December 23, 2019

NAB Business Innovation Index 2019

Business innovation falters in Australia as the economy slows.

Tougher economic conditions and increasing global uncertainties have weighed heavily on business innovation behaviours with NAB’s measure of innovation turning down over the past 12 months.

The 2019 NAB Business Innovation Index – which measures how businesses did things differently, more quickly or more cost efficiently – fell to a survey low 57.6 points this year, down from 64.3 in 2018.

All aspects of innovation dropped, across almost all states, sectors and size of business.

Lower innovation has occurred against a backdrop of a slowing domestic economy and broad-based slowdown in business conditions. Heightened uncertainty around global trade tensions and growth have also potentially weighed on businesses as they focus more on shorter term cost objectives and outcomes.

NAB’s Head of Industry & Behavioural Economics Dean Pearson said: “It seems business leaders have become less willing to take risks and explore new ideas”.

“The decline in the NAB index is disappointing given the important role innovation plays in contributing to economic growth through higher productivity and greater output”.

By industry, Utilities & Telecoms rated highest for overall innovation and was also up on 2018. Mining was the only other industry to report stronger innovation in 2019 and ranked third highest overall – a big turnaround from the previous year when it came in at last place.

Businesses also believe Australia’s ‘innovation culture’ remains unimpressive, rating it lowest since this survey began in 2016.

New NAB research compares firm business conditions against their level of innovation. It reveals firms experiencing ‘extremely’ high business conditions are not surprisingly among the most “innovative”.

However, the highest level of innovation was found among those firms at the opposite end of the scale –  those experiencing the weakest business conditions.

Leading business innovation author and Professor of Management at the University of Melbourne Danny Samson said: “Perhaps the truism that ‘necessity is the mother of invention’ is in play and extends from invention to innovation here, even though these challenged firms have low capital expenditure intentions.”

In this report, NAB also took a closer look at innovation behaviour among SMEs.

“The data on SMEs shows real energy and dynamism in younger businesses, with a break point being at around 10 years of operation”, said Mr. Samson.

“It’s important to note SMEs with a high culture of innovation involve all their stakeholders much more than medium or low innovation culture firms. This accords precisely with other University of Melbourne research, especially on the leadership and employee involvement factors”.

Strategy, both overall and specifically for innovation, is known to be a core driver of innovation activities and of success.

It was heartening to see that SMEs reported innovation a strategy is a key component of their overall business strategy, but fall well behind struggled to have processes or structures to select and prioritise which innovation projects get approved and/or funded.

“Relative to strategic focus, innovation processes and structures were significantly weak, and without these implementation mechanisms effectively in place, innovation strategy will always be limited in impact. The differences between low and high innovation cultures on these factors are large” said Mr Pearson.

Encouragingly however, innovation intentions for the next 12 months are somewhat more positive, with around 4 in 10 firms planning to invest more than in the previous 12 months.

Get the full picture in the 2019 NAB Business Innovation Index.