Culture, Capital and Connectivity are the keys to successful innovation

Innovation, above all else is the driver of long term economic growth, is the hope for environmental sustainability and is the key to improving the health and lifestyles of people around the world. It is more than just technological breakthroughs: it is about solving human, organisational, industrial and environmental problems.

But recognising the power of innovation is only a first step. Our goal is to be able to harness that power: to encourage innovation where it would otherwise not take place; to direct it to our national advantage; and to solve pressing environmental and social issues at home and around the globe.

There will be no simple formula for enhancing our innovation performance. There are no simple levers to increase the power delivered by this system. But we can still come up with some practical steps that enhance our performance.

There are three great drivers of innovation:

• CULTURE
• CAPITAL
• CONNECTIVITY

The first of these drivers - Culture - is a term that has been overused and abused in debates on all issues in our society.

Our ideal innovative culture would produce people in all areas of our society who are creative, able to think critically, able to generate ideas, accept uncertainty and risk, welcome change and act as entrepreneurs. Few individuals have all these skills, but our industry, government, educational, research, arts, sports and community organisations - indeed all of our enterprises - should have a ready supply of people to assemble into teams with the appropriate blend of skills.

It has become a truism that Australia has plenty of people with ideas but too few with the ability to see them through into viable businesses. Like all truisms, this has elements of truth and elements of myth.

The mythical elements are apparent by looking at Australia's world leading mining and agricultural industries.

In the minerals and energy sector, a recent independent study of CSIRO's interaction with over 50 companies found a powerful and successful system for turning ideas into technologies that delivered world-scale business outcomes. This system rests on a partnership between CSIRO and the companies and underpins Australia's prime position as producer, processor and exporter of minerals.

The report found that the success relied on a working partnership between high quality people in CSIRO and the companies. These people understood both technology and business and could manage the long and uncertain process of research, while maintaining a focus on business objectives and profitability. A critical element was a culture shared by CSIRO and the companies, imbued with the time honoured precepts for business success:

• listen to the needs of the market
• develop cost-effective solutions to those needs

A similar successful partnership exists in the agricultural industries.

There have also been some outstanding successes of Australian manufacturing, services and IT&T firms taking their products to the world, such as News Corp, QANTAS, ResMed and Looksmart. But overall, Australia's record in these industries is patchy. This is a problem because these industries account for nearly 80 per cent of world trade and their dominance is increasing.

In these sectors, our greatest problem is not so much that of a lack of start-up companies but our apparent inability to grow enough start-ups into substantial globally operating corporations.

Many analysts, including Karpin and the Australian Business Foundation, have identified the need for more highly qualified managers who understand the requirements of technology companies. Lack of people with such skills is inhibiting the maturing of start-ups into full businesses.

The essential ingredient is strategic management and leadership of the business - the type of leadership we already have in the energy and minerals sector. Australia needs to develop this capability in all its enterprises.

The second driver of innovation is CAPITAL - both investment in specific ventures and in the physical and intellectual infrastructure that will support innovation.

There is a crucial need to rejuvenate Australia's basic science and engineering effort in the university system.

In the US, President Clinton has just announced an additional $2.9 billion into S&T initiatives. Canada, United Kingdom and Finland have also all agreed to allocate additional resources to research. Closer to home, countries such as Korea and Taiwan are now investing heavily in basic sciences and we are beginning to lose ground to them. There is also disturbing evidence that our education system is beginning to falter in terms of the quality of graduates it produces.

By contrast, our Capital support for new ventures has received a great deal of attention recently. Schemes such as START and COMET, the recently established Investment Innovation Funds, the pooled development funds have greatly increased and welcome the supply of venture capital in Australia. CSIRO, the CRC's and many Universities also give active support to start-up ventures.

In fact, I don't think the venture capital pump needs to be primed further and would go so far as to say supply of venture capital is no longer a major constraint. The risk is that any further funding will flow into ventures that have not been well thought out.

However, I see two critical areas where action on capital is needed. One is in the pre-venture capital phase of turning a good idea into a business plan and the other is in the post-venture capital growth phase of businesses.

