SUBMISSION TO THEHOUSE OF REPRESENTATIVES STANDING COMMITTEE

ON INNOVATION INQUIRY: “PATHWAYS TOINNOTION”

DEPARTMENT OF COMMUNICATIONS, INFORMATION TECHNOLOGYAND THE ARTS’ ROLE IN INNOVATION IN AUSTRALIA

The Departmentof Communications,InformationTechnologyandtheArts (DCITA)hasresponsibilityfor awiderangeofissueswhich impingeheavilyon innovationin,andthe efficiencyof, theAustralianeconomy.OneofthisDepartment’smajorobjectivesis to contributeto theestablishmentof efficient andeffectivecommunicationsinfrastructurethroughits responsibilitiesforpostalandtelecommunicationsservices,managementoftheelectromagneticspectrum,andbroadcastingservices.This infrastructureplaysacritical rolein underpinningefficiencyacrosstheeconomyandprovidingopportunitiesfor innovation.

Coupledwith theseresponsibilities,theDepartmenthasarangeofotherresponsibilitiesconcernedwith nationalpolicy issuescomingundertheheadingofthe‘information economy’andfor informationandcommunicationstechnology(ICT) pindustrydevelopment.Thesego directlyto thecontributionthatthe informationeconomyandICT canmaketo innovationandefficiencyofthenationaleconomy. Inadditionthroughits culturalaffairsresponsibilitiestheDepartmenthasintereststhatimpingeonopportunitiesfor innovationarisingfrom theincreasingdigitalisationofcontent. Theseopportunitiesarebeingencouragedthroughthe Government’sDigitalContentIndustryAction Agenda.

Developmentsin eachoftheseareasarebeingheavilyinfluencedby rapidtechnologicalchange,particularlyin ICT. As aresultthedepartmenthasa stronginterestin therapiddevelopment,andpervasiveinfluence,ofICT asageneralpurposetechnologyin enablingeconomicand socialdevelopment.Becauseoftheseresponsibilities,andbecauseofthe long-termsignificanceoftheinformationeconomy,DCITA hasbeenanactivecontributorto deliberationson innovationpolicy. In particular,DCITA hasundertakensubstantialresearchinto thenatureofthe innovationsystemandtheimpactofICT on productivityandeconomicgrowthinAustralia. To assisttheCommitteein its deliberations,abriefoverviewon theprocessofinnovationis in Attachment1.

DCITA hasalsocontributedto thetwo BackingAustralia~ Ability packagesandtotheassociatedreporton theMappingAustralia‘s ScienceandInnovation. DCITA isoneof five portfolios involved in theimplementationanddeliveryofmeasuresundertheBAApackages.DCITA wasalsoamajorcontributorto theGovernment’sdevelopmentofaworld classinvestmentvehicle(theVentureCapitalLimitedPartnershipmodel) for theAustralianventureindustryandretainsacritical interestinthe availabilityoffinancefor innovativeAustraliancompanies.

ICT AS A SOURCE OF INNOVATION AND PRODUCTIVITY GROWTH

ICT, broadlydefined,playsacentralrole underpinningeconomicactivity in general Kandin enablinginnovationin particular. ICT playsthis centralrole becauseit isradicallyimprovingourcapacityto collect,analyse,utilise, distributeandexchange

informationandto organiseeconomicandsocialactivities,abilities thatunderlieallhumanactivity. ICT is notonly changingthewaywe communicate,it isrevolutionisingthewaykeyservicesaredeliveredin theprivateandpublic sectors,thewaydefenceservicesandnationalsecurityarrangementsareorganised,business,thewayscientificresearchis undertaken,thewayhealthandeducationservicesare•delivered,thewaypeoplecarefor eachotherandthewaypeopleplay. Importantly,this technologyalsohaswidescopefor furthersignificantimprovementandelaboration.In addition,ICT is applicableacrossaverybroadrangeofuses,it hasthepotentialfor usein awidevarietyofproductsandprocesses,and it hasstrongcomplementaritieswith existingandpotentialnewtechnologies.

Theprofoundeconomicandsocialchangesbeingeffectedby ICT arewidelyseenasbeingcomparableto the ‘disruptive’ effectsofthe industrialrevolution. This‘disruptive’ transformationhasbeendescribedin Australiaby thetermtheinformationeconomy’andothershavecalledthe ‘knowledgeeconomy’orthe‘networkedsociety’. An informationeconomyis not aseparate‘new~ economy— it isaneconomyin which therapiddevelopmentanddiffusionofICT-basedinnovationistransformingall sectorsandaspectsof society. This is a long-termtransformationandoneofthemostimportantinnovationsin historicaltimes. It hasonlyjustbegun.

Australiahasbegunthetransformationto aninformationeconomywell. In particular,ICT hassignificantlyenhancedourproductivitygrowth in recentdecades(seeCaseStudy1 on ICT-basedinnovationin theAustralianmanufacturingsector). Australia’scontinuedability to harnessthepoweroftheinformationeconomywill significantlyinfluenceits long-termeconomicprosperity,internationalcompetitiveness,nationalsecurity,socialcohesion,culturalrichnessandthe ability to innovate. Australia’sStrategicframeworkfor theInformationEconomy2004-2006providesthepolicyplatformneededto addressthesechallenges.This Frameworkseeksto:

• Explain thechallengesandopportunitiesandwhy theyareimportanttogovernment,businessandtheordinarycitizen;

• Showhow thepolicy responseis linked to widernationalpriorities;• Demonstratethatthepolicy responseis coherentacrossall levelsof

governmentandwith ourglobal peers;and• Setoutpriorities andstrategiesoverthethreeyearsoftheFramework.

Meetingtheassociatedchallengeswill require:• Growingdependenceon sharingknowledgeandinformationbetween

individuals,communitiesandorganisationsto coordinateeconomicandsocialrelationships;

• Institutionalisationofcontinuousinnovation,productivityimprovement,andeducationandskills formation; and

• Opennessto theglobal economythroughtrade,investmentandexchangeofinformation,knowledgeandskill.

Theseinfluenceswill ultimatelybe reflectedin newbusinessmodels,newindustrystructures,newkinds ofsocialinteractions,andnewformsofregulatoryarrangement.Thesetechnologieswill do muchmorethanmakebusinessandpersonalcommunicationsmoreefficient. Theywill allowbusinessesandconsumersto bring hitogetherintegratedinformationtransactionsandservicesthatwill cutcomplexityandcostoutofwhole sectorsoftheeconomy.

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With thefall in pricesfor computingpowerandincreasingsophisticationofsoftwareandcommunicationssystems,ICT hasbeenadoptedwidelyacrosseconomies.Countriesareinvestingheavilyin ICT-basedinnovationsandICT R&D, andnewwavesofICT-basedtechnologiesarewidelyanticipated.

Thesechallengesneeda coherentresponse,comparablewith thatofourglobal peers.In particular,theprovisionof ahighly innovativeandeffectivecommunicationsinfrastructurehasakeyrolein enablinginnovativeindustry,governmentandscience.Thecommunicationsnetworkoriginally developedfor voicecommunicationnowsupportsamuchwiderrangeof communicationservices,includingaudio,video,andfinancialtransactions,while theInternetnowprovidesanewinternationalinformationinfrastructure.Theseservicesareexpandingrapidly. Thustheprovisionofhighbandwidthcapacitythroughoutthecountryis essentialif weareto realisethefull potentialofthis rapidlydevelopingtechnologyandtheassociatedservices.Indeed,broadbandcapacitywill underpinfutureconnectivityrequirementsofthewholeeconomy,especiallyin respectofcontentdeliveryandservicedeliverymoregenerally.

Digital technologieshavealsotransformedthewayin whichtext, data,audiovisualandothercontentis created,managed,storedanddistributed. Theprocessofdigitisationandtheassociatedintegrationoftechnologieshasled to thetransformationof the information,communicationsandentertainmentsectorsandtheemergenceofnewclustersoftechnologies,products,industriesandusers.

However,theapplicationofdigital technologies,thecreationandmanipulationofdigital contentandresultantindustrytransformationsarenotonly restrictedto thetraditional contentsectorsoftheeconomy.Theyalsoreflectshifts occurringin thewider economywheredigitisationanddigital contentareincreasinglyassociatedwithinnovationandareaddingvalueto industrialprocessesandproductionin areassuchasdesign,production,marketingandsales.

Indeed,weareseeingthedevelopmentofthecommunicationsnetworkintoa secure,interoperableandubiquitoustransactionenvironment,underpinnedby acommoditisedInternetProtocolinfrastructurethatwill increasinglyoperateasautilityindustrywith growingsimilaritiesto thetraditionalutilities. Complementingthisconnectivityis thework thatDCITA is undertakingone-commercestandards,spain,internetregulation,andsecurity. Thisregulatoryactivity underpinsthedevelopmentofasecure,reliableelectronictransactionsenvironmentessentialto innovationinmanysectors.

THE CONTRIBUTION OF ICT TO THE INNOVATION PROCESS

ICT is also acritical partoftheinnovationprocessitself. ComputermodellinghasincreasedR&D efficienciesandICThasprovidedthefoundationandsupportfor thecreationofnewtools. Thebiological sciences,for example,arecurrentlyundergoinga profoundrevolution,basedlargely on theuseofgenomicsdataandIT advances.

