Australian Academy of Technological Sciences and Engineering

Level 1, 1 Bowen Crescent, Melbourne Vic 3004

GPO Box 4055, Melbourne, Vic 3001, Australia

T+61 3 9864 0900 F+61 3 9864 0930 W www.atse.org.au

Australian Academy of Technological Sciences and Engineering Limited – Incorporated ACT ACN 008 520 394 ABN 58 008 520 394

Submission to the

Senate Economics References Committee inquiry into Australia's Innovation System

by

The Australian Academy of Technological Sciences and Engineering

(ATSE)

to

Senate Economics References Committee Parliament of Australia

July 2014

Contact details: Australian Academy of Technological Sciences and Engineering 03 9864 0900 policyresearch@atse.org.au www.atse.org.au

List of attachments:

1. ATSE Position Statement: Advancing Industry Competitiveness in Australia

2. ATSE Position Paper: Translating research into economic benefits for Australia: Rethinking linkages

3. ATSE Action Statement: Translating Research into Economics Benefits for Australia

4. ATSE submission to the Commonwealth Government’s Entrepreneurs’ Infrastructure Programme discussion paper

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President

Dr Alan Finkel AO FTSE

Senate Standing Committees on Economics

PO Box 6100

Parliament House

Canberra ACT 2600

31 July 2014

Dear Senators

ATSE Submission: Senate Inquiry into Australia’s Innovation System

The Australian Academy of Technological Sciences and Engineering (ATSE) welcomes the

opportunity to provide input to the Senate Economics References Committee’s inquiry into

Australia’s innovation system.

ATSE advocates for a future in which technological sciences, engineering and innovation

contribute significantly to Australia’s social, economic and environmental wellbeing. The

Academy is empowered in its mission by some 800 Fellows drawn from industry, academia,

research institutes and government, who represent the brightest and the best in

technological sciences and engineering in Australia. The Academy provides robust,

independent and trusted evidence-based advice on technological issues of national

importance. ATSE fosters national and international collaboration and encourages

technology transfer for economic, social and environmental benefit.

Industry innovation is a key concern for ATSE. Realising the benefits of Australia’s world-

class research system requires the translation of its outputs through industry into economic

and societal benefits. Further, the productivity and competitiveness of Australian industry

depends on embracing research, technological innovation, and local and international

collaboration.

Australia’s innovation system has both significant strengths and weaknesses. We have a

world class research base and excel at knowledge generation, but the competitive

advantage we are able to leverage from this through industry is relatively slim.

ATSE has recently prepared an Industry and Innovation Position Statement which addresses

these issues, and identifies the need for a national industry innovation strategy. ATSE is

calling for action in a range of areas to foster a culture of innovation in Australian industry

and closer connections between businesses and research organisations to strengthen

productivity and reap the benefits of our investment in science and technology.

Translating research to business

Australia ranks poorly on all measures of translating research into economic outcomes,

which negatively affects the profitability of our businesses. In order to realise the full

dividend of Australia’s investment in science and research, the translation of research

outputs to business – through commercialisation, access to researchers and

infrastructure, licencing agreements, and other mechanisms – requires significant

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improvement. Many systematic and cultural barriers exist, as well as market failures that

can be profitably addressed by government action.

Closer links between business and publicly funded researchers, such as greater mobility

of people between sectors, and more collaborative arrangements, are obstructed by

systemic cultural issues and regulatory structures.

Inefficiencies and gaps in financing pipelines for the commercialisation of research are a

major factor in Australia’s poor performance in this area. Issues such as lack of scale

and inconsistent government support regimes are discouraging the required investment

at all stages of commercialisation.

Previous ATSE work in this area includes the 2013 Position Paper Translating research

into economic benefits for Australia: Rethinking linkages and the 2014 Action Statement

Translating Research into Economics Benefits for Australia, both of which are attached

for the Committee’s information. These both identified the importance of fostering closer

linkages and collaboration between research organisations and business and helping

businesses to better access research.

Incentives to innovate

Australian industry must be prepared to embrace innovation and research. Australia’s

innovation incentive system lags behind the rest of the world, making us less

competitive.

Government support and incentives for innovation in Australia have, while often

comprising excellent programs, had diminished impact caused by their inconsistency,

constant changes, small scale, and lack of effective evaluation. Even long-running,

proven successful programs such as the Cooperative Research Centres have been

subject to decreasing levels of support and uncertainty for applicants and participants. A

stable platform of well-funded, mature, large scale support programs are required to give

investors, industry, and researchers the certainty required to embrace the benefits of

innovation. Ongoing instability has become a disincentive for business to be innovative,

and deterred overseas investment in Australia.

Australian businesses generally operate in a risk averse culture. Innovation entails risk,

and the lack of stability in innovation support programs increases the perceived risks –

an outcome entirely opposite to what is required.

Local and international collaboration

An important mechanism to decrease the risk associated with innovation is effective local

and international collaboration. Australian businesses rank among the lowest in the

OECD at collaboration – both inter-business and business-research organisation

collaboration, locally and internationally.

The termination of the successful International Science Linkages program in June 2011

and a subsequent narrow focus on only India and China has damaged international

collaboration between Australian companies and researchers in general. Investment is

required in building international linkages and relationships, to create openness and

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good will for business and researchers to collaborate internationally. This is an area

where relatively modest investment can create large dividends – especially given the

importance of building relationships with countries in our region such as Korea, Japan

and China, especially those with which we have free trade agreements.

Technology adoption

The adoption of advanced technology by Australian businesses is key to building

industry competitiveness. This comes from innovation increasing productivity and

reducing costs, realising commercial opportunities from research investment, and

creating new areas of competitive advantage. Businesses, particularly SMEs, should be

encouraged to adopt new technologies in order to efficiently capture local and

international technical innovations.

Please find attached the ATSE Industry and Innovation Position Statement Advancing

Industry Competitiveness in Australia for the Committee’s information.

ATSE also recently made a submission to the Commonwealth Government’s Entrepreneurs’

Infrastructure Programme which may be of interest to the Committee, a copy of which is

attached.

Securing Australia’s Future: The role of science, research and technology in lifting

Australian productivity

Significant work has recently been undertaken for the Chief Scientist’s Securing Australia’s

Future program, through the Australian Council of Learned Academies, culminating in the

report The role of science, research and technology in lifting Australian productivity,

available at www.acola.org.au/index.php/projects/securing-australia-s-future/project-4. This

report deals with a number of the inquiry’s terms of reference, including: the importance of

local and international collaboration; the role of an innovative workforce in improving

productivity; the importance of advanced manufacturing and support for innovation; and the

links between innovation, collaboration, management skills, and productivity in Australian

businesses.

The report contains three major findings1:

Building Australia’s future industries will depend on adopting technological innovation to

develop high-value products and services for a global market.

Improving collaboration in Australia, between businesses and between business and

publicly funded research, will significantly enhance innovation. International collaboration

is also critically important. Both domestic and international collaboration improves the

productivity and competitiveness of Australian technology-based firms.

An innovative workforce that combines technical and non-technical disciplines, and

enables good business management, is essential to underpin the competitive advantage

of Australian industries and realise opportunities to lift productivity.

1 Bell, J, Frater, B, Butterfield, L, Cunningham, S, Dodgson, M, Fox, K, Spurling, T and Webster, E

(2014). The role of science, research and technology in lifting Australian productivity. Report for the Australian Council of learned Academies, www.acola.org.au.

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In a first-in-Australia investigation, an econometric analysis of 8,000 Australian firms

undertaken for this report found that innovating firms that also collaborated had a

productivity level that was 31 per cent higher, and firms that sourced innovative ideas from

research organisations had a productivity level that was 34 per cent higher.

