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Innovation economy

Tanya M Vernon
Science and Maths Education Centre
Curtin University of Technology
WAIER logo
This paper aims to define innovation in the context of Australian education. While the primary focus will be upon higher education, the importance of generic education in a knowledge based economy and linkages to information, and communication technologies (ICT) will be discussed. Further contributions include exploration of the following concepts: innovation cycle, technology transfer, intellectual property, and commercialisation, for which contextual definitions and graphical illustrations will be provided. The above will be facilitated via review of current government publications, journals, and texts.


These days, all manner of things, from toothbrushes to universities, brandish the word 'innovative'. This paper attempts to cast some light upon the term 'innovation'. It aims to be at once an overview, an outline, a review and an introduction to Australian innovation policy initiatives for those who wonder what the 'hyperbole' is all about.

Innovation is like an opal. It is dependant upon what came before it, what gave rise to it. Not all rock is opal bearing. One might say that the beauty of an opal is dependant on how it is cut, for one wrong cut could shatter the fragile silica layers. But without light refracting silica layers, one would not see the spectrum of colours. Nor, if it were not set in magnificent gold by a community of craftsman, it may never be valued by society. Innovation, like opal, also is situated. It is a product of and shaped by numerous factors. One factor frequently given as a precursor to innovation is the 'rock' or knowledge stock from which it arises. So, innovation is a product of its past, but it is mined, cut, set and distributed by communities. It has value dependant upon demand. If not, it may lay deeply imbedded in extraneous material for decades without use, but when technology changes, what was hidden can be made brilliant.

The essay is divided in three sections, the first of which is entitled Innovation and a knowledge based economy. I will sift through some terminology to which innovation adheres itself. I will consider why innovation is important to Australia and how a knowledge based economy is linked to innovation. In the second section of the paper I will consider the Systems, Inputs and Outputs by which innovation comes to happen. Widely considered to be an important proxy of innovation, the level of research and development (R & D) in a country will be considered and will foreshadow the final section of the paper.

The final section of the paper, entitled Innovation in higher education in Australia, will link back to the first portion of the paper in looking at 'knowledge based economies', as well as consider Higher Education Expenditure on R & D (HERD) statistics from the Australian Bureau of Statistics (ABS) survey (2000). I will consider Marceau's concept of industrial complexes/clusters in the context of National Systems of Innovation, and Commonwealth efforts to support linkages so crucial for innovation. Each of the three major sections includes an 'Innovation Illustration' designed to provide a close up example of innovation in action.

Innovation and a knowledge based economy

In this section of the paper I examine how waves of technological development can be used to represent innovation. I also discuss a number of words and phrases useful in understanding innovation theory. Additionally, I have collated a glossary of potentially useful terms at the end of the paper with the aim of elucidating what can sometimes be confusing jargon. These concepts and terms create a foundation for understanding recent Commonwealth efforts to define and measure the extent to which Australia is a knowledge based economy.

Technological development

One way of representing innovation is in terms of technological development. The model depicted in Figure 1 shows technology beginning in the 1770s and jumping in circa 50 year intervals to the present. Several interesting points can be made about the model. Firstly, it is important to note that it is not a complete account of innovative behaviour. Mechanical and production technology primarily are represented here. However, 'just good ways of doing things' (which can't be patented, take for example 'scientific method' or 'strategic management') are harder to measure in terms of radical effect, but equally important to technological development.

Figure 1

Figure 1: Waves of technological development (Dodgson, 2000, p. 19)


Invention is marked by discovery or a state of new existence, usually at the lab or bench, whereas innovation is marked by first use, in manufacturing or in a market.

Dodgson (2000, p. 2) defines innovation as '...the scientific, technological, organization, financial, and business activities leading to the commercial introduction of a new or improved product or new or improved production process or equipment'. Technological innovation, with which this paper is primarily concerned, comes in two forms: radical or incremental. Radical innovation is the type demonstrated when, for example, an engineer experiences 'a golden moment'. The following 'Innovation Illustration' is taken from the 1981 Pulitzer Prize winning book, The Soul of a New Machine by Tracey Kidder. Steven Wallach was a Data General engineer and the principal architect of the 32-bit Eclipse MV superminicomputer series. Wallach holds 33 patents in various areas of computer design.

Innovation Illustration 1 - The Soul of a New Machine

'Can I be straight with you?' asks Wallach.
De Castro nods.
'Okay,' says Wallach. 'What the fuck do you want?'
I want a thirty-two-bit Eclipse,' says de Castro.
'Are you sure? If we do this, you won't cancel it on us? You'll leave us alone?'
'That's what I want, a thirty-two-bit Eclipse and no mode bit.'

