Modernising Industry Classifications for a Services-Driven Economy

John Howard, 24 June 2025

The tectonic shifts in the global economy—from manufacturing to services, from tangible goods to intangible assets—demand more than incremental adjustments to our analytical frameworks.

Traditional systems like the Australian and New Zealand Standard Industrial Classification (ANZSIC), designed in a bygone industrial era, have become inadequate tools for capturing the dynamic, hybridised nature of today’s economy.

Australia, a nation increasingly powered by services and innovation, risks undermining its competitiveness by clinging to an outdated framework. The case for adopting modern, flexible, and globally aligned industry classification systems has never been more compelling.

This insight explores why a transformation in industry classification is essential, how modern frameworks like the Global Industry Classification Standard (GICS) and Industry Classification Benchmark (ICB) outpace their predecessors, and why a hybrid approach could unlock Australia’s latent innovation potential.

Why Industry Classifications Matter More Than Ever

Industry classifications are not just administrative conveniences but the bedrock of economic policymaking. They influence how governments allocate resources, craft sector-specific strategies, and track economic evolution. Yet, ANZSIC, with its roots in a manufacturing-dominated era, stumbles when faced with the complexities of a services-led economy.

Quantum technologies represents a compelling and contemporary example of the problem—these cutting-edge innovations span computing, communications, sensing, and materials science, yet find no coherent home within the existing classification framework. This misalignment obscures opportunities, misdirects policy, and underrepresents Australia's emerging economic strengths.

Artificial intelligence presents a similar challenge, functioning simultaneously as its own industry and as a transformative force within virtually every sector—from healthcare diagnostics to manufacturing automation to financial risk assessment.

Likewise, climate science and its associated industries transcend traditional boundaries, integrating aspects of research, technology development, environmental services, and policy implementation that cannot be adequately represented through discrete categories. This misalignment obscures opportunities, misdirects policy, and underrepresents Australia's emerging economic strengths.

Fintech is a further an example. It fuses finance, technology, and data analytics elements, but ANZSIC's rigid categories fail to capture these synergies. Similarly, the explosion of digital health technologies, renewable energy systems, and creative industries eludes precise categorisation under ANZSIC, which remains tethered to an industrial economy Australia has long outgrown.

The urgency for reform is not simply a matter of technical precision; it is about enabling policymakers to design interventions that reflect the realities of 21st-century business models. Accurate classifications reveal where innovation is thriving, where investment is needed, and how Australia can position itself in global value chains.

What Alternative Industry Classifications Bring to the Table: A Global Perspective

Modern classification systems like GICS (Global Industry Classification Standard) and ICB (Industry Classification Benchmark), designed for the fast-paced world of financial markets, offer a sharp lens through which to view contemporary economies. Their strength lies in recognising that industries today are less about how things are made and more about how value is created, delivered, and consumed (MSCI, 2023; FTSE Russell, 2022).

These frameworks excel in their granularity, capturing emergent sectors such as artificial intelligence, cloud computing, and green technologies that are reshaping the economic landscape. Unlike ANZSIC, which clusters diverse activities into broad categories, GICS and ICB subdivide industries into nuanced subcategories, offering policymakers a more detailed and actionable understanding of economic activity (S&P Dow Jones Indices, 2023; FTSE Russell, 2021).

R&D data for Australian listed companies using these classifications are available from ASX and global securities exchange sources and were used for an analysis in a previous Innovation Insight - Where is Australia's Businees R&D Scorcard (18 June 2024).

The European Union's NACE (Nomenclature of Economic Activities) classification system offers additional insights with its emphasis on service sectors and knowledge-intensive industries, reflecting the transition of advanced economies (Eurostat, 2022). Similarly, Japan's JSIC has evolved to better capture its technology-driven sectors and service innovations (Statistics Bureau of Japan, 2022). The OECD and United Nations' ISIC (International Standard Industrial Classification) provides a globally harmonized approach that facilitates cross-border comparisons while recognizing regional economic variations (United Nations, 2021; OECD, 2023).

This international perspective provides a distinct advantage. In an interconnected world, where economic competitiveness depends on integration into global markets, modern classification systems enable Australia to benchmark itself against international peers (Australian Bureau of Statistics, 2023; Department of Industry, Science and Resources, 2022). This clarity is critical for identifying gaps, adopting best practices, and fostering competitiveness.

Perhaps most importantly, these systems recognise the outsized role of intangible assets—intellectual property, data, and brand value—in modern economies (WIPO, 2023; Haskel & Westlake, 2022). By treating sectors such as software development and digital media as distinct and vital, they align more closely with the engines of contemporary growth (McKinsey Global Institute, 2024; World Economic Forum, 2023).

A New Era of Policy Possibilities

The implications of adopting modern classifications go far beyond tidying up data systems; they represent a paradigm shift in how policymakers can craft strategies for the future.