ATSE strongly recommends this report to the Committee.

ATSE would also be pleased to recommend members of our Industry and Innovation Forum

to provide the Committee with further information through any public hearings processes.

Australia’s innovation system has been a great strength and comparative advantage in the

past, and requires ongoing reform and support to ensure it delivers its full potential social

and economic benefits to all Australians.

For further information, please contact Andrew Hastings, ATSE Research and Policy Officer,

at andrew.hastings@atse.org.au or 03 9864 0909.

Yours sincerely

Alan Finkel

This Industry and Innovation Position Statement supports the ATSE 2013-2017 Strategy Plan which sets out the priorities and approaches the Academy will take to promote

the application of technological sciences and engineering into innovation for the benefit of Australia.

ATSE BELIEVES THAT AUSTRALIA’S PRODUCTIVITY AND COMPETITIVENESS RELIES ON AN INNOVATIVE INDUSTRY SECTOR THAT EMBRACES RESEARCH, TECHNOLOGICAL INNOVATION, AND LOCAL AND INTERNATIONAL COLLABORATION.

Australian industry competitiveness depends significantly on the ability to translate investment in science, research and development (R&D) into economic benefits, and to lift productivity through the uptake of new technology and technical innovations, including efficient capture of new innovations from overseas.

THE VISIONATSE’s vision is a productive and competitive Australia with an industry sector that actively embraces research, technological innovation and local and international collaboration.

PRIORITY FOCUS AREASAustralia can do more to realise the full potential innovation dividend from its investment in science and technology R&D, particularly for Australian industry. Australia has strong competitive advantages in its skills, research base, political and legal institutions and high standards of living. Technological innovation can enable the opportunities from these strengths to be harnessed.

National Industry Innovation Strategy

An overarching National Industry Innovation Strategy will provide a long term blueprint for industry innovation, scientific research, technology development and science, technology, engineering and maths education, supported by effective linkages and incentives. The Strategy will cover policy and practices that:

THE CHALLENGE: BOOSTING INDUSTRY COMPETITIVENESS Productivity is a key driver of prosperity, economic growth and living standards. Innovation linked with collaboration and good management has been shown to directly enhance business productivity1.

However, productivity growth in Australia has been flat or declining for a number of years, threatening our global competitiveness.

Contributing to this decline is the fact that, while Australia has a world-class research base, our performance in translating publicly funded research outputs into economic benefits is poor. This is compounded by having only some 40 per cent of Australian firms engaged in innovation – a number that has been stagnant for several years. This reflects, in part, that there is no innovation without risk, and Australian businesses generally operate in a risk-averse environment. Further, Australia consistently ranks poorly on collaboration, whether business to business or researcher to business.

Lifting our industrial and business productivity through research, innovation and collaboration must be a key priority for Australia’s competitiveness.

To achieve this, Australia needs to rethink the way public money is applied to research and a renewed focus on high-technology high-value industries that drive productivity via technological innovation to produce high quality products and services. Diversification of Australia’s industry mix is also essential to ensure that our export base is less dependent on the resources sector.

AUSTRALIAN ACADEMY OF TECHNOLOGICAL SCIENCES AND ENGINEERING (ATSE)

ADVANCING INDUSTRY COMPETITIVENESS

IN AUSTRALIA POSITION STATEMENT JULY 2014

INDUSTRY AND INNOVATION

1 Bell, J, Frater, B, Butterfield, L, Cunningham, S, Dodgson, M, Fox, K, Spurling, T and Webster, E (2014). The role of science, research and technology in lifting Australian productivity. Report for the Australian Council of Learned Academies, www.acola.org.au

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¢ Build linkages between publicly funded research organisations and industry, particularly small to medium sized enterprises (SMEs). Improving collaboration between business and research organisations is important to foster the translation of science and research into economic benefits for Australia. A range of measures is required for cultural change, including support of technology intermediaries, removing barriers and creating incentives to encourage mobility of people between research organisations and businesses, and establishing or expanding demand-driven programs that enable business to access publicly funded R&D expertise and infrastructure.

¢ Support local and international business collaboration. International collaborations are vital to access the 97% of global research undertaken outside Australia and producing the most valuable research outputs, while collaboration in general plays a significant role in lowering the risk associated with innovation. Australian firms, especially SMEs, should be facilitated to build international linkages and participate strategically in global value chains.

¢ Enhance commercialisation opportunities. Start-up and spin-off companies provide an effective vehicle for commercialising research outputs. Commercialisation of research and new technology can be facilitated by the provision of incentives, and support for skills development and transfer, including business management, for start-ups and established SMEs.

¢ Develop seamless financing pipelines to support technology commercialisation. Poor access to capital markets makes entrepreneurial businesses dependent on constant fund-raising to stay afloat, precluding, in some cases, refinement and marketing of their innovations. Addressing inefficiencies in financing pipelines through enhancing venture capital markets, developing competitive grants to support technologies through evaluation phases, and changing the tax treatment of some employee share options in line with international practice would lead to more successful technology commercialisation.

¢ Enable businesses to adopt advanced technology. Technology development and uptake is a fundamental driver of innovation for business. It can drive transformative change for industry, creating new high-tech niche sectors. Harnessing technological advances can enable businesses to innovate, increase productivity, and take advantage of global opportunities, while reinforcing the competitiveness of Australia’s existing industry base and nurturing new high-tech high-value add industries.

THE WAY FORWARDATSE has identified the following four key action areas that must be addressed if Australia is to maximise the contribution of technology to innovation and productivity in industry:

1. Translating research to businessTaking full advantage of Australia’s world-class research and realising the full innovation dividend for the economy requires significant improvements in the translation of research to business. Many systematic and cultural barriers exist, as well as market failures that can be profitably addressed by government action.

2. Incentives to innovateIncentivising and facilitating businesses, particularly SMEs, to efficiently adopt new technologies can further lift innovation, productivity growth and competitiveness.

3. Local and international collaboration: research-business and business-business

Improving collaboration in Australia, between businesses and between business and publicly funded research organisations, will significantly enhance innovation. International collaboration is also critically important. Both domestic and international collaboration improves the productivity and competitiveness of Australian technology-based firms.

4. Technology adoptionTechnological innovation is key to building industry competitiveness, through increasing productivity and reducing costs, realising commercial opportunities from research investment, and creating new areas of competitive advantage.

Australian Academy of Technological Sciences and Engineering (ATSE)

Enhancing Australia’s prosperity through technological innovation

ATSE Office Mail addressLevel 1 / 1 Bowen Crescent GPO Box 4055Melbourne VIC 3004 Melbourne VIC 3001

Phone Fax+613/(03) 9864 0900 +613/(03) 9864 0930

Email Websitesinfo@atse.org.au www.atse.org.au www.stelr.org.au www.crawfordfund.org

Australian Academy of Technological Sciences and Engineering LimitedACN 008 520 934 ABN 58 008 520 394Incorporated in the Australian Capital Territory Limited by Guarantee

POSITION PAPEROcTObER 2013

TranslaTing research inTo economic benefiTs for

ausTralia:Rethinking linkages

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Translating research into economic benefits for Australia: Rethinking LinkagesExEcuTIvE SummARy

improving productivity and facilitating economic growth are key priorities for australia. technological innovation based

on research plays a key role in addressing these priorities. Collaboration between publicly funded research organisations

and industry is crucial to improving the translation of research into productive outcomes that increase the nation’s

output. however, there remain fundamental systemic barriers to increasing this collaboration in australia.

technology-based small and medium enterprises play a vital role in the australian economy. however, there are major

gaps in the funding mechanisms available to support high-growth potential sMes to engage in collaboration. new

approaches suited to sMes, such as voucher programs, are needed. targeted procurement schemes can be used to

support sMes. technology intermediary organisations have an important role to play in facilitating linkages.

this paper describes how these mechanisms can be used to improve productivity through the creation of successful

collaborations1. this paper draws on discussions at a recent atse-aCOla workshop.