When he sat down, alone, in his office, Wallach reasoned that the whole purpose of this ridiculous undertaking was 32-bit-hood - the enlargement of the Eclipse's logical address space from 65,000 to 4.3 billion storage compartment - he might as well begin by figuring out how the compartments would be organized ('managed') and the information in them protected. He further decided - he called this 'the methodical engineering approach' - to worry about memory management first.

...From the back of his mind came the recollection of a conversation he'd had at a conference of engineers from different companies some years before. At such convocations the usual way of getting acquainted is to ask other engineers what project they've worked on. Wallach remembered an engineer telling him about a ring system he'd thought up and never built, in which ring numbers and addresses were mingled. ...Wallach drew another diagram of the standard 32 bit address:

Diagram 1 for 32 bit address

...He was pondering the first three bits. Suddenly, without thinking about it, he was drawing another box below the first box. The diagram now looked like this:

Diagram 2 for 32 bit address

Although they are generally shy about claiming to have had one, engineers often speak of 'the golden moment' in order to describe the feeling - it comes rarely enough - when the scales fall from a designer's eyes and a problem's right solution is suddenly there. The chief virtue of Wallach's scheme was its simplicity. It would be relatively cheap and easy to implement in hardware and software, and it should work efficiently and reliably. (Kidder, 1981, p. 77)

In this illustration, Kidder was careful to capture the exact moment when Wallach, struck by a thunderbolt of genius, drew a diagram which has revolutionised modern, 32-bit computer architecture. Wallach admitted later that after he had drawn the diagram he wondered 'Where did that come from?' This is radical innovation at its finest moment. While 'thunderbolt' moments such as these can and do occur, extensive studies carried out over the past two or three decades indicate that the cumulative economic benefits of relatively small scale and incremental innovation - including that resulting from technology diffusion, can rival or even exceed the benefits from radical innovation (Department of Industry Science and Resources, 1998, p. 57).

Incremental innovation can be considered as a sum of tacit and codified knowledge. Tacit knowledge generation in science and technology draws crucially upon sets of human skills and techniques - the ingredients of 'scientific expertise, or engineering expertise that are acquired experientially, and transferred by demonstration, by personal instruction and the provision of expert services (advice consultation and so forth). The transfer process itself, as a rule, is a comparatively costly affair for both the provider and the recipient of tacit knowledge may be swapped in transactions resembling 'gift exchanges' or sold for money, rather than being shared freely (David & Foray, 1995, p. 39).

The recorded part of incremental innovation can be traced through technical journals, business histories and above all, through patent statistics. Because it is written/recorded, rather than tacit, it is considered codified knowledge. It involves the perception of information (involving encoding, decoding, translation, filtering, interpretation and compression), and reduction of knowledge to readily transmissible information, monitoring and communication and transfers of knowledge, storage, retrieval and reconstruction (David & Foray, 1995, p. 27). Figure 2 below represents the transformation of knowledge. Technology transfer, as defined in the glossary and highlighted in Innovation Illustration 3, can involve one, two or a combination of the assets. Often the determinants of technology transfer involve the driver's or users of the technology. Academic publishing, for example, is as much technology transfer as is patenting.

Figure 2

Figure 2: Knowledge transformation

Knowledge based economy

Technology and development, and indeed innovation, are products of societal efforts. I now consider how a knowledge based society contributes to a nation's progress. Much recent press has indicated that Australia's future has to do with its science and technology base. The base will provide a fully skilled labour force with a knowledge intensity and critical mass to support an increasingly demanding technological society.

The Australia Bureau of Statistics has recently released a discussion paper entitled Measuring a Knowledge-based Economy and Society (2002). Mr Dennis Trewin, Australian Statistician, acknowledges that there has been increasing focus on the degree to which Australia is a knowledge based economy and society and recognises the need for purposeful measurement. He proposes a framework which builds upon, among others, work by the Organisation for Economic Co-operation and Development (OECD). The framework measures the knowledge capacity of Australia by employing three core dimensions: innovation and entrepreneurship, human capital, information communications technology and two supporting dimensions: context and economic and social impacts. Each dimension has several characteristics and six to seven key statistical indicators. The following is excerpted from the 'human capital dimension'(Australian Bureau of Statistics, 2002, p. 24).

Stock of skilled peopleHighest completed level of education attainment of the population by age and sex

Education attainment of the labour force, by occupation and highest educational attainment

Knowledge workers as a proportion of the labour force

Researchers as a proportion of the labour force

Labour force status of those with science and technology qualifications

Stock of human resources in science and technology, proportion of population
Flow of skilled peopleseven indicators
Investment in human capitalsix indicators
Lifelong learning and access to education and trainingseven indicators

An overview of the characteristics in each of the core dimensions reveals dependencies and overlap. Likewise, the interplay between knowledge and innovation is a common thread throughout this paper. The process of knowledge generation in science and technology is cumulative and integrative as I have noted, so knowledge is as much an input at it is an output of a system of innovation.

