Submission To The Review Of The National Innovation System

 CRC ASSOCATION SUBMISSION TO THE NIS REVIEW

STATEMENT OF CONFLICT

The Cooperative Research Centres Association Inc. (CRCA) is the representative body for the organisations operating within the Australian Government’s Cooperative Research Centres (CRC) Program. The purpose of the CRCA is to promote science in general, with a particular focus on the future growth of the CRC Program.

The CRCA is an independent body, funded by fees paid through voluntary membership. The CRCA Constitution states that only bodies classified as ‘Cooperative Research Centres’ by the Australian Government are eligible to be members of the CRCA. The current membership comprises all 58 CRCs.

Page 1 CRC Association submission to the NIS Review 30 April 2008

CRC ASSOCATION SUBMISSION TO THE NIS REVIEW

EXECUTIVE SUMMARY

Recommendation 6: The CRC Program should allow for a call from the government for a new CRC in a specific designated area.

Recommendation 7: Any form of international activity should be allowed within CRC Program guidelines provided that it is for the benefit of Australia.

Recommendation 8: The CRC application guidelines should explicitly require CRCs to articulate a plan for how they will contribute to national skills capacity building. The focus of skills formation should not be restricted to the post-graduate student level.

Recommendation 9: The CRC application guidelines should clarify the intention of the Program regarding collaboration between CRCs.

Recommendation 10: The CRC Program mission should be squarely focused on the beneficial application of innovation for Australia, and it should be acknowledged that this will involve generation of pure public benefits, private benefits and, more often, a complex blend of both.

Recommendation 11: The stated objective of the CRC Program and its focus on commercialisation should be reviewed and the objectives broadened to reflect the range of economic, social and environmental benefits that CRCs deliver.

Reforms to the broader NIS

Recommendation 12: Reform is required to University promotion systems to provide greater emphasis on, and reward for, researchers who generate tangible beneficial impacts for the Australian community.

Recommendation 13: The RIBG, IGS and RTS block grant schemes should be reduced to one scheme – through merging of the IGS and RTS schemes and the abolition of the RIBG scheme (with providers of Australian Competitive Grants Register funds moving to a fully costed grants model). Within the one merged scheme there should be neutral treatment of different income sources across Categories 1 – 4 research income.

Recommendation 14: Consideration should be given to developing guidelines which require the stewards of the IP to determine whether there is likely greater net benefit to the nation in making IP readily available, on the one hand, or securing it for proprietary exploitation on the other.

Recommendation 15: DIISR should, in conjunction with the Treasury Department, develop guidelines for the measurement of outcomes delivered by all programs within the National Innovation System.

Recommendation 16: Government should, as an outcome of the NIS review, develop a clear document articulating the roles of each innovation support program and how these interconnect. Any future programs developed should be designed to complement rather than compete with, existing initiatives. Bringing organisations such as the CRC Association into the innovation program design process would assist with the development of a better coordinated NIS.

1. AN OVERVIEW OF THE CRC PROGRAM

The CRC Program was established in 1990 to improve the effectiveness of Australia's research effort through bringing together researchers in the public and private sectors with the end users. The CRC Program links researchers with industry and government with a focus towards research application. The close interaction between researchers and the end users is the defining characteristic of the Program. Moreover, it allows end users to help plan the direction of the research as well as to monitor its progress.

Since the commencement of the Program, there have been ten CRC selection rounds, resulting in the establishment of 168 CRCs over the life of the Program which have operated across the Manufacturing, ICT, Mining & Energy, Agriculture & Rural Based Manufacturing, Environment, and Medical Science & Technology sectors. Appendix A provides details regarding the composition and funding sources for the Program.

The present definition of a CRC is “a company formed through a collaboration of businesses and researchers. This includes private sector organisations (both large and small enterprises), industry associations, universities and government research agencies such as the Commonwealth Scientific and Industrial Research Organisation (CSIRO), and other end users. This team of collaborators undertakes research and development leading to utilitarian outcomes for public good that have positive social and economic impacts.”1 However this definition only tells a part of the story. As the Program has grown and matured, further benefits have emerged. In the development of this submission, the CRC sectors were asked to define the value proposition of the CRC Program. The responses include:

•  CRCs assemble multidisciplinary teams from across research providers to address end user driven research. They collaborate across all sectors (Industry, Academia, State Government, Consumers and Industry Associations) and create a critical mass in their field. No other Australian Government program does that!
•  CRCs provide companies, including multinationals, with a unique and attractive proposition ….deal through one organisation (the CRC) that can assemble the best teams in the Australia to develop the technology that the company needs, managing the process professionally to deliverables and gearing it with funds from the Commonwealth and research providers who are sharing the risks, and the returns.
•  CRCs are managed to deliver impacts not just publications, and are held to account to deliver.
•  The stability of funding provides certainty for the research partners in particular and also for the end-user partners.
•  CRCs provide research management skills and discipline. This helps ensure the research is managed to a high standard.
•  The level of governance is a real strength. The overall activities are actively managed by the CRC management team and Board to maximise the national benefits. This includes terminating, redirecting or accelerating projects in a way that is not part of the culture of most other programs.
•  CRCs provide a mechanism for realising unanticipated commercial opportunities, i.e. in cases where technologies have applications beyond the interests of the commercial partners, the CRC can pursue these through the creation of spin off companies, licenses etc.
•  CRCs play an important role in bridging the gap between discovery research funded by NHMRC and ARC grants and the requirements of industry for commercialisation-ready innovations.

