Business SA. Senate Innovation Inquiry - Submission

Transcription

1 Business SA Senate Innovation Inquiry - Submission July 2014

2 BUSINESS SA SENATE INNOVATION INQUIRY - Contents Introduction... 3 Executive Summary The Current State of University/Industry Collaboration International Lessons on University/Industry Collaboration Australia s path to Increase University/Industry Collaboration Is Government Assistance to Industry for Innovation Working?

3 BUSINESS SA SENATE INNOVATION INQUIRY - Introduction As South Australia s peak Chamber of Commerce and Industry, Business SA is South Australia s leading business membership organisation. We represent thousands of businesses through direct membership and affiliated industry associations. Business SA advocates on behalf of business to propose legislative, regulatory and policy reforms and programs for sustainable economic growth in South Australia. The most recent State Final Demand figure for South Australia showed the State s economy has not grown since the September Quarter 2013, and has only expanded 1.3% over the year to March Although the economic growth figures are disappointing, they are not surprising given the declining business conditions and confidence evident in our own member surveys. South Australian businesses are weighed down by a high cost structure, even compared with their interstate counterparts, which puts an increased focus on innovation to remain viable. Business SA is concerned that while Australian universities have excellent research capacity, not enough is being done to leverage those resources for commercial outcomes at a time when the economy certainly needs to diversify and find new export opportunities beyond just commodities. The graph below demonstrates how poorly Australia is currently performing which Business SA sees as a significant opportunity to do better, particularly in relation to SME/university collaboration. In compiling this submission, Business SA interviewed a number of our manufacturing members and academics within the major South Australian universities. We met with businesses which had no experience dealing with universities or even government funded innovation programs as well as businesses which had well developed university linkages, and which were taking full advantage of all available financial incentives to increase innovation. 3

4 BUSINESS SA SENATE INNOVATION INQUIRY - Executive Summary There is no argument that increasing the innovative capability of Australian businesses is critical to future proofing the economy. However, there needs to be a strategic approach to ensure Australia is firstly capitalising on the resources we already have to achieve such change. While government programs including the R&D tax incentive are needed to directly assist businesses to innovate, the real game changer for innovation within Australian businesses will occur if we can adequately leverage the research capacity of our highly regarded universities to achieve better commercial outcomes for industry. Australia has world class universities with five in the top one hundred alone, and a further 14 in the top 400, but still we rank at the bottom of the OECD when it comes to university/industry collaboration. There is no reason why Australia cannot emulate the success of the United States in areas such as Silicon Valley but we need to make some bold changes to realise this vision. There must be fundamental structural change in the university sector to address the poor outcomes in leveraging university research capacity for commercial outcomes. The key to this change requires the Federal Government to embark on an overhaul of the university funding model to ensure there are adequate incentives in place to promote university/ industry collaboration. This will involve allocating at least 20% of research funding to projects which partner with industry for commercial outcomes and ensuring Australia s university quality benchmarking system for research funding, ERA, is appropriately re-structured to recognise the impact of university research in industry. At present, universities are typically focussed on research to improve their ranking in order to attract international students which is vital to their funding needs. If the underlying funding drivers are structured properly in the first place, universities will be driven to collaborate more with industry. This is likely to happen because universities will see the commercial benefit to them compared to being purely focussed on academic research. Universities also need to restructure their career progression systems to give appropriate weight to academics who have achieved success with industry in realising commercial outcomes through collaboration. The Federal Government cannot mandate how universities promote their staff but if the underlying funding structure rewards collaboration with industry, universities will be more likely to remodel academic promotion structures to suit. Universities should be less fixated on protecting their intellectual property (IP) rights and more focussed on the broader economic benefits of collaborating with industry. Many businesses become frustrated by the uncommercial nature of some universities in negotiating royalty streams from innovations and what might be a great commercial outcome for all involved is never realised. However, if the underlying funding structures for universities adequately promote university/industry collaboration, universities will be more likely in a position to relax their hold on IP and focus more on the broader benefits of industry collaboration. The SME sector is a natural starting place for increased university/industry collaboration but universities need to be more nimble in terms of enabling SMEs to tap into their research capacity. Part of the issue is cultural, but cultural barriers which currently exist between universities and business can be broken down if there is a more systematic approach from universities to engage with business, a starting point being a renewed focus on industry sabbaticals. Business, particularly small business, can also benefit significantly from having access to graduate, or undergraduate students, to assist with defined term projects and there needs to be improved funding mechanisms in place to support this. Connecting universities to business is also problematic but there are established business networks such as Chambers of Commerce which can help facilitate this. For universities to successfully manage such a transformation, university leaders must champion the drive to connect with business and elevate the status of collaboration with industry amongst academic circles. 4