Innovation systems, inputs, and outputs

Innovation is dependant upon social systems. One of them, as we have learned, is a knowledge base as generated by educational institutions. The second section of the paper further explores innovation systems models and innovation inputs and outputs.

Innovation systems

The model of Joseph Schumpeter is widely acknowledged as the first linear model of entrepreneurship (see Glossary, p. 18 for Schumpeter's Mach 1 model) and thus innovation. Early innovation models such as this one involved simple R & D / science push, or technology pull. As Roberts (1988, p. 581) notes: Innovation = Invention + Exploitation.

However, one of the achievements of recent innovation research has been to replace linear models of innovation, whether supply or demand driven, with more sophisticated models which embody the numerous interactions and feedback loops (knowledge - an input as much as an output, is but one of the loops) during both innovation and diffusion (Freeman, 1994).

...[they] now involve a more complex "coupling model" (third generation) in which innovation is treated as a sequential process linking science with the market place (via engineering, technological development, manufacturing, marketing and sales), but with the addition of feedback loops and variations over time of the "push" and "pull" mechanisms. The fourth generation involves integration, joint ventures and coll aboration. More recently, a fifth generation innovation model attempts to express the increasing extent of strategic and technology integration, use of expert systems and simulation modeling, as well as corporate flexibility and speed of development. (Department of Industry Science and Resources, 1999, p. 16); (Dodgson, 2000, p. 42).
The following are just a few other factors claimed to influence innovation. Again, the reader should note the dynamic, iterative and situated (in a sector or country, for example) nature of these factors (Department of Industry Science and Resources, 1999, p. 22).
Accumulation of physical and human capital
Physical and social infrastructure
Economies of scale
Regulatory environments
Improvements in the quality of capital and labour inputs
Improvements in the organisation of work
Competitive business environment (domestic and global)
Ease of dissemination of new technology across the economy
Availability of technology receptors
Because measuring many of the above factors may prove complex, the level (amount of expenditure) of R & D has been the most extensively used proxy for the level of innovative effort (Rogers, 1998, p. 12).

Inputs and outputs

In Australia, the R & D effort is represented by expenditure by business, publicly funded research organisations (higher education and government funded research agencies such as CSIRO and DSTO) and private not for profit organisations (primarily in medical areas). The ABS collects statistics for Business Expenditure (BERD) and Higher Education Expenditure (HERD) in R & D. HERD specifically will be considered in the final section of the paper.

Again because of ease of measurement, a further input measure of innovation is the number of patents. Patenting in Australian Higher Education was recently surveyed and published in September 2002 in National Survey of Research Commercialisation. The Survey reported details collected from 34 universities, 15 medical research institutes and CSIRO. The Survey also collected information about licenses (including options and assignments), license income, start up companies (new companies) and inventor investment in licensing. The following is a summary of the findings:

Table 1: Commercial activity relative to research expenditure
In Year 2000 for every $US1 billion in research expenditure
(Department of Education Science and Training, 2002, p 41)

CountryUS PatentsLicenses executedIncome from
Start ups
Australia34.3115.4$31.6 mil16.2
USA127.9143.0$44.9 mil13.8
Canada86.1183.4$17.2 mil37.5
*adjusted gross income in US$. Australia's figure in this category is dominated by the sale of Melbourne IT.

The Survey was particularly interesting in that it highlighted, for example, inventor involvement as an important element in start ups or licensing. Also, exclusive licenses are perceived by investors as more favourable, thus influencing investment in start ups (new firms). And while patents are chosen as a proxy (output) of innovation, there too, are problems with this. Firstly, many things are patented which are never realised. Moreover, industry increasingly relies on secrecy, only patenting 'after the fact'. Secondly, like 'knowledge', patents could be considered either an input or output as some would argue that as innovation increasingly relies on patenting for further product improvement.

Finally, there is much dispute, perhaps heightened in academia, that encouraging patenting (by using them as one of only a few innovation proxies) and non-disclosure is potentially counter productive to the facilitation of collaborative cooperative research networks which sustain open science communities, around which knowledge flows. Lawrance Lessig, in his address before a packed house at the Open Source Convention 2002, illustrates via a lesson from the past, that patenting may not be the answer for the future (Lessig, 2002). I have used this example from Lessig as Innovation Illustration 2.

Innovation Illustration 2 - Future Culture by Lawrence Lessig

...But what you probably don't recognize about Steamboat Willie and his emergence into Mickey Mouse is that in 1928, Walt Disney, to use the language of the Disney Corporation today, "stole" Willie from Buster Keaton's "Steamboat Bill."