• CRCs foster “hands-on” learning. Although they are heavily focused on postgraduate education, and thereby providing training for very highly skilled professionals, CRCs are involved, to differing extents, at all levels of the education and training system.
• CRCs encourage innovation through their interaction and reach with SMEs.                                                                                                                 And a compelling point from the Northern Territory: 
•  A CRC is neutral and un-aligned and so can provide a central focus from which grows collaboration. CRCs are respected for their integrity and are trusted to have the interests of participating bodies as a core principle so that participants have confidence and no fear of presenting ideas for examination. This approach is critical to gaining the confidence of Indigenous people and organisations.

 

The delivered impacts of the CRC Program

Since its commencement the CRC Program has been regularly and meticulously reviewed. The most recent review of delivered impacts from the Program was the 2006 study on the delivered economic impacts of the CRC Program commissioned by the Australian Government. In this study fifty examples were included of delivered economically quantifiable beneficial applications of CRC research. The 2006 study also highlighted the strong pipeline of research within CRCs that would be expected to deliver significant future benefits. In the 50 solid, quantified examples considered, only the clearly measurable components of the outcomes were included in the calculation of the net economic impact of the Program. Looking only at these clearly quantifiable impacts, the study showed that as a result of each dollar invested in the CRC Program, Australian Gross Domestic Product is cumulatively $1.16 higher than it would otherwise have been (had the money instead been used for tax reductions) and Total Consumption is cumulatively $1.24 higher than it would otherwise have been (had the money instead been used for tax reductions). It is important to note that Gross Domestic Product and Total Consumption are two critical indicators of the economic welfare of the Australian community rather than being measures of the private returns to CRC participants.

A common misconception surrounding the CRC Program is that it has focused only on the generation of economic benefits, and commercial benefits in particular. This misconception may be due to the fact that CRCs, as part of their regular performance reporting processes are asked to quantify and value the monetary benefits that they generate. Direct commercial benefits, and benefits accrued by industry through the application of CRC research to improve production processes are the most amenable to such ‘value’ quantification. Hence, these types of benefits from the Program have been the most heavily reported.

This does not mean however that they are the only – or even the dominant – types of benefits generated by the Program. In addition to the economic quantification of 50 ‘market sector’ impacts from the CRC Program considered in that study, these and other impacts from the Program have also generated many substantial benefits in the ‘non-market’ sector. Appendix B provides twenty examples of some of the important environmental and social (including health) benefits that have been generated by the CRC Program.

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² Myers, Rupert. Changing Research Culture, Australia - 1995. Report of the CRC Programme Evaluation Steering Committee, Aust Gov’t Publishing Service, Jul 1995.

2. GUIDING PRINCIPLES FOR THE CRC PROGRAM

While there may always be differing opinions about the specifics of the structure of the Program into the future, the CRC community is in agreement about the key principles that the Program must exhibit.

The CRCA believes that the CRC Program needs to be refreshed with an enhanced model that encompasses the following ten key principles:

1. The CRC Program should continue to be the key bridge-builder between public research organisations and research end-users, filling the innovation chasm between the research bench and application by supporting long term strategic collaborations.
2. The CRC Program should, while continuing to exhibit high levels of governance and accountability, be designed to maximally allocate resources to research rather than red tape.
3.  The CRC Program should be squarely focused on the beneficial application of innovation for Australia, acknowledging that this will involve generation of pure public benefits, private benefits and, more often, a complex blend of both.
4. The CRC Program should be funded so as to encourage new entrants whilst still supporting existing, successful collaborations.
5. The CRC Program should encourage experimentation; allowing risks to be taken in the pursuit of innovation.
6.  The CRC Program should provide a rich learning environment; developing skills at all levels and across all disciplines.
7. The CRC Program should be internationally engaged; providing a platform for connection to global knowledge networks.
8. The CRC Program should provide for flexible entry and exit points for industry, government agencies and NGOs, and SMEs in particular.
9. The CRC Program should be a part of a true innovation ‘system’ where other Programs are synergistic rather than competitive.
10. The CRC Program should above all be flexible, so that it is highly responsive to emerging opportunities and community needs.

3. WAYS THE CRC PROGRAM AND THE NATIONAL INNOVATION SYSTEM CAN BE IMPROVED

The CRC Program was established by the Hawke Government with the aim of changing the culture of industry to shift from looking to specific short term problem solving research, to taking a longer term, strategic approach to investment in research.2 At the time, this aim was visionary and novel. As the Program has grown and matured those goals have clearly been achieved through the breaking down of many old paradigms. The success has been recognised not only within Australia but also internationally as the CRC Program has been reviewed, emulated and even copied by a number of other nations. However there is scope for the Program to evolve, particularly if a number of opportunities to enhance Australia’s broader NIS are also addressed.

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Mechanisms to enhance the performance of the CRC Program and the wider NIS in delivering benefits from research can be considered under three broad categories:

•  Evolution in the CRC Lifecycle and Program funding levels
• Enhancements to the CRC Program Guidelines
•  Reforms to the broader NIS  

3.1 Evolution in the CRC lifecycle and Program funding levels

In 2007 the former Federal Government committed to funding the 11^th CRC Selection Round. This Selection Round would have a combined (Department plus Backing Australia’s Ability) budget of $300 million. The CRCA estimates that that this would allow only a maximum of 10 successful bids in Round 11.

From a high of over 70 CRCs in 2004, there are now only 58 CRCs and if only 10 applications are funded in Round 11 this number will decline to 46. The consequences of this sharp contraction in the Program will be that many potentially valuable collaborations will not occur and that the ability of the CRC Program to support new collaborations across a range of research areas will be eroded.

