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Transforming innovation in Australia

When it comes to fostering innovation and the commercialisation of world class research, there is something the United States has that we lack. We ought to learn from the successes of the US in this area, and emulate one program they have pioneered to give our own innovative industries a much needed kickstart.

For dozens of Australian researchers returning to the country after working in the US, the lack of an equivalent to the US’s Small Business Innovation Research (SBIR) scheme here reflects a major hole in our innovation ecosystem.

Charles Wessner, Professor at Georgetown University and Director of the Global Innovation Policy unit, says the SBIR scheme triggered a fundamental shift in attitudes in American universities when it was introduced in 1982.

According to Wessner, before SBIR, the Dean of a faculty would ask young academics how many publications were going to come out of their latest piece of research.

Thirty years on, the Dean is now asking whether the research can be converted into a product or service, and whether they should spin it out of the university to access SBIR funding. It has been a profound change of mindset, says Wessner.

Simple but effective

The SBIR scheme is a fairly simple design that hasn’t changed much since its introduction. US government agencies, which undertake more than US$100 million worth of R&D outside the agency, are required to allocate 2.8% of their R&D budget to these programs. Currently, eleven federal agencies participate in the program.

Each agency takes an active role in calling for R&D – “solicitations” is the term used in the US, and with a completely straight face – for areas of concern to them. For example, the US Department of Agriculture this year is calling for projects in 10 areas. They are unsurprising fields, like “aquaculture” and “biofuels and biobased products”, but with a bit more specificity under them.

Any small business (1–500 employees) can then bid to undertake projects against those solicitations. The US Department of Agriculture issues solicitations once a year, receives about 500 applications for “Phase 1” projects (those up to US$100,000 over up to eight months) and funds about 15–20% of them. If a project is success at Phase 1, they can apply for a Phase II award, which can be up to US$500,000 over two years. Some departments have further, larger Phase III stages, although the USDA doesn’t.

For the Department of Defense (DoD), 2.8% of its extramural R&D spend is a very large amount of money indeed. Moreover, if the Department of Defense is soliciting proposals for new work, it is very likely it’ll become the first customer of that small business if the project is successful.

The DoD already has a stake in the product, and is thinking about how it might work in its own ecosystem. Given the extreme complexity of military procurement procedures, having the DoD already staked in your product is a major advantage to a new company.

Carry on Phase II and then Phase III funding, sometimes in multiple series, are available in much larger amounts from the bigger agencies, and can run to tens of millions of dollars.

Don’t imagine that means all SBIR projects are short-term or lack scientific challenges. The US Navy uses about 1.4 billion tonnes of fuel annually, and the head of its energy program, Captain Jim Goudreau, said climate change transcends politics when you are talking about that much fuel.

He pointed out that the US military is already affected by climate change in many practical ways, like having less available live fire practice days each year in California. And as he said at the TechConnect World audience in Washington last week, the Navy is contracting for materiel to be delivered in 2040, which needs to be effective into the 2070s and 2080s. So it needs to cope with a changing climate.

Pull and push

At the TechConnect meeting in Washington last week, there were literally dozens of US federal groups talking to the science and business community about their innovation needs. Big departments, like defence and energy, are represented by many specialised teams seeking out companies to work for them.

It is “customer pull” in its rawest form. The science community is here in big numbers offering new technologies to the market. When “science push” and “customer pull” mix, then the chances of successful innovation rise to a new level.

At the same time in Philadelphia, the gigantic annual biotechnology conference, BIO, was underway with more than 15,000 participants from across the globe. The two big US science funding agencies – the National Science Foundation (NSF) and the National Institutes of Health (NIH) were there in force helping their SBIR companies meet up with big pharma and other collaborators to bring technologies to market.

It’s like a science festival writ large, but also in extreme detail, as companies search for new opportunities from the vast American research community.

Could it work in Australia?

The recent joint paper from Ian Macfarlane and Christopher Pyne, “Boosting Commercialisation of Research”, floated the idea that Australia needs an “SBIR-like” scheme. The Academy of Technological Sciences and Engineering (ATSE) has often pointed out that the lack of such a scheme is a gaping hole in the Australian innovation ecosystem.

