John H Howard*
Australia's future prosperity hinges on its ability to understand and foster all forms of innovation, not just high-tech, new-to-the-world breakthroughs or entrepreneurial start-ups.
Put simply, innovation is creating and capturing value by doing something new and useful.
For too long, we have clung to a narrow definition of innovation that focuses almost exclusively on scientific and technical capabilities. While these are important, they are only one part of the puzzle.
Equally important are the non-technological human dimensions of innovation and recognition of the ingenuity of established mainstream businesses and their workforces.
Real innovation happens when technical skills are combined with business acumen, creativity, and an understanding of how society adopts and uses new ideas.
Changing drivers of innovation
Australia’s reliance on its natural resource base has seen it rank poorly in global measures of economic complexity. While industries like mining have served us well, they are not enough to drive future growth in a world increasingly driven by knowledge, technology, and services.
Australia must develop a more sophisticated, flexible, and creative workforce—one capable of competing globally, not just in terms of its minimally processed commodity exports but through advanced, high-value industries, supply chains and clusters.
The narrative around STEM education (science, technology, engineering, mathematics) is often framed as the silver bullet for innovation. While valuable, this perspective is incomplete.
More than STEM
High value-creating enterprises succeed by integrating a broader range of capabilities, including business management, entrepreneurship, marketing, and, crucially, skills derived from the humanities, arts, and social sciences, including critical thinking, effective communication, analytical reasoning, cultural awareness and sensitivity, and ethics.
These disciplines are instrumental in understanding customer needs, market dynamics, and the complex social factors that influence the success of new products or services and businesses in a multicultural environment.
In many ways, the focus on STEM reflects a dated view of economic value. Today, physical production represents only a small portion of what drives business success. The real sources of value lie in research, product development, branding, and customer engagement.
High-value industries such as biotechnology and information technology rely heavily on creative problem-solving, market insights, and an entrepreneurial mindset. Yet, Australia continues to underinvest in building these capabilities, particularly in management, leadership and organisational development roles.
Small and medium-sized enterprises (SMEs), which form the backbone of Australia's economy, are particularly vulnerable to the current skills gap. While shortages of technical expertise are being addressed, SMEs often lack the managerial talent and "soft skills" needed to scale their operations.
Australia’s Skills Challenge
The solution lies in rethinking how we approach education and training. Universities and vocational education providers must work more closely with industry to create a talent pipeline that meets businesses' evolving needs. This requires more than tweaking the curriculum; it demands a fundamental shift in how we prepare people for the workforce and the growing number who want to start and grow their own businesses.
Work-integrated learning (WIL) programs, which embed real-world business experience into academic study, have been a welcome initiative. However, these programs are currently underfunded and not widely implemented across sectors.
International examples offer useful lessons. In countries like the UK and Germany, apprenticeship degrees and Centres for Doctoral Training have successfully bridged the gap between academic research and industry needs.
These models produce job-ready graduates and foster long-term collaboration between higher education institutions and businesses. Australia is picking up this initiative with the Industry PhD program, but more must be done.
While government cannot directly drive innovation, it can create the conditions for it to flourish. Unfortunately, much of the focus by Australian and State/Territory governments to date has been on supporting start-ups, often to the detriment of helping established businesses grow and scale.
The way forward
Innovation is a dynamic, ongoing process requiring continuous skill and capability investment. This means not only providing support for STEM education but also recognising the importance of the broader capabilities that drive enterprise success.
Similarly, business leaders must take responsibility for fostering innovation within their own organisations and industries.
Steps businesses can take to remain competitive in a rapidly changing world include appointing dedicated innovation leaders, coaches, and mentors; participating in peer-to-peer learning sessions; developing strategic partnerships with higher education institutions for research and bespoke learning programs.
Ultimately, Australia’s economic future depends on its ability to integrate a broad range of skills and capabilities into its innovation ecosystem.
Innovation does not equate just with powerful new technologies. Concerted action is needed to foster innovation in how businesses learn and absorb knowledge, how they manage their people, organise relationships with customers and other key parties, and the business model used for earning money and sustaining the enterprise.
By embracing a more holistic approach to innovation—one that values creativity, management, and societal insight as much as technical expertise—Australia can unlock new opportunities for growth and prosperity.
* I would like to thank Narelle Kennedy, from the Kennedy Group for helpful comments on a draft of this blog
Great article John. Innovation creates demand for research and STEM