The Press, May 2010
Amidst the National government’s second budget lollygrab last week, a centrepiece for business observers was a funding announcement for research and development (R&D). It’s a worthy initiative but raises a couple of questions. Who is going to buy all of these inventions, and how can we sell them at a good profit?
Increasing the level of ‘innovation’ amongst New Zealand businesses, and thereby growing export earnings, is the thrust of the $321 million in new funding. The government’s strategy is to get the publicly funded crown research institutes (CRIs) doing better research, both on a pure level and in working directly with businesses. Encouraging businesses to doing more R&D themselves, and working more closely with CRIs, is the other plank of their plan.
". . . building faster and sustainable economic growth - it's the only way we can create the jobs, higher incomes and the better living standards New Zealanders deserve," Prime Minister John Key said when revealing the funding. “This major investment will not only help keep New Zealand competitive, but is at the heart of our strategy to boost economic growth."
New Zealand is so-so at innovation. A recent Boston Consulting Group (BCG) examined a range of developed countries based on inputs like government policies supporting education, workforce quality, infrastructure, and trade; and outputs including R&D results, business performance and employment growth. It put New Zealand at a mediocre 26th in the world.
Singapore was the frontrunner, who achieves a lot more with a population size similar to our own. According to the BCG study Singapore has done a lot to encourage foreign investment and gain extensive channels to market in areas like technology and biotech. New Zealand needs to match Singapore’s levels of innovation to raise our living standards.
Mr Key and his government are sure-footed on this issue, as they have been on many during their term so far, but it is an incomplete approach.
The government’s assumption is that businesses already have a lot of established commercialisation capabilities for turning new research ideas into export dollars. Hence their focus is on getting the private sector to churn out new product ideas, with CRI's adding more, in the belief that businesses will ramp up existing channels to market and everything will flow.
Despite some obvious success stories, we don’t have a great record at commercialisation i.e. finding people to sell our inventions to at a profit. That New Zealand hasn’t yet built a lot of large scale technology-based businesses, with a few outstanding exceptions, is evidence of this commercial weakness. As is our continued dependence on agricultural commodities to power the economy – the ‘innovation’ sectors are not making fast enough progress to become the engine room.
Kiwi tech entrepreneur Sir Gil Simpson defines innovation as “success through difference,” i.e. taking a different approach to solving a customer’s problem and being commercially successful with it. That latter point is absolute key. Inventions don’t put money on the table – innovation does.
Often we equate great ideas with commercial success (‘if I could just invent some clever gizmo I’ll be rich’), but it is not often that simple. A smart invention needs a whole of lot of other things in place to become a ‘product’ i.e. a complete solution to a consumer’s need for which they are willing to pay.
The classic example is the first cars. Henry Ford’s Model T was a great invention, but it didn’t actually gain any market traction until a network of petrol stations started to emerge. It was an incomplete product without them.
This makes marketing one of the keys to transforming invention into innovation. Invention is where companies develop something and throw it over the fence to the market and hope it will work. Innovation is where you understand the market needs before developing the product, and then deliver to a market in a planned and sustained way.
Knowing that market side of the equation – where and how people buy a particular product, what competitive solutions are available, what sort of pricing strategy is most profitable, what in-market support is required and so on; is just as hard as the invention challenge.
New Zealand’s commercialisation capability needs the same sort of makeover the government is trying with research and development. And although it is more up to individual companies than the country overall, the government can play a role. Requiring stronger market proof for research funding e.g. evidence of market opportunity, channels to market and ability to achieve premium pricing using a specific strategy, would be a good start.
Taking a product to market is as much a process as the scientific method. It sometimes has unexpected results, but the probability of success dramatically increases if the process is right. Success commercialising a concept is highly dependent on your ability to focus, intimately understand your market and build an effective capability to engage on the customer’s terms.
As a country we must hone this capability if we want innovation-based sectors to really contribute to our economic growth and emulate the economic stars of our primary sector.