Australian businesses innovate more than they realise, and most are driven by a desire to better serve customers, new research by National Australia Bank (NAB) and University of Melbourne has found.

NAB Group Economics and innovation department NAB Labs, along with The Melbourne Institute of Applied Economic and Social Research, have combined to better understand what drives innovation across all sizes and types of businesses in Australia.

Melbourne Institute Professional Research Fellow Guay Lim said the University analysed more than 25 years of data and found that traditional innovation measures, such as R&D and patents, had been growing solidly since 1990 but have flat-lined since the end of the mining boom. The University also found that traditional innovation measures do not apply equally across industries.

In parallel, NAB Chief Economist Alan Oster and his team broke down the drivers of innovation by asking more than 500 businesses, no matter their industry or size, about their behaviours, creating the NAB Labs Innovation Index.

“Many businesses innovate continuously to survive and prosper but don’t necessarily think of that as innovation, but more likely talk about “improvements”, “changes” and “adjustments” to their everyday processes, products or services which is exactly what innovating is,” Mr Oster said.

“What we found was that these innovation behaviours are driven simply by a desire to deliver a better experience, service and product to their customer.

“While large businesses were most innovative, micro-businesses with less than 20 people were the next most innovative group and they were particularly focused on doing things more cost efficiently, but their challenge was a lack of time to implement ideas.”

Key Findings of the NAB Labs Innovation Index

• Australian business scored 67.6 for innovation (out of 100).
• By industry, Transport/Storage scored highest (72.1), followed by Retail (69.7) and Manufacturing (68.5).
• WA (70.1), SA/NT (69.4) and QLD (68.3) are the most innovative states.
• 76% of businesses said they were driven by “opportunities to deliver a better experience/service/product to their customers”.
• The most significant barrier to innovation and business change (identified by 1 in 2 firms), is simply not having enough time to turn their ideas into reality.
• Small businesses have the most intimate knowledge of their customers – 7 in 10 (70%) report a “high” level of customer knowledge.

University of Melbourne Management Professor Danny Samson, who has published a book of innovation case studies, said innovation is arguably the “most important challenge and biggest opportunity” for the national economy. But we need to better track what drives Australian innovation.

“We have an important saying in business: if you want to manage something well, you must be able to measure it,” said Professor Samson, who has consulted to a range of companies, including NAB.

“We must keep our finger on the pulse of how much of it is going on, how well it is being done, and where and why there are barriers and hotspots.

“The indices show that behavioural, as well as economic and organisational factors, impact on innovation efforts and outcomes, which is totally consistent with existing theory and our underlying knowledge,” he said.

NAB intends to continue this work with the University of Melbourne to track how we are innovating as a nation and how that is contributing to informing the way in which Australian businesses approach our transition to the ideas boom.