We do have some “customer pull” oriented schemes, though. The Rural R&D Corporations definitely fall into this category, as do many of the Cooperative Research Centres (CRCs).

The government’s response to the recent “Miles Review” of the CRC program was to push CRCs to be even more industry-led.

Industry leadership is the mantra for the new Industry Growth Centres, but they are not going to be funding very much research. The ARC’s Linkage Projects and the newer Industrial Transformation Training Centres as well as the NHMRC’s Partnership Centres are each attempts to have push more of the nation’s R&D investment into more market-facing efforts.

But none of these schemes are aimed at boosting innovation from small businesses. Or at least, not exclusively so. They are often encouraged to do so, and make sporadic attempts to improve their small business engagement, but it is clearly a weak spot in the Australian innovation context.

Small businesses that are trying to expand with innovative technologies constantly struggle to raise funds at early stages of development.

Bridging the gap

SBIR is not of itself a scheme for collaboration; the small businesses involved can undertake all the R&D themselves. But the experience in the US is that SBIR fosters collaboration as high technology start-ups seek to source expertise from universities and other research agencies.

Universities immediately increased their rate of spinning out companies on implementation of the scheme in 1982. The SBIR funding attracts further seed and venture capital funding, bridging that “valley of death” between early research funding and the business becoming self-sustaining.

Ultimately, many of the small businesses get bought out by large companies, particularly in the defense and pharmaceutical areas, where massive ongoing investment is needed to introduce new products.

There’s no doubt that an SBIR scheme would fill a major innovation gap in Australia, and no doubt we could make the necessary administrative arrangements. But for an SBIR scheme to truly succeed in Australia, there would be a few hurdles that I’d suggest must be overcome before we spent the first dollar. I call these the “Fair Dinkumness” tests to ensure an Australian flavour.

Fair Dinkumness test 1

Would there be true political support?

Unless a scheme enjoyed bipartisan support, there would be no point in introducing one. With one of the shortest electoral cycles in the world, Australia is at a major disadvantage in terms of stable policy in relation to innovation.

If the political support is there, then an SBIR scheme would need a significant investment of new money. Scrounging money off another under-funded program would simply be setting both up to fail. It takes some time for industry to become confident with new schemes and start to invest in a meaningful way. We’d need a real commitment.

Fair Dinkumness test 2

Would there be true bureaucratic support?

SBIR in the US works because it is a procurement scheme as well as an R&D scheme. The bureaucracy would need to seriously commit to using the scheme to improve its own departmental knowledge or services.

That means a solicited report to the Department of Environment on management of an endangered species would need to be implemented, not just sent to the library. That means the Army would need to buy the better boots from an Australian small business.

This is perhaps a bigger mindset change than either the politicians or the business community, and would need to be monitored closely, even if there was initial high level support.

For a small country such as Australia, it is often easiest to take the pathway of least risk – so Senate Estimates would need to cut bureaucrats some slack for backing Australian inventiveness too.

Fair Dinkumness test 3

Would Australian business truly back it?

If small businesses are formed just to access SBIR money, and want to survive on providing some research to government, then we are no better off. If peak industry bodies view the money as simply an entitlement for their members, then nothing new will happen.

The whole point of giving a big innovative boost to small businesses is to turn them into high-growth businesses. Existing bigger businesses would need to accept that they won’t be able to access the scheme, and they might even be faced with competition from those that do become successful innovators. An SBIR scheme by its very nature involves giving a leg-up to the new players in town, and the incumbent players need to accept that situation.

If the federal government did undertake to create an SBIR-like scheme in Australia, it would easily be the biggest reform of the innovation ecosystem in the country since the Hawke government’s raft of “Clever Country” policies.

It may not be the size of the Medical Research Future Fund as that scheme grows, but it is significantly more complex to implement. There is no doubt the government wants business and research agencies to come together much more closely. An SBIR scheme would be a massive step in that direction.

Tony Peacock

This article was first published by The Conversation on 25 June, 2015. Read the original article here.