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ICT is alsoenablingamajorinnovationin thewayin whichscientificresearchisconducted.e-Research,asit is calledin Australia1,involvesagreatlyenhancedcapacityfor large-scale,distributed,global collaborationin research,providinganewlevel ofscope,scaleanddetail. It includesaccessto verylargedatacollections,complexsimulations,highperformancevisualisation,andvirtual researchorganisationsamonggeographicallydistributedresearchers.

While relativelynewasastructuredconcept,e-Researchis startingto underpinallscientificdisciplinesincluding thesocialsciencesandhumanities.Becausescientificandtechnologicalresearchunderpinsmuchinnovationandourability to absorbnewtechnologies,this enhancedcapacityfor researchhasthepotentialto createavirtuouscycleof innovativeactivity. It is also emergingasa significantelementin advancingtheInformationEconomymorebroadlybecauseofthestrongsymbioticrelationshipbetweene-Researchandtheinformationeconomymoregenerally.

Australia’sICT industryalsohasarole to play in meetingthosechallengesandasasourceofhighvalueaddedproductsand services.Thoughsmallby global standardsthis industryremainsavery importantpartoftheAustralianeconomy.ICTproductioncapabilitycreatesa symbioticrelationshipbetweenusersandproducerssuchthatthe level ofsophisticationofusersis enhancedby thepresenceofproducersofICT goodsandservices. Indeed,thedevelopmentofmajorapplicationsin userindustriesis a significantform ofICT productionin its ownright. Thesedevelopmentsarebluffing thedistinctionbetweenICT productionanduse,adistinctionthatis yetto beadequatelyreflectedin standardstatisticalmeasures(seeCaseStudy 2 onSME ICT InnovationandProduction).

Nevertheless,theAustralianICT industryfacessignificantchallengesundertheinfluenceofglobalisationandtheriseofChinaandIndiaassignificantICTproducers.Thedevelopmentofaworld-classpublic andprivateICT researchbasewith critical massis an essentialcomponent,notonly ofourability to effectivelydeploythis technologyashighly effectiveusers,butalsoashighly competitiveproducersofICT goodsand services.

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AUSTRALIA’S INVESTMENT IN ICT R&D AND INNOVATION

In 2002-03businessinvested$2.15billion in ICT R&D (36.4%oftotalprivatesectorR&D)2 — onethirdofthis wasinvestedby non-ICTbusinessesandtwo thirdsbyspecialistICT firms. Australiahasbeenamongtheleadingcountriesin businessuptakeofICT. Mostbusinessesusecomputers.In 2003-04,74%ofbusinessesusedtheInternet,25%hadawebpresenceand 12%receivedordersvia theInternet.

While mostoftheICT usedwasimportedtechnology,Australiancapabilityin ICThasbeenimportantto achievingsignificantproductivitygainsandgeneratingnewICT-basedproducts,servicesandmethodsofproduction.

Publicsectorinvestmentin R&D was$0.35billion in 2002-03. SomeofAustralia’sICT centreshaveestablishedinternationalreputationsandtherehavebeensome

While theterm is usedinterchangeablywith“e-science”,theuseof”e-research”emphasisesitsbroaderapplication.2 ABS cat8126.0

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commercialisationsuccesses.(For example,seeCaseStudy3 onCommercialisationofR&D: Radiata).

However,accordingto the2003mappingofAustralia’sscienceandinnovationsystem3 investmentin thedevelopmentofstrategicICT capabilityis low, whichmayweakentheinnovationbaseandthefuturecompetitivenessoftheeconomy.”Initiatives, particularlysomefrom BackingAustralia’sAbility, will addto thepublicICT R&D base,particularlythroughtheestablishmentofaworld-classcentreofexcellencein ICT (NationalICT Australia,NICTA).

GOVERNMENT SUPPORT FOR THE ICT INDUSTRY

The Government’sstrategyfor theICT industrybuilds on the 1997InvestingforGrowthstrategywhich targetstheenvironmentfor ICT industrygrowth,emphasisingtheimportanceof strongleadership,attendingto fiscal andcompetitionseffings,gettingAustraliaonline, andaddressingmarketfailuresthroughgeneralprograms(egtheInnovationInvestmentFundandR&D startprogramsadministeredby DITR).

Operatingwithin andbuilding on this context,the2003FrameworkfortheFuturereport,“EnablingourFuture”,wasdevelopedasasharedindustry,government,researchcommunityunderstandingto provideaguidefor thekeyelementswhich arenecessaryto sufport the longertermdevelopmentoftheICT industryandnationalICT capability . In particular,“EnablingourFuture”recognisesthechangingnatureoftheICT industry,whereICT is becomingsointegratedinto productsandservicesacrosstheeconomy,thattraditionalapproachesto descriptionsof theindustryarebeingchallenged.

TheFrameworkrecommendedmaintaining,andin somecasesstrengthening,policysettingsto providealong-termconsistencyofapproachto developingAustraliaICTcapability,improvedcoordinationofICT-relatedinitiatives andbetterintegrationofICT into thenationalresearchinfrastructure.Building innovativefirms wasakeyfocusaswell asskills development,andattractingandretainingforeigninvestment.Thereportalsohighlightedtheneedforpriority attentionto communicationsinfrastructureandassociatedstandardsdevelopmentto overcomeimpedimentsto bothresearchandcommercialuseofadvancednetworks.

DCITA is workingwith industry,theresearchandeducationsectorandGovernmentdepartmentsandorganisationsto implementtherecommendationsofthereport(asummaryof therecommendationsis atAttachment2).

Somesectorsofthe industryareworkingon actionagendas.TheElectronicsIndustryActionAgenda,whichwaslaunchedon 3 September2003,setsaten-yearvision withrecommendedactionsfor developinga sustainableandglobally competitiveelectronicsindustryin Australia. ThedevelopmentofaDigital ContentIndustryActionAgendawasannouncedon 6 February2004.

___________________________________________ K3lbidp 15“http://www.dcita.gov.au/__data/assets/word_doc/10229/Enablingour Future.doc

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DCITA’s programssupportingICT innovationareset in thecontextofsupportforthescienceandinnovationsystemthroughmeasuressuchasBackingAustralia‘s Ability.

• ThecreationofNICTA throughBackingAustralia’sAbility, aimedto achievecritical massandfocusfor Australia’sICT researcheffort andcomplementsICT R&D undertakenin public researchorganisationssuchasCSIRO,DSTO,theuniversitiesandtheCooperativeResearchCentres.

• TheAdvancedNetworksprogramis designedto strengthentheadvancedcommunicationsinfrastructureusedby theresearchcommunitycomplementstheAustralianResearchandEducationNetwork.

• TheICT Incubatorsprogramidentifiesandsupportspotentialhigh growthICTstart-ups.

• TheITOL (IT Online)programcatalysestheadoptionofe-businesssolutionsacrossindustry.

DCITA INNOVATION RELATED PROGRAMS

ICT Centre of Excellence— National ICT Australia Ltd (NICTA)

Researchis a significantcontributorto innovationandis amajorsourceofintellectualpropertythatcanbecommercialised.Also, giventhestrategicimportanceofICT toall sectorsoftheeconomy,a strongnationalcapacityin ICT researchis a foundationto thenationaleconomicgrowth.

TheAustralianGovernmenthascommitted$380mto June2011 for theICT CentreofExcellenceprogram. Theprogramis beingdeliveredby NationalICT AustraliaLtd(NICTA)5, whichsignedafundingdeedwith theAustralianGovernmentin October2002. NICTA is an independent,not-for-profitcompany,with its four foundingmembers- theUniversityofNSW, theAustralianNationalUniversity(ANU) andtheNSW andACT governments- eachcommittingabout$20m in cashandin-kindoverfive yearsto June2006,with furthercontributionsto bedeterminedfor theperiodto 2011.

TheGovernment’sobjectiveforNICTA is thatit will beaworld-class,world-scaleICT researchandresearchtraininginstitutethat takesAustralia’sability to createandexploit informationandcommunicationstechnologyto anewlevel. TheCentre’sfourcoreobjectivesareto:

• developwithin AustraliaICT researchcapabilitiesin existingand emergingfields;

• increasetheavailabilitywithin AustraliaofICT researchskills by providingpostgraduatetraining andattractingICT researchersfrom overseas;

• exploit forthebenefitofAustraliathecommercialisationofresearchoutputs;and• becomeacatalystfor thedevelopmentofICT industrynetworksandclusters.

NICTA’s researchfacilities andeducationprogramhavegrownrapidlysinceitsestablishmentin 2002. At 31 December2004NICTA hadsome155 researchersworking on over30 projectsat four laboratories,andover 130 PhD students.NICTAwill reachfull operationallevel by December2007whenits five laboratories(two in

http://nicta.com.au/

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Sydney,andoneeachin Canberra,MelbourneandBrisbane)will have260researchersworkingon over50 projectsacross17 programs.

TheCentre’sobjectivesincludethatit commercialiseits outputsandassistthedevelopmentoftheAustralianICT sector,particularlySMEs. NICTA hasto datelodgedprovisionalpatentapplicationsandNICTA is spinningoff acompany,GreenPeaSoftware,which is seekingventurecapitalandexpertiseto commercialisemobilemiddlewaretechnology.

