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Australian SMBs lack external focus in pursuit of innovation

IBM Australia and the Melbourne Institute launch the "Innovation Index of Australian Industry" second edition

Sydney, Australia - 31 Jul 2008: IBM Australia and the Melbourne Institute of Applied Economic and Social Research, University of Melbourne, today announced the launch of the IBM-Melbourne Institute 'Innovation Index of Australian Industry’ second edition. The Study revealed that smaller firms have a declining focus on external sources of innovation. One in four small and medium sized businesses are not using the marketplace as a source of new ideas.

 While the current shortage of skilled labour has struck companies across the board, this year’s Innovation Index clearly shows the small-to-medium business (SMB) sector believes it has been hit harder.

 “Two of the most intriguing findings of the Innovation Index is that innovation is increasingly developed in-house rather than through external means, and that smaller businesses are collaborating less in generating new ideas,” said Charles Bligh, Vice President, Commercial Sector, IBM Australia and New Zealand. “Building collaborative relationships with key external partners and key providers enables smaller organisations to punch above their weight –working with specialist partners, allows organisations to focus on core business, and creating new value for customers.”

 The ‘Innovation Index of Australian Industry’ was conceived by IBM Australia and prepared by researchers at the Melbourne Institute to fill a gap in current innovation research. It is the first study to reflect the complex nature of innovation via an inter-industry, multi-indicator analysis approach.

 Working in Australia our business landscape mainly consists of small to medium businesses who have the unique challenge of competing with both large organisations, and the global business community. Perhaps because of this challenge, Australian organisations of all sizes constantly demonstrate innovation in their products, services and business models.

 “Fast-growing SMBs often use product or service innovation to gain a competitive foothold nationally or to break into a global market. It enables them to create a point of difference, or to appear fresh and new. However this form of market innovation only takes an organisation so far,” Mr Bligh said.

 Although innovation is widely accepted as a key driver of economic growth and productivity, there has not been a published study to date in Australia that measures the many different aspects in which local industry innovates in their provision of products and services. The IBM-Melbourne Institute ‘Innovation Index of Australian Industry’ is the first study to address the many contributors to industry innovation with the analysis of six key data groups, comprising of: research & development intensity; patent intensity; trade mark intensity; design intensity; organisational/ managerial transformation; and productivity.

 The ‘Innovation Index of Australian Industry’ is unique in that it captures innovation trends across thirteen categories of Australian industry – as defined by ANZSIC - over a period of 16 years since 1990. The Innovation Index tracks the evolving innovation performance of the Australian economy to provide business leaders, analysts and policy makers with a rigorous and insightful new measure to assess industry and national economic performance.

 Dr Paul Jensen, Senior Research Fellow, Melbourne Institute of Applied Economic and Social Research, comments; “A culture that fosters market-relevant innovation is critical to Australia’s continuing economic prosperity. The IBM – Melbourne Institute Innovation Index provides a unique, multifaceted indicator of innovation in Australia that captures, in a simple way, product and process improvements, organisational and managerial changes and marketing innovation. Using advanced statistical techniques, the IBM – Melbourne Institute Innovation Index offers a comprehensive measure of innovation that traces innovation performance over time. It thus provides a unique insight into an important driver of economic growth”.

 Key Observations:

The IBM-Melbourne Institute ‘Innovation Index of Australian Industry” defines innovation as the introduction of new and improved ways of enhancing business productivity. The Innovation Index records this activity in relation to goods & services; technical operations; and organisational, managerial and marketing functions, encompassing activity that is both ‘new to the world’ and ‘new to the organisation’.

 Some of the key findings to be drawn from the Innovation Index are:

§       The annual increase in the rate of innovative activity in Australia in 2006 was only 0.7 percent, a figure which is much lower than the average rate of increase in the period since 1990 (2.0 percent per annum).

§       Most of the growth in the Index was due to an increase in trademarking intensity, and to a lesser extent, the growth of R&D activity. The intensity of patenting and design activity fell between 2005 and 2006.

§       Organisational and managerial innovation continues to trend downwards – in 2006, the annual rate of innovative activity fell by 2.0 percent.

§       Across the 13 industries considered, 9 experienced falls in the rate of innovative activity in 2006. The largest falls were recorded in Health and community services; Utilities; and Construction.

§       Only 4 industries experienced an increase in the annual rate of innovative activity in 2006. The largest recorded increases occurred in the Communication services, Mining, and Finance and insurance industries.

§       A lack of skilled labour is increasingly seen as a major barrier to innovation, across firms of all size. One in three medium sized businesses reported a lack of skilled staff.

§       Across firms of all size, revenue and cost reduction were seen as less important drivers of innovation in 2005 compared to 2003.

§       Smaller firms have a declining focus on external sources of innovation. One in four small and medium sized businesses are not using the marketplace as a source of new ideas.

 The aim of IBM and the Melbourne Institute of Applied Economic and Social Research is to publish the ‘Innovation Index of Australian Industry’ in order to allow innovation and economy watchers to reflect on changes over time and to compare industries.

 IBM – Melbourne Institute Innovation Index

For more information about the IBM - Melbourne Institute Innovation Index of Australian Industry, and to download a full analysis of the results, visit

http://www-03.ibm.com/press/au/en/presskits.wss

 Melbourne Institute of Applied Economic and Social Research

The Melbourne Institute of Applied Economic and Social Research is a department of the Faculty of Economics and Commerce at the University of Melbourne. The Institute was formed in 1962 under the leadership of Professor Ronald Henderson and was the first economics research institute in an Australian university. Its objective is to be nationally and internationally renowned in academia, government, business and community groups as a major institute of applied economic and social research. For more information, visit http://www.melbourneinstitute.com/.

 IBM Australia

For more information on IBM Australia, visit www.ibm.com/au

Contact(s) information

Matt Mollett
IBM Communications Australia and New Zealand
0413 420 394
mollett@au1.ibm.com

Leah Sneddon
IBM Communications Australia and New Zealand
0427 061 206
sneddon@au1.ibm.com

Related resources

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After falling by 2.6 percent in the year to 2005, there was a modest rise in the Australian Innovation Index of 0.7 percent in 2006.

Innovation Index by Industry – five yearly intervals

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