Time to stop thinking like the 'big end of town'

When Ray Leussink, the founder of machine engineering specialist Leussink Engineering, saw work from his biggest customer BlueScope Steel “drop off a cliff” two years ago, his search for new customers shifted into high gear.

Opportunity knocked when the Wollongong-based Leussink was connected with a farmer in Narrabri in north-west NSW. The farmer had an idea for a new piece of equipment that could cut the cost of planting by 40 per cent or more.

Leussink booked a flight to go see for himself. The night before the flight, the airline called to say it was cancelled due to a lack of passengers. To make the meeting 600km away, Leussink was forced to charter a small aircraft.

“The farmer did have a breakthrough idea,” said Leussink. “But, being a farmer and not a machine engineer, it was all in his head.”

Leussink and his team helped draft the design and built the first machine. But what he didn't know was how over-leveraged the farmer was. The bank took the farm -- and everything on it.

And what became of the farmer's breakthrough intellectual property, which Leussink helped develop? That also went to a venture capital firm, which is now seeking a manufacturer for a global market.

It's an anecdote for Australia in an age of upheaval.

It's not just about our struggling small and medium enterprises, farmers, or even infrastructure gaps, the episode highlights the fast-changing reality of our perceived strengths and weaknesses in an economic era beyond the auto industry, farming and resources booms.

The age of upheaval

Like numerous small and medium enterprises trying to transform as their local corporate customers pull-back on spending, Leussink's experience also reveals the complexity of innovation and risk-based endeavour.

“For more than 30 years our business has been servicing the Wollongong steel and mining industry,” says Leussink. “Today we have to think differently and go farther afield.”

The new era is increasingly driven by tech-smarts: the so-called “knowledge workers”. These are the engineers, software developers and design-specialists that are adding value to products and disrupting traditional processes of almost every kind. Australia has a shortage of this talent.

“We must find new sources of growth. And not just any growth,” wrote UTS Business School Dean, Roy Green in a recent article in The Conversation. “Our first world lifestyles, based on imported consumer goods, will not be sustained by residential house-building, or even infrastructure spending, let alone selling each other financial derivatives and cafe lattes.”

Australia's manufacturing sector is battered; the mining and resources boom has entered an era of diminishing returns; our retail sector is reeling from a lack of consumer confidence and technology disruption, and we've had more than a decade of stalled productivity.

That's why we've been hearing a lot lately about innovation, entrepreneurship and its impact on growth. Unlike other countries, Australian business and policy leaders have been slow on the uptake in that regard.

The Government's recognition of this changed reality finally came last week with the announcement of its National Industry, Innovation and Competitiveness Agenda.

The $400m plan to foster a smarter, more entrepreneurial and tech-savvy Australia has several components. Key among them is a $188.5m investment in five “industry growth” centres. They are, unsurprisingly: mining equipment and services; oil, gas and energy; medical technology and pharmaceuticals; food and agribusiness; and advanced manufacturing. 

A Commonwealth Science Council to improve collaboration between research and industry will also be established.

Livingstone's ‘seismic' superlative

These components of the new 'agenda', (there are more discussed below) have been heavily influenced by Business Council of Australia President Catherine Livingstone. Since taking the post five months ago, she has been a vocal advocate for innovation.

Initial reaction has been mostly positive, at least about Livingstone. One commentator gushed: “Livingstone will go down in history as one of Australia's most influential business people having helped drive a seismic shift” in government policy.

It's a move in the right direction, but way too early for the 'seismic' superlative. Indeed, after a very long wait, many are underwhelmed. They fear that the BCA's influence misses some key nuance about 'what' and 'who' really drives innovation.

“Industry minister Ian Macfarlane outsourced innovation and industry policy to the BCA, who in turn outsourced it to McKinsey,” quipped one.  (McKinsey's Compete to Prosper report was commissioned by the BCA earlier this year.) “All are steeped in 'big end of town' business thinking.”

Start a global company? No thanks -- the 3Bs are all we need

The biggest concern about big end of town thinking is that it tends to be the least innovative.

