First study to measure innovation across Australian industry

The first ever study of its kind to measure Australian innovation since 1990 was announced today by IBM Australia and the Institute of Applied Economic and Social Research at the University of Melbourne.

Dubbed the Innovation Index of Australian Industry, the inaugural study uses rigorous analysis of key economic data to provide a measurable rating of Australia's innovation activity by industry for the past 15 years.

It 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.

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; organizational/ managerial transformation; and productivity.

It captures innovation trends across 13 categories of Australian industry as defined by ANZSIC1 - to provide business leaders, analysts and policy makers with a rigorous and insightful new measure to assess industry and national economic performance.

ANZSIC is the Australian and New Zealand Standard Industrial Classification. It is the official classification system used for A/NZ industry for data collection purposes, and is aligned with the international system of industry classification.

The Innovation Index excludes non-market sector industries such as government and defence, education, not-for-profit health services, as well as agriculture, forestry and fishing.

IBM Australia CEO, Glen Boreham, said there is no doubt that Australia's industry leaders are embracing innovation to drive growth.

However, according to the results of the innovation index there is the potential for much more to be done.

"Our hope with this index is that by empowering local industry leaders with the necessary information we can, together, have a more informed debate and build Australia's global economic future on a path of successful and competitive innovation," he said.

Melbourne Institute director, Professor John Freebairn, said the use of innovation in the development of new and better products and services is critical for Australia's sustained economic prosperity.

"This index employs modern statistical techniques to provide a valuable and unique picture of the evolving innovation performance of the Australian economy. The index provides useful new insights on the important missing ingredient that drives economic growth," he said.

The index defines innovation as the introduction of new and improved ways of enhancing business productivity encompassing activity that is both new to the world and new to the organization.

During the 15 year study period (1990 to 2005), allowing for changes in growth of the economy, the index shows that Australia has increased innovation activity by 25.8 per cent, with particularly strong growth since 1996.

The overall increase in the rate of innovative activity since 1990 is 1.6 per cent per annum.

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Given the importance of innovation for economic prosperity and growth, this result suggests Australian industry has used innovation as part of its increased focus on growing and competing in a global marketplace.

However, figures for the most recent study period (2005 relative to 2004) point to a small downturn in the rate of innovation in Australia by -2.6 per cent. During this period only two components of the index - R&D intensity and trade mark intensity - reported increases in the rate of activity.

Of particular interest during this period is a fall in organisational, managerial and marketing innovation which suggests some companies are overlooking the need to reorganise themselves in order to meet the demands of globalisation and its emerging market shifts.

Despite the fall in 2005, most Australian industries experienced innovation growth in the period from 2000 to 2004.

Industry sectors that invested strongly in R&D and ICT had the highest innovation and productivity index ratings.

After reaching its peak in 2002, the rate of patenting activity in Australian industry has experienced a downward trend to 2005. At the same time, however, the level of R&D intensity has been steadily increasing and has been the strongest growth of the index from 1990 to 2005.

This is consistent with the government's introduction of the R&D tax concession program to support industry in achieving innovation outcomes, according to the index.

From an industry perspective, the stand out performer over the entire 15 year period was the wholesale trade industry (7.4 per cent per annum). With a 2005 innovation index score of 218.7 (1990=100), the wholesale trade industry score in 2005 was 30.8 points higher than the index score of the next highest industry.

However, this score also masks the fact that the index for wholesale trade actually fell in 2005 by -12.6 per cent compared to the 2004 score of 250.3.

The other significant industry performers over the 15 year period were manufacturing (3.8 per cent per annum) and finance and insurance industries (5.5 per cent per annum), with innovation Index rankings in 2005 of 161.2 and 187.9 respectively.

Despite high growth and record revenues, the mining industry has experienced a fall in the rate of innovative activity since 2001, after an increase of approximately 80 per cent from 1990 to 2001.

Its performance in 2005 with an index score of 138.8 suggests it is now only just above the average industry in terms of innovative activity, the study said.

"Much of this seems to be attributable to a dramatic decrease in patenting activity in the industry," it added.

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For the first time in 2005, the health and community services industry sector outperformed all others with a 23.8 per cent incremental increase on its 2004 score, and demonstrating an increased focus not just in R&D and trademarks, but also in organisational, managerial and marketing initiatives. Coupled with this, there has been an increased focus on the use of technology as an enabler of service delivery and efficiency gains.

This well balanced innovation portfolio looks set to deliver greater client value in the years ahead, the index noted.

The Committee for Economic Development of Australia (CEDA) CEO, David Byers, said innovation will be at the core of 21st-century economic development.

Byers said it drives the competitiveness of firms and organisations in the global economy, and the quality of both private and public services.

"This index shines the spotlight on Australia's national ability to innovate. It shows us new ways to measure innovation and thus to start nurturing and expanding our innovative capacity," he said.

The launch of the index has been scheduled to coincide with the 2007 .Australian Innovation Festival from April 26 to May 27, 2007.

The festival highlights the best of Australian innovation with hundreds of events ranging from seminars, exhibitions and networking functions to competitions and workshops, in every state and territory.

It aims to promote the importance of sustaining a culture of innovation in Australia.

Festival chair, Peter Westfield, said the index is a timely and significant contribution to better understanding innovation as the key driver for economic activity.