Peter Sheehan and George Messinis
Innovation is widely held to be central to competitiveness and growth in the modern economy. For a single firm, innovation can be defined as 'applying ideas new to the firm in products, processes, services, organisation, management or marketing' (Bryant 1998). In line with the international literature, this definition includes 'little ideas' and unsophisticated techniques.The term is also sometimes used in a broader sense. For example, it has been suggested that innovation is 'any new way of doing the myriad of things that make up a business' (Banks 2000).
The latter definition allows for changes in a firm's activities that do not involve the systematic introduction of new ideas. Staff reductions, management restructuring or variations in labour intensity are all changes that do not imply innovation. In this paper we follow international usage and reserve 'innovation' for the process of systematically applying ideas new to the firm, referring to the broader process simply as change.
It is important also to note that innovation is not immediately identifiable with particular inputs or outputs. Substantial spending on innovation may not in fact lead to much actual innovation, and in some cases innovation can be low cost. On the other side, aggregate outcomes, such as higher productivity growth, can be due to various causes and not necessarily to innovation as defined here. Thus the identification and measurement of innovation must be approached with considerable care.
These points are directly relevant to a current central debate about the Australian economy. One view notes the striking success in terms of growth in GDP and productivity during the 1990s and attributes this to structural change and reform that has occurred over the past decade. An alternative view maintains that Australia is falling behind major countries in terms of innovation, and that this is having serious economic consequences. Not only are these two competing views reflected in the literature, but they were also central to the debate between the two major political parties at the 2001 federal election. We return to this issue below.
Following the international literature, Australian research has adopted the systems approach to the study of innovation, seeking to understand the role that business, research agencies and institutions play in developing processes and networks that are most conducive to knowledge growth and innovation. Considerable effort has been made to assess Australia's innovation capabilities, to identify the key barriers to, and