Articles

Business policy focus too narrow to be truly effective, Canberra Times, 10 February 2003
Innovators Loan Scheme, Canberra Times: 19 March 2001

Business policy focus too narrow to be truly effective
10 February 2003, Canberra Times

A Bottom Line guest columnist bemoaned recently the lack of government emphasis given to growing established businesses. According to Kris Macauley, proven companies have enormous potential to grow and employ more Canberrans. However their potential was not being realised as both the Federal and ACT governments focus principally on start-up companies.

She is absolutely half right. She correctly asserts that established businesses are neglected. However she has only identified one part of the problem. The real problem is that there are many segments of business that are being neglected by a focus on just a few areas such as biotechnology, information technology and photonics.

Business policy should be not be about selecting just a few segments to the detriment of all others. What is required is an ecumenical business policy that recognises that all business segments are equally important. This is not an equity argument - it is a pragmatic one. A mixed economy can weather economic storms better, and the potential of every business is related more to its management than to its sector.

The current business policy neglects what I consider are the two segments of business that offer great potential for Canberra. They are "smart services" and "second-best technology exploiters".

Smart services are those services at the high-skill, high-wage end of the services spectrum. They encompass occupations ranging from architects to business consultants, university educators to lawyers, and economists to human resource managers. There are many categories of smart services with one very promising group being those based on methodologies developed via social science research. Examples of these are Myers-Briggs Personality Testing, Team Management Systems and Information Mapping. All of these have their genus in university research, in areas as diverse as physiology, sociology, economics and organisation theories. Given the number and quality of local tertiary institutions, there are great opportunities for the commercialisation of academic theories, findings and research.

An example is such work part way along the commercialisation chain is that of Dr Andrew Hopkins at the ANU's School of Social Sciences. He has pioneered a methodology to systematically identify the causes of disasters. It is based on the concept that there are many contributing factors to disasters, starting from immediate causes, through organisational practices and culture, right to society's values. By putting these into a Layered Causal Diagram, it becomes possible to systematically address causes and prevent disasters from occurring again. His research was first used to examine the ESSO Longford explosion, and to investigate why several hundred airforce personal suffered severe health effects caused by the RAAF F-111 fighter bomber fuel tank repair practices. More recently the Defence Science & Technology Organisation has used the methodology to examining the causes of two F111 crashes.

The tertiary sector is only one source of smart services. Another is our highly educated specialised professional workforce. These include policy analysts, asset managers, risk managers and project managers, all of which abound in Canberra. Over the last decade, specialists in these aras have formed flourishing consultancies which are exporting around the world.

While smart services offer great potential, they have attracted little policy attention to date. This is mostly because of the dominance of myths about the services sector. Service jobs are viewed as being poorly paid, low-skilled, requiring little education, are mainly part-time, and generate no exports.

But the reality is that they are slightly more highly paid than full-time jobs in the goods sector. Nearly sixty per cent of service sector employees work in high-skilled occupations compared with 55 per cent for the goods sector. In addition, 54 per cent of service workers have post-secondary education qualifications compared with 47 per cent for the goods sector, and over 70 per cent of service jobs are full-time. Services are also a great foreign trade earner and account for around 20 per cent of total world trade. Over the last decade, the value of world exports of services increased by just over 9 per cent a year, compared with around 8 per cent for goods exports.

Another business segment which offers great potential is "second-best technology exploiters". The conventional wisdom is that world class research is the key to Australia's future. This has resulted in massive amounts of expenditure on speculative research and frontier technologies. There is no denying that this high risk approach does result in a few winners but such a focus may not represent the best use of resources.

Great commercial benefit is also derived from incremental improvement of existing products rather than relying on quantum leaps of technology. This low risk form of innovation is what most companies are doing anyway. Also, even if the world's best technology is developed, there is no guarantee that it will dominate the market. There are many examples where second best won. Examples are VHS video format rather than Beta, and the Microsoft operating system rather than Apple's one.

To grow the second best technology sector, greater emphasis has to be given to marketing and sales, rather than the technology itself. In addition, the technology developers need to balance their personal desire to make the world's best of something with the company desire to make profits.