Over the life of the CRC Program, due to stagnation in real levels of the Commonwealth Grant, the balance of CRCs funded has already shifted from ‘New CRCs’ towards ‘New-from-existing CRCs’. Rounds 1-5 of the Program saw 78 ‘New CRCs’ formed as opposed to Rounds 6-10 where 35 ‘New CRCs’ were formed compared to 55 ‘New-from-existing CRCs’.

CRCs established by funding round05101520251990199119921994199619982001200320052007NewNew from existingRounds 1 -5Rounds 6 -10

Based on previous re-bid rates and re-bid success rates this trend towards a preponderance of ‘New-from-existing CRCs’ will continue. It is projected that if 45 CRCs are to be supported across Rounds 11 – 13 (assumes 15 CRCs per selection Round – slightly less than the overall average of 16.8 per Round over the first 10 Rounds of the Program), 16 would be ‘New CRCs’ and 29 would be ‘New-from-existing CRCs’.

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³ The CRCA is currently developing a range of options for the CRC lifecycle for discussion with its members at the May annual conference. If the Review Committee wishes, following discussions of the options at the CRCA Conference the CRCA will make a supplementary submission to the CRC Program review providing details on the outcomes.

If the CRC Program is to support a balance of ‘New CRCs’ and ‘New-from-existing CRCs’, three alternative approaches available include3:

•  Approach 1: Increasing CRC Program funding so as to allow 55 successful CRC applications in aggregate across the next three funding Rounds (i.e. to 2014).
•  Approach 2: Providing funding to support 45 successful CRC applications in aggregate across the next three funding Rounds, but limiting CRCs to three terms, with third term CRCs eligible to instead bid to become ‘CRC Institutes’.
•  Approach 3: Providing funding to support 39 successful CRC applications in aggregate across the next three funding Rounds, but limiting CRCs to two terms, with second term CRCs eligible to instead bid to become ‘CRC Institutes’ (note that existing third term CRCs would be eligible to bid to become ‘CRC Institutes’ under transition arrangements to this new model).

‘CRC Institutes’ would be based on the same guiding principles as the CRC Program but would be funded through a separate stream of the Program and subject to a rigorous ongoing rolling six year performance review and funding renewal cycle. These ‘CRC Institutes’ (which by definition would have established an outstanding track record of performance) would no longer be competing with new CRC applications for funding. It would be expected that ‘CRC Institutes’ would on average receive Program funding at a somewhat lower per annum level than CRCs. This would be in recognition that the ‘collaboration risk’ associated with well established consortia is significantly lower than for new collaborations.

Implications of increasing CRC Program funding so as to allow 55 successful CRC applications in aggregate across the next three funding Rounds.

Assuming that re-bid success rates continue at previously observed levels, increasing the number of CRCs supported in each of Rounds 11 – 13 would result in 25 ‘New CRCs’ being supported and 30 ‘New-from-existing CRCs’ being supported over these three funding Rounds.

By 2014 (following award of Round 13 grants and wind up of any non-renewing Round 10 CRCs), this model would result in 68 CRCs being in operation, including 25 first term CRCs.

Implications of allowing 45 successful CRC applications in aggregate across the next three funding Rounds, and limiting CRCs to three terms with third term CRCs eligible to instead bid to become ‘CRC Institutes’

If third term CRCs were not eligible to re-bid for a fourth term, and instead where eligible to bid to become ‘CRC Institutes’, then with 45 CRC applications being supported across Rounds 11 – 13, 25 would be ‘New CRCs’ and 20 would be ‘New-from-existing CRCs’. Over this period, it would be expected that a total of 10 ‘CRC Institutes’ would also be formed.

Over time, it would be expected that the number of ‘CRC Institutes’ in operation at any given time would stabilise in the range of 8 – 12 Institutes.

By 2014 (following award of Round 13 grants and wind up of any non-renewing Round 10 CRCs), this model would result in 58 CRCs being in operation (including 25 first term CRCs) and 10 ‘CRC Institutes’ being in operation.

Page 8 CRC Association submission to the NIS Review 30 April 2008

Implications of allowing 39 successful CRC applications in aggregate across the next three funding Rounds, and limiting CRCs to two terms, with two (and existing third term) CRCs eligible to instead bid to become ‘CRC Institutes’

If second term CRCs were not eligible to re-bid for a third term, and instead were eligible to bid to become ‘CRC Institutes’, then with 39 CRC applications being supported across Rounds 11 – 13, 28 would be ‘New CRCs’ and 11 would be ‘New-from-existing CRCs’. Over this period, it would be expected that a total of 16 ‘CRC Institutes’ would also be formed.

Over time, it would be expected that the number of ‘CRC Institutes’ in operation at any given time would stabilise in the range of 15 – 20 Institutes.

By 2014 (following award of Round 13 grants and wind up of any non-renewing Round 10 CRCs), this model would result in 52 CRCs being in operation (including 28 first term CRCs) and 16 ‘CRC Institutes’ being in operation.

Summary of what the CRC ‘community’ would look like in 2014 under different approaches to the lifecycle.

Under the above three possible approaches, the CRC ‘community’ would look quite different in 2014 to its current form. Under each approach there would be 68 organisations operating within the community. However, the balance between first term CRCs, ‘New-from-existing CRCs’ and ‘CRC Institutes’ would be very different.

The composition of the CRC “community”in 2014 First term CRCsNew from existing CRCsCRC Institutes051015202530354045Approach 155 successful CRC applications across Rounds 11 –13, no term limits or CRC Institutes68 Total OrganisationsApproach 245 successful CRC applications across Rounds 11 –13,three term limit and CRC Institutes68 Total OrganisationsApproach 345 successful CRC applications across Rounds 11 –13,two term limit and CRC Institutes68 Total Organisations

Implications for CRC Program funding levels

Individual grant round funding implications

If it is assumed that the average per annum level of Program funding available to CRCs would continue to be in the order of $4.25 million per CRC per annum (as was the case in Round 10) and that ‘CRC Institutes’ would on average receive Program funds at a somewhat lower per annum level than this (reflecting the reduced ‘collaboration risk’ associated with well established consortia), under each of the three outlined approaches, each funding round would require a commitment in the order of $475 to $525 million.

