This is the first of a series on what makes good public policy. Further Insights will be published weekly on Tuesdays. Other Innovation Insights will appear on Thursdays, when available.
John H. Howard, 11 March 2025
Research and development investment drives innovation by creating potential breakthrough discoveries and inventions. However, a critical distinction exists between invention and innovation.
While R&D follows scientific inquiry methods, innovation management is driven by the profession of management practice. Despite both originating in the post-war era, their trajectories have diverged significantly.
In Australia, a problematic situation has emerged: scientists approach innovation management with limited experience, while innovation management practice lags behind countries like the US, Germany, South Korea, and many other European and Scandinavian countries. This gap may exist partly because university science and engineering faculties conduct R&D, while business schools tend to focus on innovation management research rather than practice.
This insight explores why investment in both R&D and innovation management correlates with higher innovation levels, particularly for economies seeking long-term competitive advantage. It also addresses how scientific inquiry and innovation management converge in innovation ecosystems, Australia's continuing innovation management challenges, and how these can be addressed in a National Centre of Excellence for Innovation Management and Policy.
The insight draws on research, observations, and experience developed over 25 years in the Australian innovation system and insights from scholars in both the science of R&D and in Innovation Management. A bibliography is attached.
The Science of Research and Development
Vannevar Bush's 1945 report, Science the Endless Frontier, fundamentally shaped the scientific approach to R&D. This report positioned basic research as the foundation from which applied research and experimental development flowed. His linear model influenced U.S. science policy for decades, but the model has been subject to questioning and qualification over the last 80 years. For example–
Herbert Simon's bounded rationality concept (1962) provided crucial insights into how human cognitive limitations shape scientific processes, explaining why iterative approaches often succeed where comprehensive planning fails. Around the same time, Derek de Solla Price (1963) contributed mathematical rigour through quantitative models of scientific knowledge growth, providing predictive tools for understanding the trajectory of scientific fields.
Edwin Mansfield (1972) transformed theoretical concepts into measurable phenomena through pioneering empirical studies that quantified R&D productivity. Keith Pavitt expanded this empirical foundation by developing sophisticated classification systems for R&D patterns across diverse industries (1971, 1984). His taxonomies revealed how the research-to-development process varies dramatically across technological fields, from science-based sectors like pharmaceuticals to supplier-dominated industries like textiles.
Nathan Rosenberg (1982) illuminated the experiential dimension of R&D through his research on learning-by-doing, demonstrating how feedback from prototype testing creates tacit knowledge that informs earlier research stages. Richard Nelson and Sidney Winter (1982) examined the broader ecosystem supporting scientific advancements, focusing on institutional structures that facilitate knowledge transformation.
Donald Stokes (1997) later challenged the rigidity of the linear flow with his Pasteur's Quadrant framework, demonstrating that research could simultaneously pursue fundamental understanding and potential practical applications.
More recently, Michael Gibbons and colleagues (2012) introduced the Mode 2 knowledge production model, highlighting how problem-oriented research integrates basic and applied work within real-world contexts.
These scholars collectively revealed the complex, non-linear nature of the R&D process.
The Essence of Innovation Management
While scientific excellence in R&D is essential, complementary management approaches are required to bridge the gap between scientific achievement and practical implementation. Over the years, many management thought leaders have contributed to this understanding. Foremost among them are-
Chester Barnard (1938) revolutionised our understanding of innovation by revealing that breakthrough ideas often flourish through informal communication networks rather than rigid hierarchies. Alfred Chandler Jr. (1962) demonstrated that organisational frameworks must evolve to accommodate decentralised innovation processes, balancing centralised strategic control with flexible autonomy.
Peter Drucker (1954, 1973) transformed innovation from an unpredictable creative endeavour into a systematic management discipline, establishing it as a deliberate practice requiring rigorous processes and strategic foresight. Mary Parker Follett (various papers) illuminated the collaborative essence of effective innovation management, showing that transformative ideas emerge from iterative interactions among diverse stakeholders.