This is true everywhere but arguably more so in Australia, a small, inward looking market where oligopolies dominate in key sectors. Here, highly paid board-members and executive teams are too often rewarded for compliance and risk mitigation rather than for pioneering.

It's the '3B creed' that drives Aussie corporate leaders, jokes Stanford University Graduate School of Business Professor George Foster. “No one wants to risk the boat, the Beamer and the big house in Balmoral,” he says.

Foster is an Australian and an expert in global innovation ecosystems and the entrepreneurs driving them. Balmoral is an exclusive Sydney waterfront suburb densely populated with wealthy investment bankers and lawyers.

Contrast the 3B creed with the “Go Big or Go Home” mantra of most tech entrepreneurs in almost any geography.

Mature innovation and entrepreneurship ecosystems like Silicon Valley and Israel have more of them per capita.

But whether few or many, they are similar the world over: they are highly tech-savvy and increasingly specialised. And they don't just make things. They also know how to leverage technology to find and serve global customers.

“You get the children you raise”

Australia's tech start-up sector is broad, but not yet deep. It includes the younger breed of app and software developers as well as the newer class of highly specialised SMEs serving global customers. 

“You get the children you raise,” said Doron Ben Meir, Director of the Entrepreneur's Infrastructure Program and former chief executive of Commercialisation Australia. “Culturally, we have not celebrated, educated for, or invested in these companies.”

The EIP replaced Commercialisation Australia, which was axed in the last Budget. But like Commercialisation Australia, the EIP will be the Government's agent responsible for commercialisation grants and for connecting innovators to both customers and investors.

Ben Meir has been working to deepen the Government's understanding of flows and blocks in Australia's innovation ecosystem. He worked with MacFarlane to raise commercialisation grants to up to $1m (from thousands).

He was also instrumental, along with numerous higher profile tech entrepreneurs, in getting the Government to reverse Labour's punitive 2009 legislation on employee share options. Tech entrepreneurs applaud the change, which will help them attract highly skilled employees on lower salaries, but with the potential for bigger payoffs down the track.

For a Seismic Shift, tune In and tap into tech

If there really is going to be a “seismic shift” in Australian attitudes toward innovation and entrepreneurship, Government leaders, bureaucrats and big corporates in Australia will need to be more engaged with them. 

One indication that more effort is needed on that score came when I asked CEOs of several innovation-centric SMEs for their opinion of last week's industry announcement.

 The typical refrain was, “I don't know what you're talking about.”

“Did something happen?” asked Murray Hunter, the founder and CEO of design and engineering specialist, Design & Industry (D&I). “I've been a bit busy.” 

Murray's Sydney-based company has won lucrative and cutting-edge global contracts for projects as diverse as James Cameron's, Deep Sea Sub, to Parking Metres and medical devices.

D&I is one of a gradually increasing number of enterprises that has embraced change forced both by technology and globalisation. Others include software-centric and net-services companies like Atlassian, Oz Forex, Kaggle and Freelancer.com.

There is also the new breed of transformative SMEs in the embattled manufacturing sector like Redarc Electronics and ANCA Technologies. These companies – often called “outliers” or “quiet revolutionaries”- typify the jobs of the future and their success can show the way for many more to come. 

But if this much needed revolution in Australian business is going to go mainstream, we need to improve collaboration between research, academia and industry. Australia ranks poorly in any global rankings of such collaboration, and in the commercialisation of research.

The Commonwealth Science Council announced in last week's Industry Agenda is one attempt to foster that collaboration. Its goal is to bring science-based endeavour into focus.

But science without entrepreneurship will fall short of producing the economic gains Australia needs. And for universities that have long been used to getting money for publishing research, rather than commercialisation outcomes, a new level of pragmatism and incentive is needed.

“I can tell you what collaboration between academia and industry looks like now,” said one SME chief executive. “The university sends us teams of students for a tour of my operation. Many of these are high fee paying foreign students. We spend hours showing them what we do. They seem confused and then they leave. The University then ticks a box on a form to get another grant.”