From Belarus to Australia: Commercial Ready People Power

In the twenty first century People Power has taken a new form...the Flash Protest! It's got nothing to do with inappropriate exposure, but everything to do with uniting around a cause, taking advantage of available technology and sending a message.

James Tuckerman and the spirited team over at Australian Anthill have started agitating around the axing of Commercial Ready.

For the reasons we have set out on this blog we fully support the idea that companies stuck in the Circles of Commercial Ready Hell have just cause in protesting their treatment, and in addressing the new government's lack of consultation on this issue.

To participate, zip over to here: http://editorsblog.anthillonline.com/wordpressmu/2008/05/28/commercial-ready-scrapped-time-for-a-flash-protest/, read the post then click on the link to here and add your name, mobile number and sign the petition to get some real People Power going...

(As a complete aside, I provided a guest column in one of the very early issues of the Anthill mag, so there you go!)

Mousetraps and Beehives: Innovation Support Models

This blog has been critical of Commercial Ready's demise. There is an important reason why we have been critical: it's about process and reasoning.

Simply put, it is contradictory to remove a $200m/year innovation program at a time when a fundamental review of the National Innovation System and innovation policy is underway. Moreover, one of the ostensible processes part of that review is one of consultation. Commercial Ready was disposed of overnight without consultation. It was pointed out that this explains why Commercial Ready did not feature in the terms of reference for the Cutler Review, but this is inadequate: lots of programs are not specifically mentioned.

But, what about grants programs in general? That is another question entirely.

Mousetrap thinking

Emerson never really said "Build a better mousetrap, and the world will beat a path to your door". He did say some similar things, but never that quote exactly. Either way, the sentiment is interesting as when it comes to grant programs as they so often target "better mousetrap" thinking. If the grant decision makers can identify a project that may result in a better mousetrap (or widget, service, etc), they will be inclined to support it financially.

This is problematic in many respects, not the least of which is the ability to predict the future and select a winner. R&D grants programs are sometimes likened to gambling with taxpayer's money as they need winners in the field to justify the investment. And that investment is considerable when you get to the mechanics of program design, delivery, audit and assessment. Some actually label it inefficient.

And yet there is also a strong sense of expectation or deservedness in the Australian business community that some sort of grants program is needed to overcome failures in our market. Whilst there is certainly some truth to this, and past programs can always point to the successes, the theoretically more efficient model is one of concessional loans (or repayable grants) where the company supported is able to be successful after receiving the grant/loan. This was a feature of the program that preceded Commercial Ready, R&D Start.

Perhaps predictably, the government saw very little of the money it loaned. Not only does R&D have a high failure rate, but the ability of a select group to make predictive decisions about the future given uncertainties in markets, technology, teams and the commercial environment is difficult. So whilst the concept is sound in theory, it fails in practice.

Beehives are better

An alternative model to the mousetrap model of government support has been proposed by this firm for over 10 years (way before Bee Movie!). We call it the "beehive" model, on the basis that bees operate as a community (like a market does), with a clear aim (preservation of the queen and, by extension, generations of bees to come), and that bees interact with a much wider community, allowing for cross-pollination, and a sustainable broader (business) environment.

What works, we propose, is not so much direct funding on a company-by-company basis, but an overall business environment that is conducive to innovation, R&D and commercialisation. And, as the trends in innovation in Europe suggest, this can be at least partially achieved by looking at government and other market barriers as well as at the role government support can play. That is, governments can also look at their role in the demand as well as the supply side for innovative development and commercialisation.

Classic examples include tax holidays, the overall tax rate, entrepreneur incentives and the removal of regulation that is costly or presents a barrier to business. An example may be the role of intellectual property in dealings with universities and the CSIRO. In order to establish a "beehive" of activity, the government could present pre-set intellectual property arrangements that are attractive to both industry and universities. Attractive at least in the sense that deals get done swiftly, transparently and at low cost, thereby reducing much of the transaction cost of establishing research and commercialisation relationships with these organisations.

A further role is in the setting of R&D tax concessions, either to encourage specific behaviours (such as collaboration), the location of R&D (identifying that where the R&D takes place can actually generate significantly more economic spillover than exploitation), the commercialisation of R&D and the role played by government in making acquisitions.

So, what do you think?

Do beehives out do mousetraps when it comes to innovation systems?

Commercial Ready: Circles of Hell

Word has been reaching us of companies in the most perilous position with Commercial Ready.