5 BUSINESS SA SENATE INNOVATION INQUIRY - 1. The Current State of University/Industry Collaboration In assessing the state of university/industry collaboration, it is important to recognise that there have been many successes. South Australian businesses such as Seeley International, RedArc and Ellex just to name a few have all successfully collaborated with universities to enable innovation and are today strong and successful export orientated businesses. These are the types of businesses we need more of in order to provide underlying strength to our economy, making it less prone to the whims of commodity prices. Examples of university/industry collaboration have often resulted from the intentions and efforts of individuals, rather than a system or structure which supports such collaborations. There are also some commercial service providers which broker university/industry partnerships but again, these come at a cost which can often be limiting, particularly for SMEs. It is clear from speaking with both industry and academia that relationships are critical to successful university/industry collaborations. Even where the bureaucracy has created huge barriers to collaboration, determined individuals have overcome such obstacles to ensure a successful commercial outcome is achieved. In these instances, it is often academics who can see the greater good of partnering with industry and can work within the system to ensure resources are shared to help achieve a commercial outcome. From the perspective of industry and academics who wish to partner, there are often significant delays associated with university technology transfer offices negotiating intellectual property (IP) rights with industry. As one of our manufacturing members put it so eloquently, technology transfer offices can often get stars in their eyes about the value of the university s IP and cannot reach agreement with industry on a commercially acceptable royalty stream. These negotiations can often be damaging to building long term relationships which can benefit both the university and industry partners. Furthermore, technology transfer offices are often too inwardly focused on protecting the university s liability and IP and not on proactively finding industry partners to realise commercial outcomes from the university s research capacity. The fundamental reason why Australian universities are failing to collaborate with industry on a large scale is the lack of structural incentive to do so. Universities rely heavily on international student enrolments and to attract these students, they need to maintain high rankings on university comparative indexes. Such rankings are based on academic research citations which come through maintaining a strong research capacity. Funding for academic research comes largely from the Federal Government and is weighted towards the academic standing of the university which emanates from research citations. Given the importance of research to universities, academic promotions are also largely based on research performance which underpins the lack of incentive for academics to collaborate with industry. While there are incentive structures at most universities to enable researchers to benefit from their inventions by means of sharing royalty streams, researchers generally lose access to this incentive should they take the entrepreneurial approach and invest equity in the commercialisation company. Moreover, even with such incentive structures in place, academic promotion criteria do not typically recognise successes from commercial outcomes which further discourages academics to work with industry. Culture is also a large barrier in preventing more university/industry collaboration in Australia. It was often commented through our consultations with members that many academics today have little if any actual industry experience. This lack of exposure to industry is limiting to academics in terms of their capacity to understand commercial drivers and build relationships with businesses in order to achieve commercial outcomes. It is also true that businesses sometimes fail to appreciate the drivers of academics which are usually not commercial. There is a lack of exchange between universities and industry with respect to graduate or intern type placements, even if just on a specific project basis. Where businesses are successfully employing university students on such arrangements, we have been told it often works best through existing relationships with academics and not via structured programs emanating from the universities themselves, although there are notable exceptions such as Swinburne University s industry based learning program. While all of the above are reasons why universities are failing to collaborate with industry, particularly SMEs, there are some universities doing much better than others. Where university/industry collaboration is strong, there is leadership from the university hierarchy and a clear mandate to leverage the university s research capacity to enable commercial outcomes. 5

