Medium-sized businesses twice as innovative as small businesses and sole traders

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Medium-sized businesses are twice as innovation-active as small business and sole traders, according to the latest Australian Bureau of Statistics (ABS) annual Business Characteristics Survey.

The survey has focussed on the innovation of Australian businesses and the results reflect that the proportion of businesses actively engaging in innovation increases with the more employees they had. This is quite surprising as innovation is typically associated with smaller, agile startups that have few employees.

The survey divides businesses into two groups:

#1. innovating businesses – those that introduced at least one type of innovation in the period

#2. innovation-active businesses – those that undertook any innovative activity irrespective of whether the innovation was introduced, still in development or abandoned).

Medium to large businesses with over 200 employees that were twice as innovation-active as the number of small businesses with between zero and four persons employed. Although this may come back to the fact that there were approximately 4,000 businesses counted with over 200 employees that were innovation-active, but the businesses with between zero and four employees numbered 173,000.

The Business Characteristics Survey covers four types of innovation: goods or services, operational processes, organisational/managerial processes and marketing methods and was developed in line with the Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data.

The Federal Government’s innovation agenda has been creating an environment where startups can create innovations. But, the data reveals that one of the main barriers to innovation for all businesses, but particularly smaller businesses, is the lack of additional funds.

A staggering 29 percent of innovation-active businesses with between five and 19 employees reported a lack of access to additional funds as a barrier to innovation. Close to 26 percent of innovation-active businesses with between zero and four employees that supported this view.

While the Survey is in it’s 12th year, it was only recently that innovation has become part of the national agenda as part of the Turnbull Government’s National Innovation and Science Agenda. The focus on Australia’s startup and fintech community has seen the introduction of several policies such as a regulatory sandbox and a government fintech advisory group, all designed to foster innovation.

NAB Labs launches Innovation Index to understand what drives Australian businesses to innovate

NAB Labs has partnered with The University of Melbourne to better understand what drives Australian businesses to innovate, together launching The Innovation Index to measure innovation across all business sizes and sectors.

University of Melbourne management professor Danny Samson said that innovation is arguably the “most important challenge and biggest opportunity for the national economy”, with the country’s next phase of growth to be driven by innovation and defined by ideas, creativity and execution; people and business that are adaptive and agile will dominate both locally and globally.

However, Samson said to reach Australia’s economic potential the factors that drive innovation must be tracked.

“We have an important saying in business: if you want to manage something well, you must be able to measure it,” said Samson.

In combination to the University’s finding, NAB chief economist Alan Oster and his team broke down the drivers of innovation by surveying more than 500 businesses of all sizes and industry about their behaviours. The combined research created the NAB Labs Innovation Index.

“Many businesses innovate continuously to survive and prosper but don’t necessarily think of that as innovation, but more likely talk about “improvements”, “changes” and “adjustments” to their everyday processes, products or services which is exactly what innovating is,” said Guay Lim, research director of the Macroeconomics Research Program at the Melbourne.

The Innovation Index found that larger companies are more likely to have a formal or structured approach to innovation, while smaller companies do not label such activities and may underestimate their true level of innovation.

Businesses were scored under three components: what they do differently, more quickly, and more cost efficiently. Overall Australian businesses scored a 67.6 out of 100 for innovation, with large businesses scoring the highest with 73.1. Micro-businesses were the next most innovative group, scoring 69.1.

The largest barriers to innovation for businesses around Australia include resource and time constraints, technology concerns and a lack of skilled workers. All industries and businesses of various sizes face the same barriers to some degree.

“While large businesses were most innovative, micro-businesses with less than 20 people were the next most innovative group and they were particularly focused on doing things more cost efficiently, but their challenge was a lack of time to implement ideas,” explained Oster.

NAB intends to continue working with the University of Melbourne to track how Australia is innovating and how that innovation is contributing to informing the way all businesses transition out of the mining boom and into the ideas boom.

Chloe Potvin
Chloe Potvin is a contributing small business writer for Kochie's Business Builders.