Ever since the government decided (without consultation and without notice) to close the program in the 2008 Budget there has been a relatively quiet response from the press. Apart from a slight increase in newsworthiness around budget week, the topic has just not gathered sufficient momentum to keep it in the press.

This is a dimension of how many companies the program can support, however there is also the flip side to consider: what about companies that where part way through?

Various Circles of Hell

Commercial Ready had a process that went something like this:

1. Lodge Enquiry Form
2. Meet with AusIndustry Customer Service Manager
3. Receive forms and be "invited" to apply if eligible
4. Submit a draft application
5. Receive and incorporate feedback from draft application
6. Submit final application
7. Wait for relevant decision maker
8. Hear whether you were successful or not
9. Supply more (lots or a little) information on your company and project
10. Sign a contract with the government
11. Get grant funding, do press etc

The toughest positions to be in are really in steps 4 to 8 as in order to actually crank out a grant application can take months of person effort. (No, I'm not kidding, months.)

And the really interesting position is if you had submitted a final application, but had not yet got to a decision-maker before the program closed. This is the worst possible position to be in: you've invested all of the time and energy in a process with a legitimate expectation that the program would be around, and then it's pulled.

Never a good way to run a program, and never a good way for government to operate.

Not parliamentry process

There are some fairly stringent rules about what government can do where they want to make an immediate change in the tax field. Commercial Ready, of course, sits outside this process as it was created by a Ministerial Direction under the Industry Research & Development Act 1986 (Cth).

And this means that the action was considered purely administrative in nature, rather than legislative so none of this had to go through parliament in a formal sense. The Minister had merely to withdraw the direction or replace it with another. This obviously makes for interesting process.

How many companies are in these circles of hell?

Great question. As the government always kept the details of numbers of applicants, their relative progress through the submission process and the time taken relatively quiet (as well as the dates of Board and other meetings, but that's another topic), it's hard to know.

But between steps 4 and 8 above, I imagine the number of companies to be in the low hundreds, with the number actually with a final lodged but no decision made to be less than 50.

Does anyone else have any better information or more details on the companies?

Commercial Ready Gone, But COMET Trails to 2011

We've all digested the news that the Commercial Ready grants program has bitten the dust in the reallocation of the new government's funding priorities, but AFR reporter Mark Fenton-Jones also reported the demise of COMET (see here).

A call to the COMET national office in Canberra confirmed that the program is still up and running, that they are all still coming to work and that there is budget funding through to 2011.

Of course a lot can happen between now and then, but if you want to get investment ready this is good news, hey?

Chart of Submissions to National Innovation Review

According to the Innovation Review, this is the breakdown of submissions:

1. Industry - 47%


2. Confidential - 2%


3. Research and public sector research organisations - 28%


4. Government - 9%


5. Private individuals - 14%

That means of the approximately 630 submissions 296 are from industry. This is actually a poor showing when the number of annual registrants for the R&D tax concession alone is over 7,000.

Further analysis to follow...

Commercial Ready is closed: Now what?

For many companies that would have submitted an application for the now closed Commercial Ready program, the refundable R&D tax offset is worthy of consideration. This program uses the well-understood definition of R&D in the income tax legislation, and gives groups with less than $5m turnover and $1m in R&D investment the opportunity to receive a base rate of 37.5 cents in the dollar on an after-tax basis, and up to 52.5 cents on volume based increases over three years.

This actually compares favourably with the dollar for dollar taxable Commercial Ready grant when you look at them both on an after-tax basis.

Traps for new players

One of the misconceptions about the R&D tax offset (in contrast to the R&D tax concession) is that the $1m limit applies only to what you claim. The truth is that what matter is what you are eligible to claim. Watch out for this! You really do need access to high quality consultants as part of this process, as the consequences of poor tax returns are significant in both financial and reputation terms.

Nothing turns a potential investor off more than the possibilty of a dog fight with the ATO over a claim they haven't had the opportunity to assess.

Budget 2008: Commercial Ready Closed

Well, even with our speculation about the ongoing National Innovation System Review and its interaction with tonight's Federal Budget we didn't see this coming:

The Howard Government's Commercial Ready program, including the Renewable Energy Development Initiative, closed to new grants from 28 April 2008, allowing $160 million to be used to offset the cost of the Federal Labor Government's Clean Business Australia initiatives, and providing savings of $547 million over four years. This will provide the Government with the opportunity to build better support for business research and development, pending the outcomes of the National Innovation System Review (from here, emphasis added).