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⁴ This analysis is in 2008 dollar terms. The nominal level of Program funding would need to be indexed to inflation to deliver this real dollar funding outcome.

Funding for each such grant round would be spent over a seven year period. This is significantly higher than the $300 million understood to be committed to by the previous Government.

Total Program annual budget implications

If the total number of CRCs and/or ‘CRC Institutes’ operating at a given time is to stabilise at around 65 to 70 organisations, this would imply that the total funding level for the CRC Program will need to increase to an ongoing level in the order of $260 to $300 million per annum4. This represents an increase of 30% to 50% when compared to the average Program budget of $200 million per annum that has been in place for the past five years.

Recommendation 1: The CRC lifecycle needs to be refreshed and the new model should be developed that reflects the key principles outlined in section 1 of this document.

Recommendation 2: CRC Program funding needs to be increased by between 30% and 50% from current levels in order to allow the Program to appropriately support a balance of new collaborations and successful established collaborations.

3.2 Enhancements to the CRC Program Guidelines

 

The CRC Program guidelines drive the structure and priorities of the Program. In a number of areas, the CRCA believes that these guidelines need to be revisited and enhanced. Nine recommendations are put forward below to enhance the CRC guidelines.

•  Innovation is driven by the embracing of risk, yet Australia’s NIS has a risk-averse character. Legal conditions in contracts and agreements (particular with Governments) are designed to minimise the exposure to risk and ensure that every dollar is accountable. If Australia is to increase innovation it needs to exploit curiosity and provide opportunities for free thought and experimentation. Linked to risk aversion is the ever-increasing cost of transactions and legals within the CRC Program. Every dollar spent on the negotiation and renegotiation of contracts is a dollar that is not spent on innovation. This is also a disincentive to the participation of SMEs in the Program.

Recommendation 3: Program guidelines should be designed to ensure that funds are focused on the generation of research impacts rather than becoming directed to bureaucracy and transaction costs.

Recommendation 4: There may be merit in exploring the concept of establishing one ‘outside the box’ CRC per funding round whose explicit mission would be to undertake higher risk collaborative research activities where chances of failure are higher than would normally be acceptable for a successful application to the Program. Innovation is born through risk taking.

Recommendation 5: To allow for flexibility within CRCs, not all funds should have to be allocated to particular research activities in a CRC at the time of application. Some funding should be able to be earmarked for discretionary pursuit of new ideas that emerge, supporting collaborations with SMEs and NGOs as opportunities arise, and capitalising on international collaborations on an ad hoc basis. This flexibility would still occur within an accountable governance and performance monitoring environment.

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• While encouraging free thinking and curiosity, the NIS should also enable the Government to drive strategic innovation through the establishment and continual review of key innovation arenas. These would fit beneath the National Research Priorities, and be specific areas of research where the Government believes that nation would, in the long term, benefit in an economic, environmental and/or social context.

 

Recommendation 6: The CRC Program should allow for a call from the government for a new CRC in a specific area.

• Australia is less than 1 percent of the global economy and its research output produces less than 2 percent of the world’s scientific literature. For Australia it is therefore critical that there are strong pathways for accessing internationally generated knowledge. The conduct of high quality research in Australia is generally essential for Australia to gain a seat at the international R&D table, which in turn brings Australia early access to new internationally generated knowledge.

 

Recommendation 7: Any form of international activity should be allowed within CRC Program guidelines provided that it is for the benefit of Australia.

•  CRCs have a critical role in addressing skills-shortages. Skills formation (across the school, vocational education and training, tertiary, post-graduate and researcher spectrum) and the allocation of funds specifically to this task should be a core feature of CRCs. CRCs

Recommendation 8: The CRC application guidelines should explicitly require CRCs to articulate a plan for how they will contribute to national skills capacity building. The focus of skills formation should not be restricted to the post-graduate student level.

•  Collaboration between CRCs should be formally encouraged in application guidelines. Such collaboration may give greater critical mass to research concentrations. The issue of collaboration between CRCs is not well described in the guidelines at present. For instance, it is not clear whether one existing CRC can be a participant in another new CRC.

Recommendation 9: The CRC application guidelines should clarify the intention of the Program regarding collaboration between CRCs.

• In its 2007 report “Public Support for Science and Innovation” the Productivity Commission recommended that the CRC Program could be improved through reinstating the focus on public benefit in the objective. While supporting this view, the CRCA recognise that the distinction between generation of public benefit versus private commercial benefits is often a false one. In many cases, the generation of commercial outputs will be an important mechanism by which public benefits are in term generated. For instance, a process improvement that saved energy in production processes will only generate a public benefit (reduced emissions) if it first generates a private benefit through being applied in industry and delivering savings on input costs.

Recommendation 10: The CRC Program mission should be squarely focused on the beneficial application of innovation for Australia, and it should be acknowledged that this will involve generation of pure public benefits, private benefits and, more often, a complex blend of both.

Recommendation 11: The stated objective of the CRC Program and its focus on commercialisation should be reviewed and the objectives broadened to reflect the range of economic, social and environmental benefits that CRCs deliver.

3.3 Reforms to the broader NIS

The CRC Program does not and cannot operate in isolation to the broader NIS. If the CRC Program is to deliver fully on its promise, a number of reforms to the broader NIS are required. Five recommendations for NIS reform are set out below.

