13 February 2009

Proposed changes to the Electronic Transactions Acts – what does it mean for your business?

We have posted an e-update to our website on the proposed changes to Australia's electronic transaction laws and what they may mean for businesses.

The update looks at:
  • the existing laws and how they may change
  • signatures
  • automated message systems
  • invitations to make offers
  • correcting input errors
  • location of parties
  • time and place
It also includes a summary of practical tips businesses can follow.

Michelle Vazquez

09 February 2009

Judy Estrin on the innovation gap

In a recent interview with the McKinsey Quarterly, author and Silicon Valley technology executive Judy Estrin discusses her views on innovation (or the lack of innovation) in the 21st century.

Estrin’s proposition is that while we are currently enjoying the fruits of innovation planted 30 years ago, we are failing to seed innovation at equal rates today. That is, while there appears to be an abundance of "incremental innovation", there is a lack of "sustainable innovation".

An example is the telephone. Since its invention in the 1800s by Alexander Bell, it has evolved to the cordless, mobile and VoIP solutions of today which are technologically and functionally different from their original and comparatively humble iteration. Estrin’s argument is that such developments do not represent fresh innovation in themselves, but evolutionary and incremental developments on previous innovations.

Estrin suggests that this kind of incremental innovation is the natural result of a short-term focus; that a very rapid rate of change created by technology and globalisation encourages a mindset of keeping up with changes, as opposed to considering how to stay ahead of the next change.

It is an interesting observation and (depending on whether one subscribes to the argument) one which might have an illustration in relatively recent experience.

Intel is the world’s largest supplier of microprocessors, with the second largest being Advanced Micro Devices (AMD). From the 1990s, both companies became focused on increasing the performance of their processors by increasing their clock speed. In 2005, AMD redesigned its processors and released a new processor that contained 2 cores instead of 1 (a core is the brain of the processor). It was a radical change. While the new AMD processors operated at a lower clock speed compared to Intel processors, they performed better. Suddenly, consumers wanted processors with 2 cores. Intel’s response was to shoe-horn 2 of its existing processors into one package without any major redesign - however, the result was an overheated processor that performed worse than its AMD counterpart. One could argue that in focusing on keeping pace with AMD’s improvements, Intel’s solution was compromised (until it invented a new design).

So how can we be innovative? Estrin suggests that people need to think outside their mainstream business towards future growth. She emphasises that this is something that cannot necessarily be learnt from customers, because customers often don’t know their own future needs. Listening to customers, while important, will only drive incremental innovation.

Practically, Estrin suggests that business should have small groups of people that are only loosely connected to the business and isolated from its corporate mission. This will allow those groups to nurture and think of ideas, come up with surprises and - intriguingly - do so independently of prescriptive goals.

This is something not everybody can easily accept. Conventional logic dictates that innovators must understand their business, their customers and have a set goal (and time limit) to create products that are suitable for their selected market. However, the flip side is to ensure that creative and innovative people are not subjected to unnecessary constrains. That is, let them do what they want, at their own pace. And you shouldn’t teach them how to "innovate". If you do, it’s not innovation.

Watch the interview here.

Winson Chan

10 December 2008

Proposed amendments to Australia's electronic transactions laws

Recently, the Commonwealth Attorney-General’s Department released a consultation paper on the Australian Government’s proposal to accede to the United Nations Convention on the Use of Electronic Communications in International Contracts. This was in collaboration with the States and Territories.

The consultation paper suggests changes to Australian (Federal and State) electronic transactions laws to align them with recently issued international standards and reflect current online business processes. Submissions on the proposed changes, and whether Australia should accede to the Convention, are invited and are to be received by the Attorney-General's Department by 30 January 2009.

You can download a copy of the consultation paper from the website of the Attorney-General's Department.

Gilbert + Tobin will continue to monitor and provide updates on the development of the proposed changes.

Michelle Vazquez

13 November 2008

What innovation means to Google: Schmidt

Google has to be considered one of the world’s most successful organisations in identifying real and practical business applications for new ideas and successfully introducing them to an eager market.

Following the McKinsey Global Survey on how different companies approach innovation, the McKinsey Quarterly has posted a video interview with Eric Schmidt, CEO of Google. Schmidt discusses Google’s 20% time policy, its open attitude to the acquisition of small and innovative companies and its desire to be a systematic innovator of scale – that is, not just getting creatively lucky, but systemising and replicating its approach to developing, in Schmidt’s words, ‘things that make you go, “Wow” ’.