NICTA hasestablishedthebasicinfrastructurefor its prospectivecommercialisationandlinkageswith thelocal ICT industry. Theseactivitiesinclude:• thedevelopmentofanIntellectualPropertyframeworkfor its research;• theappointmentofa commercialisationandIP manager;• thesystematicscanningfor commercialisationopportunitiesforits research

outputs;• developmentanddeliveryofaprogramofIP commercialisationtrainingand

awarenessacrossNICTA for its researchersand students;• anEntrepreneur-in-Residenceprograminvolving an individual whohasahistory

of successfulventurecapitalbacked,start-upcompanydevelopment,togetherwith extensiveexperienceandconnectionswith investorsandpotentialindustrypartners.NICTA hasalreadyselectedits first EiR,AndreasJonsson,who isworkingto commercialiseGreenPea’stechnology;

• anindustryleadersprogram,whichprovidesexperiencedbusinessdeveloperswith a short-termopportunityto workwith theNICTA commercialisationteamonavarietyofprojects,includingevaluatingspin-outopportunities,participatingincommercialisationactivities (suchasmarketresearchorwriting afirst-cutbusinessplan),andexploringopportunitiesfor NICTA’s technologies;

• recruitmentof liaison officersto engagewith SMEson NICTA’s researchactivitiesand capabilitiesandto seekcommercialopportunities;

• establishmentofawebsitesubscriptionserviceto allow firms to registeraninterestin NICTA’s programsandactivitiesandreceiverelevantonlineupdates;

• regularinteractionswith businessthroughavarietyofforumsto improvemutualunderstandingofactivitiesandneedsofNICTA’s work and SMEs’ requirements;and

• theestablishmentofaRoundtableprocess,in conjunctionwith CSIRO,DSTOandICT CRCs,providingaplatform for improvedcoordinationofresearchandlinkageswith industry.

AdvancedNetworksProgram

As indicatedin theopeningparagraphofthis submissiontheestablishmentofanefficient andeffectivecommunicationsinfrastructureis oneofthis Department’smajorobjectives.TheAustralianGovernment’s$60million AdvancedNetworksProgram(ANP) is directlyintendedto contributeto this goal. It supportsthreeprojects,CeNTIE,GrangeNetandm.Net,to develop,trial anddemonstrateadvancedexperimentalnetworksandto supportR&D using thenetworksastestbedsforinnovativeapplications.

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TheprojectshavedirectlyengagedAustralianindustryandpublic sectororganisationsin usingtheinfrastructurefor thedevelopmentofcommercialproductsandfor theimprovementofbusinessprocesses.In additionto theconsortiumpartners,includingmultinationalandlocal ICT businesses,telecommunicationscarriers,universitiesandotherpublic researchorganisations,theprojectshaveworkedwith businessesandinstitutionsin awiderangeofsectors,includinghealth,education,media,financeandtransport.TheANP projectshavesupportedmorethan 10 PhD studentsto date.

TheGovernment’sinvestmentof$60million is beingsupplementedby over$120million in cashandin-kind contributionsby theconsortiummembersofthethreeprojects. Over$47million is beinginvestedin advancednetworkinfrastructure,includingnearly$25 million ofAustralianGovernmentfunding. Theremainderofthefundingsupportse-Researchandthedevelopmentof newleadingedgebroadbandapplications.

CeNTIEandGrangeNetprovidemulti-gigabitoptic fibrenetworkslinking researchinstitutionsin Perth,Melbourne,Canberra,SydneyandBrisbane.CeNTIEandGrangeNetinterconnectto form anationalresearchbackbonefrom Brisbaneto Perth.

m.Netis anadvancedthird generation‘3G’ wirelessnetworkbasedin Adelaide,withnodesin Whyalla,Melbourneand Sydney,andawirelesslocal areanetworktestbedin Adelaide,enablingresearchinto broadbandwirelessnetworktechnologiesandapplications.

Innovation

At thenetworklevel, theANP hasalreadydeliveredmajorinnovations,suchasbuilding thefirst veryhigh capacity(10gigabitsper second)networkin thesouthernhemisphereandapatentednewtechnologyfor trafficmanagementon long-haulopticalnetworks.

Someexamplesofinnovationusingtheadvancednetworkinfrastructureare:• CeNTIEhasworkedwith thefilm postproductionindustryto buildanadvanced

high speednetworklinking theindustryclusterin Sydney. Thisnetwork allowscompaniesto testnewcollaborative,parallelworkprocesseswhichhaveled tosignificanttime savingsduringfilm projectsandhelpedcreatecritical massto winworkon largeprojects.Theprojectalsohasdemonstratedacollaborativeeditingapplicationbetweenpostproductionhousesin differentpartsofAustralia;

• CeNTIEhasdemonstratedateachingmodelusingnetworkedhaptictechnology(simulatingfeel)for temporalbonedissection(asurgicalprocedurerequiredforcochlearimplants). CeNTIEis collaboratingwith StanfordUniversityMedicalSchoolwith an aim of conductinglong distanceteachingtrials for surgicaltrainingusingthehaptictools;

• GrangeNetandtheAustralianInstituteofSporthavedevelopedasportstraininginitiative usinghigh-speeddigital informationtransfer,which isbeingpilotedattheAIS for swimmingcoaching;

• GrangeNetandthePARADESICproject, acollaborationbetweenthreeuniversitieswhich is digitisingand storingfragilerecordingsofthousandsofendangeredAsia-Pacificlanguagesandmusic,areresearchingmethodsfor

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meaningfulaccessto thevery largedataset,requiringintelligentdatatransportsystems,complexdatamanagementandrightsmanagementfor access;

• GrangeNetexperimentalactivitiesincludewavelengthreservation/cloudby-passfor highvolumeprojects(e.g. in astronomy,particlephysics,bioinformaticsandresearchbasedvideodeliverysystems);applicationofnovelprotocols;developmentof distributed,network-attachedstorage;andtheaccessgrid for highqualityvideoanddatasharingbetweenmultiple sites;

• m.Net’sGallery4 initiative is providingrichmediacontentdeveloperswithdevelopmentsupportandfacilities for testingnewapplicationsandservicesforwirelessandmobilebroadbandenvironments.Gallery4 facilitatescommercialoutcomesfor thesubscribingcompaniesandassistswith thecommercialisationofAustralianapplicationsin internationalmarkets;

• m.NetandlocalcompanyMedicalCommunicationsAssociateshavedevelopedandtrialledHealthSpring,atelemedicineapplicationusingwirelesstechnology,with aportablehandheldPCcommunicatingwith apathologydatabase,allowingimprovedaccessto medicaltestresultsby rural medicalpractitionerswhenworkingoutsidetheirgeneralpracticesurgeries,for examplewhenprovidingservicesto the localhospitalorvisiting patientsin residentialcarefacilities.Furtherdevelopmentoftheapplicationsupportedby theTelstraBroadbandFundhasbeensuccessfullycompleted.

Commercialisation

Commercialisationofsomekeyinnovationsis underwayandmoreis expectedastheresearchconductedon thenetworksexpandsandmatures.Theexamplesto datecomefrom CeNTIEandm.Net; GrangeNet’sactivitiesaremorein thedomainofpublic institutionsandmaynot leadsodirectlyto commercialoutcomes.• CeNTIE’spatentedopticalnetworktraffic managementtechnology“time-sliced

opticalburstswitching”;• TheVirtual Critical CareUnit ViCCUTM usesdigital videooverIP technology

developedby CeNTIEto allow aspecialistto guideandinteractwith ateamat aremotehospitalvia ahighcapacitybroadbandlink thattransmitsveryhighqualityvideo,soundanddigital images.Thesystemhasbeenin operationlinking BlueMountainsHospitalin Katoombawith NepeanHospitalin PenrithsinceNovember2003 andhasprovedto bevery successfulboth in improvingpatientoutcomesandprovidingprofessionalsupportto themedicalstaff. TheViCCUTM

wonthe2004AIIA iAward forImplementation— Telecommunications,andisbeingcommercialised;

• CeNTIEandNortelNetworkshavecollaboratedto developthe“ExtranetonDemand”productand arenowexaminingits commercialisationprospects.Thisproductallows film post-productioncompaniesto collaborateusingsecure,high-capacitynetworkfacilities createdby theusersfor thedurationofanyspecificproject;

• CeNTIEhasdevelopedabrowserforvideocontent,AidaTM, basedon CeNTIE’sAnnodexTMsoftwareusedto markup videocontentin thesameway thattext iscurrentlymarkedup for Internetbrowsing. A mobilephoneversionhasbeentrialledon m.Net’snetworkandseveraldiscussionson commercialusehavetakenplace;

• A trial and subsequentcommerciallaunchby ACTION busesin CanberraofminiTRAN, alocation-basedmobileservicedevelopedby Adelaidecompany

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KukanStudiounderm.Net’sGallery4 initiative, describedabove. MiniTRANallowsauserto receiveSMS messagesindicatingwhereandwhenpublictransportis available. m.NetprovidesPremiumSMS gatewayservicesto deliverminiTRAN;

• m.Nethasestablisheda commercial“premiumSMS gateway”which providesaconduitfor applicationdevelopersto multiplemobilenetworksona feeforservicebasis,providingapathwayto marketforAustralianSMEs. Thegatewaywill extendto themarketingofrichmediaservicesasAustralia’s3Gmobilenetworksexpandoverthenextyearor so. Examplesofmobileservicesofferedcommerciallyincludeonlinecompetitions,news,sportingandentertainmentinformation,horoscopeandtarotservices,ring tonedownloadsandlottery andrealestateinformation;

• m.Nethasalsolauncheda subscription-basedsportsresultsservicein partnershipwith AAP andNetworkTen.