This is a stunning development as many people have taken it as given that a discretionary grants program is a vital part of the innovation system, and that most aspects of the National Innovation System would be preserved given the ongoing consultation. It is extremely disappointing that the government's intentions on this point have not formed part of the Cutler Review's consultations, nor was Commercial Ready identified as a program at risk as part of the submission process that closed on 30 April 2008.

It will be very interesting to see the way this news is received in the innovation community. The decision takes $700m from what was the Commercial Ready program, reallocates $160m to the Clean Business Australia initiatives. Aspects of those initiatives are detailed here, and include:

Australian small and medium-sized manufacturers will be able to apply for grants from $10,000 to $500,000 to support initiatives such as improving the energy-efficiency of their operations; investing in energy-efficient manufacturing tools; improving insulation and recovering waste heat; investing in small-scale cogeneration plants that capture waste energy and use it to produce electricity on site; and cutting water wastage, including through stormwater capture and improving water recycling.

The AusIndustry product page for Commercial Ready has already been updated for this change:

The Government has decided to close the program. From 14 May 2008, the Commercial Ready program (including Commercial Ready Plus) is closed for applications.

The decision to close the program does not impact on those customers that have an existing funding agreement under the Commercial Ready program.

It's also a very interesting change, particularly for companies (of which I expect there are literally hundreds) part-way through Commercial Ready grant enquiry, application or decision processes, although companies with executed grants already will be OK. Obviously funding has been added for new grants programs, but at a significant cost to the Innovation System and to the process of consultation.

Of course, if there are companies in the renewable energy space they are going to be OK as they would appear to be eligible under Climate Ready:

Innovation supported by the Climate Ready program could include new technologies for water recycling, waste recovery or small-scale renewable energy; the development of green building materials to make homes more energy-efficient and more comfortable; and innovations to reduce the energy used by appliances, cutting emissions and household power bills.

Grants will be provided on a dollar-for-dollar basis, matching company spending on research and development, proof-of-concept and pre-commercialisation activities to develop solutions to climate change challenges. Funding will commence for the program in July 2008.

But this does leave companies that would have been applying for biotechnology, information technology and other industrial R&D in the dark.

It will be interesting to see what the press makes of this...

Cutler Review: Looking for Problems or Answers?

One of the blogs I love is Jessica Hagy's Indexed and this post triggered a great link between what's happening here in Australia in the Innovation space.

You see, most of the work in the National Innovation review has been high on the vertical axis (Finds Problems) and much less has been invested in Finds Answers.

Hopefully the Review Panel and other specialist working groups will see the distinction, because it's all well and good to examine the National Innovation System, but that system does not exist separate from all of the other science, business and education ecosystem elements that make up its various elements.

There are so many linkages and dependencies that looking at "innovation" in isolation from its component parts is just too close a view.

Especially if it's all about inspection...

Innovation Review Website - Server Issues

According the the National Innovation Review Secretariat, they have encountered some server issues preventing the uploading of the bulk of submissions.

This is what they had to say in response to an email:

Unfortunately we are experiencing technical issues with our server at the moment, so the bulk of submissions are currently delayed in reaching the website. We have our tech support people working on this issue as a priority and we hope to have the remaining submissions onto the website in the very near future.

Hopefully they will be up and running again soon!

Specialist Tax Panel - Input?

Nick Gruen of Lateral Economics who is on the specialist tax working group of the National Innovation Revew and Joshua Gans (whose topical blog is here: http://www.economics.com.au/) are participating in a panel discussion on Thursday 8 May from 5:30pm at the Productivity Commission.

It is entitled “Priorities and Directions in Innovation Policy in Australia” and it sounds like a perfect opportunity for people interested in the subject matter of this blog to get along and attend.

(Thanks Joshua's blog for the heads up: http://www.economics.com.au/?p=1478/trackback/)

Over 600 Submissions - including one from Michael Johnson & Associates

The National Innovation Review website has been updated to reflect the fact that, as at midnight on 30 April, it had received over 600 submissions.

It will be interesting to see what the mix of individuals, corporates, research and educational insitutions will be once all of them are posted.

If you're interested in seeing the Executive Summary from our (Michael Johnson & Associates) submission, penned by the mighty Kris Gale, please fill out the form here.