Watch it here.

Andrew De Celis

21 October 2008

Review of independent review of Australian Government's use of ICT

The Rudd Government has released Sir Peter Gershon’s report (the Gershon Report) detailing his independent review of the Australian Government's use of information and communication technology (ICT).

Sir Peter Gershon was engaged by the Minister for Finance and Deregulation, the Hon. Lindsay Tanner, to review and report on both the efficiency and effectiveness of the Australian Government’s current use of ICT, to determine whether the Australian Government is realising the greatest return from its investments in ICT, and to examine whether the right institutional arrangements are in place to maximise such return.

Download a copy of the Gershon Report.

Key findings

According to the Gershon Report, the Australian Government’s current approach to the use of ICT has lead to sub-optimal outcomes. The main driver of this negative result is the high level of autonomy exercised by individual Australian Government agencies in regards to ICT.

Sir Peter noted that Australian Government agencies have been acting in a manner akin to independent private sector entities, rather than coordinated agencies of the Australian Government.

In a rather stark illustration of the point, the Gershon Report cites the fact that prices paid by various Australian Government agencies for desktop computers ranged from $1000 to $3500 and that there are 1.6 desktop computers for every Australian Government agency employee.

In this context, the Gershon Report has made seven key findings:
  1. there is weak governance of pan-government issues related to ICT;
  2. Australian Government agency governance mechanisms are weak in respect of their focus on ICT efficiency and an understanding of organisational capability to commission, manage and realise benefits from ICT-enabled projects;
  3. the business as usual (BAU) ICT funding in Australian Government agencies is not subject to sufficient challenge and scrutiny;
  4. there is a disconnect between the stated importance of ICT and actions in relation to ICT skills;
  5. there is no whole-of-government strategic plan for data centres;
  6. the Australian Government ICT marketplace is neither efficient nor effective; and
  7. there is a significant disconnect between the Australian Government’s overall sustainability agenda and its ability to understand and manage energy costs and the carbon footprint of its ICT estate.
(Source: Gershon Report)

Key recommendations

In order to address the key findings, Sir Peter has recommended a rebalancing between the autonomy of Australian Government agencies and coordination across all Australian Government agencies in regards to ICT. Sir Peter believes that such rebalancing would deliver savings of $140 million in the first year and $400 million a year in subsequent years.

In order to achieve this rebalancing, the Gershon Report has made seven key recommendations:

1. Strengthen pan-Government governance in regards to ICT, including:

(a) establishing a Ministerial Committee on ICT to be responsible for the key whole-of-government ICT policies and the overall strategic vision for how ICT should support the achievement of the Australian Government’s outcomes and policy agenda;

(b) creating a Secretaries’ ICT Governance Board (SIGB) to drive recommendations arising from the review and focus on addressing the key business issues to improve the efficiency and effectiveness of the Australian Government’s use of ICT; and

(c) allowing Australian Government agencies to obtain opt-outs from agreed whole-of-government activities, based on genuine business need and subject to approval by the Ministerial Committee informed by the SIGB.

2. Strengthen governance by Australian Government agencies, including:

(a) implementing a common methodology for assessing each Australian Government agency’s capability;

(b) requiring each Australian Government agency chief executive officer to propose a target level of capability and for this to be independently validated; and

(c) requiring Australian Government agencies to develop capability improvement plans with commitment to address gaps.

3. Tighten the management of ICT BAU funding, including:

(a) moving ICT spend from an average 77:23% split between ICT BAU activities and creation of new capability in 2007–08 to an average 70:30% in 2011–12;

(b) reducing the ICT BAU budgets of the largest 28 Australian Government agencies (not including Defence) with ICT spending in excess of $20 million per annum by 15% from 2007–08 levels, with a phased introduction over two years;

(c) targeting Australian Government agencies with total annual ICT spending between $2 million and $20 million to achieve a 7.5% reduction on average of their BAU from 2007–08 levels, with a phased introduction over two years;

(d) creating ICT Review Teams to help these Australian Government agencies achieve or exceed the target reductions without impairing service delivery to citizens and business; and

(e) reinvesting 50% of the savings generated by these recommendations in a central fund for reinvestment in projects to improve efficiency and effectiveness of ICT BAU activities;

4. Enhance the management of the Australian Public Service ICT skills base, including:

(a) creating a whole-of-government Australian Public Service ICT career structure, including training and development programs for ICT professionals in key skills areas;

(b) developing and maintaining a whole-of-government strategic ICT workforce plan; and

(c) reducing the total number of ICT contractors in use across Australian Government agencies by 50% over a 2-year period and increasing the number of Australian Public Service ICT staff.

