John H Howard, 25 February 2025
The Strategic Examination of Research and Development (SERD) has been established to report on how a more strategic approach to R&D can boost economic growth and productivity.
Expressly, SERD has been requested to examine the optimisation of existing R&D investments across all sectors and how to strengthen research-industry connections, support national priorities through better coordination of funding, increase industry R&D investment, and boost industry adoption of innovation.
The SERD has also been tasked to analyse Australia's current R&D system compared to OECD countries, identify competitiveness barriers, improve investment impact measurement, and ensure equitable distribution of R&D benefits across regions. This assessment is to take into account recent government reviews of research, innovation, and productivity, including the Universities Accord and National Science Priorities.
However, the Discussion Paper prepared by the SERD Panel, released on 12 February 2025 to form the basis for stakeholder consultation, reveals gaps between the approach being taken, our contemporary understanding of how innovation happens, and the need to build capacity and capability in research translation. These gaps arise principally because of the narrow framing of the Examination's Terms of Reference.
Opportunities Lost: Implications of the Narrow Terms of Reference
The paradox of Australian R&D is well-known and well-rehearsed. While celebrated as a "global powerhouse" in science and research, the country consistently struggles to translate this excellence into economic and social outcomes (innovation). The SERD framework acknowledges this tension but may be approaching it through an outdated lens.
The Terms of Reference for the Examination are overwhelmingly cast in terms of only R&D. Innovation is mentioned only once. The Examination has not, therefore, been established as (another) examination of Australia’s innovation system. This leads to the Panel’s underlying narrative along the lines that “if you fix/boost R&D, especially by industry/business, and connect the existing parts/players better, then as a direct outcome its adoption will be taken up and innovation will improve”.
The structure of the Discussion Paper appears to embrace a traditional view of research originating in the 1944 report by Vannevar Bush to President Roosevelt Science, the Endless Frontier. The report led to the creation of a public system to support research, which has become known as the linear flow pathway. While the framework is easy to represent diagrammatically (see below), it can misrepresent how innovation really happens.
Over the last 20 years, universities have been encouraged by governments and industry to shift their research commitment from basic to applied research in the expectation that it will lead to the creation of knowledge outputs in the form of patents, prototypes, and public policy recommendations. The level of commitment to experimental development (transforming applied research into potential commercial products and services) remains relatively small.
Patent filings are a critical metric in assessing innovation potential. IP Australia reported that in 2023, Australia received 31,515 standard patent applications, a 2.4% decrease from the previous year. Of these, only 2,511 were from Australian residents, representing approximately 8% of the total applications.
This low domestic patenting activity confirms that while Australia invests substantially in innovation inputs, it struggles to produce corresponding outputs of patentable inventions. It is worth noting that scientific discoveries and inventions reflected in patents (and other Intellectual Property Rights) do not become innovations until they are adopted and applied by an end user.
IP Australia also reported that in 2023, 15,573 standard patents were granted, representing a 5.1% decrease from the previous year. Australian residents received 1,000 patents, 6.4% of the total grants, while non-residents were granted 14,573 patents. Australia’s lead resident applicants focus on various technology fields, including games and furniture, computer technology, biotechnology, medical technology, materials metallurgy, food chemistry and measurement.
Even acknowledging the drawbacks of the linear flow framework, the level of Australian patenting has been declining on a per capita basis, impacting Australia's position on the Global Innovation Index (GII). Overall, in 2023, Australia ranked 24th in the GII; it ranked 16th in innovation inputs but was thwarted by being only 30th in innovation outputs.
Gaming technology producer Aristocrat Technologies retained its position as the top domestic patent filer in 2023 with 73 applications. Second-ranked was CSIRO, with 54 applications. In 2024, IP Australia reported that Australian universities accounted for 68 filings, with Go8 universities holding 45 (68%). The ATN universities held a further 16%.
There is a very low level of patenting among the other Australian universities. This has been attributed to many factors, such as cost (a patent filing may cost between $5,000 and $50,000), a preference for publication rather than maintaining secrecy, disinterest among researchers in patenting, weak or inconsistent patenting policies and capabilities across most universities, and uncertainty about commercial potential.
At the same time, venture investors are generally unwilling to invest in taking a product to market without secure Intellectual Property (IP) protection. Strong IP—whether in the form of patents, trademarks, copyrights, or trade secrets—is often a critical factor in investment decisions, particularly for deep-tech, biotech, and hardware-intensive startups.
The Higher Education Research Commercialisation (HERC) Intellectual Property (IP) Framework developed by the Department of Education and introduced in September 2021 was intended to standardise and streamline the commercialisation of university research in Australia, but most universities shunned it.
The majority of Australian patent applications and grants are attributed to corporate entities, both domestic and international. These included LG Electronics, Huawei, Aristocrat and Canva. Around the world, there has been a surge in patent filings in biotechnology, AI, and Quantum Sciences. Australia must aim to be part of this growth.
IP Australia also reported that in 2023, around 2,208 employing small and medium enterprises (SMEs) held an enforceable patent. This equates to 0.22% of the one million employing SMEs in operation in Australia by the end of the 2023 financial year. The SME share of resident filings has steadily increased over the past decade, from 57.9% in 2014 to 62.9% in 2023, and private inventors (individuals) account for an additional 22.1%.
While the linear flow model has historically driven many scientific and technological advancements, particularly in the physical sciences and medical research, this science and technology push perspective is increasingly seen as insufficient for capturing the complexities of modern innovation, which often relies on multi-directional feedback, interdisciplinary collaboration, and societal engagement.