It was a parody, a take-off; it was built upon Steamboat Bill. Steamboat Bill was produced in 1928, no [waiting] 14 years -- just take it, rip, mix, and burn, as he did [laughter] to produce the Disney empire. This was his character. Walt always parroted feature-length mainstream films to produce the Disney empire, and we see the product of this. This is the Disney Corporation: taking works in the public domain, and not even in the public domain, and turning them into vastly greater, new creativity. They took the works of this guy, these guys, the Brothers Grimm, who you think are probably great authors on their own. They produce these horrible stories, these fairy tales, which anybody should keep their children far from because they're utterly bloody and moralistic stories, and are not the sort of thing that children should see, but they were retold for us by the Disney Corporation. Now the Disney Corporation could do this because that culture lived in a commons, an intellectual commons, a cultural commons, where people could freely take and build. It was a lawyer-free zone.

Eleven times in the last 40 years it (copyright) has been extended for existing works -- not just for new works that are going to be created, but existing works. The most recent is the Sonny Bono copyright term extension act. Those of us who love it know it as the Mickey Mouse protection act, which of course [means] every time Mickey is about to pass through the public domain, copyright terms are extended. The meaning of this pattern is absolutely clear to those who pay to produce it. The meaning is: No one can do to the Disney Corporation what Walt Disney did to the Brothers Grimm. That though we had a culture where people could take and build upon what went before, that's over. There is no such thing as the public domain in the minds of those who have produced these 11 extensions these last 40 years because now culture is owned.

Here's what he (Bill Gates) wrote about software patents: "If people had understood how patents would be granted when most of today's ideas were invented and had taken out patents, the industry would be at a complete standstill today." (Lessig, 2002)

The Illustration is an excerpt from an excellent speech about increasing government control (via policy implementation) of people's freedom. The sentence "Now the Disney Corporation could do this because that culture lived in a commons, an intellectual commons, a cultural commons, where people could freely take and build" may be the single most important part of the passage. It reminds me that the innovative, creative behaviours of all the innovators of the ages, those named -- like Galileo, and those un-named, such as the ancient Celts who first smelted ores to produce tools and weapons, contributed as much to where we are today as 21st century innovators like Bill Gates. Now fully ensconced in the information age, how has it come to be that we claim technological innovation for ourselves?

As Lessig suggests, the area of computer software is treacherous territory - but especially for the patent attorney, as it differs from country to country. So in Australia, as the UK, computer programs per se are not patentable. However, the USA grants hundreds of patents each year for programming techniques or algorithms, which in the time between filing the application and granting of patent, "...hundreds of programmers around the world may have independently created...thus infringing the patent" (McKeough & Stewart, 1997, p. 246). To be sure, if it were not for the collaborative community of programmers, academics, and students the world would not know Netscape, Eudora and Linux, just to name three open source programs.

The following Table 2 is a summary of outputs and inputs to R & D and illustrates the iterative nature of both. The table need not necessarily refer to higher education research and development.

Table 2: Iterative nature of R & D
(adapted from Dodgson, 2000, p. 57)

Narrowing design space    <   - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  >    Increasing project costs
Research domainAdvanced engineering domainDevelopment domain
Basic research

Generating new knowledge and options

Understanding theory

Applied research

Generating new knowledge with practical aim

Developing tools and simulation

Experimental development

Demonstrating technical viability

Eliminating technical uncertainty

Choosing actual technologies and materials

Design engineering
Developing instrumentation and measurement techniques

Tracking and absorbing external knowledge

Research papers, reports bench top demonstrators, patentsDemonstrators, know howDesigns, prototypes

To illustrate, both basic and applied research comprise activities within the research domain, an outcome of which is developing instrumentation or measuring techniques - such as when postgraduate students apply algorithms in a new way to obtain faster results. The new results can then be the subject of research papers, reports to industry, a demonstrator or even a patent. Once codified in this way, the results are now available to move to the Advanced Engineering Domain, to potentially prototype OR return in a loop fashion back to basic or applied research. While the above is a valuable summary, there are many econometric studies of the returns to R & D investment, '...but like all efforts to measure an activity that is complex, socially based, and long term they are bedevilled with methodological problems and inadequacies' (Dodgson, 2000, p. 48). So, regardless of use, patents and levels of expenditure on R & D have limited value as a true measure of innovation.

David and Foray (1995, p. 61) query further:

David & Foray's queries have ramifications in higher education -- which ultimately aims at contributing to the stock of knowledge and making knowledge accessible to industry and communities.

Innovation in higher education in Australia

The final portion of the paper is organised according to Furman, Porter and Stern's (2002) three building blocks of innovative capacity. First, I consider the role of the knowledge base and higher education as contributors to the innovative infrastructure. Second, I consider a country's industrial complexes and clusters in National Innovation Systems (NIS) as defined by Marceau (1994) and support the discussion with Australian examples. Finally, in the last section, linkages, I look at the pervasive importance of linkages between Commonwealth innovation infrastructure (of which higher education is but one component) and clusters.

