Australian companies are frequently criticised for their poor levels of investment in innovation. The most recent set of figures from the OECD shows that Australia continues to lag behind what other OECD companies spend on innovation as a proportion of gross domestic product.
In 2003-04 Australia invested just 0.89 percent of its GDP on domestic product innovation – a slight increase on previous years, but still well behind the world leader, Sweden, which invested 2.85 percent If research and development is truly an indicator of long-term economic performance, this country has a bit of catching up to do.
Which raises the question: if Australian companies are not innovative today, is it still possible for them learn how to be?
One company that is striving to introduce a heavy dose of innovation into its product development culture is the giant US software factory Microsoft. This is a company that has copped a lot of flack over the years regarding its credibility in innovation. Many of the products that Microsoft has prospered from were not originally its own idea – such as the graphical user interface (GUI), the spreadsheet, or the word processor – although it is fair to say the company has innovated around those products.
I was recently a guest at Microsoft’s Silicon Valley facility, which is home to one of its six Microsoft Research (MSR) facilities scattered around the world. Together these facilities employ around 700 researchers (a relatively small number in a company of nearly 70,000 – many more of whom are focused on the ‘D’ part of R&D), who behave in a fashion not too far removed from their academic cousins.
Their first goal is to further the ‘state of the art’ in the technology industry, allowing them to engage in relatively esoteric research activities a long way removed from the core Microsoft products of today. Furthering Microsoft’s own product development is a secondary goal, and much of MSR’s work fails to make the transfer into regular product lines. Rather, researchers are measured on their contributions to the community through publication of papers and attendance and presentations at conferences.
While this sounds like a risky and expensive endeavour on Microsoft’s part, the company benefits from getting relatively cheap access to breakthrough technology that it would be otherwise unable to acquire elsewhere, leading to innovations within its product lines that help it keep ahead of the competition. On a handful of occasions the IP Ventures group within Microsoft has also been responsible for spinning technologies developed within MSR into outside companies, with Microsoft taking equity or licensing revenue.
Microsoft also has a group of managers who liaise closely with prominent venture capitalists, exchanging information on product development directions within Microsoft, while also looking for opportunities to support portfolio companies through access to Microsoft’s marketing machine and technical facilities. VCs also gain an insight into Microsoft’s product development roadmap, helping them make better decisions on where to invest their funds.
It is unlikely that the MSR group will ever produce anything as revolutionary as the GUI or word processor – but there would be almost no chance that Microsoft would come up with such innovations without MSR. The group’s existence and research output also attracts credit from the international research community, while helping to ensure that it remains competitive.
OK – so which Australian companies have the same resources as Microsoft to throw at the challenge of innovation? Such actions start with a commitment to embrace innovation as a core principal of business growth. This can also be done through third parties – the CRCs, NICTA or CSIRO for starters – to reduce the risk of hiring and maintaining a research facility. In Australia, where Microsoft operates no research facility, the company has still entered into a $2 million, three-year research and development agreement with NICTA.
Microsoft may never be able to shake off the view that it is a sales and development led company, but at least it is trying. Many Australian companies might be wise to follow suit.
Brad Howarth is a journalist and author of ‘Innovation and the Emerging Markets: Where the Next Bulls Will Run’, a study on the challenges facing small Australian technology companies. You can read his blog at lagrangepoint.typepad.com
Other articles by Brad Howarth:
No parade for our returning IT expats
Microsoft’s road to innovation
Australia’s innovation blind spot
