A new approach to measuring innovation in Australia

Australia’s next phase of growth must be defined by ideas, creativity and execution. By people and businesses that are adaptive, agile, thought leaders and doers. Our future lies in our ability to foster a culture of innovation. But how do we measure innovation across all sizes and types of business? When asked to assess their level of organisational innovation, large business (1,000+ employees) see themselves as by far the most innovative – over 1 in 2 firms report high levels innovation (compared with only 1 in 3 firms overall, and even fewer micro businesses).

Larger companies are more likely to have a formal or structured approach to innovation, while smaller companies typically do not label such activities and hence may under estimate their true level of innovation. Many businesses innovate continuously to survive and prosper. But, few call this “innovation”. Instead they talk about “improvements”, “changes” and “adjustments” to their everyday processes, products or services.

The NAB Labs Business Innovation Index is based on what a business does “differently”, “more quickly”, and “more cost efficiently” – behaviours that are at the very heart of innovation. It measures innovation across all business sizes and sectors.

Overall, Australian business scored 67.6 for innovation (out of 100). All 3 components of the index scored broadly the same. But, the overall index masks differences in innovation by business size, industry and location. Large business scored highest overall for innovation (73.1) and also leads across all sub-components of the index – especially for doing things differently and more quickly. However, micro-businesses were the next most innovative group (69.1), and were equal strongest for cost efficiency with large business. By industry, Transport/Storage scored highest (72.1), followed by Retail (69.7) and Manufacturing (68.5).

WA (70.1), SA/NT (69.4) and QLD (68.3) are the most innovative states. WA businesses scored highest on “cost efficiency”, while SA outperformed on “doing things differently”.

The most significant barrier to innovation and business change (identified by 1 in 2 firms), is simply not having enough time to turn their ideas into reality. Other significant barriers include: business resource constraints; technology concerns and costs; and a lack of skilled workers. While large firms face similar barriers to their smaller counterparts, the degree to which these inhibit innovation are typically lower than for smaller business.

Real innovation comes from a deep understanding of customer needs. Small businesses have the most intimate knowledge of their customers – 7 in 10 (70%) report a “high” level of customer knowledge. In fact, most businesses (76%) said they were driven by “opportunities to deliver a better experience/service/product to their customers”. While all businesses were primarily driven by this motivation, 100% of large businesses said this was their key driver.

When asked to provide examples of how they innovate, the number (and variety) of responses was overwhelming – they ranged from establishing an internal “shark tank” to assess new business ideas for investment, to simply reducing clutter on the factory floor. By innovating, businesses speak of “improving accuracy”, “reducing processing time”, “cutting costs by half”, “enhancing client engagement”, “paradigm shifts”, “continuous improvement” and “accepting change”.

For full analysis, download report

• NAB Labs Business Innovation Index:  July 2016 (PDF, 214kb)