• The key resources in innovation are innovators. Programs need to be established or enhanced to address the skills shortage of researchers, particularly those with a multi-disciplinary approach (i.e.: able to work in an academic as well as industrial context). There needs to be rewards and incentives for innovators. Currently researchers in Universities are primarily rewarded on the basis of academic publications and citations rather than on the impacts they generate for the Australian community.

Recommendation 12: Reform is required to University promotion systems to provide greater emphasis on, and reward for, researchers who generate tangible beneficial impacts for the Australian community.

•  There is currently non-neutrality of treatment of different income sources within the three major University research block grant funding formulas. The operation of the RIBG, IGS and RTS schemes have important implications for University decision making in relation to what grant programs it directs researchers towards. Income sources that are categorised as Australian Competitive Grants (Category 1) research income are significantly more attractive to Universities than other research income sources (Categories 2 – 4) as they deliver more than double the amount of block grant funding through the RIBG, IGS and RTS schemes. An unintended consequence of these formulae is that they may cause Universities to pursue ARC Linkage grants (Category 1 grants) in preference to CRC Program grants (Category 4) even if the CRC Program may be a more appropriate mechanism for a particular activity. This can artificially skew University ‘investment’ decisions between impact oriented programs. Further detail on this issue is provided in Appendix C.

Recommendation 13: The RIBG, IGS and RTS block grant schemes should be reduced to one scheme – through merging of the IGS and RTS schemes and the abolition of the RIBG scheme (with providers of Australian Competitive Grants Register funds moving to a fully costed grants model). Within the one merged scheme there should be neutral treatment of different income sources across Categories 1 – 4 research income.

•  Australian institutions who are recipients of government funds that are used to generate new intellectual property are required to devote considerable resources to the protection and exploitation of that IP. In many instances this effort is poorly directed, resulting in excessive costs, delays in use of the IP and missed opportunities. This issue is particularly relevant for Boards of CRC’s.  

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Recommendation 14: Consideration should be given to developing guidelines which require the stewards of the IP to determine whether there is likely to be greater net benefit to the nation in making the IP readily available, on the one hand, or securing it for proprietary exploitation on the other.

•  It is difficult to improve something if it cannot be measured. There needs to be greater consistency in the approach to measuring innovation in Australia. While no one metric for performance will be appropriate in all cases, it is important that some consistent guidelines are established across the NIS for how performance should be captured and evaluated.

Recommendation 15: DIISR should, in conjunction with the Treasury Department, develop guidelines for the measurement of outcomes delivered by all programs within the National Innovation System

• In a true “system” the outputs of one component become the inputs for another, and vice-verse. Australia’s NIS has many programs developed across different Government portfolios that are operating in the same space, yet compete against each other rather than being synergistic. The confusion that exists in the minds of many researchers and industry participants regarding the division of activity between the ARC Linkage, Commercial Ready, Commercial Ready Plus and the CRC Programs is a case in point. It is counter-productive and an excellent example of an unintended detrimental consequence within the NIS.

 

Recommendation 16: Government should, as an outcome of the NIS review, develop a clear document articulating the roles of each innovation support program and how these interconnect. Any future programs developed should be designed to complement rather than compete with, existing initiatives. Bringing organisations such as the CRC Association into the innovation program design process would assist with the development of a better coordinated NIS.

4. CONCLUSION

The CRC Association’s desired outcome for the NIS Review is:

The fundamental positioning of the CRC Program within Australia’s National Innovation System as the Federal Government’s principal mechanism for strategic long-term investment in end-user driven and outcome-focused research, education, training and innovation through collaboration with multiple agencies and organisations both within Australia and internationally.

The CRC Association believes that the sixteen recommendations set out above would enhance the operation of both the CRC Program and the broader NIS and deliver enormous benefits (economic, social and environmental) to the nation. The CRC Association looks forward to assisting the Government in addressing the evolution of the Program.

________________

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Appendix A: Overview of the CRC Program

The CRC Program was established in 1990 to improve the effectiveness of Australia's research effort through bringing together researchers in the public and private sectors with the end users. The CRC Program links researchers with industry and government with a focus towards research application. The close interaction between researchers and the end users is the defining characteristic of the Program. Moreover, it allows end users to help plan the direction of the research as well as to monitor its progress.

Since the commencement of the Program, there have been ten CRC selection rounds, resulting in the establishment of 168 CRCs over the life of the Program that have operated across Manufacturing, ICT, Mining & Energy, Agriculture & Rural Based Manufacturing, Environment, and Medical Science & Technology sectors.

Over the life of the CRC Program, there has been a spread of CRCs across these research fields, however, Agriculture & Rural Based Manufacturing and Environment CRCs have been clearly most numerous.

0510152025303540Agriculture and rural based manufacturingEnvironmentInformation and Communication Technology Mining and EnergyMedical Science and Technology Manufacturing technologyTotal number of CRCs formed by sector since 19910510152025303540Agriculture 1991

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⁵ For instance, Mapping Australian Science and Innovation — Main Report, page 84 shows that firms with fewer than 200 employees accounted for around 37% of BERD in 2001

 

Reflecting its broad areas of activity, the CRC Program draws funding and in-kind resources from a wide range of sources. Displayed below is the resourcing profile for CRCs in 2006-07.

While large companies have been bigger dollar contributors to CRCs than SMEs, SMEs have none the less been very significant participants, making 42% of all industry contributions to CRCs. The relative SME share is above average when compared to overall Business R&D funding in Australia5.