ICT Incubators Program (ICTIP)

The$122m(in total) ICT IncubatorsProgramprovidesadirect pathwaytoinnovation. Theprogramis providingfundingof$36 million to 2007-08to eightincubatorsacrossAustraliathroughBackingAustralia‘s Ability — BuildingourFuturethroughScienceandInnovation. This programis anextensionto theBITS IncubatorsProgramwhichprovided$78mto ICT incubatorson mainlandAustraliaandtheBITSIntelligentIslandProgramwhichprovided$8m offundingto anICT incubatorinTasmania.Theseincubatorsprovideseedcapital,businessadviceandmentoringtopromisingICT start-upfirms with theaim ofacceleratingtheirgrowthanddevelopment.

A numberofincubateesin theprogramhavebeenrecognisedforwinning industryawards,securingongoingventurecapital,achievingexportsuccessesandmakingtechnologicalbreakthroughs.

CaseStudies4 and 5 showhow theICTIP canassistSMEsin theICT sectorachieveapathwayto commercialisation.Furthercasestudiesandinformationon ICT start-upsin theprogramcanbeobtainedthroughtheICTIP webpageon DCITA’s website,DCITA’s DATAmagazine and in previous BITS Incubator Program annual reports.

Information TechnologyOnline (ITOL) Program

TheInformationTechnologyOnline(ITOL) programis anAustralianGovernmentfundingprogramadministeredby DCITA designedto acceleratethenationaladoptionof e-businesssolutions,especiallyby small to mediumenterprises(SMEs).

TheITOL programencouragesindustrygroupsandsmallbusinessto identify andadoptcommercialusesofthe internetto supportproductivityandprofitability. Theprogramis acatalystfor industrygroupsto workcollaborativelyto solvecommonproblemson an industrywidebasis,ratherthanworkingindividually anddevelopingmultiple solutionsandin somecasesunnecessarilyduplicatingefforts. Thepreferrede-businesssolutionsareopenandinclusivefor all participants.

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Since1996, about$12million hasbeenallocatedto 110 projectsacrossadiverserangeofindustrysectorsincludingagriculture,healthandpharmaceutical,buildingandconstruction,automotiveandwelfaregroups. Theseprojectshavebeenlocatedinregionalandmetropolitanareasandin all Australianstatesandterritories.

Thefollowing aretwo successfulstoriesofAustraliantechnologicalinnovationssupportedby theAustralianGovernmentthroughthe ITOL program.

CollaborativeB2Bfor SMEs in theMining Industry

The project CollaborativeB2Bfor SMEsin theMining Industrywasto addresstheneed for SMEsto be able to trade electronically with boththeirlargertradingpartnerswho were enabled for e-Business already, as well as their trading partners who had nopresent e-Business capability. Theprojectdeliveredtwo (2)products,namelyTradeRouteTMaB2B “middleware”solutionappropriatefor SMEs,andTradeFormsTManadvancedWebservicesbasedsolutionfor electronictradingwith partnerswhopreviouslyusedmanualmethodssuchasfax, emailandpost.

Overall,thedesiredoutcomewasto enablethe SMEto trademoreeffectivelywith amuchhigherpercentageoftheirtradingpartners,bothlargeandsmall. A specificgoaloftheSME Supplierwasto lift theirservicelevel performancein orderto offerexcellentcustomerservice,whichwould improveandconsolidatethetradingrelationshipswith theircustomersand suppliers. Thee-Businesssolutions,TradeRouteandTradeFormsresultingfrom thisprojecthavedeliveredboth tangible,measurablebenefits,aswell asbenefitsthatareharderto quantifybut aresignificantnevertheless.

The project was developed by, XMLYes Pty Ltd, in collaboration with MSA(Australia) Limited, PT NewmontMines, QuadremInternational,IBM Australia andMincom.

GlobalElectronicInvoicePresentmentandPayment

The project GlobalElectronicInvoicePresentmentandPaymentwasto developanexport c-commerce service trusted by both exporters and importers that can besecuredsimplyandcost-effectivelyoverthe Internet without paperwork or timedelays. Thesecureserviceprovidesreliablecross-border,multi-currencyinvoicingandpaymentcapabilitiesdesignedfor smallbusinessexportersandimporters.

Only 31,000of 1.1 million AustralianSMEsareexporters.To effectivelybuy andsellgoodsworldwide,importersandexportersmusthavean effective,efficientwaytosendandreceivepayments.Theyneedcost-effectivelogisticsservicesto ship goodsandtrackshipmentsglobally. Theyneedto meetcross-borderregulatoryandcompliancerequirementsandmaketheirbusinessesscalablefor global tradingwithoutlargeupfrontinvestments.

TheMyExportsportal is aplatform to enablebusinessesto rampup theirglobaltradingwithoutincreasingstaffingoranytechnologyinvestment.Allowing overseasbuyersto payfrom theirbankaccountsin theirlocal currencyatno costcanincrease

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salesby makingit simpleandconvenient.Australiansellerscanavoidthehighcostsandrisksofcreditcardpaymentswith aflat AUD$5.50perpaymentreceived.

Theprojectwasdevelopedby PaymentPty Ltd, in partnershipwith AustralianTradeCommissionandDanzasPty Ltd.

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CaseStudy 1 - ICT-based innovation in the Australian manufacturing sector

A recentlycommissionedresearchstudyinto theuseofICT by “non-ICT”manufacturershasrevealedthepowerful influenceICT hasonbusinessinnovation6.Basedon interviewswith managersin industrythereportfoundtherewaspervasiveexploitationofICT throughoutthemanufacturingsectorin all aspectsof thevaluechain— research,productdevelopment,production,supplyanddistribution,customerrelationshipsandpostsalesservice. ICT is alsofoundto beextensivelyusedincorporatemanagementandadministrativesupportfunctions.

A keyfinding is thatinnovationin theapplicationofICT hasasignificantimpactonproductivityandprofitability. ICT is asignificantenablerofproduct,processandbusinessmodel innovationwithin themanufacturingsectorsothatthecleveruseofICT andincorporationofICT becomesaproductandservicedifferentiator.

Theavailabilityofdigital informationwasfoundto beoneofthedirectdriversofinnovation. It is enablingnewmanagementarrangementsandthedevelopmentofnewbusinessmodels. Forexample,geographicallydispersedsupplychainscanbemonitoredandcontrolledthroughICT. Overseassuppliedenterprisesoftwareoftenrequiresfurtherdevelopmentsof specialisedproductionfacility basedintelligencesystemsandprocessexecutionsystemsin orderfor to achievethefull potentialofICTin industryandbusinessspecificoperatingenvironments.

ThereportfoundthattheAustralianmanufacturingsectorrelieson astrongAustraliancapabilityin theICT servicessectorthatis capableofimplementing,customisinganddevelopingsoftwarein theAustralianindustryto supportbothbreakthroughandcontinuousinnovationin manufacturingbusinesses.

Manufacturingfocussedindustry-universitycooperativeresearchcentreswereidentifiedasplaying asignificantrolein supportingthehiddenuseofICT. TheresearchoutputsofmanycentresareICT software,hardware,tools andproductsdesignedfor usein manufacturingprocesses.

Thestudyconcludesthat, asthepervasiveimpactofICT grows,ICT is likely tobecomealesseasilydistinguishablecauseofimprovedproductivityandperformance.Theparadoxwhich arisesis that thestrongertheproductivityimpactofICT, theharderit is to measurethe impact. It alsoimplies thatexistingstudiesunder-estimateICT’s rolein transformingmanufacturing.

6 Digital Factories. the Hidden Revolution in Australian Manufacturing, HowardPartners,(in draft),

April 2005.

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CaseStudy 2- SME ICT Innovation and Production

Therehasbeena significantunderestimateofthewidespreadinnovationin, andproductionof, ICT andothergoodsandserviceswith embeddedICT by Australianfirms.

A recentSensisreportforDCITA on ICT productionin AustralianSMEs7 foundthat16%ofSMEs acrossthe economywereinvolved in oneormorefacetsofproductionofICT goodsorservicesandthat89%offirms involved in ICT productionwerenotspecialisedICT firms. Basedon the sampleof 1800SMEs,Sensisestimatedthat thetotal amount of revenue from the production of ICT goods and services by all SMEsfor sale or for own use was about $15.5billion over the 12 months to April 2004.SMEswerealsoestimatedto becontributingatleast$850million in ICT exports.

Thisperformancereflectswidespreadinnovationby SMEsexploitingICT. TheroleofICT innovationis alsoreflectedin theprevalenceofICT producingSMEsasexporters— overaquarter(26%)ofICT producingSMEswereexportingcomparedwith 16%ofall SMEs. SMEsin theICT sectorwereevenmorelikely to export (29%offirms).