5. Develop a whole-of-government approach for future data centre requirements over the next 10–15 years.

6. Improve the efficiency and effectiveness of the ICT marketplace, including making better use of the Australian Government’s collective buying power by:

(a) optimising the number of ICT panel arrangements established by agencies across government, including improving procurement arrangements for commodity products and services and volume sourcing arrangements for key items of software;

(b) developing and implementing e-auctions; and

(c) implementing strategic management of key ICT suppliers.

7. Develop a whole-of-government ICT sustainability plan to manage the energy costs and carbon footprint of the Australian Government’s ICT activities.

(Source: Gershon Report)

Next steps

The Gershon Report has been released ahead of formal consideration by Cabinet. The Rudd Government is examining the Gershon Report and, according to Mr Tanner, will respond in the “near future”.

Mr Tanner has commented that “[w]ithout pre-empting Cabinet’s consideration, the report forms an excellent basis for implementing a series of changes for improving the effectiveness and efficiency of government ICT”.

The release of the Gershon Report and news as to the possible implementation of the whole or part of its recommendations has been keenly awaited by Australian Government agencies and ICT industry participants alike. The media has reported that a number of Australian Government agency ITC projects have been on hold in recent months awaiting certainty as to outcomes, with some Australian Government agencies being forced into various temporary and bridging arrangements to cover the gap, and that a fast response from the Rudd Government would certainly assist Australian Government agencies planning upcoming ITC projects for the purposes of the development and release of the next federal budget.

If the Rudd Government proceeds to implement the recommendations of the Gershon Report, Sir Peter has recommended that such implementation be reviewed in the first quarter of 2010 (assuming a start date of November 2008).

All stakeholders now keenly await the Rudd Government’s response.

Andrew Walsh

14 October 2008

Rewarding Innovation in Digital Media

The Australian Interactive Media Industry Association (AIMIA) have launched an exciting initiative across Australia called AIMIA Innovatives. This program will help digital entrepreneurs to progress their ideas from early concept stages to commercial launch FREE OF CHARGE. The program is run by industry experts from AIMIA, the ABC's Innovation division, Deloitte, Intel and Gilbert + Tobin. The scope of the program covers new concepts for digital content, new media distribution and much more.

The process involves making an entry to the program using an online web form to provide the committee with an outline of the concept, business case and benefits. If the committee concludes that the idea is unique and innovative, they will take the innovator into the program. To date, six talented Australian digital entrepreneurs have been hand-picked to develop their ideas with technical, business, legal and creative support from the AIMIA Innovatives partners.

AIMIA is calling for more entries from people with a radical innovation in digital media who would like the chance to receive support from the program. See the link for an entry form
www.aimia.com.au/innovatives or email innovatives@aimia.com.au for more information.

23 September 2008

AIIA summary of Cutler Report

At an AIIA sponsored event on Thursday last week, Dr Terry Cutler delivered the Pearcey Oration on venturousaustralia – his recently submitted Review of the National Innovation System. The presentation accompanied two panel discussions, one of which I participated in, examining the review, its implications for the ICT industry and wider issues relating to the role of ICT in innovation.

There is now a narrow window in which to provide feedback to government in order to influence the forthcoming White Paper; this feedback is due by September 30. Dr Cutler emphasised the importance of feedback from our industry. AIIA will certainly be responding to the various recommendations and potential implications for the ICT industry, and I strongly encourage you to forward your input both to AIIA and to government. Details are at the end of this email.

Major themes of the report
Venturousaustralia provides a well-researched scorecard that shows Australia slipping dangerously behind international competition in the innovation stakes. In his Pearcey Oration, Dr Cutler said, “this is a depressing scorecard, and one that should serve as a wake-up call.” He also acknowledged the importance of ICT to the future of Australian innovation, asserting that “it would be a singularly unfortunate moment to ignore the crucial role of information and communications technology as one of the key drivers of innovation and productivity.”