The new class

THERE ARE INCREASING signs that Australian R&D investment in smart sectors such as finance and agriculture is reaping benefits overseas. Federal Trade and Investment Minister Andrew Robb points to a 10.4% rise in annual gross R&D expenditure to $31 billion (by 2012). This is twice the 4.9% per annum average among countries of the Organisation for Economic Co-operation and Development (OECD).

“Australia is a world-class innovation destination,” Robb says. “This is built on solid foundations of modern infrastructure, strong levels of investment, generous research and development incentives, and strong intellectual property protection.” In the Global Innovation Index 2014, Australia achieved its highest rank for innovation inputs, coming in 10th out of 143 countries and placing 22nd for outputs.

“We have seen a near doubling of patents filed abroad by Australian entities over a 10-year period,” says Ben Mitra-Kahn, Chief Economist at IP Australia, the Federal Government’s intellectual property office. He believes this is an encouraging indication that organisations are taking their innovations to foreign markets.

“Our national scientific research organisation, CSIRO, ranks in the top 1% of the world’s scientific institutions [in 15 of 22 research fields],” adds Robb. He cites Australia’s development of the bionic ear and CSIRO’s pioneering wi-fi work as high-profile examples of Australian innovation.

To that list, IP Australia adds ResMed’s patented sleep apnoea devices as well as Sportwool – a composite superfine Merino wool for endurance clothing, developed by CSIRO and WoolMark and adopted by foreign firms.

There’s also: the 3D-absorbent fabric developed by CSIRO and Textor Technologies, which is being used in the next generation nappy by global brand Huggies; Vision CRC’s ongoing work in contact lens technology worn by millions worldwide; and the Total Channel Control System to rejuvenate outdated irrigation systems. Total Channel Control is now used around the world, and was jointly developed by the former CRC for Sensor Signal and Information Processing, and Rubicon Water.

Relatively speaking, Australia’s weakness is innovation outputs. But efforts by many of the CRCs are building global relationships that will continue to boost the nation’s growth. In 2012, a report by Allen Consulting Group (now ACIL Allen Consulting) predicted that $5.9 billion in direct economic impacts would accrue during the five years to 2017 from CRC-produced technologies, products and processes – on top of the $8.6 billion in direct impacts already accrued since the CRC Program began in 1991.

“No one is more interested in or committed to maximising research impact than CRCs,” says Tony Peacock, CEO of the CRC Association.

190115_OS_2Taking finance further 

An example of successful Australian innovation on a global stage is the European Capital Markets CRC (ECMCRC). Established in early 2013 by the Australian-based Capital Markets CRC (CMCRC) in collaboration with European universities, more than seven universities were involved at the time of writing, with plans for at least another seven by early 2015.

The CMCRC was born out of the Securities Industry Research Centre of Asia-Pacific (SIRCA), set up in the 1990s by current CMCRC CEO Professor Michael Aitken as a model under which universities could collaborate and share knowledge and infrastructure and then jointly apply for research funding.

Like its Asia-Pacific predecessor, the CMCRC enables the finance and business departments of Australian universities to build and share valuable infrastructure.

A large amount of time in financial market research is spent collecting and collating data and the CMCRC has developed programs that expedite this process. These innovations also enable the data to be shared, with the result being a drastic reduction in research time.

One of the CMCRC’s earliest and most successful innovations was the SMARTS market surveillance system, which was sold to the US stock exchange NASDAQ in 2010. The proceeds of that sale allowed further developments, such as the Market Quality Dashboard.

“The Market Quality Dashboard takes all that data and produces basic metrics that everyone needs to use to analyse things like transactions costs and market volatility,” Aitken explains. It means researchers and academics no longer need to develop these metrics from scratch, thereby improving productivity.

In Europe, the ECMCRC will attract new members by providing academics and universities with access to these tools.

“What we’re doing is encouraging the universities to get together – by giving them something they couldn’t hope to achieve in a million years – and once they’re together, we collectively apply for funding from the EU to be matched by industry funding, thus sharing the very successful CRC model with other countries,” Aitken says.

The university PhD students who use the data, and are in industry placements, have the joint role of linking the research to commercial applications because they best understand what companies need.

Aitken says the CMCRC has already built three major pieces of technology and created at least 200 new jobs in Australian spin-offs as a result.

