Defining Innovation

The Australia of the future has to be a nation that is agile, that is innovative, that is creative. We can’t be defensive; we can’t future-proof ourselves.
— MALCOLM TURNBULL (September 2015)

Australia's much needed 'innovation agenda' was announced by the Federal Government late last year to much fanfare.  In an economic sense, it reflects an understanding that Australia needs to build sustainable comparative advantages beyond the traditional industries and activities that have sustained continuous economic growth for over two decades. In a broader sense however, I believe that it reflects a need for Australian enterprises, agencies and communities to embrace positive change for our long-term good. 

An obvious starting point is to consider what exactly we mean by  'innovation'. It's a term that we all intuitively believe we understand, but that in reality is a complex concept with a number of elements.

The ABS defines innovation as “the development or introduction of new or significantly improved goods, services, processes or methods."

In contrast, the federal Department of Industry, Innovation and Science defines it as “changing or creating dynamic products or improving existing services."

Finally, the Business Council of Australia  defines it as the “application of knowledge and technology to create additional value."

Whilst each of these definitions have a slightly different focus, they all broadly infer three common elements:

  • Involves a conscious process of creation/development;
  • This process brings about significant change; and
  • The resulting change delivers value of one form or another.

That innovation is a conscious process infers that, for it to occur, an individual or group must set out to intentionally bring about change.  It therefore is not the result of accident or luck alone (value creation can occur through luck but this is providence).  As an example, it is not innovation if an organisational restructure aimed at cost savings coincidentally accidentally results in unforeseen staff networks developing to solve problems due to forced scarcity.

Innovation infers change. This seems obvious but its nuance can be missed.  Delivering value through business as usual processes and systems is not innovation. For example, if a shift in markets results in growth occurring through established business systems and processes, this is not innovation. It is simply an outcome of a change in market conditions.

Finally, innovation is defined by outcome. Change itself is not enough for innovation to occur - the change must also deliver 'value'. Most innovation literature defines this value creation from the point of view of individual firms i.e. change that results in improved firm productivity and profitability. In developing public policy around innovation however, types of 'value creation' considered are necessarily wider, reflecting overall community needs and aspirations. This may mean that changes sought result in a whole range of value-creating outcomes beyond the self-interest of individual firms. This may result in competing interests. For example, a firm innovating through the introduction of a fishing 'supertrawler' to more efficiently capture a large percentage of a fishery's wild fish stocks (resulting in a larger potential profit for shareholders) may necessitate innovation in fisheries management to ensure that the public good (available fish stocks) is not impacted by this private initiative.

Announcements to date seem to have focused upon encouraging innovations that create value for firms (in particular within the technology and start-up spheres). Whilst this has loosely been linked to the government's laudable goals of economic competitiveness and diversity into the next century, I still look forward to a clear investment criteria reflecting an understanding of all three elements of innovation being developed prior to significant monies being spent.  

Big Hairy Prediction – Due to the lack of embedded understanding of the three elements of innovation, the initial policy will, within twelve months result in at least one scandal whereby an enterprise will receive significant investment to support activities that they would normally have undertaken anyway in day-to-day business.