Overall, venturousaustralia is a very welcome review and something that contains a number of potentially positive benefits for the ICT sector in the long term. It treats innovation as a holistic system that encompasses many areas of the economy and community – recognition that’s not been made so comprehensively before. Generally AIIA supports the major recommendations as beneficial to our industry.

The themes of cultural change, human capital and education reforms resonate strongly with the issues that face the ICT sector. In particular the R&D tax credit recommendations are very strong – along with the treatment of IP issues, these provide Australia with a much needed opportunity to make up some of the gap with global competition for R&D investment. Extending the R&D tax credit SME turnover threshold from $5K to $50K is a particularly welcome proposal, with companies who participated in Thursday’s discussion estimating substantively increased rates of return.

Collaboration, openness and sharing across all levels of government, the private sector and non-government organisations are also key themes in the report, and provide the basis for Dr Cutler’s argument that a cultural shift is required to ensure the competitive future of Australian innovation.

The role of ICT in the National Innovation System
AIIA strongly believes that the ICT industry’s greatest value is in the contribution it makes as an integral part of every sector of the economy and community. Most media commentary along with industry representatives present on the day, however, expressed disappointment at the lack of specific calls to action that directly relate to our industry and to a degree AIIA shares these concerns.

The release of this report prompts some interesting questions for the Australian technology sector: venturousaustralia makes little reference to the place of the ICT industry in the innovation system, identifies no specific requirements for funding or R&D within the sector in its own right, and does not highlight the ICT industry as an essential ingredient of innovation that is being overlooked in the current environment.

This is despite the fact that ICT has in the past been well recognised as a key driver of innovation in the wider economy, following DCITA studies – well known within the industry if not the wider public – that demonstrate ICT is the main technological driver of productivity growth in Australia, and that technological innovations had become the main drivers of long-term productivity growth.

What, then, can we take away from the release of this review, and what are the next steps for us as an industry?

SME programs
The report proposes a strong range of SME proposals, broadly covering taxation issues, industry programs and related procurement measures. Replacing the existing R&D tax concessions with an across-the-board tax credit scheme in order to raise the level of R&D business expenditure is a good initiative, and the introduction of a Competitive Innovation Grants Program may go some way towards filling the gap left by the disappointing axing of the Commercial Ready scheme.

SMEs will benefit from better access to what is currently a fragmented range of information – for example expansion of the COMET program and the extension of Enterprise Connect to provide innovation advice as well as business review and advisory services through a funded voucher scheme.

Our key challenge as an industry is to ensure that these recommendations are translated into tangible programs as a priority. AIIA is well placed to get involved in shaping and operating some of these targeted SME programs. Lower rating of in-kind contributions in CRC proposals, however, may be a matter for concern – they may have attractive innovation proposals, but at an early stage SMEs are unlikely to have the funds to contribute.

Multinational Corporation implications
Multinationals stand to benefit from enhanced international engagement through proposals to open current programs to international partners and participants. Business expenditure on R&D undertaken in Australia will be eligible for 40% tax credit, and will no longer be dependent on IP being Australian owned. This will be welcomed by the global ICT industry and recognises that skills, capabilities and markets are global – but that Australia can benefit from the R&D activity conducted locally.

In general, it is pleasing to see a greater recognition of the need for a global innovation environment – along with tax and skills measures that reflect this requirement.

Tax Reform
Tax Reform measures provide for a range of simpler and more predicable outcomes that will be welcomed in the current business environment. In addition to changing the R&D tax concession from a deduction to a credit to raise level of business expenditure, the refundable tax credit of 50% for SMEs and the extension of the definition of ‘small firm’ from under $5M to under $50M is very positive.

These initiatives will need to be read in the context of the broader business taxation reforms being considered as part of the Henry Review.

IP Law Reform
Venturousaustralia makes a range of common-sense proposals in the area of IP Law Reform. The report suggests increasing the threshold for ‘inventive step’ in patent law, which would allow greater exploration of innovation ideas by lowering the risk of litigation. And it proposes greater involvement of practitioners in IP policy reform. This will help ensure that policy is practically informed, not made in a vacuum and resulting in unintended effects

Where practicable, content funded by the government is proposed to be made freely available over the internet as part of the global commons. It is not clear how this might affect IP ownership created by IT companies – AIIA certainly doesn’t want a return to a ‘we pay, we own’ approach on the part of government, and it is important that government is not in the business of commercialisation. The supplier is best placed to innovate.

