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Innovation in a Global Knowledge Economy: Challenges for Australian Service Industries Professor Ron Johnston Australian Centre for Innovation Ltd Risk Management Innovation – Looking Outside the Square Risk Management Institution of Australasia Conference August 2008 One Certainty “the long-term trend towards a knowledge-based economy continues, driven by the growing globalisation of knowledge” (OECD 2005) Evolution of the Economy C 18th C 19th C 20th C 21st Agricultural Economy Industrial Economy Knowledge Economy - Land - Labour - Land - Labour - Capital - Enterprise - Land - Labour - Capital - Enterprise - Knowledge & Innovation Roads, Sea - - Roads, Sea - Rail, Air - Steam/Electricity - Telecoms - Roads, Sea - Rail, Air - Steam/Electricity - Telecoms/Comput. - Systems, Digital Environments Paradoxes of Knowledge Using knowledge does not consume it but it does get obsolete. Transferring knowledge does not lose it but market mechanisms allow ownership. Knowledge is abundant, but the ability to use it is scarce. Producing knowledge resists organisation. Much of it walks out the door at the end of the day. What is a knowledge economy? An economy in which the value of the goods and services is primarily determined by the embedded knowledge AND there is a significant trade in the commodity of knowledge itself All kinds of knowledge – codified & tacit, S&T & markets & business processes Because knowledge does not wear out it is a source of super-value and super-productivity. Knowledge alone can add value to a closed zero -sum system Key Features of the Knowledge Economy Knowledge Intensification Knowledge Trade and Valuation Knowledge Growth Australian Centre for Innovation (ACIIC) Growing Knowledge Intensity of Trade Value of Knowledge 400 350 300 Knowledge embedded in goods and services Capital value of knoweldge Knowledge production 250 200 150 100 50 0 1990 2000 2005 Growth of Knowledge Capability Knowledge capability = Sum of knowledge available x Power of technology to use it – Knowledge is doubling every 3 years – Technology power is doubling every 1.5 years (Moore ’s Law) SO Rate of increase of knowledge capability = 1.3 x 1.7 = 2.2 ie doubling every year!! Some Evidence Investment in knowledge (R&D, education and software) as a % of GDP in OECD countries is now comparable with that for machinery and equipment (approx 5%) Professional and technical workers are over 35% of employment in Australia The number of patents doubled in the past decade, to 450,000 pa The ICT sector is 10% of business value added New knowledge-intensive sectors like biotechnology, nanotechnology and environmental services are growing rapidly OS≠FA Each economy needs to enhance the knowledge intensiveness of industries with established comparative advantage, and support the development of unique competitive advantage Rules of the Global Knowledge Economy Knowledge is being transformed from an intellectual pursuit to a commodity in the global capitalist system. This leads to inevitable pressures for increased efficiency, productivity, outcomes and ownership, of knowledge. Knowledge Management Arrives ‘Silly me. I thought knowledge management meant it’s not what you know but who you know.’ Innovation is central – it is the mechanism whereby “economic value is extracted from knowledge” (OECD) The Cutler Definition of Innovation innovating and being innovative is creative problem solving designed to produce practical outcomes. The outcome of this process is the introduction of novel solutions to real problems, needs or opportunities. Three Facets of Innovation There is no standard recipe book for innovation – it is a consequence of culture, context, ingenuity, and risktaking driven by the pursuit of identifying and satisfying customer needs; in particular, it is nurtured by ‘creative communities’ The Central Role of the Service Industries The share of knowledge-intensive market services now accounts for 21% of OECD value added. Routine services eg accounting, market research, sales, ICT management, trade information Compliance services – auditing, legal services Network services – telecommunication, social network providers, MICE Renewal services – R&D, strategic management, consulting, value chain management Australia is well placed (OECD STI Scoreboard 2007) Case Study – mining technology services Gross sales A$ 8 billion Growth rate of 20% pa Export sales – 20% 20,000 employees Generally small – 53% < 5; 26% < 25; 1% >500 Majority university-qualified BERD = 12% of revenue Innovation in mining technology Major New Service Industries • Biological/health industry - stemcell technologies - tissue engineering - organ replacement • Carbon management industry - energy transport infrastructure financial services auditing services capture