Innovation infrastructure

Earlier, I have made a case for the importance of a knowledge base in an economy. Significant efforts to map and foster a science, engineering and technology (SET) base are being made by the ABS and Chief Scientist (as we shall see), inter alia. I have not looked at the specific case of higher education research and development, however. The chart below, Figure 3, shows related statistics.

Figure 3

Direct labour costs$1.21 billion
Other current expenditure   $1.16 billion
Scholarships$183 million
Other capital expenditure$165 million
Land and buildings$48.6 million

Figure 3: Expenditure on research and experimental development by type of expenditure
Total expenditure on higher education research and experimental development in 2000
was A$2.77 billion (Department of Education Science and Training, 2002, p. 6).

For information, 'land and buildings' is a capital expenditure and includes expenditure on land acquired for R & D. It also includes site preparation, landscaping and buildings -- not only construction but also costs for major improvements and modifications. 'Other capital expenditure' includes: fixed tangible asset acquisition with an expected life of greater than one year includes vehicles, plant, machinery and equipment. 'Direct labour costs' are all costs associated with wages, salaries and labour costs (superannuation, pensions, payroll tax, workers compensation, etc). The component of 'scholarships' includes scholarships which are paid directly to a student by an outside organisations, paid by the institution for research higher degree stipends and HECS postgraduate scholarships other than those funded by DEST. 'Other current expenditure' includes repair and maintenance of land and buildings, cleaning, postage, telephone, materials, fuel, water, sewerage, Australia Postgraduate Awards (APAs) and Overseas Postgraduate Research Scholarships (OPRS) (Department of Education Science and Training, 2002, p. 37).

It is interesting to note that that APAs and International Postgraduate Research Awards (IPRAs -- formerly OPRS) are included in 'current expenditure'. I intend to look further into the reasoning behind this and if current expenditure is further broken down by the ABS into the component for Commonwealth research higher degree scholarships. Furthermore, while expenditure supports all types of research (basic, applied, experimental), the expenditure on patenting, copyright, licensing and obtaining external technical expertise is NOT included above. Expenditure on commercialisation efforts by universities does not seem to be available - a noticeable gap in an otherwise rich data source. How universities obtain and allocate monies for these functions appears also largely undocumented.

As institutions become more focussed on commercialisation and technology transfer they ideally will be more able to collect and publish statistics relating to expenditure on direct costs of commercialisation. However, until that time, expenditure on commercialisation efforts may remain ad hoc and data scarce. Given this, it is indeed a rare and important moment when commercialisation in universities occurs. The quintessential commercialisation in universities - a 'spin off' occurs when a significant amount of 'separable and recognisable' intellectual property, staff and/or resources meets up with opportunity. The opportunity could be money or a market deficiency, or both. The following three recognised types of spin offs are evident in Australia's tertiary environment (adapted from Best Practice Processes for University Research Commercialisation (Australian Centre for Innovation, Howard Partners, & Carisgold, 2002, p. 6)):

  1. Technology asset oriented firms. Concerned with developing a portfolio of technologies or capabilities available for commercialisation - ie, setting up new firms, licensing, joint ventures, etc.

    An Australian example of a technology asset oriented firm is National ICT Australia. Consider the mission of NICTA (as defined at the www site: http://nicta.com.au/):

    1. Research at the highest international standard and scale, positioning Australia definitively on the world map in ICT research. The Centre will have focused research themes, shaped in collaboration with industry and users, addressing infrastructure technologies, software engineering, intelligent systems, human machine interaction and usability, and foundations.

    2. Engagement with industry, commercialising the results of the Centre's research and acting as a catalyst for peripheral growth in ICT industry, with an ultimate impact on Australia's GDP. The Centre will provide a fertile ground for nurturing a number of innovative, cutting edge and potentially disruptive technologies. It will foster a research culture of innovation and strategic commercialisation to produce a quantum leap in the nation's ICT capability.

    While NICTA is a good example of a technology asset firm, such examples are relatively rare in higher education. More traditional spin offs normally occur in the next two categories.

  2. Consultancy and R & D contracting. This is the case where organisations or firms seek highly specific skills or solutions which in house R & D cannot provide. No 'stand alone business results, and typically researchers/academics only retain the right of publication, if anything at all.

  3. Product oriented firms. Arising from essentially a linear process with a recognised product to commercialise:

    Idea development --> opportunity recognition --> concept formulation --> concept development and
    production of prototype --> product launch --> market penetration

The 'Innovation Illustration 3' is one local example of a product oriented firm, C3, that was successfully commercialised via Curtin University. It is located at Technology Park in Bentley, near Curtin. Technology parks are modelled from Silicon Valley and Route 128 in the USA. They are designed to house spin offs and local smaller to medium sized technology firms to derive benefit from co-location with other technology organisations and take advantage of proximity to the university knowledge base. Frequently, leases to plant and facilities in technology parks are subsidised and tenants have ready access to financiers and legal advisors.