0%10%20%30%40%50%60%70%98-9999-0000-0101-0202-0303-0404-0505-06Large (200+employees)SMEs(1 -199employees)Industry Contributions to CRCs by OrganisationSize0%OrganisationSize

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SMEs have been particularly significant contributors in ICT field but have been relatively small players in the Mining and Energy and Medical Science and Technology sectors.

0%20%40%60%80%100%SMELargeAgriculture and rural based manufacturingEnvironmentInformation and Communication Technology Mining and EnergyMedical Science and Technology Manufacturing technologyTotalIndustry Contributions to CRCs by Sector and OrganisationSize: 1998-99 to 2005-060%06

CRC grant funds as a share of total CRC resources declined in the late 1990s but have been relatively stable over past five years. CSIRO contributions have declined sharply over past 8 years, with Universities filling this relative funding hole in the CSIRO’s place.

0%5%10%15%20%25%30%35%98-9999-0000-0100-0200-0300-0400-0500-06CRC GrantIndustry/businessCSIROCommonwealthState GovtOtherUniversityContributions to CRCs by OrganisationType0%OrganisationType

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The profile of contributors differs noticeably across sectors. Business has been particularly important contributor to Medical Science and Technology and a relatively minor contributors to Environment CRCs. State Governments have been very important contributors to Agriculture & Rural Based Manufacturing and Environment CRCs. “Other” (likely mainly Independent Medical Research Institutes and Philanthropic organisations), has been important for Medical Science and Technology.

0%20%40%60%80%100%UniversityOtherState GovtCommonwealthCSIROIndustry/businessCRC GrantAgriculture and rural based manufacturingEnvironmentInformation and Communication Technology Mining and EnergyMedical Science and Technology Manufacturing technologyTotalContributions to CRCs by Sector and OrganisationSize: 1998-99 to 2005-060%06

The overarching takeaway from the above data is that there are important differences across CRCs sectors in terms of funding and participant profiles. This is a reflection of the fact that the Program has been able to accommodate groups working in quite different contexts and that ‘no size fits all.’

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Appendix B: Selected examples of Social and Environmental benefits generated by

application of CRC research

The following provides a small set of the many examples of CRC research application generating positive social and environmental outcomes:

Social (including Health) benefits from CRC research application

•  The Australian Biosecurity CRC for Emerging Infectious Diseases estimates the value of its research by calculating the costs to industry and the healthcare system of outbreaks of diseases such as Foot and Mouth Disease (FMD), influenza and Severe Acute Respiratory Syndrome (SARS), given the probabilities of such events. It then estimates the role of CRC research in mitigating the impact of these outbreaks – reducing their probability, limiting their extent, or minimising costs in management. The CRC estimates that, for example, in the case of influenza, its research has the ability to reduce the likelihood of a mid-level pandemic from 0.05 per cent probability in any given year to a range of 0.0495 to 0.025. Given the potentially high costs of a flu pandemic – which could reach 0.8 per cent of GDP – the average expected value of achievement of this level of risk reduction would range from $3.9 million to $195 million per annum.
•  The Vision CRC’s research has contributed not only to technological advances in treating avoidable blindness, but in improving delivery methods and policy strategies. Impaired vision is estimated to affect around 480 000 Australians, with Aboriginal populations suffering around ten times the levels of blindness as the rest of the community. One of the programs to which Vision CRC research contributes is the VisionCare NSW, which delivers over 80 000 pairs of spectacles a year to low income earners in NSW.
•  The Desert Knowledge CRC aims, through its core projects, to encourage self-reliant regional economic development at the same time as acknowledging the cultural value of desert life. The CRC report on “Population and Mobility in the Town Camps of Alice Springs” was conducted by Indigenous researchers in local Aboriginal languages. Many of these researchers have subsequently been involved in a local eye health project, and in conducting the census in the town camps. In addition to directly increasing skills, employment and information, this has encouraged the valuing of Indigenous knowledge, language and culture.
•  In 2003, the CRC for Cochlear Implant and Hearing Aid Innovation and Cochlear Ltd released the Nucleus Contour electrode. Around 10,000 have been implanted worldwide. Additionally, Cochlear Ltd released the ESPrit 22 behind-ear speech processor, and developed and publicly released the Advance-off-Stylet surgical technique to insert the Contour electrode. Cochlear Ltd staff also continued to support research colleagues in projects in the US and Germany using the centre’s CViews and psychophysics software. Through its Clinical Innovations program, CRC HEAR had developed software modules for audiological assessment which can be installed on a PC, enabling the introduction of new procedures into clinics around the world. The use of Cochlear implants generates significant social and economic benefits, for example enabling children with hearing impairments to participate in mainstream education which results in estimated savings of $100,000 to $200,000 per student.                                                                               Page 18 CRC Association submission to the NIS Review 30 April 2008  
•  In 2005, the HealthConnect project was trialled in Queensland using technology developed by the Distributed Systems Technology CRC. The DSTC developed Pegamento middleware allows organisations using different web services to connect with each other, enabling modular and open systems that are not tied to one technology. Additionally, the DSTC’s Elvin technology (which limits message access to authorised recipients) increases security in data management architectures. These interoperable technologies are being used in the HealthConnect network, promising significant improvements in communication between health professionals and organizations, particularly in the areas of chronic disease management. This will deliver better patient outcomes in the national health system.
•  The CRC for Sensor Signal and Information Processing’s collaboration with the Howard Florey Institute has resulted in advances to Magnetic Resonance Imaging (MRI) technology. These MRI technologies are used in understanding brain structure and function, and have application in the diagnosis of conditions such as breast and cervical cancers, and the detection of hearing impairments in new-born infants. Breast cancer is the most common cause of cancer-related death in Australian women, with over 11,000 women diagnosed with breast cancer every year. The annual incidence of this cancer continues to increase, rising from 94.6 per 100,000 in 1990 to 115.3 per 100,000 in 2000. Because the cause of breast cancer is not known, the key strategies for improving morbidity and mortality depend on early diagnosis, in which imaging techniques and devices play an important role. MRI technological advances therefore have the potential to improve the quality and cost-effectiveness of health care systems.
•  Distributed Systems Technology CRC has developed XML Metadata through the Titanium Project group. This software product has been made available as an open source tool for the management of digitized collections of Indigenous cultural material. The Centre’s XML technology has also been applied to projects in the defence and health sectors. The DSTC spin-off Extensia Solutions is projected to have an annual sales of >$10M/annum by 2006-07. The company’s major product, the RecordPoint data management tool, uses the Pegamento middleware technology developed at the CRC. It is expected to be used by health care organisations to improve electronic health records management, access and security. The enterprise architecture middleware technology developed by the DSTC has the potential to improve quality of service and reduce costs in the health, social services, and defence sectors.
•  The Rainforest CRC has collaborated with the ACF to develop potential models for culturally and environmentally appropriate economic activities for Indigenous communities in northern Australia and Cape York Peninsula. The project concludes that nature conservation must be linked to Indigenous peoples’ role on country as best mode of sustainable economic development in the region. They propose that there is potential for a bush food industry.
•  The Rainforest CRC formed a strategic alliance in 2002 with Queensland Department of Main roads to apply research to the planning, construction and maintenance of wet tropics roads. The Rainforest Centre contribution included the development of best practice environmental quality guidelines, which were used in the Kuranda Range road upgrade.
•  The microTechnology CRC’s commercial companies SportZCo, Micro Relay Technology and MNT Innovations had significant input, in collaboration with the Australian Institute of Sport (AIS), into Australian team’s training and performance at 2006 Athens Olympic games.                                                Page 19 CRC Association submission to the NIS Review 30 April 2008  
•  The CRC for Sensor Signal and Information Processing in 2005 began a collaborative research project with Canon into surveillance technology. The CRC has already developed novel middleware for an internet-enabled video-surveillance system, of which a working prototype has been installed at the University of Adelaide. Fifty networked cameras are installed as part of 24 hour monitoring by Campus Security, and the system has played a key role in resolving several incidents of theft and vandalism.