TheSensissurveyhasrevealedpartofthecontributionof ICT to nationalinnovationperformanceandtherelatedcompetitivenessofbusiness.Furtherresearchis requiredto understandtheimportanceofICT researchto innovation.

~SensisBusinessIndex,ICT Productionin AustralianSMEs,November2004.(http://www.dcita.gov.au/ictIic~industIinfOflflatiOflhiCtPrOdUCtiOfl.inaUStraliansines)

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CadeStudy 3- Radiata

The success of Radiata Communications, a high-speed wirelessnetworkingstart-upcompany, is underpinned by excellencein R&D, a long-terminvestmentin basicresearch, inter-personal networks, active business leadership and a groundbreakingtechnologythatreachedthemarketaheadofits competitors.

Radiatawasformedin 1997to commercialisedevelopmentwork thathadbeenundertaken by CSIRO and Macquarie University in wirelesslocalareanetworks(LAN), andin responseto themarketpotentialthathadbeencreatedby anewinternationalstandard(IEEE802.11a) in wirelessLAN. R&D into wirelessLANbeganat CSIROin thelate 1980s,building on theradio-astronomyresearchprogramthathadbeendevelopedoverseveraldecades,andwhich asaresulthadestablishednetworksofresearcherswith stronglinks to industry.

In 1998,Radiataobtainedan AuslndustryR&D Startgrantof $750000that enabledthecompanyto completean early,workingprototypeof its technology. Overthefollowing two years,Radiatadevelopedthe first integratedwirelessLAN chip thatconformedto theIEEE 802.1la standard,andthis achievementgeneratedsignificantinterestfrom anumberoflargeUS companies.

In 2000thecompanywasboughtby CiscoSystemsin adealthenvaluedat$U5295million, aspartofCisco smoveintowirelessnetworking. Themoveresultedin Ciscolocatingits wirelessLAN researchhub in Australiain ordertocapitaliseon thestrengthofRadiata’sresearchcapabilities.At thetime, Radiatawasoneofa smallnumberof companieswith thecapabilityto produceasinglechipsolutionfor 802.11networking,andtheacquisitionenabledCiscoto secureaprominentplacein thewirlessnetworkingarena.However,with thematuringofthemarketforwirelesschipsetsandtheerosionofmargins,Ciscodecidedto wind up theoperationsofRadiatain 2003.

OneofthefoundersofRadiata,Dr Neil Weste,who left Ciscoprior to thewindingdownofRadiata,hasgoneon to form g2 Microsystems,awirelesstechnologyventurefocusedontheRadioFrequencyID (REID) market. Thenewventurehasmanagedto attractsubstantialinterestfrom investors,includingthesuccessfulclosingin 2005ofa$U56million investmentroundwith newinvestorsStarfishVenturesandreturnbackersDB CapitalPartners,theprivateequityandventurecapitalarmofDeutscheAssetManagement(Australia)Ltd.

ThestrongtrackrecordofG2‘5 founders,built up asaresultoftheirinvolvementinRadiata,wasadecidingfactorin securinginvestmentcapital. DB Capitalwasquotedassayingthatit wastheRadiata“pedigree”ofG2’s foundersthatplayeda significantrolein convincingit to investin thestartup at anearlierstagethannormal8. G2Microsystemsdemonstratesthesignificanceofserialentrepreneurship,wheresuccessfulteamsofentrepreneursbuild on theexperienceandknowledgefrompreviouscompaniesto developothersuccesses.

8 AustralianVentureCapitalJournal,June2004,pg 15

15

Research being done at the University of Cambridge’s Centre for EntrepreneurialLearning hasshownthehistoricalsignificanceofrelationshipsbetweenresearchers,industryandinvestorsin therapidgrowthofCambridge’shigh techprecinctor“Technopole”,andtheimportanceofcontinuingto encourageandcapitaliseon theserelationshipsif newtechnologiesandnewventuresareto flourish9. ThesuccessofRadiataclearlyillustratestheimportanceofrelationshipsbetweenindividualsin thedevelopmentandgrowthofsuccessfulcompanies,andthepotentialimportanceofthoserelationshipsto newventures.

~S. Vyakarnamet al, “EntrepreneursandEntrepreneurshipaskey driversof theCambridgeTechnopole”Paperpresentedby ShaiVyakamamat theSecondAGSEInternational-EntrepreneurshipResearchExchange10-il February2005, Melbourne.

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CaseStudy 4— ICT Incubator Programme: Windspring

Zentronix developed intellectual property in data miniaturisation technology (DMT)usinginformal sourcesofcapital— family friends and personal savings. DMTis aninnovativeanduniquedataminiaturisationtechniqueandencodingalgorithmthathasbeenprovento dramaticallyimprovethespeedofaccessto text files, databasesandvector-basedimages,andsignificantlyminimisetheelectronicstoragerequirementsofdataonstoragedevices.

Inmid 2003,ZentronixinvitedBlueFire(nowknownasDivergentCapital),aSydney-basedinvestmentandincubationbusinessundertheBITS IncubatorProgram,to conductaduediligenceonits DMT andreviewan applicationfor early-stageinvestmentfunding.

BlueFireconsideredwhetherthetechnologywasinnovative,non-imitableandwhetherits proposedfirst generationofapplications,in theareasof storageareanetwork(SAN), wirelessnetworkingandremotecomputingfields, couldfollow arealisticpathwayto commercialisation.

BlueFireconsideredthatZentronixhadagenuinebreak-throughin the field ofcompressionandthatDMT wasaunique(andpatented)techniqueforthereductionoflosslessdatain datastreams.It alsoconsideredthattherewasa significantneedin theinternationalmarketfor lowerstoragecostsandhigherspeedtransmissionfor themassivedatarepositoriesbeingbuilt by organisationsaroundtheworld. Zenotrinx’sWindspringwasableto provideworkingdemonstrationsoforder-of-magnitudejumpsin this area.

Havingappointeda CEO andachairmanwith significantexperiencein technologycommercialisation,BlueFiredecidedto leadacapitalfundraisingroundof$900 000to fundits migrationto theUnitedStates.

Onthere-launchofthebusinessin SanJose,California,furthercapitalfundraisingwasundertakenthatnettedafurtherUS $2.8million (AUD $4.2million) at avaluationuplift of about80 percentwithin threemonthsofZentronixreachingtheUnitedStates.

In 2004,ZentronixrenameditselfWindspring,accomplishingsignificantmilestones,filling out its managementteam,releasingits first fully commercialproduct,andengagingMotorola,Microsoft, andQualcommin partnershipanddistributionrelationships.

Further information onWindspring can be found at www.windsvrinzcom

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CaseStudy 5— ICT Incubator Programme: Mediaware SolutionsPty Ltd

ThethreefoundersofMediaWareSolutionswereseniorresearchscientistsattheCSIRODivision ofInformationTechnology.Thefoundersworkedon asuccessfulprojectto developageneraltoolkit to allow contentsearchingofMPEGvideo.Moving PictureExpertsGroup(MPEG) is astandardmethodoftransmittingdigitalvideoandsoundin acompressedformatusing lessbandwidththanthetraditionalanaloguemethod.Thefounderslicensedthebackgroundtechnologyfrom CSII(O andfoundedMediaWareSolutionsin 1997.MediaWaresubsequentlyacquiredownershipandall rightsto theoriginal technologyfrom CSIROin 1999.

Thefounderssubsequentlydevelopedan MPEGtechnologyplatform to coverdecoding,encodingandeditingin additionto thecontent-basedsearching.With theMediaWareproducts,largeunwieldydigital videofilesbecomeeasilyaccessedassetsfor marketing,entertainmentandinformationretrieval.TheMPEGtoolsdeliverfastvisual indexing,sceneandshotseparationwith standardstill frameoutputforintegrationinto databasesystemsandnetworkedvideobrowsersaswell aspowerfulstand-aloneMPEGvideoprocessing.Thetechnologyis Internetreadyandiscompatiblewith existingandemergingindustryformat standards.

MediaWareSolutionshassincereleaseda seriesofproductson SPARC/SolarisandPC/Windowsplatforms:MPEG-i andMPEG-2editors,transcoders,avideoassetmanagementtool andarangeofspecialisedcomponentsfor integrationintodefenceandbroadcastmarketOriginalEquipmentManufacturer(OEM) solutions.

TheMPEGdigital videomarketis growingrapidly.MediaWare’ssoftwaredevelopmentresultedfrom an increasingcustomerdemandfor accessto MPEGvideoovertheInternetandintranet.ThevolumeofMPEG-i andMPEG-2contentavailableon theInternetis constantlyincreasing—tomakethedatausefultheend-userrequiredtechnologythat enabledthisdatato be sorted,editedandaccessedthroughexistingbrowsertechnology.TheMediaWaresolutionsareadaptableto networksandofferboth localanddistributedsolutionsfor mediaaccess.Thesoftwareallows asignificant level of interactive media manipulation regardless of the bandwidthavailableto thecustomer.

MediaWare Solutions was accepted into the Epicorp incubator in February 2002 andgraduatedin June2003.BITS fundingof$450000 wasprovidedoveraperiodofsixmonthson themeetingofestablishedmilestones.