Dr Fiona Wood, C3 Chief Medical Officer, was a Curtin researcher who was assisted in her commercialisation efforts by the University. The reader will note that the technology transfer employed by C3 is a complex mix of publication, training, patenting and trade secrets.

Innovation Illustration 3 - Clinical Cell Culture (C3)

Clinical Cell Culture (C3) develops skin replacement products for the treatment of burns, epidermal trauma, scarring, chronic wounds and cosmetic procedures.

C3's Marketing Director Maree Pickens said the development of the technology took some years, starting in 1990, when Dr Wood had a patient in Perth who had survived a very serious large burn injury.

"Five months later, the patient wasn't healing, and Fiona heard of the skin culturing technique. She organised some skin in the form of sheets to be sent over from Melbourne to help the healing process," Maree said.

"However, Fiona didn't want future patients to have to wait for delivery from the east, so she campaigned for a skin culture unit to be set up in Perth. In 1993, Marie Stoner began culturing sheets of skin cells for use in Fiona's burns patients, which could be cultured in 14 days.

"Fiona discovered that scarring could decrease if the wound could be treated within 10 days. Marie got her cell culture time down to 10 days, but the sheets often had holes in them, because the cells had not achieved total confluence. It wasnt until Fiona was in surgery, had run out of sheets on a patient, and decided to use some of these pre-confluent sheets on the remaining affected areas."

Maree said that in terms of inventions, this was the light bulb.

These areas healed faster than those treated with confluent sheets, with less obvious scarring and a new technique was born. The next step was to apply pre-confluent cells in a suspension even as early as five days before they formed a sheet, and Fiona and Marie experimented with several applicators before determining that a "spray on" technique was optimal.

The burn acted as an ideal culture medium, and sprayed on pre-confluent cells grew more quickly on the patient than in the laboratory. The advantage is that wounds or burns heal rapidly and leave less scarring if a skin graft is applied soon after an injury. This is compared with earlier processes where treatment had to be delayed, as it took 14-21 days to grow a sheet of skin cells suitable for grafting.

The technique was developed by Fiona and Marie, and when they presented their work at an international conference in Zurich in 1996, they gained global recognition.

The intellectual property is protected by a combination of trade secrets and trademark processes - employee confidentiality is paramount, and knowledge about C3's culturing processes is limited.

The company has now reached an exciting stage with new products being rolled out and training of medical staff in other hospitals being undertaken.

Recently, training has been completed for the Royal Hobart and Royal Brisbane Hospitals.

"The hands on training in Perth is one of the best forms of support and education. Trainees can ask questions of their peers, and discuss all aspects of patients care using the treatment," Maree said.

This illustration shows that Dr Wood, with the collaboration of her colleagues, the University, and a strong commitment to her patients, commercialised her skin culture technique. Now hundreds of people each year, including victims from the Bali bombing tragedy in 2002, have benefited from her life saving burn research.

Industrial clusters/complexes

A properly functioning NIS not only produces 'public good' research (like that of Dr Wood) but also contributes to the cumulative stock of technological knowledge. Equally, the education system must produce suitably qualified graduates, the legal system must allow agreements which are advantageous for all parties, and the financial system ideally must allow for longer term and / or more risky R & D (Dodgson, 2000). In Australia, R & D is almost exclusively undertaken with at least partial funding from the Commonwealth. A useful way of thinking about innovation systems which incorporate the public sector is Marceau's (19 94, p. 8) conception of complexes:
It is important as an analytical tool for use in devising public industry policies because small industrial countries face a particular set of problems with the globalization of production in certain key industries and the dominance of large firms from large countries in crucial sectors of the international economic arena. Such countries have small populations and thus small home markets, especially for more specialised products, small amounts of money available for R &D, little international market power and only limited margins for manoeuvre in public policy action. These factors together mean that small industrial countries tend to do badly in the 'restructuring races' underway in the world economy.
Marceau proposes complexes where each of the following is working to the full extent possible with the others.
Public sector research organisations;
Regulators (governments of all levels).
Producers (firms);
Users (consumers, usually other firms);
Potentialities for linkages will be considered next, so it is important to look at the constituent parts of what is to be linked. The four areas listed above provide useful referents for consideration. I have looked at the specific case of Higher Education in R & D, but there are other public sector research organisations, known in Australia as Government Funded Research Agencies (GFRAs), include institutions such as CSIRO, DSTO, ANSTO, AIMS and AGSO. While these are not to be considered in this paper, it is interesting to note that CSIRO particularly has been weak in new business creation as compared to results achieved by research bodies in the US and the UK (Batterham, 2000, p. 72).