1 This paper draws on discussions at an aTse-acola workshop Translating research into productivity: rethinking linkages, held on 9 august 2013, brisbane; it does not necessarily reflect the views of all participants. for workshop details see page 8.

2 includes government laboratories, such as csiro and ansTo, universities and medical research institutes.

1. cOllAbORATION IS AN ImPORTANT mEchANISm TO TRANSlATE RESEARch INTO PROducTIvITy

1.1. Productivity in Australia can be enhanced through increased connectivity

collaboration between business and publicly funded

research organisations (Pfros)2 is crucial to improving the

translation of research into productivity. however, experience

has shown that effective collaboration between business

and Pfros can benefit from independent facilitation to build

trust and to establish momentum between parties.

sMes play a vital role in the australian economy

small to medium enterprises (smes) play a major role in the

australian economy. They account for more than a third of

gross domestic product (gDP) and almost half of private

sector industry employment in australia. many smes need

to develop or licence technology and helping smes do this

enables them to contribute to economic growth.

1.2. Reasons for collaboration a relationship with a Pfro can benefit a company in many

ways, for example by creating talent pipelines and developing

technology or capability roadmaps. collaboration with a Pfro

can provide business with affordable and rapid access to Pfro

skills, people, equipment, facilities and ideas and so contribute

to improved productivity. Pfros often have strong brands

and international networks that can be leveraged. Pfros can

provide a ‘problem solving’ service to business which can be a

useful way of initiating collaborations. in support of this, some

leading oecD countries have increased funding for university

research to support business.

collaboration with industry can benefit Pfro researchers by

developing innovative ‘receptors’ and improving researcher

understanding of how to pitch their capabilities. in many

leading oecD countries, excellence in research goes hand-

in-hand with impact and collaboration with business. The uK

imperial college is a good example of a university that conducts

excellent research and is strongly engaged with industry. in

the uK there are various incentives for researchers to engage

with industry. some australian universities have recognised

the benefits of building stronger linkages with industry. for

example, the university of Queensland collaboration and

industry engagement fund (cief) is an internal grant scheme

to support the development of competitive grant proposals

that provides seed funding to encourage new industry-linked

research and supports cross-disciplinary activities.

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1.3. barriers to collaboration remainWhile the relationship between collaboration and improved

research translation from Pfros is becoming increasingly

well known, fundamental systemic barriers to collaboration

between industry and Pfros remain. These include financial

barriers, cultural barriers, information ‘asymmetry’ (lack of

knowledge of who is doing what research, where), differing

timescales for conducting research (even applied research

operates over much longer timescales than business) and

a lack of absorptive capacity (research will flounder unless

it is taken up by the right, knowledgeable organisational

receptors). These barriers are discussed in more detail below.

FinanCial: shortages of capital, particularly for high-

technology smes, is a significant barrier to investing in research

collaboration. The lack of capital for investment in start-ups

and high growth smes in australia has been particularly critical

since the start of the global financial crisis. many smes have cash

reserves to last only a few months. This can lead to an overriding

short-term focus. existing government support programs

designed to facilitate collaboration and industry-Pfro linkages

present significant barriers to many smes: high application

costs and long delays in funding decisions can preclude many

smes from participating because they simply do not have the

resources or the ability to wait for lengthy grant cycles.

CultuRal: There are significant cultural differences between

industry, particularly smes, and academia which results in a

‘mismatch’ of needs, goals and priorities. This poses a range of

challenges for collaborative projects, from defining success to

the timeliness of project delivery. Pfro researchers operate

on very different timescales to the businesses sector. likewise

people in industry often lack the understanding of how

research providers operate and how to find the right group

able to handle their particular requirement. one approach

to addressing this could be to facilitate relationship-building.

aligning graduate research programs with the needs of industry

could help universities to develop productive exchanges.

DisinCentives: Disincentives for university researchers to

engage with business remain a fundamental problem in

australia. academics are under various performance pressures

and metrics which can make them reluctant to engage with

industry if the activity is considered likely to detract from formal

performance requirements. This problem has recently been

exacerbated by the introduction of the excellence in research

australia (era) with its emphasis on publications in highly

ranked journals. australian universities should be encouraged

by government to diversify their performance and promotion

criteria and reward strategic collaboration with industry.

encouraging early career researchers to engage with

businesses can be particularly challenging but can have

valuable outcomes. for example, ‘speed meeting’ sessions

designed to introduce young scientists to entrepreneurs can

struggle to fill places, but feedback from those researchers

that have participated is that it had a very positive impact.

Risk v RewaRD: large companies are generally risk averse.

smes, on the other hand, are often more accustomed to risk. The

high potential for failure of smes may fuel a risk-averse culture

in government-funded innovation support programs. There is a

need for governments and companies to shift their focus from

potential risks to the potential rewards from collaborations.

1.4. Overcoming barriers to translating research to productivity

Creating strong strategic collaborations

boeing is an example of a company that has fostered

collaboration to achieve productivity gains. it has a long

standing relationship with australian researchers. The

strength of boeing’s relationships with universities and

companies around the world and ability to collaborate

across the innovation system are key to the company’s

success. The boeing 787 Dreamliner was created by a

consortium of members from around the world to span the

innovation chain working together on a common goal in a

precompetitive environment.

some common key criteria of successful collaborations

include choosing the right partners to collaborate with, at

the right time, and recognising the importance of individuals

in making relationships work. Working in a pre-competitive

environment allows competitors to work together. good,

commercially oriented project management on both

sides of a partnership is crucial to achieving outcomes

from collaborations, as are simple agreements that can

be executed quickly. identifying a common goal or value

proposition around which to build a collaboration is crucial

to success. aligning the expectations of parties and agreeing

on a focus early is important but some flexibility is desirable

to allow outcomes beyond the original concept to emerge.

absorptive capacity is important to maximise the outcomes

of collaboration.

as an example, em solutions is a small australian sme

engaged in innovative product design and manufacture.

it has developed broadband radio equipment used in

satellite and microwave telecommunications networks. by

incorporating its own novel iP with csiro’s, em solutions

was able to embark on a large-scale product development

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and commercialisation program to develop a first-to-market

broadband radio that was co-funded by the customer.

a critical factor was that although csiro had been

identified by a large customer requiring the product, both

recognised they required a commercial partner to develop

it. financial reasons, such as access to capital, are a key

driver for collaborations. This can create alignment, but it is

important to have a clear understanding on both sides of

a collaboration of who pays. simple, one-page agreements

with smes, that can be finalised quickly, are also important.

individuals are crucial to the success of collaborations, by

providing champions for a partnership and facilitating

mutual understanding of the interests of all parties. multi-

year stable government programs that support collaboration

are important to endure beyond the individual relationships

that started them. networks, centres, clusters and precincts

can help build critical mass and engage researchers with

the private sector, taking into account the importance of

individual relationships. They can be complex to manage,

and therefore strong leadership is critical to their success.