MediaWareSolutionsreceivedassistancefrom Epicorpto:• recruit keypersonnelincludingaCEO andmarketingpersonnel—these

appointmentswerecrucialto thecompany’sdevelopmentfrom anR&D-basedcompanyto acommercialenterprise;

• developstrongcorporategovernancepoliciesandestablishan operationalboard;• developa commercialisationstrategy,includingclearlydefiningtheproductlines

andthe servicesbeingprovided;• developthecompanyforwardfinancingplan; and• developanetworkofcontactsto raiseadditionalfunds.

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MediaWareSolutionshassuppliedits technologyto anumberofmajordefenceandbroadcastcompaniesincludingtheAustralianDepartmentofDefence,Raytheon(UnitedStates),GeneralDynamics,Thomson,LockheedMartin,CBS,CNN, SBSandABC (US). MediaWareSolutionsalso sells to digital videoOEMssuchasN2BBandPathfireandhascompetedfor anumberofmajoroverseas-basedtenderswhileupdatingits rangeofproducts.Todayover95%ofits revenueis sourcedfrom theUS.

In April 2005,MediaWareSolutionsannouncedthatit wasexpandingits recentlyopenedofficein WashingtonDC on thebackofwinninga significantcontractwiththeUS navyto supplyvideoprocessingsoftwarefor UnmannedAerial Vehicles(UAVs). Its technologyis usedby theUS forcesto capture,downloadandmanipulatevideowhile still in acompressedform providingsavingsin timeandbandwidthresources.

MediaWare’stechnologyhasalsobeenincludedaspartofaconsortiumwhich iscurrentlytenderingto supply theAustralianArmy with pilotlessaircraft.

Further information on MedjaWare Solutions can be found atwww.mediawaresolutions.com.

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Attachment 1

Key featuresof Innovation and Innovation Systems

Innovationis thekeyto long-terminternationalcompetitiveness,fastereconomicgrowthandbetterliving standards,andoffersthebestprospectofmeetingtheproductivitychallengeposedby ouragingpopulation.

In the contextofrapidchange,therising importanceofknowledgeandskills,globalisation,andincreasingcustomersophistication,othercountriesareusinginnovationpolicy, includinginformationeconomypolicy, to positiontheireconomiesalonghighergrowthtrajectories.

Competitiveadvantageresidesnotonly within thefirm but is shapedby theexternalenvironment.Improvingcompetitiveness,therefore,becomesacollaborativeprocessinvolvingmultiple levelsofgovernment,companies,educationalinstitutionsandinstitutionsof collaboration.

Theincreasingeffortsof ourcompetitorsmeansthatover-relianceon a fastfollowerstrategyis unlikely to closethis gap.

In suchanenvironment,policy leamingbecomesimportantparticularlyaspolicyactorsaresignificantin innovationsystems,andpolicy interventionsfacehigh levelsofuncertainty.

What is Innovation?

Innovationis acomplex,creative,adaptive,symbiotic,leamingprocesswherebyknowledgeandnewwaysofgeneratingadditionalvaluearedevelopedandappliedeitherthroughproduct,processandorganisationalinnovation. It is acomplex,interactive,andinterdependentsocialprocess,characterisedby continuousfeedbacksratherthanlineartransitions. It is alsocontinuousratherthanintermittent,in whichcapabilityandperformancedevelopscumulativelyovertime.

Innovationdependson theaccumulatedarrayof learningandinvestmentsin theeconomyovertime,includingthepasttechnologicalsophisticationoffirms andthesizeofthetechnicalandscientificworkforce. Consequently,a country’soraregion’sindustrialandinnovativecapacitiestendto bepathdependentwith significantbarriersto movingto atrajectory. In particular,increasingreturnsreinforcepathdependencyby benefitingprimemoversratherthanlatecomers.Also innovationinvolvesoccasionalmajortransitions,astechnologieschangein discontinuousandfundamentalways.

It impactsacrosstheeconomyand,consequently,innovationpolicy is notjust about,orevenprimarily about,high-technologyindustries. Innovationarisesin numerousdomains,includingin products,processes,marketing,services,managementanduse.Thereis adangerthat aconcentrationon hightechnologyindustriescanobscureimportantprocessesofknowledgecreationandinnovationacrosstheeconomy.

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Industrialsectorsin manycountriesarereorganisingthemselvesundertheinfluenceofinnovation.

Becauseinnovationis theresultofacomplex,emergentsystem,it cannotbemodelledin areductionistway. Thus,while elementsofthe systemarenecessarilydescribedina serialfashion,it is importantnot to takethesedescriptionsasimplying linearcausalrelationships.Inparticular,it is notgenerallytruethatthe linesofcausalityflow fromscienceto technology,to commercialisation,andthento use,thoughit canbe true inparticularcases.TheOECDhasusedthefollow diagramto illustratethecomplexinteractionsinvolvedin the innovationsystem.

Consequently,innovationcannotbeimmediatelyidentifiedwith particularinputssuchasthelevel ofR&D (thoughit is agreedthatthe level ofR&D is importantto thesystem)orwith particularoutputmeasuressuchasMFP growth. Forthesestrongconceptualreasons,the innovationsystemandpoliciesimpactingon it, haveto beconsideredin aholistic fashion. Firms do not innovatealone,butby interactingwithcustomers,suppliers,competitors,consultingcompanies,technologicalinstitutesanduniversitiesin waysthatarecomplexanduncertainbutwhich seeksto exploitknowledgeandreducerisk. Therelevantknowledgeis distributedacrossmanysectorsand agents.

L

21

Australiaseemsto showarelativelyhigh-levelofpath-dependency,which is onlyslowly generatingsustainablenewpathsoftechnologicalaccumulation.While wehaveemergingnewfirms andniches,therearefew majornewtrajectories.

Commercialisationis only oneimportantmethodof extractingeconomicbenefitfrominnovation. TheOECDhasmodelledthecomplexinteractions

What doescreatinga competitive innovation systeminvolve?

It is acceptedthatknowledgeandinnovationarecharacterisedby significantmarketfailures,justifying governmentactionto createacompetitivesystemwhichappropriatesthebenefitsfor Australia. An effective,competitivesystemrequireseachofthefollowing elements,andafailure in anyoneelementcandegradetheperformanceofthewhole system:1. A cultural environmentsupportiveofcreativity,gooddesign,quality

consciousness,innovation,enterpriseandentrepreneurship.This involves:o Promotingthesevaluesthroughoutsocietyanddiscouragingstereotypes

thatunderminethem. Suchvaluesprovidethesocialcapitalunderpinningthesystemandtheirpromotionis an investmentin apublic good.

o Providingadequatesocialrecognitionandmaterialincentives.o Removingstructuralbarriersto resource,knowledgeandpeopleflows

betweenresearchinstitutionsandfirms,o Effectivelymanagingtherisksto researchersand entrepreneurs,

2. Specialisedcompetenciesacrossthesystem,andtheirsuccessfulintegration:o economicallyusefulknowledgeis thecomplexoutcomeofinteractions

betweenmanyknowledge-producingagents,and its creationandmanagementis aproblemofsystemsintegration.

o usercompetencies,egby encouragingleadingedgeuse.o marketingcompetencies,o designandqualitycompetencies—importantbutneglectedelementsin the

innovationprocesso productioncompetencies.o distributioncompetencies.o managerialcompetencles.o competenciesin financinginnovation.o entrepreneurialcompetencies.o technologicalcompetencies— involvesdifferent, thoughcomplementary,

complexknowledgebasesfrom science,includingtacit orpracticalknowledgewhich canonlybeacquiredfrom experiencein particularcontexts.

o creatingtheknowledgeinfrastructureparticularlyastrongeducationsectorthatkeepsabreastofcurrentdevelopments.

3. Stronglinkagesbetweenusers,customers,suppliers,producers,andtheknowledgebase.

o particularlybybuildinggeographicalconcentrationsoftheabovecompetencies,technology-basedfirms andtheinstitutionssupportingknowledgecreationandtransfer.- spatialproximity is importantin promotingcompetitionpressures,

interactivecollectivelearningandtrustamongnetworksoffirms and

22

other knowledge producers, and creates the capacity to assemblefragmentedandtacit knowledge,maximisingknowledgespillovers.

- clustersincreasethe level ofproductivityofconstituentfirms, thecapacityfor innovationandproductivitygrowth,andstimulateandenablenewbusinessformation— all in a virtuouscycle.

- theyofteninvolve direct foreigninvestment.o aninnovativebusinesssectoremphasisingrapidtechnologyuptake,

businessprocessimprovementsandknowledgeassetsandmanagement.o asufficientnumberofinnovativelargeandsmall firms to capturethe

benefitsofinnovation.- alackofinnovatingAustralian—basedfirms, particularlyin areas

matchingourpublic researchefforts,hasbeenamajorweaknessin theAustralianinnovationsystem. In particular,wehavefew largeR&Dintensivefirms.

- while mostSMEsarenot innovators,innovatingSMEsplayamajorrole undertakingmoreintensiveandoriginal innovations.

- direct foreigninvestmentby TNCsprovidesapossiblemechanismfortechnologytransferintoAustraliaand afocusfor newAustralian-basedinnovation.

o Without stronglinkagesscientificandtechnicaladvancescandiffusetoothercountriesfasterthanthey canbeexploitedathome.

o Stronglinkagesto the innovationsystemsofothercountriesarealsoimportant.