Government Procurement
The report also recognises the significant influence of the Australian Government as a major purchaser by making a number of recommendations on procurement. These include participation in risk sharing, demanding innovation in purchased services and working more closely with States and Territories through a Small Business Innovation Contracting program based on the US Small Business Innovation Research initiative. This model would earmark a percentage of all agencies’ R&D expenditure for small to medium business. For the ICT industry, this will be an interesting point of intersect with the eagerly awaited Gershon Review.


Better coordination of innovation governance bodies will help the industry engage more effectively with national stakeholders, as well as helping Australia engage more successfully internationally, better along its innovation programs and focus more clearly on national challenges such as climate change.

Proposals to support this include a National Innovation Council (with the Prime Minister as Chair) supported by Office of Innovation and an advocate for Government Innovation to promote innovation in the public sector.
ICT industry policy is spread across a wide range of portfolios and it is important that an industry that is at the forefront of innovation and well represented in policy formulation.

Industry themes
There are a number of industry-wide themes in the report and two in particular that are worth mentioning here. The first is that Australia should establish a National Information Strategy to optimise the flow of information in the Australian economy. The aim is to provide auditable transparency in the flow of private market information and maximise the availability of government information to users. The second relates to greater use of and experimentation with web 2.0 technology by government. Both of these recommendations would open up clear opportunities across the ICT sector.

Summary and next steps
In summary, what I would say is that if our industry was operating as we would all like it to be – delivering its peak potential in an ideal environment – then this report would be just what the doctor ordered. While there is a degree recognition of the importance of our industry in the review (and certainly in Dr Cutler’s speech), there is not enough in this report to address the structural issues that prevent ICT from realising its full potential in the support of a dynamic innovation system in this country.

Unless the workforce issues faced by the ICT industry are resolved, and unless the innovation ecosystem for our industry becomes more globally competitive, then there is a risk that we will be unable to realise the vision outlined in Dr Cutler’s review.

It is not the mandate of the Cutler Review per se to ‘fix’ the problems we face as an industry. However, it is very important that the technology industry identifies the issues that are of most importance to our sector and its contribution to national innovation, and that we ensure these are an ongoing priority for the government in the short term. It is likely that the government does not have immediate access to the funds to meet the full recommendations of the report, and that a phased report will be required.

Government has invited input by 30 September through the departmental website. We need to ensure that the ICT industry’s voice is heard so that recommendations arising from this report that are essential to our industry are recognised as clear short-term priorities.

Your contributions are a key part of this process. You do not need to be an expert in the detail of the report, simply ‘tell your story,’ and provide feedback on the issues that affect you on the ground as a business both operating in the ICT sector and contributing to innovation in Australia. AIIA will prioritise key requests – what are yours?

In Dr Cutler’s words, a “venturous Australia needs a venturous ICT industry – enterprising, bold, and brave enough to mix it with the best.” This is our opportunity, and I strongly urge all members to consider the implications of the report and contribute to the White Paper process. I believe that individual approaches will be highly valued in addition to a group submission, particularly given the relatively low number of total submissions made by the ICT sector to the initial review.

If you are contributing, please provide a copy to AIIA through AIIA Government Relations General Manager Bridget Larsen, as we will make an overarching submission close to the final date to reinforce your views.

Ian Birks
Chief Executive Officer Australian Information Industry Association

22 September 2008

Technology innovation and the digital age

Beyond the laboratory

I vividly recall sitting in a negotiation room a few years ago, representing a corporate client in the middle stages of large technology outsourcing negotiations.

Like a hangover from an old legal drama in which mere numbers instantly intimated power, the room had been stereotypically (but rather unproductively) stacked. On my side of the table sat two commercial managers, three engineers and one in-house legal counsel. They were all well-practised at looking appropriately stern and influential, as though competing tenderers were poised to burst through the doors on cue.

Valiantly, the supplier had responded in kind, offering two project directors, one engineer and a sales manager. For the last three months, it had also insisted on fielding a ‘deal co-ordinator’. I never did work out what he actually did.

