INSIGHT: R&D… Is Kiwi ingenuity in danger of becoming a distant memory?

"The big issue is the lack of innovation activity in Kiwi businesses and lack of presence on the world’s stage."

The criteria and processes of Callaghan Innovation grants have been recently called into question by opposition MPs.

Irrespective of whether Callaghan is contributing to our economy’s productivity or generating a significant ROI for every dollar granted, it’s a positive step in the right direction.

The bigger issue is the actual lack of R&D and innovation activity in New Zealand businesses and our lack of presence on the world’s business stage.

Is Kiwi ingenuity becoming a thing of the past? Hopefully not.

The Government is ahead of the eight ball here. Minister of Finance, Bill English, has already stated that this year’s Budget will continue to support the Government’s Business Growth Agenda.

This is crucial in making the most of the opportunities available to New Zealand businesses in international markets to grow the economy and increase investment in skills and innovation.

But is it enough? We are a nation of SMEs, but what is the level of business acumen amongst these businesses? Unfortunately not as high as we would like and we are not really looking to “upsmart” our business practices.

Latest data from Statistics New Zealand shows in the period between 2012 and 2014, investment in basic and applied research has dropped by NZ$17m to $658m and $61m to $1019m respectively.

Expenditure in experimental development has increased by $71m to $942m in the same period. However, the data also shows that R&D has grown at a slower rate than GDP. Expenditure as a percentage of GDP has fallen from 0.57 percent to 0.54 percent in these two years.

Recent research conducted by Grant Thornton shows at the end of Q4 2014, only 18 percent of businesses surveyed are expecting to increase their expenditure in R&D, and we are spending less than our major trading partners who predict more R&D spending; China (37 percent), United States (37 percent) and the United Kingdom (23 percent).

An area of focus for Budget 2015 could be driving innovation through the education system and stepping outside the realms of the core curriculum and conventional teaching practices.

A good example here is Unitec’s partnership with Mindlab, a new facility that teaches educators and young people key digital and technological literacy capabilities. This is a great pre-emptive strike against lack of job security for future generations.

We should also be thinking about the relevance of the traditional skills being taught at University and if they are fit for purpose in today’s business world, building stronger relationships and better programmes between the business and education sectors and what we can do to better educate business owners.

Furthermore, plans should be in place to incentivise business owners to set aside time and space for employees to innovate and upskill.

But that’s not to say New Zealand businesses are not aware of the importance of being innovative.

Another survey conducted late last year by Grant Thornton showed only 8 percent of businesses surveyed place low importance on innovation, the remainder stated it was important (28 percent), very important (56 percent) or critically important (8 percent).

So what’s the hold up? The same survey revealed that respondents felt certain aspects of their business model needed improvement; the top four areas of concern were business strategy (63 percent), digital strategy (53 percent), internal processes (55 percent) and their go to market plans (33 percent). That is why any boost from the Government will be well received.

And when asked what they feared would derail their growth plans, a staggering 38 percent of businesses cited the capability of their people.

Many businesses owners are ambitious, hardworking and smart, and they are aware of their short comings, so any assistance the Budget can give them to help overcome these will be repaid many times over in boosting the New Zealand economy.

The time to reignite the fire we once had for ingenuity and innovation is now. Budget 2015 is a prime opportunity for Government to fan the flames.

By Grant Thornton, one of the world’s leading organisations of independent assurance, tax and advisory firms

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