The pre-venture capital phase is when the innovator is still forming the venture - taking an idea that might have been hatched over a bottle of red wine with a friend and gathering some basic information to support a proposal that can be worked up to put to a venture capitalist. This phase, which is well before any cash flow is generated is usually supported by the personal funds of the innovator. This is when some initial help can be decisive.

CSIRO has an incubation scheme for its own staff and allows individuals who have made discoveries to retain access to their research support while taking a period of leave without pay. This spin-off type-company has enabled several individuals to progress and commercialise their discoveries. Over the last ten years, CSIRO has spun off some 40 companies, which are now earning in the order of $300 million per annum.

This encourages us to believe that a more broad-based incubator program is worthy of investigation.

The post venture capital phase is where we want to grow the start-up company into an international scale business, or where an existing company needs to invest in R&D to secure new markets, gain a competitive edge within an existing market and to maximise the value of our existing assets. This is where, as I mentioned earlier, Australia needs to lift its game. We need an industry prepared to invest in R&D, both short and long term, and to adopt the outcomes.

A good example of the importance of a comprehensive capital system is the development of Relenza, the flu drug, which had its genesis in work led by Dr Peter Colman of CSIRO. It began with investment in the basic science infrastructure. Peter collaborated with Dr Graeme Laver of the Australian National University during the late 70s and early 1980s to establish the 3D structure of a surface protein on the influenza virus and identified a site on the surface of this protein that did not mutate. This provided a target for a drug against all forms of the virus.

Peter then worked with the fledgling Biota Ltd to raise money through a stockmarket float. These funds plus Government support through grants from the IR&D Board enabled development work to continue. Peter Colman's team entered a collaboration with Chemists from the Victorian College of Pharmacy, led by Dr Mark von Itztein to synthesise a drug that locked onto the target site - again drawing on the nation's scientific infrastructure.

To take the drug to the market required risk capital of some $100 million and the only players that have these funds and the marketing networks necessary to succeed are the major pharmaceutical companies. Biota, with the support of Colman and von Iztein made presentations to six major international companies, which evetually led to a licencing agreement with Glaxo Wellcome and the investment funds for the final stages of development and clinical trials. The drug went on sale last year and manufacturing has begun here in Victoria for the Asian market. This was the first revenue after some 20 years of investment and the drug is now on the way to fulfilling its billion dollar promise.

The success of the flu drug, like the success of CSIRO's work with the minerals industry I mentioned earlier, was underpinned by the close partnership between public researchers, government support through the IR&D scheme, an entrepreneurial start-up company and a large multi-national. It is a vivid example of the various stages of capital investment needed for a major innovation.

The third driver of innovation is CONNECTIVITY.

Our people and Institutions need to interact and make the whole greater than the sum of the individuals. This in itself requires innovation and entrepreneurship. Indeed, while CSIRO is a scientific research organisation, we recognise that innovation is more than just research and technology. Some of our most powerful innovations have been in our organisation and management, such as our sectoral advisory committees which give us an unparalleled network within the Australian industrial and environmental community.

Another good example of innovation in management is a partnership between CSIRO, Ernst & Young and the Public Records Office of Victoria. The continual loss of electronic documents and records is a survival risk for governments and business around the globe. The partnership created VERS, the first complete archive solution for electronic documents.

VERS automatically turns documents used to make decisions into records of those decisions and guarantees, despite any amount of future change to office systems, that all records can be retrieved and displayed exactly as created, forever. The Victorian Government, has now commissioned the team to undertake a $5 Million deployment project to prove the solution within one of its agencies. If successful, it will be extended across all of government, as part of the Victorian Government's objective of implementing world leading IT in its own administration.

The examples of the mining industry, the VERS project and the flu drug show all three drivers of the innovation equation - culture, capital and connectivity. The three drivers are interrelated and combine to enable our creative thinkers, our entrepreneurs, our researchers and our financiers to join forces to turn innovative ideas into practical realities.