Environmental and resource management benefits from CRC research application

•  Researchers from the CRC for the Great Barrier Reef (GBR) World Heritage Area worked with tourism operators, making recommendations based on several of the CRC’s project groups. The tourism industry has been identified as potentially ‘sustainable.’ These recommendations included the development of a code-of-practice for swim-with-the-whales activities, a collaboration with Surf-Lifesaving QLD to identify stingers and ensure swimming beaches are closed at appropriate seasons, and the development of Eye-on-the-Reef, a web-based site-monitoring program for tourism operators. The Centre’s ecosystem knowledge base supported the Reef Water Quality Protection Plan 2003; provided a base for the mapping used for rezoning of the entire Reef in 2004; and was enhanced recently by habitat surveys of high risk shipping lanes in the GBR Marine Park, which will be incorporated into the Oil Spill Response Atlas being developed by the Australian Maritime Safety Authority.
•  The Invasive Animals CRC provides knowledge about Australian flora and fauna which have evolved in geographic isolation. For most issues concerning invasive animals, scientists cannot simply leverage overseas research; rather, there is a need for the development of local knowledge to apply to local problems. The value of this creation and maintenance of a “critical mass” of research and researchers, therefore, goes beyond the one-off economic impacts of any invasive animal management strategies it may provide. The Vertebrate Biocontrol CRC (a forerunner to the Invasive Animals CRC) contributed substantially to the development of the "Western Shield" program in Western Australia, widely acknowledged as one of the best conservation programs in the world. Western Shield involves baiting an area about three times the size of Tasmania for foxes, four times a year. Western Shield has brought back populations of the tammar wallaby, the quenda and the woylie in the wild to the extent that they have been taken off the endangered species lists in Western Australia. The program also brought back the WA animal symbol, the numbat, from the point of extinction. The fact that it is not possible to place an economic value on such achievements in no way suggests that such outcomes are not valuable.
•  Use of the CRC for Catchment Hydrology’s MUSIC urban stormwater modelling product resulted in reductions of up to 50% in costs of infrastructure works. The MUSIC software provides urban stormwater planners and managers with modeled management scenarios. Melbourne Water is using MUSIC to plan future works and assess land development proposals, and to design stormwater treatment strategies for new and existing drainage schemes. Application of MUSIC has resulted in significant savings on capital works, whilst still satisfying water quality criteria. Brisbane City Council uses MUSIC for urban catchment planning, and to design new stormwater treatment measures in Brisbane. The Centre’s Catchment Management Support System (CMSS) software was designed to enable catchment stakeholders to improve land and catchment management strategies.