The more meetings we had the less productive they were, as topics seemed to expand eternally to fill the time available. For my clients, an intensive schedule of negotiations was a way of demonstrating heroic persistence to their broader procurement team and chief information officer. Negotiations represented engagement and activity. Unfortunately, I was the only one who had become acutely conscious that activity didn’t necessarily mean progress. I began to suspect both teams had simply found a brilliant way of avoiding any real work and were now loath to stray from a good thing.

The topic set for that morning was technology innovation. It had originally been listed in my client’s request for proposal as a ‘critical requirement’ and a bland placeholder had hence ridden along furtively in the draft services contract for some 6 months now. It had happily survived numerous exchanges of the draft without much regard. Today, we were forced to look at – and perhaps for the first time think intelligently about – the unhelpful pointer staring up at us. It simply read:

“[Innovation: The customer would like to discuss this critical requirement in detail further with the supplier]”.

In keeping with the practice we had adopted for all other negotiation sessions, I welcomed the supplier team to the table and invited our client’s lead commercial manager to begin with a general statement of the customer’s requirements. He began talking, emphasising the importance of “all forms of technology and non-technology innovation” to his company, stressing the rapid development of IT infrastructure in Australia and relaying some research pointing to an exponential increase in clients’ technology expectations.

He had spoken passionately for a good ten minutes when the room began to realise he hadn’t actually said anything particularly meaningful. He realised it too. When he finally wrapped up, the question from the other side of the table was painfully predictable (and slightly patronising):

“Look, we sound like we’re on the same page. I don’t think we can disagree with anything you’ve said. But with all due respect, I’m still no clearer as to what you actually expect from us in terms of innovation – or how you propose to measure us in relation to it.”

Trapped like a nervous rabbit, my client immediately glanced towards me, not missing a beat.

“Yes, I was getting to that. At the end of the day we figure that defining the supplier’s obligations is really a legal matter, so I’ll leave it to our lawyer to explain what we mean.”

Needless to say, we went nowhere that day.

As interesting as philosophical debates about business and commercial innovation may be from a theoretical perspective, they are susceptible to being fairly existential. Talk of innovation for its own sake is of limited utility, if unsupported by a clear definition of how or in what form it is intended to manifest. There is arguably no single definition of business innovation – it takes its meaning from the context of the very services in respect of which that innovation is sought.

It is vital that we try to enliven seemingly intriguing theories through intelligent applications. Truly successful commercial technology innovations should have a clear business or service outcome – for example, they may measurably enhance the consumer experience, improve the quality of a supplier’s products and services, give birth to new and more efficient forms of communication or contribute to a collective sum of knowledge that others can build upon in a discernible and synergistic way.

Today, the advent and acceptance of digital media and communications, new forms of content distribution and convergent technologies afford businesses a fascinating range of opportunities which, only a decade ago, was pure fantasy. For many, the digital age has now become synonymous with the intersection between science and commerce. While there are few industries that have not been impacted by the digital phenomenon, to fully and successfully exploit it demands intelligence and creativity, combined with a strong sense of the practical – what will work, versus what won’t; and what is interesting versus what is useful.

As we think increasingly deeply about innovation, the ultimate goal should always be kept in mind. Traditionally, creativity has been the mark of the dreamer and application the skill of the pragmatist. Assuming the two can be aligned – or at least develop some measure of co-operation – business will have finally identified a powerful combination.

16 September 2008

Funding innovation

The Cutler Report considers the funding gap between idea and commercialisation – the idea that many small and medium-sized firms lack necessary capital to test new concepts, are unable to attract third party investors due to risk and lack the cash to take advantage of existing tax-based incentives. It asserts that government can play a role in bridging this gap – through direct funding, increasing the pool of available private sector capital and linking enterprises with available sources of funding – and proposes a limited number of complementary programs to do this.

Government funding
According to the Report, government can play a very direct role in bridging the funding gap, and the Report proposes a limited number of specific programs which range from direct support (eg, repayable grants) to indirect support (eg, funding costs of business advice / implementation or acquisition of information).

In terms of government grants, the Report proposes the establishment of a Competitive Innovation Grants program to assist firms with limited access to capital in proof-of-concept and development stages. The program would target projects falling within specific identified national innovation priorities. Businesses would be required to repay grants from earnings on commercial success.

