High level ‘innovation’ thinking receives scant attention

By Peter Kerr 04/08/2011

At last, some slightly solid thinking about the innovation part of our economy.

Sir Peter Gluckman’s under-reported speech on the ‘Globalisation of science: New Zealand’s R&D direction’ is the first tentative indication of some higher level views on how we turn ideas into income.

The PMs chief science advisor gives some pretty sobering statistics and examples along the way – shorthand to say, ‘this innovation caper ain’t easy’.

Speaking at a recent NZ Agricultural and Horticultural Outlook Summit, Gluckman says it is essential we transform away from commodity-based trading, though he didn’t mention that the current boom commodity environment makes this more difficult to achieve than ever.

NZ has lagged behind other small advanced nations which have transformed their economies via government-led basic and strategic research and development because “we have failed to invest sufficiently in strategic and holistic scientific research in a manner sufficient to create a fully-functional innovative ecosystem,” he says.

“A key understanding of those countries which have thrived, Ireland excepted [earlier he pointed out Ireland’s success was due to tax breaks to attract multinationals], is that their systems only work if there is sufficient idea flow for entrepreneurs and businesses to develop and that in turn can only come through investment in basic science. There is no other way,” he says.

Then he gave some numbers.

In Israel it is accepted that only 1 in 100 ideas leaving a university or institute will make it to the first round of commercialisation, and of those, if well managed and governed, 50% will succeed. Israel’s about our size, and reviews more than 10,000 ideas a year, half from the university sector. NZ’s nowhere near that.

Meanwhile, there’s a global recognition that in an increasingly weightless economy, it is ideas that generate money. The product can be produced anywhere [cue China], but in the end it is the source of the ideas that generates the return.

“We need to understand that idea generation is where it starts,” Gluckman says. “There are a then a series of steps that transform that into real dollars – at the end it is about scale and marketing.”

NZ needs to think hard and innovatively about scale, with one of our problems about marketing with this in mind is it takes a very different skill set to that that comes from traditional corporate training.

“We have the tradition of thinking that we must own the whole value chain from New Zealand, then try to sell it to the world,” says Gluckman. “In a country with a low capital base and a small number of technologically savvy managers, to try and do it on our own can only have a high failure rate. Too often we end up with clever ideas, undercapitalized, slow to be developed and likely to fail in the market. But there are solutions – we must be innovative and grab them.”

He says Israel is the most successful small economy in the knowledge based sector, whose first rule is to make sure they have enough ideas flow so that the good ideas can be identified and filtered, and effort is not wasted.

“They insist on international expertise on their boards, on proper scientific advisory boards, and high-quality skilled management with experience in knowledge based industries,” he says. For them the ownership of the idea is often more important than the site of manufacture.”

NZ could develop strategic partnerships at every level in the value chain says Gluckman. This would be both pre-commercial and commercial, generally with small advanced economies, where there is an equity of interest.

“We need partners who can do what we cannot do, be it access to markets, going to scale and/or expertise,” he says. “We are better to own a fraction of something large than stay small.”

From sticK’s point of view, this is the first real time that the PM’s science advisor has given some indicative thinking about how we might better turn ideas into income. First, start with lots of ideas – and we’re nowhere near Israel in the production of those.

Hopefully it is an indication of more to come – though the deafening silence of media about Gluckman’s innovation thinking isn’t encouraging.

See a copy of the speech here.

0 Responses to “High level ‘innovation’ thinking receives scant attention”

  • Israel’s innovation surge was derived from their consistent allocations of resources from their defense research requirements. That built a huge expertise derived from national requirements for self-sufficiency, which soon become global leaders in several military fields, starting the high-tech export industries.

    The commercial innovation drive is derived from their very successful model of creating Venture Capital sources, the government-funded Yozma programme.

    That programme, which also encouraged overseas investment funds to invest ( as risk was shared with govt ), resulted in VC investments equivalent of 2.7% of GDP. Those funds keep reinvesting in new start-ups, which start in formal incubators, and have access to the over 4% of GDP that goes into R&D.

    New Zealand has been trying to emulate the Israeli model for years, but without the critical mass of VC and incubators to provide resources and environment, NZ is not competitive.

    Overseas funds are becoming more interested in our software and agricultural research, but we don’t have the unified base of national priorities that rapidly built exportable innovation for Israel.

    If we decide to start a war with our neighbours to help build our industries, I recommend we forget Australia and target a very small Pacific nation.

  • Excellent points Bruce.

    Israeli access to east coast Jewish American venture capital didn’t go amiss either, nor the routes to market that such relationships provide

  • Peter

    The odds listed here tell us why we should think twice before investing in just generating more ideas. Fine if the ideas are by-products of another activity e.g. developing human capital and scholarship, but not a very sensible investment if we want economic outcomes.

    We should stop and think about increasing innovation in the economy in other ways. And of course there are.

    If we want to get economic outcomes we should stop just doing what researchers are interested in and then looking around for someone to do something with it (particularly if that involves a high risk start-up).

    Instead start with what businesses are interested in investing in, and find the researchers that can do it.

    Of course the researchers will bring significant input to what gets done, but much better to make every technology a loved technology instead of playing the odds on someone wanting it once the money has been spent.

  • Simon,

    My experience has been that NZ industry management prefer research projects that provide returns within their bonus period, and often don’t have strategic research near the top of their “to do” lists, unless it’s to cure obvious distress.

    MoRST/FoRST have tried various methods to partner industry, with little apparent effect on the R&D % of GDP.

    It’s the smaller, undercapitalised, firms grappling with product and market niche issues that would best benefit from government assistance, but often they have to use whatever skilled resources they have to focus on fixing immediate problems. ” When you’re up to your arse in alligators, it’s difficult to remember the objective was to drain the swamp.”

    One of the benefits of Venture Capital from funds familiar with technology, is that they want the swamp drained so they can sell and move funds to new ventures, or obtain good returns, and thus will help ensure suitable resources are acquired and effectively used.

    Also for those interested in the Israel Innovation system, I found my copy of an excellent 2008 free paper called ” The Israeli Innovation System ” by Daphne Gertz and Vered Segal. It’s still downloadable from The Samual Neaman Institute.