4. Specialisationin selectedareas.o Australiahasarelativelylow level of technologicalspecialisationfor a

small economy.o Australia’sexistingspecialisationis in agriculture,primarymetals,mining

andoil & gaso small countrieslike Australiahavelittle choicebut to focustheir

innovationefforts if theyareto achieveanycritical massin anyarea.o this will happeneitherby accidentorby deliberatechoice.o it makessensethereforeto coordinateresearchprioritiesand industrial

effortsto agreaterextentthanin largercountries. In particular,thereisadvantageto focussingon integrationandbuilding capacityin areasofexcellenceasaplatformfor growingnewknowledgeandindustriesandaddressingproblemsuniqueto Australia.

o theexistenceofeconomiesof scalein innovationeffortsimplies thatAustralianfirms musteitherspecialise,ordevelopstronginternationallinks,orboth.

5. Creating,appropriatinganddiffusingtechnologieso aresearchsectorthatunderstandsthetechnologynecessaryto produce

knowledgeandinnovationsrelevantto Australianconditions,resourcesandopportunities,andlink to newknowledgedevelopedoverseas;

o 98% oftechnologicalinnovationoccursoverseasandmuchis importedin capitalgoodsor throughdirect foreign investment.

o small economiesbenefitstronglyfrom capturingoverseasknowledgeandinnovation.

6. A robustknowledgebase,with highereducationandresearchbodiesthathaveastrongcommitmentto excellenceandagoodunderstandingofthe significanceoftheknowledgebaseto the innovationsystem.

23

7. A globally competitiveinnovationinfrastructurein universities,researchorganisationsetc.

o appropriateselectionproceduresareneededto ensurethequalityofresearchandafocuson theareasofgreatestvalue.

o thereareoftenlong timelagsinvolvedbetweeninvestmentin scienceandresearchandtherealisationofdirectlyrelatedeconomicbenefits

o investmentin thecreationofhighqualityhumancapital8. PromotingtheapplicationofICT becauseofits particularrole asageneral

purposetechnologyin enhancingknowledgecreationandtransfer,andin enablinginnovationin businessoperations,governmentprocessesandsocietyprocessesmoregenerally.

o it is increasingtheproductivityoftraditionalindustrieswhileprovidingopportunitiesfornewbusinessesin ICT orbasedon ICT infrastructure.

o advancesin computing,informationstorage,softwareandnetworkingareleadingto newopportunitiesfor researchin mostfields andextendingthepossibilitiesofwhatcanbe done. ICT infrastructure,particularlyadvancednetworks,will influencethewayscienceis doneandprovidethebasisforthenextgenerationofservices.

o TheDepartmentofCommunications,InformationTechnologyandthe pArts (DCITA) andtheformerNationalOffice for theInformationEconomy(NOIE) havecompletedanumberofstudiesindicatingthesignificantimpactthat ICT hason productivityandeconomicgrowth.

o ThepromotionofICT throughstudiesandGovernmentprogramsis animportantfactorin advancingtheICT agendain Australia.

9. Diversity andflexibility — thismeansbuildingredundancyinto thesystemwithstructureswith built-in responsivenessto changeandnewchallenges.

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Attachment 2

ENABLING OUR FUTURE: THE ICT FRAMEWORK FOR THE FUTURE

REPORT - RECOMMENDATIONS

LEADERSHIP

RESEARCH AND DEVELOPMENT

Recommendation1. Commonwealth,Stateand Territory governmentsshouldwork togetherto articulate ICT goals,

anddevelopandurgentlyimplementstrategiesto harnessICT to achievebroadnationalobjectivesin areassuchashealth,educationandsecurity,andimprove coordinationof programs.• A meetingof theOnlineCouncil(OC) shouldbe convenedby theCommonwealthwithin the

next threemonthsto discusstheoutcomesandrecommendationsof this Report,andtaketheReport’sagendaforward, includingaddressingissuesofcoordinationof ICT strategiesandprioritiesbetweenjurisdictions.

2. A forumof industryleadersshouldtakeplacewithin thenext threemonthsto:• discusspracticalways in whichindustrycantakeforwardtherecommendationsin this report

andtheFrameworkagenda;and• developa plansettingoutactionsto beundertakenby industryin theFramework’s

implementation.

Industryassociationsshouldconvenethe forum.

3. Governmentsandleadersin industry,educationandtheresearchcommunityshould:• recognisethecritical enablingroleof ICT in improvingproductivity,driving business

efficienciesandsupportinginnovation,andtheimportanceof a strategicinformationcapabilityto achievingbroadnationaleconomicandsocialgoals;

• explicitlyreflectthis role in thedevelopmentof their organisationalstrategiesandpolicies,andtheimplementationof programsto achievethosestrategies;and

• worktogetherto ensurethatAustralia’sbusinessenvironmentis conduciveto fosteringICTinnovation,includingregularlyreviewingandbenchmarkinginnovationstrategiesagainstinternationalbestpractice,andfocusingonlonger-terminitiativesthataregiventimeto makea difference.

4. A meetingshouldtakeplacein early2004betweenrepresentativesof government,industry, theresearchcommunityandtheeducationsector,to:• reviewprogressin implementingthis Report’srecommendations;and• takestockof developmentsin theICT sector.

It shouldbeconvenedandcoordinatedby DCITA andNOIE.

p

Recommendation5. The amountandeffectivenessofpublic sectorsupportfor ICT R&D shouldbe increased.

Governments,researchfundingbodiessuchastheARC, andresearchperformingbodiessuchasCSIRO,DSTOanduniversitiesshould:• give ICT aprominentfocusin researchsupportedunderprioritiesalreadyidentified;• coordinateprocessesfor priority settingandtheallocationof resourcesto ICT R&D, to

minimiseoverlapandensureconsistencyof areasidentified; and• build scaleandcriticalmassin excellentresearch,focusedon:

o areaswhereAustraliahasworld-classICT researchstrengths,or the clearpotentialtodevelopthem;

o areaswherethereareexistingcommercialstrengthsin Australia,or clearpotentialtocreatesuchstrengths;and

o areasof nationalinterestsuchassolvingproblemsof importanceto Australia.

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INFRASTRUCTURE- CONNECTIVITY

6. Crossandmultidisciplinaryresearchshouldbeencouragedandfunded,including in areaswhereICT intersectswith othertechnologies.

• Universities,public sectorresearchorganisations,andresearchfundingbodiessuchastheARC andtheNationalHealthandMedicalResearchCouncil(NIIMRC) shouldtakestepstofacilitatesuchresearchincluding changingfundingstructuresandguidelinesif necessary.

7. NICTA, CSIROandDSTO shouldprovidenationalresearchleadershipby developingthemselvesashubsof ICT researchactivity, withcloselinks to otherICT researchteams,andstronglinks to industry.

• Thesethreeorganisationsshouldcoordinatetheestablishmentof a regularround-tableofmajorpublicly-fundedICT researchgroups,includingtheICT-relatedCRCsandappropriatelargergroupsin universities,to:o developanimplementationplansettingoutactionsto respondto recommendationsin this

Reportin a coordinatedfashion;o shareinformationonICT R&D, includinginternationaldevelopments,andbuild

relationships;o explorewaysof moreeffectivelycommercialisingR&D andlinking with industry;o coordinateresearcheffortsandpriority settingactivities;ando assistin efforts to build andcoordinateICT R&D infrastructure.

An annualreportonround-tableactivitiesshouldbeprovidedto theMinisterfor CITA.

8. Commercialisationof ICT researchshouldbea majorfocusof all publiclyfundedresearchorganisations,andresearchfundingbodies,in their strategicresearchplanning,andcommercialgoalsshouldbebuilt into all stagesof theirICT researchactivities. Businessesandindustryassociationsshouldtakeactionto communicatetheir R&D needseffectivelyto public sectorresearchorganisations,andengageandpartnerwith thoseorganisationsin thedevelopmentoftheircommercialisationstrategiesandtheconductoftheir ICT R&D.

9. IndustryandresearchorganisationssuchasCSIRO,NICTA, DSTO, CRCsanduniversitiesshouldwork togetherto morefully integrateandembedprivatesectorR&D facilities andcentresintotheAustralianICT R&D community.

10.The CommonwealthGovermnentshouldtakethe leadin exploringoptionsto supportjoint R&Dactivitieswithbusinesses,as away of developingthecutting-edgeICT productsandservicesthatagenciesneedto improveagencyperformance.

Recommendation11. TheBroadbandAdvisoryGrouprecommendations—includingtherole for theCommonwealth

Governmentin developingaNationalBroadbandStrategy,supportingandcoordinatinge-healthande-educationinitiatives,andencouragingSMEsto takeup broadbandservices—arebroadlysupported.TheGovernmentshouldgive closeconsiderationto therecommendationsof theRegionalTelecommunicationsInquiry includingthoserelating to accessto high-speeddataservicesin regionalAustralia.

12. Ongoingpriority mustbe givento thecontinuedandcoordinatedupgradingandspreadofadvancedresearchnetworks,by governments,public researchinstitutionsanduniversities,asakeyinfrastructureunderpinningthedevelopmentof nextgenerationbroadbandactivities.

