Science is the foundation of an innovation ecosystem

The prosperity of advanced economies is driven by innovation performance, which is why there are several reviews of New Zealand’s R&D industry in progress. Actions resulting from these reviews will improve economic outcomes most effectively if they address the four important obstacles to success discussed below.

Innovation contributes to improvement in productivity per hour worked and to the formation of new businesses that can improve New Zealand’s export performance and wealth. New Zealand’s innovation ecosystem is already contributing.

The Technology Investment Network’s TIN100, to be released in two weeks, estimates that the top 100 technology companies produced overall revenues of $6.6 billion in 2008/2009, with $5.1 billion exported. These companies contributed over 23,000 jobs with average revenue per job of $280,000. They are growing.

Research conducted by the New Zealand Institute shows that the innovation ecosystem could contribute much more. New Zealand’s R&D spending per capita is well below average for the OECD.

Despite an increase in effort over the last decade, New Zealand has a relatively poorly performing innovation ecosystem and is not yet making as much effort as other small countries that are seeking advantage from innovation.

Science provides the foundation of an innovation ecosystem. Skilled graduates, research contracts, technology licenses and launch of new businesses all flow from an effective science infrastructure.

A successful innovation ecosystem has two important parts: the research facilities that produce the scientific output, and the business organisations that develop products and services for launch in international markets. The performance of the whole is only as good as the performance of the weaker part. Increasing output from the research units will not be sufficient to deliver a large economic performance lift if commercialisation performance is not world class.

In recent years, many institutions that support the commercialisation part of the innovation ecosystem have been established in New Zealand: for example research commercialisation units, incubators, angel networks, and venture funds. We now have an innovation ecosystem with all the required participants and at best, the commercialisation of our innovation ecosystem is working well. However, the average performance is not reliably at the standard required due to four obstacles.

First, the larger and longer established commercialisation units perform relatively well but smaller ones need to be aggregated to achieve the critical mass required to field the wide range of skills necessary. Further, performance measures and incentives do not provide sufficient encouragement to form businesses so New Zealand is not creating as many firms with potential to become substantial exporters as it could.