Douglas McGregor (1985) connected innovation capacity directly to leadership philosophy, demonstrating that self-directed teams consistently generate more creative breakthroughs than groups constrained by command-and-control structures. Abraham Maslow (1998) linked innovation to psychological fulfilment, revealing that organisations cultivate profound innovations when enabling employees to achieve self-actualisation through meaningful work.
Contemporary frameworks have further expanded our understanding. Clayton Christensen's disruptive innovation theory (1997) explained why established organisations struggle with potentially market-changing innovations. Henry Chesbrough's open innovation paradigm (2011) challenged traditional closed models by demonstrating the value of external collaboration. Ikujiro Nonaka's SECI model (1995) illuminated knowledge conversion processes essential to innovation management.
Eric von Hippel (2005) shifted focus from producers to users, establishing the strategic importance of user communities. C.K. Prahalad (2005) expanded innovation horizons through his work on co-creation and inclusive innovation. David Teece (2009) and Renu Agrawal (2023) have added further depth through their work on dynamic capabilities. Mark Dodgson (2000) synthesised these perspectives through comprehensive research on innovation systems.
Collectively, these thought leaders established innovation management as a distinct discipline separate from R&D. While R&D investment creates a potential for breakthroughs, only effective innovation management can consistently transform scientific discoveries into market success and societal impact.
Innovation Ecosystems: Where R&D and Innovation Management Converge
The innovation ecosystems approach integrates the scientific method of R&D with innovation management practice. The approach highlights dynamic interactions between universities, businesses, government agencies, and consumers, ensuring that research translates into impactful innovation.
Christopher Freeman (1987) introduced the concept of national innovation systems, demonstrating how policies, institutions, and networks interact to drive technological progress. Bengt-Åke Lundvall (1992) highlighted the importance of interactive learning and knowledge flows between economic actors. Richard Nelson (1993) examined how different national systems influence technological change, while Charles Edquist (1997) identified key institutional factors shaping innovation processes.
Henry Etzkowitz (2000) developed the Triple Helix model, underscoring the critical role of university-industry-government collaboration. Carlota Perez (2002) examined how technological revolutions and financial capital reshape innovation systems over time, while Mariana Mazzucato (2013) highlighted the entrepreneurial state's role in shaping markets and pushing technological frontiers.
Innovation ecosystems flourish in regions, districts, and hubs where researchers, entrepreneurs, and businesses co-locate. While Australia's emerging innovation districts hold potential, many lack the structural support and policy coherence needed to effectively bridge and connect R&D with innovation management.
The role of regional innovation ecosystems is reflected in the direction of global innovation policy across the USA and Europe. Federal governments (Canada, Germany, and the USA) also reflect this at the subnational (state) and metropolitan levels.
Several Australian State governments, cities and regions have adopted this new direction, but, unlike Germany and the US, no leadership has been forthcoming at the Commonwealth level.
Australia's Innovation Management Challenge
Unlike global innovation leaders, Australia faces a persistent leadership deficit in innovation management commitment. Corporate executives tend to prioritise immediate financial performance, dividends, and shareholder value over longer-term strategic innovation investments. This short-sighted approach manifests in corporate boardrooms, where R&D activities are viewed primarily as costs rather than investments.
Australia's corporate governance approach contrasts sharply with international approaches, such as Germany's Mittelstand companies, which maintain long-term innovation commitments through family ownership structures and patient capital models. Privately owned, unlisted Australian companies can make longer-term R&D commitments without the scrutiny of financial market analysts, who focus on quarterly revenue targets and the share price.
The leadership gap extends to national innovation policy, where there is a focus on what can be counted or measured and frequent policy shifts and reversals, "bureau shuffling" (changes to the Administrative Arrangements Order) and ongoing staffing cuts. These factors prevent the formation of the institutional memory necessary for effective innovation management guidance.