2. APPROAchES TO SuPPORT cOllAbORATION fOR SmES

Some existing schemes are not well suited to SmEscomplexity, inconsistency and instability are key problems

of australian schemes designed to assist smes. stability is a

key criterion of successful support mechanisms used around

the world. for example, the us small business innovation

research (sbir) scheme has been in place for over 30 years.

australian schemes are often abandoned before they can be

fully evaluated. overlap between schemes and insufficient

demarcation between federal and state government

programs can be a challenge. This is exacerbated by

government agencies stretching funds across a large

portfolio of programs, which diminishes available support in

each and results in some lacking critical mass.

some existing mechanisms to encourage industry-Pfro

links are applicable to large companies but are not well

suited to the needs of smes. for example, the cooperative

research centre (crc) Program involves high entry costs,

such as complex legal and contract negotiations, up-front

financing and time commitment requirements, and long

funding turnarounds. smes face a similar challenge with

the time commitment and matching fund requirements of

australian research council (arc) linkage grants, which put

the control and the incentives with academics, not industry.

alternative approaches are needed that put smes in control

and also take advantage of strategic supply chain alliances.

many existing schemes are designed to be researcher-

driven rather than led by industry. however, Industrial

Transformation Research Hubs is an example of a successful

program (operated by the arc) to bring researchers and

industry together to work in a few priority areas. it is a

researcher-driven program that may produce outcomes

that the industry partners have an option to adopt. on the

other hand, industry innovation Precincts funded through

ausindustry are business-driven and are useful to more

established businesses seeking to increase sales, export and

to collaborate to grow. enterprise connect has one program,

Researchers in Business, which provides grants to allow Pfro

researchers to undertake placements in business to develop

new ideas or solve problems.

voucher schemes are effective for SmEsVoucher schemes provide an appropriate mechanism for

an sme to collaborate with a university, placing control of

the collaboration with the sme. Voucher schemes span

the funding gap, spread risk and generally do not require

matching funds. These schemes operate in a number of

oecD countries. The Victorian government’s Technology

Voucher Program is an example of a successful australian

voucher scheme. over 500 vouchers have been issued over

a three year period to companies to allow them to work

with Pfro’s. much of the appeal of the scheme to company

and researcher alike is that the decision on the voucher is

taken rapidly (within five weeks), and that the parties agree

to a simple one page agreement. lengthy, complex legal

negotiations are often cited as a key barrier for companies

and Pfro’s getting together to carry out an initial pilot piece

of collaborative research.

Targeted procurement schemesThe us small business innovation research (sbir) Program

is a demand-side measure that has now been copied or

adapted by a number of other countries. The us sbir has

existed for nearly three decades, but changes following

reviews and a strong promotional effort by the us small

business administration have given it a considerable boost

in the past 10 years. The us congress established the sbir

Program by requiring major research funding agencies to

set aside a small percentage of their budget. This ‘set-aside’

is used to fund contracts with small business to develop

new products and services of interest to these agencies. a

key benefit to small business is that the sbir program does

not require matching funds. There is a short lead time for

applications, and review processes are rapid. a number of

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oecD countries have adopted modified forms of the us sbir

scheme. The Victorian government operates such a scheme.

The commonwealth government has planned a pilot sbir-

type scheme in its enterprise solutions Program but it is

constrained by insufficient funding.

3. TEchNOlOgy INTERmEdIARIES Technology intermediaries (also known as accelerators or

incubators) are an important mechanism to address the

barriers to collaboration between industry, particularly smes,

and Pfros. These organisations play a vital facilitation role to

catalyse collaborations between smes and Pfros and help to

ensure they run smoothly, particularly for smes. They also play

an important role in reducing the risk of new collaborations.

There are a number of examples of intermediaries helping

firms take up new technology in other oecD countries e.g. the

uK catapult centres.

Technology intermediaries identify, connect and facilitate

communication between parties at all stages of technological

innovation, from research to product, whilst being able to

differentiate between them. This allows a better assessment of

sharing the risks and rewards, determining where weaknesses

lie and optimising the benefits of government intervention.

access to information, and assistance with problem

identification and solutions are key challenges for smes.

Technology intermediaries provide people with the right

background and experience to assist an sme and help to

find the right sources of support. This may include assistance

with developing a business plan, addressing a technology

problem or access to research.

Technology intermediaries can make use of a voucher

scheme to help an sme access support from Pfros.

The diagram on page 6 shows how the technology

intermediary model can be fostered to help achieve the

goal of improving collaborative outcomes from australia’s

research potential. Value chains provide a powerful set

of interrelationships and opportunities. The link between

research provider, technology developer (e.g. a sme), and

technology user (e.g. a customer) is a stylised form of value

chain. such value chains will not naturally assemble unless

all components in the chain understand the financial end-

game, and the associated risks, incentives, and rewards. The

benefit of involving an intermediary in assembling such a

chain is that core skills can be retained to help all parties

build trust, and to overcome the challenges associated with

information asymmetry, absorptive capacity, and project

management that were identified earlier.

collaborative arrangements succeed only if barriers

are recognised and de-risked early in the collaboration.

The presence of other complementary assets in the

collaboration, and experienced mentors in the form of a

technology intermediary, can help create the conditions for

successful collaboration. for example, the explicit presence

of a technology user can not only help provide financial

incentives to align the collaboration, it can help inform the

research and create the “virtuous circle” on which ongoing

innovation depends.

4. ThE ROlE Of gOvERNmENT INduSTRy ANd INNOvATION POlIcy IN SuPPORTINg cOllAbORATIONS

Policy consistency and continuity of assistance measures governments have an important role in providing continuity

of support measures and incentivising collaboration

between Pfros and industry. a holistic ‘systems thinking’

approach to innovation policy is needed. Policy consistency

is vital, the assistance provided needs to address sme needs,

with minimal compliance requirements.

incentivising collaboration requires recognition and reward

of efforts by Pfro researchers to increase engagement and

victorian centre for Advanced materials manufacturing victorian Centre for advanced Materials Manufacturing (vCaMM) provides an example of an advanced technology

incubator that operates from initiation to market realisation, working with sMes to prepare them to collaborate and

then catalysing collaboration with universities and government. vCaMM provides industry with a way to access

research, provides sMes with support solutions, and assists sMes with planning, to identify appropriate resources

and technologies, and to find partners. vCaMM operates differently in the various stages in the innovation process,

covering such things as project management, protection of iP and acting as a portal for sMes to access CRCs and other

government programs.

6

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TRANSlATINg RESEARch INTO EcONOmIc bENEfITS fOR AuSTRAlIA: REThINkINg lINkAgES

foster ‘cultural exchange’. The era, while encouraging more

attention to quality in university research, is discouraging

external collaboration because of perceptions that this may

result in fewer articles in leading scientific journals (even

though the uK experience shows that, with appropriate

incentives, industry collaboration and research excellence

can still coexist).

complementarity between state and federal government programs for facilitating industry-PfRO collaborations it is important to have strategic cooperation between all

levels of government to avoid duplication and ensure

complementarity. state governments generally have

a better understanding and knowledge of the micro

and small businesses in their jurisdictions and are well

placed to interact directly with smes and facilitate their

links with Pfros (e.g. through local assistance, offices).

The commonwealth government is better placed to

manage national measures to encourage businesses

to seek Pfro and other business collaborators. The

commonwealth government also needs to balance the

era with a complementary measure that rewards industry

collaboration.

Involving larger companies with requirements for new technology in SmE technology developmentfunding is the major impediment confronted by smes in

bringing their new technology to market and neither the

financial markets nor governments are prepared or able to

address this need. in a period when government resources

are constrained, other solutions have to be found. large

profitable companies are a potential source of support

for australia’s smes. When a large company needs new

technology it would be logical for them to consider investing

in a potential supplier of the required technology. early

identification of a lead customer prepared to co-invest in

commercialisation is another option.