Breakthrough discoveries and technologies often remain inert until entrepreneurs in new or mature businesses develop an effective business model for their application. Some applications may be unrelated to what researchers and inventors originally had in mind.
An alternative perspective is that innovation occurs in a complex adaptive system involving non-linear knowledge production, multi-stakeholder collaborations, capacity building and learning, and focusing on context-specific and problem-oriented research (see adjacent diagram).
It is a dynamic and open activity of firms, governments, research institutions, ingenious engineers and computer programmers, and curious individuals with great ideas interacting on technological development, business strategy formulation, market development, and addressing economic, social, and public policy needs. This is, of course, well known, but it is often worth repeating.
This perspective sees innovation not as a sequential or solitary act at the end of an R&D process but as an interactive set of activities within an ecosystem. This is increasingly recognised in urban and regional innovation districts, precincts, and hubs. There is a realisation that these places and spaces serve as crucial catalysts for innovation, but this thinking is largely absent from the Discussion Paper.
Australia's policy emphasis on R&D funding without correspondingly substantial investments in nurturing innovation ecosystems limits its potential economic and societal benefits.
Australia must have policies that balance support for both R&D and innovation, fostering collaboration not only between researchers and businesses but also between investors, regulators, technology transfer professionals, urban and regional planners, community placemakers, and a broad range of policymakers at the national, state and local levels of government.
A nuanced understanding of all these elements is essential to maximise economic competitiveness, technological leadership, and social progress, ensuring that scientific advancements translate into meaningful and widespread impact.
Towards a Wider Interpretation of the SERD Terms of Reference
As mentioned, the SERD is constrained by its Terms of Reference, but a wider interpretation could increase the value of the examination process.
The Examination's Discussion Paper structure suggests several predetermined conclusions, particularly around industry-research collaboration and measurement frameworks. As discussed above, and while these are important elements, the narrow framing risks missing broader systemic issues and innovative solutions.
The Discussion Paper focuses on extracting "more value" from existing investments rather than addressing fundamental systemic issues. This reflects a neoclassical economic mindset more suited to the 1990s than the challenges of 2025 and beyond. This efficiency-first approach risks missing the transformative potential of contemporary innovation systems thinking.
The heavy emphasis on economic outcomes and industry engagement, whilst important, could undervalue crucial elements of a healthy innovation system. Basic research capabilities, public good research, and social innovation also play vital roles in a robust innovation ecosystem.
Though harder to measure, socio-cultural factors and institutional evolution often determine the success or failure of innovation initiatives. These include knowledge spillovers, network effects, social capital development, institutional capability building, and system resilience. Yet, these factors are difficult to capture in traditional metrics.
The SERD Panel could widen its interpretation of the Terms of Reference to look more closely at the connection between R&D and Innovation. This would include:
Looking at ways to build greater capacity and capability in all university Technology Transfer Offices (TTOs) by supporting the recruitment of professionals with knowledge, skills and expertise in Intellectual Property management, business strategy, venture investment, product development, and market validation to ensure research outcomes are ready for adoption and use in commercial, industrial and national benefit applications.
Addressing the significant shortfall in the availability of development finance—capital that supports businesses during their early and "take-off" growth phases. This type of financing is essential for ongoing R&D investments, and enabling investments in talent, business infrastructure, and innovation assets, which underpin long-term economic growth.
Giving attention to the role and importance of place-based innovation ecosystems, represented as innovation regions, districts, precincts, or hubs, in driving economic development and growth by linking R&D to innovative practices––not only in the delivery of new products and services but also in the very way these places are designed (often to achieve net-zero), and the way they address issues in new business formation, housing and transport innovation and urban renewal.
Addressing the critical role of the State/Territory governments in R&D and Innovation. This oversight could lead to missed opportunities for federal-state coordination and underutilised regional capabilities. Resource allocation becomes less efficient when regional innovation dynamics are not properly considered, and system resilience suffers when local capabilities are overlooked.
With recommendations expected by December 2025, there's a real risk that the examination's outcomes will be outdated before implementation. The pace of technological change, particularly in areas like AI and quantum computing, demands a more dynamic and forward-looking approach.
A Way Forward
To strengthen Australia's R&D system and secure future prosperity, the examination must break free from its neoclassical economic constraints and embrace contemporary innovation thinking. This means moving beyond simple efficiency metrics and industry-research linkages to consider the full complexity of modern innovation systems.
The challenge ahead is not just about getting more value from existing investments – it's about fundamentally rethinking how we approach R&D and Innovation in an increasingly complex and rapidly changing world. Australia has the scientific excellence to compete globally, but realising this potential requires a more nuanced and contemporary approach to R&D policy and Innovation practices.
The question now is whether the SERD process can evolve to meet this challenge. The Panel should be strongly encouraged to interpret their Terms of Reference widely enough to encompass the issues that have been raised in this Insight. The stakes are too high to rely on outdated thinking in a world where innovation systems are becoming increasingly sophisticated and interconnected.
If you would like to learn more about these and related issues, please contact John Howard at john@actoninstitute.au.
In finalising this Insight, comments from Dr Rajesh Gopalakrishnan Nair, Professor Roy Green, Anne Howard, and Dr Craig Fowler on earlier drafts are greatly appreciated.
Dr John Howard is Executive Director of the Acton Institute for Policy Research and Innovation. He is an expert in science, research, and innovation policy, advising government, universities, and industry to enhance R&D and innovation performance.
For inquiries, contact john@actoninstitute.au
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