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By Pattrick Smellie

Dec. 11 (BusinessWire) - This week, the New Zealand Institute accused New Zealanders of not caring about the country's "innovation eco-system," even though innovation is the key to productivity, and productivity is the thing that eludes every part of the New Zealand economy outside farming.

As usual with reports of this sort, and as if to prove the Institute's point, the "Standing on the Shoulders of Science" publication seemed to sink immediately without trace.

However, that doesn't diminish its importance, not only since business innovation is one of the six areas the government has identified as strategic areas of focus for economic policy development, but also because it is timely and has some new thinking to add in an area where the rhetoric is tired and more concerted action is long overdue.

We're hearing a lot about the other strands of the government's six-pronged economic agenda as Christmas approaches - last week's tax conference, the Brash productivity report, Rodney Hide's regulatory responsibility agenda, Gerry Brownlee's electricity reforms.

And there will be more next week when the Capital Markets Development Taskforce reports on ways to make equity-raising simpler and, frankly, more likely in the thinly capitalised New Zealand business environment.

But the mainstream focus on innovation, which should be a political winner, is always comparatively lacking, with just the tip of the iceberg acknowledged. Who hasn't heard of and isn't proud of Weta Workshops? But who's heard of Next Window, the Auckland company credibly grabbing first mover advantage in the world market for desktop PC touch-screens?

That global market is exploding right now because the Microsoft Windows 7 operating system includes touch-screen capabilities for the first time. As one of only two touch-screen makers to be accredited for use with MS7, Next Window is experiencing sales growth over 800% a year, and should expect to stay on that exponential growth path since Hewlett Packard, Dell and other PC majors are committing to Next Window's technology.

That's what got Next Window its Number 27 ranking among 500 companies ranked in the Deloitte Asia-Pacific Technology Fast 500, announced in Hong Kong yesterday. Another 50 fast-growing Kiwi technology companies were on the list too.

“These 51 New Zealand companies have done extraordinarily well," said John Bell, head of Deloitte NZ's technology, media and telecommunications practice. "Their success flies in the face of much of the negative sentiment that we have heard from many quarters. It is important that we acknowledge there are some outstanding Kiwi businesses that have proven to be recession-proof and recession busters."

Indeed, a buzzing hive of kiwi innovation does exist, and is avidly observed by a small, engaged audience through specialist magazines and websites, social networks, and some smart private equity funds that can spot a good opportunity. Big accounting firms like Deloitte also tend to seek sponsored associations with high growth new businesses, and help to get the word out.

The sector has also attracts one important source of government-linked funding: the New Zealand Superannuation Fund. Just this week, the fund's chief executive, Adrian Orr, briefed parliament's finance and expenditure select committee on the opportunities for long term capital investors to help New Zealand companies with revenues of $50 million to $100 million a year go global.

The Fund commits an appropriately small proportion of its total portfolio to such active, relatively risky investments, but argues that this is one of its strategic "sweet spots." Who among its sovereign fund competitors is likely to better placed to see stand-out opportunities as they emerge in this small but smart and interesting country?

Why don't we hear more about this stuff? Well, it's partly my fault. When the Institute's thoughtful 61 page report turned up on Tuesday, it was a "must read that at some stage" rather than "must write this up now". Orr's comments were interesting, but not enough to hang a news yarn on. When the Deloitte Fast 500 press release plunked into the email inbox, it was competing with other more immediate, traditional business news priorities.

That's what the Institute means when it says: "The economic importance of innovation is not as well or as widely recognised as it should be in New Zealand.

"Commodity prices, exchange rates, and interest rates affect short term economic performance. Focus on these metrics, which are not easily controlled, encourages a view that economic performance is something that happens to New Zealand, rather than an outcome of strategies and actions.

"Successes of go-global companies are celebrated as successes for those companies, but the average New Zealander is not as aware as he or she should be that future prosperity depends on collective performance at developing and selling goods and services that are competitive in other countries."

The Institute points out many other things that we already know are problems for high growth, globally aspiring companies in New Zealand. They range from the small size of the local listed equities market through to a mindset focused on production rather than customers, and other cultural attributes such as our legendary tendency to do a lousy job at presenting ourselves to foreigners.

There's nothing new in the observation that our understatedness comes across as a bit gap-toothed yokel in foreign parts. In that sense, old hacks like me can feel they've been reading reports like this since the dawn of time.

However, that doesn't make those reports wrong, and the Institute has some interesting new thinking.

For a start, the Institute acknowledges the trap of "we know that already." It effectively bemoans a national tendency to self-congratulation once the big idea has been hatched, only to languish for lack of follow-through.

"Identifying the opportunities is the easy part," the report says. "Many of the proposals have been made before. The real challenge is to get beyond stating what should happen to making sure it does happen."

It suggests there's a "tick the box" mentality which allows policymakers to see that many of the right kinds of policies are in place and assume the job's done.

"It is only when the amounts required are compared with the amounts in place that the gaps are revealed." However, because no one gets paid to measure or manage those gaps, no one is measuring or managing them.

"For example, the number of potentially valuable discoveries not being developed and the number of skilled roles that go unfilled are unknown.

"Having the right quantitative measures in place is important, but even more important is effective management of the innovation ecosystem as a whole; monitoring performance, identifying gaps, and taking steps to ensure that the gaps are closed."

Part of the problem just might be the panoply of government agencies with overlapping responsibilities for innovation policy: MoRST, FRST, MED, NZTE, the CRI's, TEC, and the universities. If the innovation system were a factory, it would run badly if there were this many managers and this many siloes.

"There is no one ensuring that capacities are balanced across the plant so bottlenecks do not emerge," the report says.

The Institute makes one other very interesting point in this area. While university and government science activity could be more productive, it points out there is no shortage of new knowledge being created in New Zealand. Rather, there is a failure to commercialise those new ideas in proportion to their production.

Could it be that there is simply not enough formal, organised effort going into winkling those ideas out of a boffin's brain and into an entrepreneur's business plan?

"That might seem a very soft proposal, but many businesses are not currently searching for science or innovation-based opportunities," the Institute argues.

Perhaps the latent political opportunity in adopting innovation policy will be what breaks the dam on today's relative public indifference. Innovation policy is squarely in the government's sights and, if there's fire where current smoke signals are coming from, a package of reforms and assistance to drive innovation will be a centrepiece of the 2010 Budget.

The government will have to make some unpopular decisions in next year's Budget, so will be looking not only for good news, but also for policies that inspire understanding about a stronger economic future. In that sense, meaningful innovation policy announcements could prove well-timed for a deluge of ribbon-cutting opportunities once the policy starts biting, some time near the 2011 election.


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