Tax measures or a grant program could encourage large

companies to support smes to develop the technologies

they need. extending the r&D tax concession to large

companies that do this would be a simple cost-effective

Figure 1 Technology intermediaries and their relationship networks.

Technology userseg. Business, government, others

Researchproviders

eg. PFROs

Researchdevelopers

eg. SMEs

TECHNOLOGYINTERMEDIARIES

Note: Government policies, programs and actions can a�ect each of the network nodes shown. Frequently a combination of di�erent measures might be needed aimed at di�erent nodes in the network. Examples of government in�uences include:• For research providers government provides research grants and other incentives and sets priorities. • For technology developers government provides grants, procurement programs and measures such as a R&D tax concession.• The National Collaborative Research Infrastructure Strategy (NCRIS) is a good example of an infrastructure support scheme that brings together users from public and private sectors.• For technology users government provides procurement programs and measures such as a R&D tax concession.• For technology intermediaries government measures include ARC linkage, voucher programs, matching levies and programs such as the CRC program.

New products, services, problem

solving

Angel & Venture Capital Investment

guidance commercialisation

Research outputs, ideas, facilities

Funding, opportunities,

de�ning problems

Finance, sales, test sites

Ideas, skills, research outputs

7

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TRANSlATINg RESEARch INTO EcONOmIc bENEfITS fOR AuSTRAlIA: REThINkINg lINkAgES

measure. even where large companies are disinclined to

provide investment funds for technology development in

smes, they could provide a commitment to purchase the

technology in the event that it is successful. This could in

turn provide smes with access to other sources of funding

such as venture capital.

Evaluating and measuring success of current schemes australia has a number of examples of industry-public

sector research collaborations (such as the crc program,

csiro, rural r&D corporations) however there has been

very little work done across these different approaches to

understand what has worked in successful cases and what

did not work in others. undertaking such a study could help

to draw lessons that improve the design of those models and

increase collaboration.

5. cONcluSIONS & REcOmmENdATIONS

1Productivity and economic growth in australia can be

enhanced through increased collaboration between

business and Pfro researchers. however, in australia there

are fundamental systemic barriers to securing this innovation

dividend. We also lack best practice incentives to encourage

collaboration between Pfro researchers and industry,

particularly smes.

the Commonwealth government should put in place

measures to overcome the barriers and disincentives to

collaboration between PFRO researchers and business

and establish new measures to encourage collaboration,

particularly for the benefits of sMes. specific funding

should be allocated on the basis of the impact of

university research.

PFROs should implement measures to overcome the barriers

and disincentives to collaboration between their researchers

and business, and should encourage collaboration

particularly with sMes.

2Technology intermediaries are a proven mechanism for

achieving productivity gains and economic growth through

collaborations. These intermediaries are particularly important

for growing our smes. There are some good examples in Victoria

and in other oecD countries. There is an opportunity to apply

these models in other states.

state and territory governments should establish

technology intermediaries to help sMes in their

jurisdictions grow.

3 Voucher schemes offer an effective mechanism to enable

smes to collaborate with Pfro researchers. There is scope

for more widespread adoption of this model to address the gap

in the funding mechanisms available to support high growth

potential smes.

state and territory governments should adopt voucher

schemes to help sMes collaborate with other firms and

access the resources of PFROs.

4 sbir-type schemes use procurement to link researchers

with potential customers. They are successful in other

oecD countries and in Victoria. unless customers exist to pay

for innovation, its pursuit can be pointless. With a customer

at the head of a value chain, funding of development is more

assured, requirements are better informed, risk is reduced, and

stakeholders will line up.

Other state and territory governments should follow

victoria’s lead in adopting sBiR-type schemes. the

Commonwealth government’s pilot enterprise solutions

Program scheme should be allocated additional funding

so that it can achieve critical mass.

5 incentives for large profitable companies who are potential

customers for new technology to invest in smes who can

supply the technology would open up a new source of funding

for commercialising good ideas.

the R&D tax incentive should be reintroduced for those

large companies that commission the development of

technology based products from australian sMes.

Small Technologies cluster the small technologies Cluster (stC) demonstrates the role of a technology intermediary serving as an incubator

accelerator for new emerging and enabling technologies. the stC operates the victorian government’s successful

technology voucher program and sponsors collaboration between sMes, and between sMes and universities. Placing

students in companies during vacation periods has been one of the novel approaches adopted by the stC. the stC

has 30 companies ‘in residence’, just under half of which are from universities.

8

www.atse.org.au

TRANSlATINg RESEARch INTO EcONOmIc bENEfITS fOR AuSTRAlIA: REThINkINg lINkAgES

translating research into economic benefits for australia: Rethinking linkages © australian academy of Technological sciences and engineering

the australian academy of technological sciences and engineering (atse)

ATSE Officelevel 1, 1 bowen crescent, melbourne VicToria 3004, ausTralia

mail addressgPo box 4055, melbourne VicToria 3001, ausTralia

Phone +61 3 9864 0900 fax +61 3 9864 0930

Emailpolicyresearch@atse.org.au

Websiteswww.atse.org.auwww.stelr.org.auwww.crawfordfund.org

WORkShOP dETAIlSa recent workshop held on 9 august 2013, Customs house,

Brisbane explored how australia can maximise the translation

of research into improved productivity, with a focus on how

industry-research linkages can raise productivity at the firm

level. the workshop involved more than fifty key thought

leaders from industry, government and research from

australia and overseas.

Details of the workshop program, issues paper, presentations,

participants and other atse publications can be accessed at

the atse website.

the workshop was co-sponsored by atse and the australian

Council of learned academies (aCOla) and discussed

issues which are part of the remit of an expert working

group convened under aCOla’s securing australia’s Future

program.

AckNOWlEdgEmENTSaTse gratefully acknowledges the contributions of the

workshop speakers and participants, and the assistance

and guidance of the steering committee: Dr John bell fTse

(co-chair), Professor Peter gray fTse (co-chair), Dr rowan

gilmore fTse, mr Peter laver am fTse, ms leonie Walsh fTse.

cONTAcTfor further information please contact

harriet harden-Davies, manager, Policy & Projects, aTse.

email policyresearch@atse.org.au

or telephone (03) 9864 0900.

AbOuT ATSEThe academy of Technological sciences and engineering

(aTse) is an independent not-for-profit organisation. its

fellowship, composed of more than 800 outstanding

scientists, technologists and engineers, drives its mission – to

foster excellence in technological sciences and engineering

to enhance australia’s competitiveness, economic and social

wellbeing and environmental sustainability. The academy

provides robust, independent, evidence-based policy advice

on science and technology issues to government, industry

and the community. more information on the academy can

be found at www.atse.org.au.

The reasons for this market failure are complex. Part of the problem is a cultural one, with industry in the past turning to imported technology paid for by resources availability and cheap energy.

But other factors are important – market size; the dominance in the technology sector of overseas-owned companies undertaking their research elsewhere; the lack of major government procurement programs in defence; the low priority afforded by the fairly thin capital markets to investment in technology; and risk-averse large technology purchasers preferring to buy proven products from around the world rather than undertake the daunting task of developing them here.

AUSTRALIAN ACADEMY OF TECHNOLOGICAL SCIENCES AND ENGINEERING (ATSE)

TRANSLATING RESEARCH INTO ECONOMICS BENEFITS FOR AUSTRALIA

MAY 2014

OUR PLACE IN THE WORLDImproving productivity and facilitating economic growth are key priorities for Australia.