Innovation management programs, where they have existed, enter the budget as a cost rather than an investment asset through the government's balance sheet. Once launched, they have been easy targets for expenditure savings through the Cabinet Expenditure Review Committee processes. While innovation intermediaries perform an important role, they are not the answer to building sustained innovation management capability in new, emerging and established businesses.
As a nation, Australia has also failed to develop the dense, interconnected innovation ecosystems that have become a feature of leading innovation economies. While recent initiatives like Sydney’s Tech Central, Melbourne's Biomedical Precinct, and Canberra's innovation ecosystem represent progress, they lack the scale and integration of world-leading innovation districts like Boston's Innovation Ecosystem, Toronto's Innovation District, and emerging districts in London, Paris and Berlin.
Behind this systems failure, and despite strong research capabilities in several domains, Australia has profoundly underinvested in specialised innovation management capability and talent. It has yet to instil a “talent mindset"—engaging with the latent creativity and talent within the workforce—first raised in the landmark Management Matters Report presented to the Government in 2009.
Australia maintains institutional structures that artificially separate the science of R&D from innovation management. For example, universities isolate R&D activities within science and technology faculties. At the same time, innovation management expertise resides in business schools—although academic staff are often incentivised towards scholarly publication rather than diffusing best practices in innovation management.
A Path Forward: A National Centre of Excellence for Innovation Management and Policy
Australia could establish a Centre of Excellence for Innovation Management and Policy to bridge the gap between scientifically based R&D capabilities and practical implementation expertise. This Centre would operate through collaborative partnerships between industry, government, and universities.
The Centre would establish a multifaceted portfolio of professional education programs designed to cultivate innovation leadership across organisational hierarchies. For senior executives, immersive learning experiences would cover strategic innovation management, digital transformation governance, and creating cultures that systematically foster creativity and calculated risk-taking.
Innovation managers would benefit from specialised training that bridges theoretical frameworks with practical implementation strategies. This training would cover methodologies such as design thinking, agile innovation processes, open innovation ecosystems, and structured approaches to science and technology commercialisation.
The entrepreneurship component would provide comprehensive instruction on venture creation fundamentals, including business model development, startup financing strategies, intellectual property management, and scaling operations effectively. Participants would engage with real-world case studies, innovation simulations, and experiential learning opportunities to build practical capabilities immediately applicable to workplace challenges.
A distinguishing characteristic of Centre would be its interdisciplinary integration of business strategy perspectives with what is involved in scientific research methodologies and engineering design principles. This cross-domain approach would prepare graduates to navigate complex innovation challenges that transcend traditional disciplinary boundaries.
Research activities would focus on innovation management practices and policy addressing Australia's challenges in research translation, including effective models for university-industry collaboration and governance structures that enhance innovation outcomes.
The Centre could provide knowledge resources and support for university student enterprise centres across the sector, sharing best practices, offering mentor networks, and developing standardised innovation tools to strengthen these centres' capacity to nurture student-led innovation.
The Centre could be hosted within an existing university with demonstrated strength in scientific research and innovation management education. Its governance would include representation from industry, government, and academia. It could be linked to a proposed Australian Centre for Business Transformation, creating a complementary ecosystem where the ACBT focuses on policy research while the Centre of Excellence specialises in education, training and practice-oriented initiatives.
Through this initiative, Australia would develop the innovation management capabilities essential for its continued prosperity through science and innovation.
Bibliography
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Chandler, A. D., & Hikino, T. (2009). Scale and Scope. Harvard University Press.
Chesbrough, H. W. (2011). Open services innovation: rethinking your business to grow and compete in a new era. Jossey-Bass, A Wiley Imprint.
Christensen, C. M. (1997). The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business School Press.
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If you want to learn more about these and related issues, please contact John Howard at john@actoninstitute.au.
Comments from Dr Rajesh Gopalakrishnan Nair and Professor Roy Green on earlier drafts are greatly appreciated in finalising this Insight.
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 and advises government, universities, and industry on enhancing R&D and innovation performance.
For inquiries, contact john@actoninstitute.au
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