6 BUSINESS SA SENATE INNOVATION INQUIRY - 2. International Lessons on University/Industry Collaboration Countries like the United States and Northern Europe are performing much better at university/industry collaboration than Australia, and many countries are striving to increase collaboration even further to unlock economic growth potential. While the United States is still recognised as the leader in university/industry collaboration, particularly in areas such as Silicon Valley, other countries are working hard to emulate this success and we have identified some key areas where they are focussed on progress: 2.1 Ensuring funding structures reward commercial outcomes has been identified as a key ingredient to boost university/ industry collaboration. The UK s Research Excellence Framework (REF) now stipulates that 20% of a funding application s grade will be based on the impact of that research, including reach and significance. This is changing the focus of universities to start seeing more value in engaging with industry to ensure they maintain their funding profile. 2.2 The Science/Business Innovation Board (SBIB), a not-for-profit scientific association with members including BP, Microsoft, INSEAD and Imperial College London, released a report in 2012 on how to improve the climate for innovation in Europe with the following key findings and recommendations: Strategic partnerships between universities and industry worked best when each side was able to collaborate to overcome the cultural and communications divide which plagues many partnerships and reduces their potential for success. It is individuals who understand both worlds academia and business that are the driving force behind successful partnerships, says Alan Begg, Senior Vice President, Group Technology Development, SKF Group. Funding incentives do work and SBIB recommended governments reward universities who actively collaborate with industry. Notwithstanding, any funding transition needs to enable university faculty to manage a cultural shift which does not jeopardise core research but puts a clear priority on engaging with industry for mutual benefit and for the benefit of society. The most productive collaborations were strategic and long-term, built around a shared research vision and mutual trust which helped bridge the university/industry cultural divide. European universities could significantly increase their attractiveness to industry by making industry partnerships a clear priority and by developing a pool of academics who have worked in industry. University leaders need to make industry-university partnerships a strategic priority and communicate that message regularly to the entire academic community. However, strategic partnerships need input at the highest level from both the company and the university. Universities should not get too hung up on intellectual property (IP) but develop a broad overarching framework agreement and work out details on a case-by-case basis. Company executives tend to walk away from universities that have too inflexible an approach to IP, no matter how good the science. Instead of a narrow focus on IP as an income source, universities should be engaged in providing solutions for the economy, where the income stream will be much greater and the benefits more widespread. 2.3 A 2012 review of business-university collaboration in the UK by Professor Tim Wilson DL focused on how to increase industry experience and understanding within universities as a conduit to increased collaboration. The report made the following key recommendations: Where internships for university graduates are paid, the government should examine the feasibility of supporting companies that host students through a tax credit or grant mechanism. All post-doctoral research staff should have to undertake two to three months of industry work experience within a three year contract. This requirement must be embedded into the employment contract and where possible, within external funding arrangements. 6

7 BUSINESS SA SENATE INNOVATION INQUIRY - The vast majority of knowledge exchange interaction follows direct contact between academics and industry so networks and mechanisms of exposure and engagement between academia and industry are crucial. In this context networking, and establishing and sustaining trusted relationships, becomes a key role for research academics and businesses alike. The knowledge transfer partnerships (KTP) scheme places recent graduates with companies under joint academic and company supervision to undertake a research project, with the goal of improving the competitiveness of the company. Running for over 30 years, the benefits of these partnerships are well established. 2.4 A 2007 European Commission report into improving knowledge transfer between research institutions and industry found that although some European universities provided financial incentives to ensure a share of any profits from spinning off inventions went to the researcher, many academics remained reluctant to take part in such activities if they are not taken into account in career progression. For this reason it is critical that selection criteria for university career advancement takes into account activities such as patenting and collaboration with industry. 3. Australia s path to Increase University/Industry Collaboration There is a raft of measures required to increase university/industry collaboration in Australia, but the primary focus of the Federal Government must be on ensuring the underlying funding structure of universities appropriately incentivises academics to work with industry. Although it will continue to be important for universities to publish high quality and relevant research, there must be a shift towards recognising the value of commercial outcomes through university/industry collaboration. The Federal funding model for universities needs to designate at least 20% of grants for universities who can partner with industry to realise commercial outcomes. This type of model would incentivise academics to look for industry partners who are willing to collaborate on projects with a specific commercial outcome in mind. Projects would then be assessed on a competitive basis ensuring proponents make a compelling case for net benefits. Universities may require some assistance to structure commercial grant bids which could be arranged through the Entrepreneurs Infrastructure Program. The Excellence in Research for Australia (ERA) model, the Federal Government s quality assurance system for university research, does not include the impact of research as a measure of research quality. The ERA must be amended to give weight to commercial outcomes from research as a form of research impact. If the Federal funding system is appropriately structured to reward universities who collaborate with industry to achieve commercial outcomes, it follows that universities will eventually structure their academic promotion criteria to give appropriate weight to academics who engage with industry. This will most likely do more to encourage academics to collaborate with industry than monetary incentives, for it is often the prestige and recognition from colleagues which is more important in academic circles. Australian universities must do much more to encourage both academics and graduates to spend more time learning in an industry environment. The Federal Government currently runs a researchers in business program but the take-up rate is quite low which may be due to funding limitations, a lack of interest from academia, or a combination of the two. In any case, if there was an incentive structure within universities to promote industry engagement, researchers may be much more inclined to take a sabbatical to work in industry rather than just focusing on academic research. Industry sabbaticals can also be quite beneficial in ensuring the currency of an academic s practical knowledge which can only improve the quality of a university s teaching. 7