Improving the translation of Australia’s world class research into economic value is central to addressing these priorities.

Industry is facing an increasingly competitive environment, and research organisations need to demonstrate their value. There is an urgent need to improve the linkages between these two sectors.

Connecting researchers and industry is imperative to building strong, innovative industries – an innovative, productive, profitable industry culture requires the contribution of intellectual property from research institutes and businesses.

Collaboration between publicly funded research organisations and industry is crucial to improving the translation of research into productive outcomes that increase the nation’s output. However, there remain fundamental systemic barriers to increasing this collaboration in Australia.

In many OECD countries it has been demonstrated that industry assistance programs are needed and those whose value is proven must have significant scale and long-term stability to provide investment certainty.

Indeed, even overseas governments that are doing well in technological innovation have recognised the need to intervene consistently. Government assistance for firms in Australia is low by OECD standards.

In 2011, the direct government funding of business R&D in the USA was thirteen times greater as a percentage of GDP compared with Australia (Figure 1).

Experience has shown that effective collaboration between business and research organisations can benefit from independent facilitation to build trust and to establish momentum between parties.

For example, Australia lags well behind the leaders when it comes to business expenditure on research and development (BERD). While research and development is only one element of innovation, BERD is a useful indicator of the level of innovation activity. The level of BERD in Australia is less than half that of Israel and well behind Korea and Finland as a percentage of GDP (Figure 2).

Australia also lags well behind at translating and commercialising research. In comparison to leading OECD countries, Australia ranked near last on measures of innovation in industry.

Australia has excellent capabilities in basic research through our universities and our publicly funded research organisations. However, without effective commercialisation the full benefit to the economy will not be realised.

INNOVATION AND PRODUCTIVITY ACTION STATEMENT

Figure 1 Direct government funding of business R&D - 2011.% of GDP0.450.400.350.300.250.200.150.100.05

0

RUS

USA

KOR

FRA

SWE

BRA

GBR

DEU FI

N

CHN

CAN

ZAF

PRT

JPN

CHE

AUS

MEX

Figure 2 Business enterprise expenditure on R&D – 2011.% of GDP4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0

ISR

KOR

FIN

JPN

SWE

CHE

DN

KD

EU USA

AUT

SVN ISL

OEC

DES

TFR

ACH

NBE

LAU

SEU

28 IRL

CZE

GBR LU

XCA

NN

LDN

OR

HU

NES

PPR

TIT

ARU

SN

ZLZA

FTU

RSV

KPO

LM

EXCH

L

SOURCE: OECD STI SCOREBOARD 2013

2

Australian Academy of Technological Sciences and Engineering (ATSE)

Enhancing Australia’s prosperity through technological innovation

Australian Academy of Technological Sciences and Engineering LimitedACN 008 520 934 ABN 58 008 520 394

Incorporated in the Australian Capital Territory

Limited by Guarantee

ATSE OfficeLevel 1 / 1 Bowen CrescentMelbourne VIC 3004

Mail addressGPO Box 4055Melbourne VIC 3001

Emailinfo@atse.org.au

Phone+613/(03) 9864 0900

Fax+613/(03) 9864 0930

Websiteswww.atse.org.auwww.stelr.org.auwww.crawfordfund.org

THE WAY FORWARDATSE believes that better translation of Australia’s publicly funded research into economic outcomes for Australia can be achieved by:

1 Improved linkages between publicly funded research organisations and industry. Technology intermediary organisations have an important role to play in facilitating these linkages; and

2 Targeted and sustained incentives for translational research and business development and innovation.

THE VISION A secure and growing revenue base will ensure Australia’s enduring fiscal health.

The only way to achieve this is by building a robust, diversified economy.

Innovation is crucial to this vision. Innovative businesses are more productive and more profitable. Profitable businesses pay more tax, employ Australians and strengthen the Government’s revenue streams.

Australia needs to achieve greater technological innovation off its research base to drive industry growth, productivity and profitability.

THE CHALLENGESAustralia has excellent capabilities in basic research through our universities and our publicly funded research organisations. However, there is a pressing need to translate Australia’s investment in research into useful economic outcomes, through innovation. Without translation assistance within our policy landscape even less translation of basic research to deliver value to the economy will result, effectively stalling our prospects for an innovative economy.

Research and its translation needs to be driven by market and government demand, with strong input from the research establishments that are well-placed to realise what opportunities for improvement exist.

Collaboration provides businesses affordable and rapid access to skills, people, equipment, facilities and ideas and so contributes to improved productivity. Collaboration between businesses and publicly funded research organisations must be improved if Australia is to realise the economic benefits from its world class research.

However, there remain fundamental systemic barriers in Australia including financial barriers, information asymmetry, differing timescales, absorptive capacity and cultural differences that can cause a mismatch of goals between parties and different risk perceptions balanced with perceived reward.

A lack of incentives, including via targeted government assistance programs, for research translation to technological innovation and commercialisation remains a fundamental problem in Australia.

Australian Academy of Technological Sciences and Engineering

Level 1, 1 Bowen Crescent, Melbourne Vic 3004

GPO Box 4055, Melbourne, Vic 3001, Australia

T+61 3 9864 0900 F+61 3 9864 0930 W www.atse.org.au

Australian Academy of Technological Sciences and Engineering Limited – Incorporated ACT ACN 008 520 394 ABN 58 008 520 394

1

ATSE Submission to the Australian Government’s Entrepreneurs’ Infrastructure Programme

The Australian Academy of Technological Sciences and Engineering (ATSE)1 welcomes the opportunity to provide comment on the Australian Government’s Entrepreneurs’ Infrastructure Programme (EIP). The proposed structure of the EIP as outlined in the Discussion Paper preserves some elements of recently terminated programs (e.g. Enterprise Connect and Commercialisation Australia). However, the EIP Discussion Paper appears to offer no options for new approaches and reads as a fait accompli. ATSE therefore provides some general comments on the programme and suggests an alternate approach. The Discussion Paper lacks information on how the $484.2 million commitment will be allocated over four years and raises some concern for ATSE. Given the amount per annum is not large it will be important to appropriately distribute the funding across the programme elements discussed in the discussion paper.

1) BUSINESS MANAGEMENT ATSE believes that the Business Management component should not be the core component of the programme, rather as a later element that offers business advice to innovative organisations and companies that have been successful in receiving government funding. This will better benefit innovative companies at crucial points in the research translation-innovation-commercialisation continuum. From ATSE’s work and experience with CAESIE it is our view that business management support does not work through a website, rather it is optimally delivered by direct contact with experts. ATSE is concerned on the reliance of advisers to provide advice on business matters.

2) COMMERCIALISING IDEAS Presumably this service would provide introductions, advisors to help businesses evaluate their programs, and a website to link markets to investors. ATSE notes that much of this information is already readily available to businesses large and small, through private sector consultants, and though a plethora of publicly available databases.

3) RESEARCH CONNECTIONS ATSE welcomes the creation of this element as financing is a major stumbling block for innovation success and driving business productivity in Australia.

1 ATSE advocates for a future in which technological sciences, engineering and innovation contribute

significantly to Australia’s social, economic and environmental wellbeing. The Academy is empowered in its mission by some 800 Fellows drawn from industry, academia, research institutes and government, who represent the brightest and the best in technological sciences and engineering in Australia. The Academy provides robust, independent and trusted evidence-based advice on technological issues of national importance. ATSE fosters national and international collaboration and encourages technology transfer for economic, social and environmental benefit. www.atse.org.au

2

However, ATSE suggests that the grants, at $50,000 each, are much too small to change the investment or development plans of a company, even a small one, especially if it requires matching funding. There are examples where a small grant scheme can be effective but these are at the pre-competitive stage of commercialisation.