• Theroleof theCommonwealthin driving thedevelopmentof e-scienceshouldbeexaminedby theNOLE & DCITA.

• TheproposedNationalBroadbandStrategyImplementationGroupshouldconsiderdevelopinga coordinatednationalframeworkfor researchbroadbandnetworksaspartof theNationalBroadbandStrategy.

26

INFRASTRUCTURE - STANDARDS

INFRASTRUCTURE - INTELLECTUAL PROPERTY

13. Researchanddevelopmentneedsandpriorities relatedto thesecurityof Australia’sinformationinfrastructureshouldbe identified,andactiontakento bettercoordinateandhamessAustralia’sexistingR&D effort relatedto thatsecurity.TheDepartmentof Communications,InformationTechnologyandtheArts andtheNationalOffice for theInformationEconomyshouldworkwiththeDepartmentof Defence(includingDSTO)andotherrelevantCommonwealthagenciesonthisissue.

Recommendation14. Industry-basedforums shouldbeestablishedby industryandindustryassociationsto progress

practicalissuesneededto implementanenvironmentof trustfor onlinebusinessandtransactions.15. A frameworkto guideAustralia’sinvolvementin internationalICT standardssettingshouldbe

developedandimplementedby NOLE,DCITA andStandardsAustralia,in consultationwithindustry.• Theseorganisationsshouldalsoestablisha strategicgroupwithmembershipdrawnfrom

industry, researchersandgovernmentto determinewhich areasofICT R&D havethepotentialto yield productsformarketswhereinternationalstandardsarestill fluid, anddeterminethemostappropriatemeansof shapingstandardsin thoseareas.

Recommendation

p

16. TheCommonwealthGovernment’sreviewof its Digital Agendalegislationshouldexaminethebalanceofrights betweencreatorsandusersin a digitalenvironment,in thecontextofAustralia’sfutureasaninformationeconomy,andfocusonensuringthatAustralia’scopyrightregimedoesnothinderinnovationandinvestment.• ICT businessleadersandindustryassociationsshouldensurethattheperspectivesoftheICT

industryareconsideredduring that review.

17. In relationto governmentownershipanduseof intellectualproperty(IP):• theCommonwealthshouldadoptandpromulgatemanagementpracticesfor its IP which

encourageandmaximiseindustrydevelopment,consistentwith themanagementofgovernmentIP asa public asset,andshouldregularlyaudittheir IP to reviewopportunitiesforits commercialdevelopment;

• DCITA, andAG’s shouldensurethat theCommonwealth’sinformationtechnologyIPguidelinesareup to date,encouragetheirwidespreadadoptionanduse,anddisseminatebestpracticeexamplesof IP management;

• theAuditor-Generalshouldconductanauditofpracticesadoptedby Commonwealthagenciesfor themanagementof IP, andreportontheextentto which theguidelinesarebeing followed,andwhetherIF resourcesarebeingusedefficientlyandeffectivelyto achievegovernmentobjectivesincludingindustrydevelopment;and

• theCommonwealthshouldwork with StateandTerritorygovernmentsto achieveuniformpoliciesin theuseof CrownIF.

Recommendation16(c)of theBroadbandAdvisory Group,that theCommonwealthshouldensurethat its IP policiesdo notactas abarrierto thedevelopmentof digital contentindustries,issupported.

18. Industryassociationsshouldcontinueto workwith theirmembers,particularlySMEs,to informandeducatethemaboutIP rightsandtheprocessesrequiredto protectthem,andto provideappropriateassistanceservices.

27

SKILLS

PROMOTING “TECHNOL OGYAUSTRALIA”

Recommendation19. UniversityandotherICT courseprovidersshould:

• developcoursesandcurriculato ensurethatstudentsstudyingin areasotherthanICT developthebroaderconceptualandpracticalskills to beICT-fluent in their ownprofession;

• link ICT andotherscienceandengineeringcoursesat bothundergraduateandpostgraduatelevel,so thatICT studentsareexposedto issuesinotherdisciplines;and

• give greateremphasisto thedevelopmentofbusiness,projectmanagementandentrepreneurialskills in ICT studentsandstaff.

20. Tertiaryeducationinstitutions,individualbusinesses,andindustryassociationsshouldworktogetherto:• developanddesignmore flexible, responsiveandtargetedcoursesin ICT to providefor

specific industryneeds;and• morecloselyinvolve industryin educationprograms,for examplethroughsponsorship,direct

involvementin teaching,supportfor staffexchangesandsecondmentsbetweenindustryandeducationinstitutions,andtheprovisionof work experiencefor students.

21. Universitiesshouldfully examinethesignificantstructuralissuesrelatingto ICT teaching,includingthe substantialgrowthin thestudent-staffratiosandthedifficulties in attractingandsecuringteachingstaff ina competitivemarket,andtakeactionto redressthem.

Recommendation22. TheCommonwealthGovernmentshouldprovideadditionalinvestmentsupport,targetedatICT

investmentsof strategicsignificanceto Australia.

Thereshouldbe a particularfocusonprojectswhich wouldincreaseAustralia’sinnovationcapacityandbuildstronglinks into ourR&D infrastructure.

23. Australiangovernmentsshouldwork with eachotherandwithpeakindustrybodiesto:• adoptwell-coordinated,aggressiveinvestmentattractionandembeddingstrategies,which

focusonmaximisingthelinkagesofMNCsinto theAustralianeconomy,to obtainthegreatestpossibleflow throughinto Australianfirms in termsof skills, knowledgeandaccessto globallinkagesandnetworks;and

• undertakecoordinatedandsustainedefforts to promoteAustralia’sICT strengthsinternationally.

24. LocalbranchesofMNCs shouldexpandanddeveloptheir role in investmentattractionandretentionincludingthrough:

• closeinvolvementwithgovernmentsin thedevelopmentandimplementationof appropriatestrategies;

• providingleadershipby pursuingthosestrategiesthroughtheir overseaslinkages;and• ensuringongoinginformationflows to headoffices.

25. Researchorganisationsandindividual researchersshouldmakeconcertedandcoordinatedeffortsto developandpromoteAustralia’sinternationalprofile asanationwitha growing, leading-edgeICT R&D capability.

• Suchpromotionshouldbea key objectiveofNICTA, CSIRO,DSTO,theuniversitiesandotherICT researchorganisations,who shouldreportannuallyontheir activities in this area.

26. Betterwaysofaccountingfor thetotalnational ICT capability (includingICT capabilitiesinotherindustriesoutsidethetraditionalICT industry)shouldbedevelopedandimplementedbygovernments,industryandtheresearchcommunity.

• Benchmarkdatashouldbe identifiedwhich demonstrateAustralia’sstrengthsandlevelofcompetitivenessin ICT, includingICT R&D.

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BUILDING INNOVATIVE SMES

NETWORKS AND CLUSTERS

THE INFORMATION BASE FOR THE ICT INDUSTRY

Recommendation27.TheCommonwealthGovernmentshouldkeepunderreviewmeasuresto encouragetheprovision

of earlystagecapital, includingrecentchangesto taxationlaws,andtheneedfor anyfurtheradjustmentsto theselawsor toprograms.

28. Proposalstoimprovethepreparednessof SMEsto undertaketheir initial marketentryshouldbeidentifiedandimplementedby governmentsandindustry,to:• facilitateaccessfor SMEsto particularmarketswithin Australiaandoverseas;and• expandoverseasnetworksupportfor SMEs.

29. Governmentsshouldcontinueto work with industryto makeit easierforSMEsto selltogovernmentsandbigbusinessby examiningissuessuchas:• accessby SMEsto informationaboutopportunitiesto tenderforbusiness;• thestructureandcomplexityof contractdocumentsandotherrequirementsof doingbusiness,

theassociatedcostsofprovidingtenders,andthetimetakento evaluatethem;• approachesto risk management,andinsuranceandindemnityrequirements;• theextendeduseof e-purchasingarrangementsin orderto improveaccessby SMEsto

businessopportunities;• consistencyof approachesbetweenjurisdictions;and• theuseofgovernmentpurchasingto createreferencesitesfor SMEproductsandservices.

Recommendation30. StateandTerritorygovernmentsshouldtaketheleadinbringingtogethermajorfocalpointsof

R&D activity andtheinnovationinfrastructure(suchasCSIRO,DSTO,NICTA, CRCs,theBITSincubators,andtheGrangeNet,CeNTIEandniNettestnetworks)with potentialindustrypartners,to driveclusterdevelopment.• Theseactivities shouldbecoordinatedthroughtheOnlineCouncil, to ensurethatactivities are

linked andnetworkedacrossjurisdictionalboundaries.

Recommendation31. Commonwealth,StateandTerritory governments,workingwith industryassociations,should:

• developcomprehensivecollectionsofdataabouttheICT industrywhich fully recogniseitsbreadthandpervasivenatureandmovebeyondtraditionalclassificationcategories;

• explorewaysofimprovingthetimelinessof ICT statisticalcollections;and• undertakefurtherwork tomorecomprehensivelyunderstandandmeasuretheproductivity

benefitsof ICT acrosstheeconomy,anditscontributionto exportsinothersectors.

Governmentinvolvementin this workshouldbecoordinatedthroughtheOniineCouncil.

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