8 BUSINESS SA SENATE INNOVATION INQUIRY - SMEs are often the hardest nut to crack in terms of university/industry collaboration, but given Australia has one of the highest percentages of SMEs to all businesses in the OECD, it is important that Australia s strategic policy to increase university/industry collaboration is predominantly focused on the SME sector. From our discussions with SMEs, the less formal the approach to increased collaboration with universities the better. SMEs are often looking to tap into university resources on an ad-hoc basis but are hindered by the bureaucratic structures in place which prevent this. While there are successful schemes, including the South Australian Government s innovation voucher scheme, there is still not enough consideration given to the potential benefits to industry and universities from having nimble contact. It may be the case that an SME could benefit considerably from being able to access a university expert for even a few hours to provide an alternative perspective on a manufacturing problem but the enabling structures for such contact do not exist. SMEs are also showing a willingness to engage with graduate students but may be more likely to do so on a project type basis which does not necessarily fit within university placement structures. Again, while there are some programs in their infancy, Business SA wants to see universities funded to provide graduate student incubator type programs which enable SMEs to access graduate skills for short-term projects and to provide the students valuable industry experience. Such programs should be run from universities where students, concurrently undertaking graduate studies, are paid a stipend to be available for short term industry projects. We have spoken with larger businesses about intern type placements and while they can and do work, universities need to be careful about being too prescriptive as to how such programs operate as less formal arrangements are often much more suitable to industry. Business SA questions the wider economic benefit of universities preoccupation with securing IP rights. Universities may gain considerably more from industry in taking a less rigid approach to IP and while there may be a short run/long run trade off, the benefits to the wider economy from Federal Government funding of universities could be much greater. No doubt there are cases for universities to receive royalties from IP, but we must remember that universities are predominantly publically funded institutions and their primary role should be to disseminate knowledge for the greater good. While educating students will and should always be a primary focus of universities, ensuring universities leverage their research capacity to provide the most benefit to industry also helps create the jobs of the future for those same students. Connecting universities and businesses has often proved difficult and the Federal Government should be examining how it can better leverage established business networks such as Chambers of Commerce to provide pathways for SMEs to access research capacity. Businesses, particularly small business, are often discouraged by the bureaucracy within universities and a conduit organisation such as Business SA can provide a mechanism by which to break down existing barriers between universities and industry. Business SA has already had preliminary discussions with the three major universities in South Australia to explore how we may be able to facilitate such a network. 4. Is Government Assistance to Industry for Innovation Working? Although there are numerous government programs to assist businesses to innovate at both a State and Federal level, for the purposes of this submission we have restricted comments to the key programs for South Australian businesses being the R&D Tax Incentive, the Entrepreneurs Infrastructure Program and the Innovation Voucher Program. 4.1 The R&D Tax Incentive: Through our discussions with members, the R&D tax incentive is recognised as being the most beneficial to businesses in terms of facilitating spending to achieve innovation. While the program is considered to be difficult to access for some SMEs, for businesses which are making use of the R&D tax incentive, the level of compliance is considered appropriate. Businesses using the R&D tax incentive have also indicated their willingness to increase spending for innovation if the tax offset rate was higher. There may also be a case to increase the revenue threshold for the refundable tax offset above $20 million. 8

9 BUSINESS SA SENATE INNOVATION INQUIRY The Entrepreneurs Infrastructure Program (previously incorporating Commercialisation Australia): Where members did access the defunct Commercialisation Australia program, the level of compliance was considered excessive and the selection criteria lacked transparency. Given the complexity of the program, businesses were often forced to hire consultants just to complete an application even when they were assigned a case manager. There also seemed to be a level of inconsistency in the decision making process. Furthermore, grant application turnaround times were elongated; in some cases up to 12 months which did not fit within the commercial timeframes of businesses. 4.3 Innovation Voucher Program (State Government of South Australia): Members have been quite positive about the State Government s Innovation Voucher Program, particularly in respect to the turnaround times for grant applications which have been as little as four weeks. The program is having a beneficial impact as it gives businesses the resources they need to engage with universities on collaborative projects. The success of this program is proving the unmet demand of business to further engage with the university sector. In discussions with members, we have also heard ideas for different ways of structuring direct government assistance to business for innovation. One member suggested tax breaks which can be drawn down over the first three years of a commercialised product s lifespan to encourage businesses to keep innovating and maintain a consistent new product cycle. This may be a useful incentive to invigorate some businesses, for example one of our manufacturing members we interviewed who had not released a new product in over a decade. 9