• The CRC for Catchment Hydrology developed catchment modeling and decision-support tools. These have been used to develop management strategies in the Great Barrier Reef, Port Phillip Bay, and Moreton Bay. They will underpin implementation of the Commonwealth Coastal Catchments Initiative, as well as any likely implementation of UNEP’s Global Programme of Action for the Protection of the Marine Environment from Land-based Activities (GPA).
•  The CRC for Tropical Savannas Management’s research is focused on increasing knowledge of sustainable, holistic management practices such as the restoration of traditional burning patterns. The incorporation of local knowledge, both Indigenous and non-Indigenous, into resource management strategies has both environmental and social benefits, especially through the CRC’s programs which transfer this on-country knowledge and training from older to younger people. Initiatives such as the West Arnhem Land Fire Abatement project, and the Dugong and Marine Turtle project provide employment opportunities for remote Indigenous communities, as well as delivering better environmental monitoring and management.
•  The CRC for Tropical Plant Protection undertook research into diseases affecting horticultural and agricultural sectors, including cotton, cucurbits, lucerne, fusarium-resistant wheat and avocado crops. The CRC in 2004 conducted research into the effects of the fungus Colletotrichum gloeosporiodes or anthracnose in sub-tropical and tropical fruit crops such as mango, lychee and avocado. Anthracnose is the most serious post-harvest disease affecting these crops, and the implementation of recommendations for its improved management has led to a decrease of anthracnose incidence. This has resulted in reduced costs to growers, as well as a reduction of the industry’s use of copper-based fungicides. In turn, this has environmental benefits from the lower levels of copper-based fungicide leached into the environment.
•  The CRC for Antarctic Climate & Ecosystems’s sea ice modelling has enabled better understanding of the implications of climate variability and its impact on sea levels and biodiversity, including possible links between Antarctic and Southern Ocean processes and rainfall on the Australian mainland. Such knowledge is likely to inform future policy decisions on, for example, shipping and fishing regulation. Given the topical and political nature of climate change, robust scientific research into these areas is of national importance.
•  The CRC for Plant-based Management of Dryland Salinity had a Salinity Policy project group whose focus is on policy mechanism choice and design, and the design of institutions to deal with dryland salinity. This group’s main research impact was to increase the options for stakeholders in managing salinity. While there are substantial economic implications of such research – which may be expected to inform national salinity policy, currently with a budget of around $200 million per year – the main value of this knowledge is in increasing the options for all stakeholders in managing salinity.

Appendix C: Detailed discussion of non-neutrality of treatment of research income in

university research block grant formulae

For block grant funding formula purposes, total research income is grouped into four categories:

1. Australian Competitive Grants (ACG).

2. Other public sector research income.

3. Industry and other (including international) income.

4. CRC research income.

Income secured under these categories plays an important role in how research block grant funding is then allocated to universities.

Research Infrastructure Block Grants (RIBG) funding levels are 100 per cent determined according to the institution’s percentage share of Category 1 research income, that is, from Australian Competitive Grants. Each institution in Australia then gets a proportionate share of the total RIBG funding for that year.

Institutional Grants Scheme (IGS) funding levels are allocated according to: research income (60 per cent); higher degree by research student load (30 per cent); and research publications (10 per cent).

Research Training Scheme (RTS) funding levels are allocated according to: HDR student completions (50 per cent); research income (40 per cent); and research publications (10 per cent).

Actual allocations under these three schemes are complicated by the use of rolling averages of performance and by the operation of a safety net whereby an institutions allocation cannot fall by more than 5% year to year.

Qualifying research income therefore drives 40 per cent of RTS funding, 60 per cent of IGS funding, and 100 per cent of RIBG funding. We can determine on average (setting aside complexities for any individual institutions allocation that result from rolling averages and the safety net on downward fluctuation in funding which can be received by any one university, so that no allocation can fall by more than five per cent from one year to the next) how the level of an institutions’ research income generates funding allocations, that is, returns to universities.

In relation to the RIBG scheme, in 2006 there was $956.5 million in Australian Competitive Grant Income counted that drove allocation of $208.0 million in RIBG funding allocated in 2008. Therefore, for every $1 of Australian Competitive Grant income universities secured in 2006, on average they received an additional $0.21 in RIBG income in 2008.

In 2006 there was $2.21 billion claimed across the higher education sector as research income (Categories 1 -4) for IGS calculation purposes, and this drove 60 per cent of the allocation of $308.0 million in IGS funding allocated in 2008. Therefore, for every $1 of Category 1 – 4 research Income universities secured in 2006, on average they received an additional $0.08 in IGS income in 2008.

Page 22 CRC Association submission to the NIS Review 30 April 2008

In 2006 there was $2.21 billion claimed across the higher education sector as research income (Categories 1 -4) for RTS calculation purposes, and this drove 40 per cent of the allocation of $585.4 million in RTS funding allocated in 2008. Therefore, for every $1 of Category 1 – 4 research Income universities secured in 2006, on average they received an additional $0.11 in RTS income in 2008.

The reason why RIBG funding is separated from the more broadly based block grant schemes is in recognition that most ARC and NHMRC grants (which make up the majority of ACGR funds) do not allow Universities to cost into grants in-direct costs such as institutional overheads.

In practice, there is lack of clarity regarding the purposes to which RIBG funds are put and in how funds accrued actually relate to the in-direct costs associated with any particular ACGR grants. It is also not clear that all ACGR schemes exclude applicants from costing some infrastructure and institutional overheads into applications.

A more transparent system would be for the ARC and NHMRC to move to a system whereby grant applicants cost their in-direct costs into grant applications. This would remove the need for the RIBG scheme.

The block grant system could then be further simplified by merging the IGS and RTS schemes, which have similar funding formulae, into one block grant scheme.

The operation of the above complicated formulae has important implications for University decision making in relation to what grant programs it directs researchers towards. Income sources that are categorised as Australian Competitive Grants (Category 1) research income are seen to be more attractive to Universities than other research income sources (Categories 2 – 4) as they deliver more than double the amount of untied block grant funding through the RIBG, IGS and RTS schemes. An unintended consequence of these formulae is that it may cause Universities to pursue ARC Linkages grants (Category 1 grants) in preference to CRC Program grants (Category 4) even if the CRC Program may be a more appropriate mechanism for a particular activity.