The eligibility criteria, such as the requirement to at least match funding and be operating for more than 3 years, specifically exclude innovative start-ups that might indeed benefit from small grants and basic advice. Contrary to the intention of the EIP, the companies that meet the eligibility criteria in the EIP Discussion Paper will not be constructively influenced by the proposed money and advice available. Given this, ATSE questions the use of the term entrepreneurship in the title of the programme. ATSE considers that a fresh approach to the EIP is ideal; however, noting the 1 July 2014 deadline for announcing the scheme, ATSE offers a refocus of the EIP elements as outlined in Appendix 1. The ATSE proposal integrates proven commercialisation funding grants and contracts (outlined in Appendix 2); provides flexible options; maximises success by providing business support to successful grantees and reduces administrative overheads. Discussion Paper Questions ATSE believes that the questions raised in the Entrepreneurs’ Infrastructure Programme Discussion Paper are substantially addressed in the recent report by the Australian Council of Learned Academies (ACOLA)2 The role of science research and technology in lifting Australian productivity. The ACOLA Report, commissioned by the Chief Scientist for the Prime Minister’s Science, Engineering and Innovation Council (PMSEIC), has three major conclusions:

Building Australia’s future industries will depend on adopting technological innovation to develop high-value products and services for a global market.

Improving collaboration in Australia, between businesses and between business and publicly funded research, will significantly enhance innovation. International collaboration is also critically important. Both domestic and international collaboration improves the productivity and competitiveness of Australian technology-based firms.

An innovative workforce that combines technical and non-technical disciplines, and enables good business management, is essential to underpin the competitive advantage of Australian industries and realise opportunities to lift productivity.

Further information on the ACOLA report is provided in Appendix 3. ATSE would be pleased to offer its considerable expertise expanding on our ideas and in finalising the details of the EIP. The contact at ATSE is our CEO Dr Margaret Hartley (03 9864 0901, margaret.hartley@atse.org.au). Yours sincerely

Alan Finkel President, ATSE

2 The Australian Council of Learned Academies (ACOLA) combines the four Learned Academies

(Australian Academy of Science, Academy of Social Sciences in Australia, Australian Academy of the Humanities and the Australian Academy of Technological Sciences and Engineering).

ATSE Submission Appendix 1

3

Appendix 1: ATSE Innovation-Ready Entrepreneurs’ Infrastructure Programme GOAL: To promote translation of existing research outputs into innovative, commercially oriented

products for national and global markets

FUNDING: $484.2 million over 4 years

PROGRAM OVERVIEW

KEY ELEMENTS Topic Priorities: Contracts in the E2M programme will intrinsically be aligned with national priorities. The Commercialising Ideas programme could also be aligned with national priorities by providing prioritised support to areas of global growth such as food and agribusiness; mining equipment technology and services; medical technologies and pharmaceuticals; oil and gas; and advanced manufacturing. These topic priorities will naturally define those government departments that need to participate in the E2M element.

Risk Management: Risk in the suggested programs is reduced through two different measures: 1) Companies providing matching funds of 40% cash (not in-kind) in the E2M contracts program;

and 2) A staged approach in the Commercialising Ideas program, with small levels of funding and quick

turnaround for the high-risk first phase, then eligibility for the lower-risk second phase being determined by successful completion of the first phase.

Encouraging Young Entrepreneurs A proportion of the Commercialising Ideas grants could be set aside for young entrepreneurs (< 40 years of age).

Reducing Red Tape Simple criteria for recognition as an Australian business and simplified application processes to eliminate unnecessary and time consuming procedures.

KEY DIFFERENCES FROM THE DRAFT EIP Business infrastructure (ie, business management support) should not be the core component of the EIP or EIP funding. Rather it is better as a service component for users of the two main programme areas: E2M and Commercialising Ideas. There are a number of existing successful external providers operating in the innovation-commercialisation space and outsourcing of this work is recommended to maximise efficiency and reduce administrative overheads.

All projects are to be judged on their merits rather than the financial capacity of the company or its owners.

Removal of requirement for applicant companies to have been in operation for a minimum number of years as this effectively eliminates many innovative and highly capable start-up companies.

BU

SIN

ES

S IN

FR

AS

TR

UC

TU

RE

A

dvis

ory

/ A

ssis

tance

EIP

Fundin

g:

$62.4

mill

ion

ENTREPRENEURS TO MARKET (E2M)

EIP Funding: $210 million

1) Provide matching funding to the States to extend existing technology-procurement Market Validation Programs (MVP) 2) Directly fund federal MVP equivalents modelled on a mix of State MVP and US SBIR contract programs. Contributed funds (cash only) required from grantees = 40% Possible funding level per grant: up to $1 million

COMMERCIALISING IDEAS EIP Funding: $210 million

Funding for sequential Proof of Concept (phase 1) and Early Stage Commercialisation (phase 2) grants based on best of Commercialisation Australia and the US SBIR grant programs.

Possible funding levels Phase 1: up to $250,000 for 6 months (high risk) Phase 2: up to $2 million for 2 years (low risk)

ATSE Submission Appendix 2

4

Appendix 2: International and National Programs

Basics of the SBIR scheme General information about Small Business Innovation Research (SBIR) The following information has been taken from a number of sources including the SBIR website: http://www.sbir.gov/about/about-sbir

The Small Business Innovation Research (SBIR) program is a US Government program coordinated by the US Small Business Administration. The program is a highly competitive program that encourages domestic small businesses to engage in Research and Development (R&D) that has the potential for commercialisation. Each year, Federal agencies with extramural R&D budgets that exceed $100 million are required to allocate 2.8 per cent of their R&D budget to these programs. Currently, eleven Federal agencies participate in the program. Approximately $2.5 billion is awarded through this program each year. The United States Department of Defense (DoD) is the largest agency in this program with approximately $1 billion in SBIR awards annually. Over half the awards from the DoD are to firms with fewer than 25 people and a third to firms of fewer than 10. A fifth are minority or women-owned businesses. Historically a quarter of the companies receiving grants are receiving them for the first-time. The SBIR Program is structured in three phases: Phase I.

Feasibility study, proof of concept

$150,000 maximum for 6 months

Phase II.

Funding is based on the results achieved in Phase I and the scientific and technical merit and commercial potential of the project proposed in Phase II.

Only Phase I awardees are eligible for a Phase II award.

Full research and development effort

$1,000,000 maximum total costs for 2 years.

Phase III.

Commercialisation stage

Seek external funding (no use of SBIR funds)

National Science Foundation Small Business Innovation Research The following information has been taken from the US National Science Foundation website: http://www.sbir.gov/about/about-sbir

The National Science Foundation (NSF) Small Business Innovation Research (SBIR) Program provides non-dilutive funds for early stage research and development (R&D) at small businesses. The NSF provides most of its funding through grants. An applicant’s R&D should be based on innovative, transformational technology with potential for great commercial and/or societal benefits. The program invites proposals from small businesses across a broad range of science and engineering disciplines. Successful companies receive a grant of up to $150,000 for a 6-month development/feasibility project. They can then compete for a second grant of up to $750,000 over a 2 year period, with the aim of advancing the technology toward commercial deployment. NSF solicitations ask for information about company "track records" of commercialisation in various ways. However, proposals are encouraged from a diversity of entrepreneurs - new and seasoned. What is most important is that the company has a transformative idea or innovation and their team's primary goal is the commercialisation of the technology.

