Connecting CommerceBusiness confidence in Australia’s digitalenvironment A report from The Economist Intelligence Unit

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Australia

The digital transformation environment in Australia’s cities can be reliably described as “emergent”. It is in the past two to three years, according to business executives interviewed by The EIU, that digital start-ups have begun to multiply in the country’s major cities, along with the formal and informal structures that support them. Venture capital looking for investments in embryonic fintech, med-tech, bio-tech and ag-tech firms is now flowing into the country from overseas, and the federal and state governments have begun to actively push science and technology innovation and entrepreneurship with funds and other types of support. “The atmosphere is exciting,” says Jeremy Kraybill, vice president of product at Dashcord, a Melbourne-based SaaS (software as a service) company, who has first-hand

experience of thriving ecosystems in the United States. He cautions, however, that Australia’s budding ecosystems have a long way to go before reaching the heady levels evident in hubs such as Silicon Valley, London or Tel Aviv.

Judging from the readings of the Digital Cities Barometer, the local environments in which companies are seeking to advance their own digital transformation are developing faster in Melbourne and Sydney than elsewhere in Australia. In terms of business executives’ confidence in their surrounding digital environments, both cities rank within the upper half of the 45 cities in the survey. The gap separating them from the second-tier cities of Perth, Brisbane and Adelaide is also considerable, in terms of both rank and score (see Figure 1).

Figure 1: Overall barometer readings – Australia cities

0 5 10 15 20 25 30

Melbourne

Sydney

Perth

Brisbane

Adelaide

Score (out of 10) Rank (out of 45)

6.81

6.65

6.20

5.89

6.16

17th

19th

33rd

40th

34th

2 Telstra — Connecting Commerce © The Economist Intelligence Unit Limited 2017 3

Delivering talent for digitalAustralia has long prided itself on its relatively large number (for its population size) of world-class universities and a well-developed network of technical education institutions. These are bright spots in local digital ecosystems. A majority of surveyed executives in each of the five Australian cities say that their local educational institutions are “very” or at least “generally” effective at equipping their students with the right digital skills.

Agreement on this count is highest in Adelaide (considerably more respondents there than elsewhere also give a “very effective” appraisal). Rudy Pieck, a partner of BDO Australia, a business services firm based in the South Australian capital, says that firms there are at a disadvantage in that digital talent, especially from overseas, is often attracted to the larger hubs of Sydney or Melbourne. He notes, however, that local institutions such as Flinders University are expanding their digital skills programmes and establishing technology accelerators of their own to support young innovators and entrepreneurs. “Our institutions are churning out their fair share of technologically-adept students,” remarks Mr Pieck.

“ Our institutions are churning out their fair share of technologically-adept students.”

- Rudy Pieck, partner, BDO Australia

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Adelaide

Very effective Generally effective

Melbourne

Sydney

Brisbane

Perth

25%

40%

37%

40%

35%

18%

46%

6%

13%

17%

What skills are businesses most in need of? Cyber security expertise comes top of mind in four of the five Australian cities, no doubt partly due to the consistent drumbeat of media reports of data breaches and hacking, but also due to rapid technology adoption: companies are moving more of their applications and data to the cloud, and many firms are deploying Internet of Things (IoT) sensors in their products and assets. Perceptions of their security vulnerabilities may be exaggerated, but firms are looking to hire expertise to provide more certainty.

Melbourne respondents are the exception to the above, emphasising their need for

“ People who have developed cradle-to-grave new services and products, whether that’s just web UX or a full customer experience. Very few people here have done that”

- Jeremy Kraybill, VP Product, Dashcord

employees with advanced data analytics skills. Another desired skill set in several of the cities is change management in recognition of the fact that digital transformation, like all major business initiatives, requires a considerable shift of cultural attitudes to succeed.

A close second in Melbourne in terms of desired expertise is “product service offering” skills. For Jeremy Kraybill, VP Product, Dashcord, this translates into product managers: “people who have developed cradle-to-grave new services and products, whether that’s just web UX or a full customer experience. Very few people here have done that,” he says.

Australia’s universities are highly regarded internationally as prolific generators of advanced scientific research1. This regard does not extend, however, to their interaction with businesses to commercialise it. For example, an OECD study of research collaboration between industry and academia ranks Australia last amongst 33 countries (behind Mexico, Chile and Brazil). Based on data current to 2012, no more than 3.5% of large Australian companies collaborate with universities and publicly funded research organisations; the figure is only slightly higher (4.1%) for small and mid-sized businesses2.

High hopes are being placed on the National Innovation & Science Agenda to alter this state of affairs. Launched by the

federal government in 2015, it sets out more than two dozen separate initiatives, backed by A$1.1bn of funding, to energise technology innovation in the private sector. Specific initiatives are designed to expand companies’ use of original research carried out by universities and by research institutes such as CSIRO, the Commonwealth Scientific and Industrial Research Organisation.

