuring solutions from, to unlock Australian innovation.”

This also requires a shift in the way government contracts are structured, ensuring that local firms are incentivised to innovate rather than relying on multinational corporations that often lack the same long-term commitment to the local economy.

Ms Kelly agreed that procurement practices too often failed to take into account the indirect and long-term impacts of ICT investments, particularly in fostering ­innovation.

Unlike more mature sectors of the economy, such as health or ­infrastructure, ICT procurement in Australia too often lacks the rigorous cost-benefit analysis and focus on value creation that could guide better ICT investments.

Ms Kelly emphasised the need to develop the tools and structures that supported procurement officers in making more informed, forward-thinking decisions.

But she was confident governments were beginning to understand the strategic importance of ICT and innovation in driving economic growth.

“The government, to its credit, is trying to address this. There is a recognition that it needs to change and they are on the journey. But they are still grappling with how do they make that happen,” she said.

Ms O’Dwyer said government programs intended to bridge experimental R&D with industry and also needed greater flexibility to offer businesses greater incentives to invest.

The Co-operative Research Centres program – an innovation policy platform that has had bipartisan support at the federal level for 35 years – helped drive the landmark commercialisation of medical device innovations such as those produced by the Melbourne-based trailblazer Cochlear.

“Cochlear could not come into fruition in our current environment. It initially received public interest grants that moved research towards commercialisation. Then the CRCs were what really drove its commercialisation and it went through three of them. Now those grants are gone and you can only have one CRC,” Ms O’Dwyer said.

Without a strategic focus on fostering medium-sized companies and encouraging innovation through procurement, Australia risks losing its competitive edge in the global economy.

“We need to be asking ‘Is innovation and growing new industries and highly skilled jobs an economic priority?’,” she said. “If so, what are the policy settings needed and the principles that guide that?”

---

This content was produced in partnership with TechnologyOne. Read our policy on commercial content here.

---