ATSE Submission

Appendix 2

5

National Institutes of Health Small Business Innovation Research The following information has been taken from the US National Institutes of Health website: http://grants.nih.gov/grants/funding/contracts_vs_grants.htm

The National Institutes of Health (NIH) supports research using both grants and contracts. NIH provides most of its funding via grants. About 95% of NIH SBIR awards are made through the grant (assistance) mechanism, and about 5% of NIH SBIR awards are made through the contract (procurement) mechanism. Small business concerns are invited to submit Phase I grant applications in any area within the mission of the awarding components identified in the Grant Solicitation. Contract proposals are accepted only if they respond specifically to a research topic within the Contract Solicitation. The topics are not the same as those in a grant solicitation; they are much more focused and specific. Department of Defense Small Business Innovation Research The following information has been taken from the US Department of Defense website: http://www.dodsbir.net/solicitation/sbir142/default.htm

The Department of Defense (DoD) accepts submissions three (most departments) or four (army) times per year. DoD appears to provide all of its funding via contracts. Some of the departments (for example Defense Advanced Research Projects Agency - DARPA) have a fast track process that can operate in between scheduled submission dates.

Comments on Australian mapping SBIR contracts are most similar to the Australian State MVP programs. Note that the Victorian MVP program has been refined and renamed DBI (Driving Business Innovation).

SBIR grants are most similar to the Proof of Concept and the Early Stage Commercialisation grants from Commercialisation Australia, but SBIR does not offer the Skills and Knowledge nor the Experienced Executives. The $484.2 million proposed EIP program will probably allocate $400 million after overheads. Thus $100 million per year. Comparing this allocation to that of the SBIR:

The population of America is 14 times the population of Australia. Therefore the allocation of $100 million per year is equivalent to $1.4 billion per year in the US totalling about 60% of the SBIR, assuming all the EIP is for SBIR equivalents.

If some of the funding in the EIP Programme will be for business advisory services (separately handled by the Small Business Administration in the US), the EIP allocation might be equivalent to half the current SBIR level.

Commercialisation Australia The following information has been taken from the Commercialisation Australia website: http://www.commercialisationaustralia.gov.au/Pages/Home.aspx

Commercialisation Australia Funding: Flexible options to suit your stage of commercialisation

Skills and Knowledge Up to $50,000 to access specialist advice and services.

Experienced Executives Up to $350,000 to engage a CEO or other senior Executive.

Proof of Concept $50,000 to $250,000 to prove the commercial viability of new IP.

Early Stage Commercialisation $50,000 to $2 million to take a new product, service or process to market.

ATSE Submission

Appendix 2

6

Victorian Government MVP The following information has been taken from the Business Victoria website: http://www.business.vic.gov.au/grants-and-assistance/programs/driving-business-innovation

The Market Validation Program (MVP) has now been replaced by the Driving Business Innovation (DBI) program. DBI follows one contract identification phase and three funding phases. Technology Challenge At the Technology Challenge stage Victorian government agencies identify a particular challenge to the delivery of their products or services. Selected Technology Challenges are then released to the market through a Call for Proposal inviting eligible small to medium enterprises (SMEs) to propose new technology solutions to the government challenges. Feasibility Study Selected SMEs receive a grant up to $75,000 to undertake a Feasibility Study into their proposed solution over three months. Proof of Concept Feasibility Studies are assessed for further funding of up to $1 million to undertake research and development to Proof of Concept stage over 18 months. The Proof of Concept project leads to a working demonstration of the developed product in the government agency’s environment. Market Ready During the Proof of Concept, SMEs may be invited to apply for the Market Ready stage, providing (matched) funding of up to $500,000 to undertake activities aimed at bringing their developed solution to market.

ATSE Submission Appendix 3

7

Appendix 3: The role of research, science and technology and innovation in Australia’s productivity and economic growth The Australian Council of Learned Academies (ACOLA) recently published a report on the role of research, science and technology and innovation in Australia’s productivity and economic growth. The report and its findings are evidence-based, allowing for enhanced policy development and better targeted interventions by governments. ATSE recognises that there is limited funding for the EIP Programme, and therefore understands not everything outlined below can be adopted. However, we provide the following points from the ACOLA Report for future consideration. ATSE believes that some of these points will need to be addressed outside of the EIP Programme. For innovation to occur, new knowledge needs to be translated to the business setting, and to do this Australia needs its university researchers to become more engaged with business. New measures are needed if Australia is to get a better return on our substantial investment in public sector research. The so called innovation incentive programs will need to be well funded, targeted and sustained over a reasonable period of time if Australia is to fully utilise its investment in research as a pathway to enhanced productivity and prosperity. The ACOLA Report offers some suggestions for enhanced government innovation incentive programs. Venture finance

Venture capital needs fixing. Innovator companies simply do not have access to sufficient venture capital within Australia.

The Commonwealth Government’s Industry Innovation Funds have helped. Without them, things would be even worse.

Other OECD countries have moved ahead of Australia and adopted some novel ways of financing innovative SMEs.

o Crowd sourced equity funding is one such initiative. Tax treatment of employee share options

A suggestion to facilitate the growth of start-up technology-based firms is to reverse the 2010 decision to tax employee share options.

Many countries recognise that start-ups can reduce the demands on their limited capital resources, and ensure retention of key staff by providing share options. They are normally taxed when (and if) their value is realised.

Unfortunately this business model cannot currently operate in Australia. There are already strong pressures on start-up companies to leave Australia and this is yet another one.

We need to provide a business environment in Australia so that wherever possible, start-ups can grow and establish their base here before expanding offshore.

Support for SMEs

OECD country governments appear to be focussing more of their assistance through direct support.

This sort of support is not business welfare. It is assistance that recognises the system and market failures that, if not addressed, result in less than optimum productivity and economic growth.

It recognises that today’s fledgling entrepreneurs can be tomorrow’s business leaders, if they can access help when they need it.

Many measures have been in use overseas for a number of years. They are tried and tested - but have not yet been adopted in Australia. For example:

o The US Small Business Innovation Research (SBIR) Program has been adapted and copied around the world.

ATSE Submission

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o Victoria and South Australia have implemented adaptations of this Program. Adequately resourced, a Commonwealth Government version could be very effective.

An attractive aspect of the program is that it is funded from what the US calls a ‘small business set aside’. The set aside legislation requires US Government agencies with R&D programs over a threshold (around $100 million) to set aside a small percentage of their funds for measures to assist small business.

Other examples are: o the UK’s Knowledge Transfer Partnerships, o the US Manufacturing Extension Partnerships, and o Finland’s funding agency for technology and innovation (TEKES).

Better Delivery systems

Many countries within the OECD have been searching for more effective and efficient methods of delivering assistance to firms.

The use of intermediary organisations to deliver assistance to SMEs has proven to be very successful in other OECD countries - and where it has been trialled here in Victoria. The Small Technologies Cluster in Melbourne is a good example.

Intermediary organisations aid research translation and facilitate the uptake of new technologies. They articulate market needs to researchers.

Some of these intermediary organisations can help SMEs access vouchers. The companies themselves can choose where to go to get that help.

Victoria has successfully pioneered this approach in Australia - an approach that has merit for national implementation.

Consistency and being there for the Long Haul

SMEs concerns inevitably go to the frequent changes to Commonwealth Government assistance measures. The ink is hardly dry on the last set of changes before new changes are being proposed.

There is a lot of instability in support for Australia’s SMEs.

This makes it very hard for companies to plan for growth. The proposed Entrepreneurs Infrastructure Program, announced in the Budget, provides an opportunity to break with the past and develop seamless, flexible and well considered incentives and assistance programs.