The regulatory environment includes all manner of government policy efforts as well as financial and legal frameworks functioning in a nation. This paper considers government policy as it relates to higher education in Australia specifically, but does not further discuss the regulatory environment. For interest, Pol, Crinnon & Turpin (1999) highlight taxation and finance barriers to innovation in the nation, while Mendes & Liyanage (2002) focus upon legal barrier to industry - university linkages. The publication entitled What a good idea: Commonwealth government programs linking industry with public sector R & D (Australian Research Council et al., 1999) is an excellent (but somewhat dated) summary of the innovation cycle and government funding initiatives. Australia's business environment is productive in areas such as primary industry (such as wool, metals and minerals) and medicine, with significant levels of funding for R & D in those areas. However, as noted by Australia's Chief Scientist, Robin Batterham in Chance to Change:

With some notable exceptions, Australian business generally has a poor record of investing in research. Business investment in R & D as a percentage of gross domestic product is low relative to that in competitor industrial nations. Recent analysis by the Australian Bureau of Statistics (ABS) demonstrates that business investment in R&D in Australia declined by 5 per cent in 1997-98 compared to 1996-97 and that Australia has in fact been on a downward slide since 1995/96. In stark contrast, business investment in R & D in other industrial nations has increased markedly. Business R & D intensity reflects the degree to which businesses use innovation as a primary source of increased competitive advantage...the innovative capacity of a nation's private sector is a critical component of a national innovation system. (Batterham, 2000, p. 34)
The users (which are both consumers and business) are all Australians. Australians are known for their high use of IT, but it has been suggested that this erroneously reflects the high penetration rate of the mobile telephone, not necessarily the pervasive use of computing. Returning to the level to which the country provides (via its education system) for a knowledge based economy Batterham (2000, p. 52) notes:
...a scientifically informed and technically skilled workforces creates a demanding customer base. Well-educated Australian, through exercising their choices as consumers, focus commercialisation activities on producing cutting edge products and processes.
In summary, all complexes; public sector research regulatory environment, producers, and users must function to the absolute fullest extent. Should a NIS under perform, government strategists must investigate each complex and aim for increasing communication and investment across all platforms.


Here I examine the notion of linkages. Figure 4 indicates a pyramid of potential linkages. It is important to note that with weak business R & D, it now becomes more clear why government policy is focussing increasingly on higher education, and why the burden necessarily will fall upon publicly funded institutions to foster, and indeed initiate such linkages across the complexes.

The figure shows a firm 'base' as a flow of graduates to industry. This should be the most ubiquitous type of linkage in a NIS. Further up the pyramid, stronger linkages between complexes are required. The linkage requirement(s) for research contracts is greater than what is required to participate in a conference. All innovation theory research includes the importance of linkages or networks, be they local, national or international. The previously mentioned publication What a Good Idea highlights the Commonwealth efforts to foster linkages between industry and publicly funded research and development.

Figure 4

Figure 4: Linkages (Australian Centre for Innovation et al., 2002, p. 11)

It is important to note that Commonwealth innovation policy now falls within two government portfolios - The Department of Industry, Tourism and Resources (DITR -- formerly the Department of Industry Science and Resources -- DISR) and The Department of Education, Science and Training. Certainly this effort mirrors funding initiatives, but the removal of science from the industry portfolio and placement in the Education portfolio heralds a recognition of fundamental importance of science (and science education) for the creation of a knowledge based society.

The high profile efforts of the Chief Scientist have affected and continue to affect Commonwealth policy. Under his direction, the current study Mapping Australia's Science and Innovation System, solidifies emergent efforts in directly linking innovation to a knowledge based economy (Department of Education Science and Training, 2003).

The study will take stock of the state of Australian science, technology and innovation. It will cover key elements of the innovation process including Australia's ability to generate ideas and undertake science and related research and development; the commercial application and utilisation of research and the frameworks which support it; and the development and retention of relevant skills for science, innovation and enterprise.

It is expected to highlight the main features of Australia's science, engineering, technology and innovation system and map how the elements of that system interact. It will also identify strengths, weaknesses and gaps in science and innovation performance and complementarities and areas of possible greater cooperation between Commonwealth and State/Territory government activities. While it will lay the groundwork for future policy development, it will not include consideration of policy options.

A final report is due at the end of 2003. This will be provided to the Prime Minister to assist in planning the future strategic directions for science and innovation.

Conclusion and future directions

In this paper, I have attempted to provide an overview of innovation. I have considered terminology, processes, inputs, models, and I have explored various facets of innovation in higher education as contextualised in Aus tralia.

Three Innovation Illustrations demonstrated innovation practice over the last 5 decades. Through Lessig's preserved voice, we saw how Disney has affected patent policy since the inception of Mickey Mouse. We experienced a golden moment in the life of an engineer in Tracy Kidder's fascinating ethnography of Data General, and finally, bringing the lesson home, we experienced how Dr Fiona Wood successfully commercialised her novel treatment for burns.