With accurate classifications, policymakers can design interventions tailored to emerging sectors. For example, in fintech, where bespoke policies such as regulatory sandboxes and targeted R&D tax incentives could catalyse growth. Similarly, for renewable energy industries, a clearer understanding of their specific challenges—whether related to infrastructure, market incentives, or regulatory barriers—becomes possible when these sectors are correctly identified and tracked.

Better classifications also mean better data. Policymakers and analysts would gain unprecedented insight into the dynamics of hybrid and evolving industries, enabling them to track innovation trajectories and resource flows more effectively. This clarity would sharpen decision-making, particularly in sectors at the forefront of transformation.

Perhaps most excitingly, modern classifications embrace the complexity of hybrid business models. They see beyond rigid boundaries to acknowledge the synergies between sectors—where manufacturing meets technology, where retail intersects with digital platforms, or where biotechnology merges with artificial intelligence. This perspective is indispensable for recognising the real drivers of economic growth in a services-driven world.

Challenges and a Path Forward

Adopting new classification frameworks is not without its hurdles. Transitioning from ANZSIC to another classification would require significant investment in reclassification, retraining, and data harmonisation. Moreover, frameworks designed for financial markets, sucah as GICS and ICB may not fully address industries' social and environmental dimensions, an area increasingly critical for sustainable policymaking.

Yet, the solution is not to abandon ANZSIC entirely but to embrace a hybrid model. Retaining ANZSIC for traditional sectors and public administration ensures continuity and preserves the historical data vital for long-term analyses. Meanwhile, introducing GICS or ICB for services and innovation-focused industries allows for greater adaptability and relevance in policy formulation.

To bridge these systems, policymakers could develop crosswalks—translation layers between ANZSIC and GICS—to ensure seamless data integration and comparability. Expanding the scope of classifications to include large private companies and emerging industries would further enhance the system’s comprehensiveness. Governance structures should oversee this dual framework, ensuring its flexibility and alignment with Australia’s evolving economic landscape.

Modern Classifications in Action: Insights from Innovation Ecosystems

The power of modern classifications is evident in innovation ecosystems worldwide. Tech Central in Sydney has positioned itself as a hub for artificial intelligence, cybersecurity, and technology-driven startups. By leveraging frameworks like GICS, it has attracted global players and guided investments in critical infrastructure.

Similarly, Kendall Square in Cambridge exemplifies how integrating classifications can drive interdisciplinary innovation. Its biotech clusters are now enriched by the inclusion of data analytics and software development, highlighting the transformative potential of collaboration between diverse sectors.

Even Australia’s Western Sydney Aerotropolis showcases the strategic value of precise classifications. By focusing on high-growth sectors like aerospace, advanced logistics, and agribusiness, it has harnessed regional strengths while aligning with international benchmarks.

Conclusion: A Strategic Imperative

The limitations of ANZSIC are not merely academic; they are a drag on Australia’s capacity to innovate, grow, and compete in a global economy increasingly shaped by services and intangible assets. By integrating frameworks such as GICS and ICB, Australia can gain the clarity and agility needed to respond to economic transformation.

A hybrid approach—retaining ANZSIC for traditional sectors while adopting modern classifications for innovation and services—strikes the right balance between continuity and relevance. Such a move would empower policymakers with the tools to design sharper, more effective policies while positioning Australia as a leader in the global knowledge economy.

Reforming industry classifications is no longer an optional exercise—it is a strategic imperative. It is about ensuring that Australia’s economic and innovation frameworks align with the realities of the 21st century.

Done right, this reform could unlock the country’s full potential, driving sustainable growth and ensuring its prosperity in an increasingly complex and competitive world.

References

Eurostat. (2022). NACE Rev. 2: Statistical classification of economic activities in the European Community. Publications Office of the European Union.

FTSE Russell. (2021). Industry Classification Benchmark (ICB): Structural enhancements to the industry categorization framework. London Stock Exchange Group.

FTSE Russell. (2022). ICB universe: Quarterly review and emerging industries report. London Stock Exchange Group.

MSCI. (2023). GICS structure & sub-industry definitions. MSCI Inc.

S&P Dow Jones Indices. (2023). Global Industry Classification Standard (GICS) methodology. S&P Global.

Statistics Bureau of Japan. (2022). Japan Standard Industrial Classification Rev. 14. Ministry of Internal Affairs and Communications.

United Nations. (2021). International Standard Industrial Classification of All Economic Activities (ISIC), Rev.4. United Nations Publications.

WIPO. (2023). World Intellectual Property Report: The value of intangibles in the global value chain. World Intellectual Property Organization.

World Economic Forum. (2023). Future of Jobs Report 2023. World Economic Forum.

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, 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