“We hope that we will do the same in Europe but we need to get the universities together first,” he says. “By focusing on industry engagement first and foremost, we will build interesting technology for businesses. This will build up ‘brownie points’ with industry partners who will provide access to their unique data, which will in turn foster scholarship.”

CMCRC’s predecessor, SIRCA, has 39 member universities from across the region, and Aitken says there are already plans in place for a capital markets research centre in North America in the next five years.


190115_OSboxA global effort

The area of agriculture and agribusiness is one of Australia’s five key strengths, points out Robb, and agricultural CRCs have also been very proactive when it comes to international cooperation. Two years ago, the Dairy Futures CRC launched a global research project to create the world’s biggest collection of DNA sequence data for dairy herd bulls.

The aim of the 1000 Bulls Genome Project was to build a database of DNA sequences to be used for breeding Australia’s dairy herds. From that data, mutations that affect animal health, welfare and productivity could also be identified.

A scientific paper analysing the genomes of 234 bulls from three dairy cattle breeds – Jersey, Holstein-Friesian and Fleckvieh – was published in the international journal Nature Genetics in July 2014. It explains that the research team identified 28.3 million genetic variants and was able to use the database to identify a recessive mutation linked to embryonic death in dairy cattle. The researchers also identified a dominant mutation linked to chondrodysplasia, a type of bone disease.

“There’s a real opportunity here if we can find the genes affecting traits that are important to dairy farmers, like fertility, milk production and disease resistance,” the project’s leader, Dr Ben Hayes, recently told the ABC’s Country Hour. “We’re combining the DNA information with the herd records that farmers have kept over a large number of years… to sort through those 28 million variants and come down to a few thousand that really do predict milk production, fertility and disease resistance.”

The project involves 20 international research partners from Australia, France, Germany, Canada, Denmark and the USA. Hayes is based at the Victorian Department of Environment and Primary Industries and leads the Dairy Futures CRC’s animal improvement research program – a partnership between dairy farmers, pasture and cattle breeding companies, government and researchers.

Hayes explains that identifying a gene mutation that causes embryonic loss in cows can help farmers build a healthy, more productive dairy herd. “We know that this particular mutation is already present at low frequency in Australian dairy herds. Locating the mutation means we can test for it and avoid matings between animals that both carry the mutation, to keep it from becoming a problem in the future.”

The CRC is also using the project’s genetic sequence data to design improvements in the routine use of DNA to predict the genetic merits of dairy cows.

“The ultimate challenge in making genomic selection more robust is to find the variants that are considered to be causative – the small fraction of all known variants that are responsible for major changes to the function of important genes,” Hayes says.

“We now have data for the entire DNA sequences, including mutations affecting the traits dairy farmers are most interested in. We are tracking down the causative genes for fertility, longevity and meat production, to equip farmers to make more informed breeding decisions and boost the quality of their herds.”


Small pigTHE PORK CRC is another good example of global collaboration. The CRC has strong links with the French National Institute for Agricultural Research (INRA) on genetic research around disease resistance and environmental resilience in pigs. Pork CRC Chief Executive Officer, Dr Roger Campbell, credits the collaboration to the reputation and efforts of their geneticist Dr Susanne Hermesch, an Associate Professor at the Animal Genetics and Breeding Unit, based at the University of New England in NSW. Hermesch says international collaboration is particularly important in her field of pig genetics.

“It’s a small, very specialised field, and you really need to look for collaboration to get the people you want,” she says. Hermesch also has collaborative arrangements with researchers at organisations in New Zealand, Scotland and the Netherlands.

Pork CRC’s attitude towards commercialisation of research at a national level also means that any collaborative international research is quickly adopted in the field.

“Research is part of the adoption process,” says Hermesch. “We are recording information and data on farms in the commercial setting.”

Australian breeding companies collaborate in research, which means they must have faith that the research outcomes will result in commercial benefits for their business.

“This international collaboration is valuable,” adds Hermesch. “I’m pulling people from all over the world into my extended research team with links to the Australian pig industry.”

Campbell expects there to be global advantages from the current genetic research because of these ties.

“The pig industry globally is not all that different,” he says. “I would expect that all geneticists, and therefore all breeding companies, are likely to benefit.”