While Australian innovation has been criticised for fragmentation, sub-scale research, poor linkage and no coordination of effort between government agencies, extensive mapping exercises as established by the Commonwealth government now suggests a true commitment to strategic improvements. But I have some concerns regarding the metrics underpinning Commonwealth policy. Firstly, I have illustrated how patents are an inaccurate but commonly used proxy for innovation. The other commonly used proxy, R & D expenditure, also presents somewhat problematic results. Firstly, why are APA & IPRS scholarships lumped into 'Other current expenditure'? Secondly, what is the actual cost of higher education commercialisation in Australia? The available data do not include the costs for patenting, licensing, etc. How does the Commonwealth track direct commercialisation costs in Government funded research associations?

The increasing focus of Commonwealth policy on strategic innovation may suggest that government is far less interested in a pervasive NIS, but rather a concise management of effort toward innovation, an 'Innovation Economy'. Those funded under Commonwealth schemes will be required to report extensively on outcomes and 'tangible benefits for all Australians'. Batterham (2000) has already suggested an increasing focus on technology transfer, commercialisation and management of intellectual property rights. As a chief 'output' of research training, higher degree research students have a stake in the future 'Innovation Economy'. Will there come a time when postgraduate research students are required show an innovative or commercial output or benefit to Australia? Should such onus occur, Australian public policy in higher education will have proverbially 'thrown the baby out with the bath water'. A ubiquitous, multi-disciplinary, multicultural higher degree student body will be an anachronism. Students will complete formulaic 'research for hire' theses in order to suit the most expedient and appropriate (vis a vis Commonwealth policy) outcome. The 'process' of getting a PhD or Masters by Research will be eclipsed by a perceived need for a financial outcome.

To me, the knowledge base of Australia is the rock, from which emerges the opal, innovation. Without the rock you have no opal.

Acronyms and glossary


Australian Geological Survey Organisation
Australian Institute of marine Science
Australian Nuclear Science and Technology Organisation
Commonwealth Scientific and Industrial Research Organisation
Defense Science and Technology Organisation


Whilst the term commercialisation is often used interchangeably with technology transfer, commercialisation refers to a subset of technology transfer activities which involve the more direct transfer of technology by some commercial arrangement; licensing, assignment of IPR, or creation of a new firm or commercial entity.

The legal right of protection, held for a certain number of years, for works: literary, dramatic, artistic, musical, film, sound recordings, television and sound broadcasts.

[A]n innovation...is any new or substantially improved good or service which has been commercialised or any new or substantially improved process used for the commercial production of goods and services.

Figure 5

Figure 5: Schumpeters' 1930s model of innovation
(Mach 1 - based on small to medium enterprises) (Dodgson, 2000, p. 160)

Schumpeter noted that technological innovations are not evenly distributed over time. Since the Industrial Revolution it has been possible to identify historical waves of intense technological change characterised by rapid economic growth opportunities and radical social change.

Intellectual property
The term intellectual property or IP, is used to refer to that set of proprietary ('ownership') rights that are the result of intellectual endeavour. Intellectual property comprised the right in relation to inventions, copyright works, confidential information, trade or service marks, design, circuit layouts or registered plant varieties. IPR - intellectual property rights.

An official document give the holder the sole right to make, use or sell an invention and preventing others from copying. Requirements are that the invention:

Is a manner of manufacture
Is novel and inventive
Is useful; and
Has not been the subject of secret use.

Research and development (R & D)
Systematic investigation or experimentation involving innovation or technical risk, the outcome of which is new knowledge, with or without specific practical application, or new or improved products, processes, materials, devices or services (Australian Bureau of Statistics, 2000, p. 20)

Why do firms undertake R & D? It will be crucial for Australian policy to look carefully at the areas below and foster R & D in the weak business R & D environment which currently exists.

support existing business activities
establish new business development
facilitate related business diversification
sell R & D services to other companies
provide skills to help reverse engineer' competitors products (to see how they work)
help predict future technological trends
comply with social and political expectations
participate in research networks
portray positive corporate image
create future options through new knowledge and technology
(Dodgson, 2000, p. 55)

Technology development
See heading "Technological development" above for the waves of technological development.

Technology transfer
The term technology transfer is used to refer to any process, be it active or passive, by which intellectual property or the knowledge it embodies (commonly call tacit knowledge) is transferred from its originator into productive use. Examples of technology transfer include conference presentations, publication and journals, education, cooperative and commercial R & D, consulting, training, licensing, sale of technology and formation of spin off companies. Technology transfer therefore covers all the myriad of ways in which the outcomes of research are taken up and applied.


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Please cite as: Vernon, T. M. (2003). Innovation economy. Proceedings Western Australian Institute for Educational Research Forum 2003. http://www.waier.org.au/forums/2003/vernon.html

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