The Report also noted that there is currently a lack of support in terms of building innovation performance and capability in firms, and for services firms. The Report recommends the expansion of the Enterprise Connect program (which allows firms to obtain a business review at no cost and matching funding in order to implement changes identified by the review) to these areas. In our view, one area that it would be interesting to explore further in these business reviews is the extent to which ESOPs could help to attract, retain and motivate talent within the firm. Such schemes are widely recognised to play an important part in innovation but are not yet in wide use in Australia, partly due to tax considerations (which may soon change) but more importantly due to Corporations Act disclosure requirements, which greatly limit a firm’s ability to incentivise employees through share or option schemes.

The Report also considered ways in which the government could encourage collaboration, which it viewed as critical for Australia, and considered in detail the recent Report on the Review of Cooperative Research Centres (Collaborating to a purpose), which concluded that government should assist firms to access knowledge generated by research providers. To this end, the Report proposes an innovation vouchers scheme, similar to schemes which have been successfully implemented in Europe. Each voucher would be worth a set amount of money, to be used to fund collaboration between small and medium-sized enterprises and a public sector research organisation.

Attracting private sector funding
The Report also considers ways in which it can assist small and medium-sized businesses to attract private sector funding. It considered this from two angles:
  • “individualised” assistance, pursuant to which individual businesses get help to attract private capital, and
  • more macro policies, which help increase the availability of venture financing generally.

In terms of the first type of assistance, the Report supported the extension of the COMET program, due to end in 2010-11, under which arms-length private sector business advisors assist companies ready to take an idea to market to identify the services they need to attract growth capital. This assistance has enabled firms to get funding from third party groups such as business angels.

On a more macro level, the Report also explored the state of the venture capital industry in Australia. It noted that the Australian venture capital market was growing, but was still small compared to other developing private equity markets, and venture capital investment is being directed away from the very early stage towards (less risky) early expansion stage.

As an aside, the Report highlighted the lack of information in relation to the venture industry in Australia. We wonder whether this lack of information was the driving force behind the dearth of comment on the success (or lack thereof) of the Venture Capital Limited Partnership program in attracting foreign investment in Australian venture capital – as this was arguably the most publicised effort by the Australian government to attract foreign venture capital ever and involved a major overhaul of Australian tax laws. (While the Report commented favourably on the aims of the Early Stage Venture Capital Limited Partnership program, we acknowledge it is too early in the life of that program to make any assessment as to its effectiveness – but data collection will be key to making this determination.) There are many well publicised criticisms of both of these programs, and it will be important to know the extent to which their shortcomings have impacted their effectiveness in growing the venture capital industry in Australia.

The Report’s recommendations in relation to the venture industry are aimed at narrowing the funding gap by increasing the pool of venture funds available for very early stage companies. The Report notes the success of the Innovation Investment Fund program (pursuant to which the government provides $20 million for funds managed by first time fund managers, provided they obtain matching funds and adhere to specified investment guidelines).

The Report also favourably recommends the continuation of the Pre-Seed Fund program (established to assist commercialisation out of public sector research organisations), but notes that the much-criticised $1 million cap on investments, which has left enterprises stranded squarely in the middle of the funding gap, should be replaced with a $1 million cap on first tranche investment.

The Report notes that angel investing is extremely important for early stage enterprises, and queries whether there is scope to expand tax incentives for other investor vehicles (like the Early Stage Venture Capital Limited Partnership program) to angel investors.

Finally, the Report comments favourably on the benefits of attracting overseas venture capital firms to Australia, both to increase the pool of funding for early stage ventures and to serve as a base for further developing local talent.

In summary, the Report recommends:
  • establishing a grant program, which would aim to provide funding to firms in the high risk, proof-of-concept and development stages, focusing on specifically identified national innovation priorities, with grants to be repayable from later earnings;
  • expanding the Enterprise Connect program and expanding and extending the COMET program;
  • the establishment of a voucher system, to enable small and medium-sized firms to access public sector research better;
  • attracting international venture capital funds to Australia (with a short-term goal of attracting a US venture capital firm to Australia), to increase the pool of funding available for venture capital and to further develop the skills base;
  • improving data collection, in order to evaluate better the impact of government support;
  • extending the Innovation Investment Fund program and the Pre-Seed Fund program (in the case of the latter, replacing the $1 million cap with a $1 million first tranche cap);
  • further reviewing support to be provided to angel investors, including tax incentives and modest facilitating grants.