Smart services and second-best technology exploiters are just a few of the business segments that deserve to gain more attention in the ACT. There are numerous others such as micro-businesses and the association sector. Only by having a more balanced business policy can the potential of every company be realised.

Athol Yates is founder of ProfessionalWay.com.au.



Innovators need loans without collateral

19 March 2001, Canberra Times

by Athol Yates

An all too common problem for employed people with great business ideas is a lack of speculative cash. This money is needed to do the initial market research and business planning to ensure the concept stacks up before quitting your day job.

So where can you get the money from? Governments won't help with a grant, as pre-startups are too high risk in terms of political exposure. The banks will help but only if they can sell your family home when they want their money back. Family and friends would help if asked but as your idea is at such an early stage, it is not fair to call on them.

A solution may be a scheme based on the HECS model, coupled with case management.

The Higher Education Contribution Scheme (HECS) allows students to defer their tertiary education fees until they graduate and reach a certain income threshold. Applying this model to innovators, they would be given a loan of up to say $50,000 and they would start to pay it back once their personal income rose above say $60,000 a year. An innovators loan scheme has benefits for the innovator, the government and the public.

Innovators benefit as they would get the money upfront for essential pre-startup activities such as business plan development, market research and functional needs analysis. The loan scheme would encourage them to spend money on these activities rather than launching straight into product development. Doing so is a common trap for innovators who frequently believe that they need something concrete to show investors. However, without doing the fundamental market needs analysis, product development is normally misdirected or a complete waste of time. Money should not be provided for product development.

The government benefits from implementing a loan scheme as it would not have to give out grants or tax concessions to foster innovation. The vast majority of funds will be repaid when the innovator's business grows. If it fails, the loan repayments will be captured through the tax system when the innovator returns to paid employment. More importantly, the government has a practical tool to increase innovation as well as a public relations cashcow of business success stories.

The community benefits as the number of innovative small businesses would grow, which in turn creates new jobs. As the total number of innovators blossomed, so too would the number of businesses which make it to medium sized and even large businesses.

There are several elements of HECS which would be equally applicable to an innovators loan scheme. These include that the loan is indexed to the CPI, innovators can pay back the loan more quickly if they want to avoid paying the indexation, and the repayment percentage increases as the innovator's personal income rises.

Unlike other government innovation programs, a loan scheme should not be targeted at just the new economy. It has equal applicability to the old economy as this is just as likely a source of new businesses as is the so-called knowledge sector.

There will of course be a small percentage of innovators who will never pay back their loans, just as there are a number of students who do not. Some innovators will die, retire or move abroad. But is it unlikely that innovators, who are driven to succeed, will rein in the success of their businesses just to avoid repaying their debt.

Just as important as the loan component of the proposed scheme, is its case management dimension. Case management, whether it is for unemployed people or graduates who need workplace development, is the process which has the most success in maximising the achievements of individuals. It has direct applicability to innovation as seen in the success of AusIndustry's Commercialising Emerging Technologies (COMET) program. COMET is designed to increase the commercialisation of early stage firms by helping them with strategic advice, market research and raising capital. Case managers, who are private sector consultants, are appointed to individuals who join the program. The role of case managers is to develop and implement a tailored assistance plan for each individual. COMET has been so successful that the Federal Government gave it another $40 million as part of its Innovation Action Plan earlier this year.

Case managers for the innovators loan scheme would only release funds to innovators for certain activities such as business plan development or patent searches. This oversight by an experienced private sector consultant is essential in preventing inappropriate expenditures by the innovator, while encouraging them along a proven startup business route.

The downside of case management is that, compared to non-personalised assistance, such as brochures, web sites or call centres, it is expensive. Also innovators may resist the advice of case managers. However, if both the government and innovators are sincere in their wish to grow innovative products and services, then these costs have to be accepted.

Most business ideas drift around in a void of unfulfilled promise. An innovators loan scheme would assist budding entrepreneurs in taking their first step towards converting concepts into reality. The scheme's target group, the currently employed, has been overlooked in the past as a source of business startups. However they have the potential to contribute significantly to building Australia into the innovative nation.

Athol Yates is the senior policy analyst at the Institution of Engineers, Australia and has recently gone through the pain of raising speculative funds to investigate a business idea.

athol.yates@cternet.com.au