Several universities are taking measures of their own to improve research collaboration with businesses. Recognising that a protective and costly regime of licensing their intellectual property (IP) has discouraged such interaction in the past, the University of New South Wales (UNSW), the University of Technology Sydney, La Trobe

University (in Melbourne) and four other institutions have become part of the Easy Access IP collective, an initiative launched by a handful of UK universities3. This commits the institutions to make many of their technology and process innovations available to businesses for free. (The licencing arrangements are governed by a one-page agreement.) In the case of UNSW, which joined the collective in 2011, the innovations developed in its research labs are posted on its websites, and firms can apply for a licence online. The firms pay for the patent approvals and are expected to acknowledge the university as the source of the IP. The firms commit to commercialise a product or service based on the IP within three years.

Research for transformation

1 See, for example, “The World’s Best Countries in Science [Interactive]”, Scientific American, March 31, 2017.

2 “Industry, university commercialisation has been ‘woeful’”, The Australian Business Review, March 1, 2016. The OECD data can be found here: http://www.oecd.org/innovation/inno-stats.htm#indicators.

3 See the Easy Access IP website for more details of the collective and the institutions involved (http://easyaccessip.com).

Figure 2: Share of respondents deeming their city’s educational institutions as effective at equipping people with the right digital skills

6 Telstra — Connecting Commerce © The Economist Intelligence Unit Limited 2017 7

Formal and informal inspirationHaving first appeared on the scene about five years ago, structures such as accelerators, incubators, innovation labs and co-working spaces, as well as those of an informal nature —meet-up groups, university networks and online communities, for example — now play an active role in Australia’s major cities as sources of advice, ideas and sometimes more material support to businesses as they pursue their digitisation programmes. Statistics are difficult to come by, but anecdotal evidence suggests that these support ecosystems have grown rapidly. According to Mr Kraybill, they have mushroomed in Melbourne in recent years. “Companies like ours use meet-up groups and other informal communities quite a lot, for advice on specific technology challenges and for referrals to talent, amongst other things,” he says.

Survey respondents in four of the five cities point to more traditional structures, such as business associations and the events they organise, as the most helpful external sources of support for their digital initiatives. Adelaide is the exception, with more of its executives pointing first to innovation labs and next to accelerators and incubators as favoured resources. (In Sydney, Melbourne and Perth, innovation labs earn second mention after business associations.)

Mr Kraybill emphasises that large businesses are as involved in these support ecosystems as are start-ups. “Bigger companies realise that they have a better chance of developing innovative new ideas, and getting them to market, by collaborating with start-ups through such structures,” he says. A good example of this in Melbourne is Australia Post, which maintains a partnership with the Melbourne Accelerator Program (MAP), run by the University of Melbourne. In addition to funding local technology start-ups, the government-owned postal company is looking to use start-up style approaches to develop new digital services4.

4 “Australia Post announces capital fund, accelerator program to drive innovation in eCommerce”, October 30, 2015 (Australia Post press release); “Making digital a new way of innovating at Australia Post”, CMO, March 8, 2016.

Figure 3: The most helpful external groups in assisting firms’ digital transformation efforts

29%

19%

16%21%

23%

Incubators/accelerators

Innovation labs and centres

Business associations and events

University networks and events

Government programmes and events

Adelaide

26%

34%12%

21%

12%

Melbourne

28%

33%

14%20%

17%

Sydney

22%

31%18%

16%

8%

Perth

15%

28%19%

24%

9%

Brisbane

Incubators/accelerators

Innovation labs and centres

Business associations and events

University networks and events

Government programmes and events

8 Telstra — Connecting Commerce © The Economist Intelligence Unit Limited 2017 9

There are two areas in particular where local governments can be more influential. One is in the realm of open data initiatives, which many governments in Europe and America are now pursuing vigorously. Most respondents across the five cities (an average of 56%, compared with 51% in European and 50% in US cities) believe their city governments make poor use of the data they collect, and could do more to make it available to local businesses, which the latter can use to build new digital services of their own. Another is co-ordinating city level initiatives more effectively with the federal government. Currently there is a disconnect, most executives say.

If city councils are complacent in supporting local digital ecosystems, businesses could decide to pick up and move to a more conducive environment. Almost half of firms (and more than half in Melbourne) in the survey have considered doing just this.

The government roleAs indicated above, Australia’s federal government has mobilised considerable resources in recent years to expand the support infrastructure for digital innovation in the country, and some state governments have followed suit. It is clear from the survey respondents that businesses are looking to their city

councils to do more in this regard. Over half of executives across all five cities believe in general that city governments are more influential than national ones in building a positive digital transformation environment, and nearly two-thirds look for the city authority’s role to become more prominent in the coming years.

56%

64%

The city government makes poor use of the data that it collects

Our organisation has considered moving operations to another city to take advantage

of a more favourable external environment

There is a disconnect between national and local government support for innovation

46%

17%

Figure 4: Share of respondents (average across five Australia cities) agreeing with statements about the city government role in the digital transformation environment

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