YEARLY IMPACT REPORT | 2017 Contents 4 23 Are we surfing or drowning? Unlocking New Zealand’s Chief Executive Vic Crone warns productivity against businesses getting swamped Factors at play in boosting by technological change innovation 8 24 Niche guys finish first Outputs, impacts and outcomes The role of R&D and innovation in How Callaghan Innovation helps outpacing the competition businesses prepare to innovate 12 30 – 48 Chasing the weird stuff Ones to watch Professor Shaun Hendy talks up High-performing firms that technology collisions and creative demonstrate the Kiwi way of connections doing business: 8i Goodnature 14 Production Machinery Limited Our place in a changing world StretchSense How we measure up in science Wakatū Incorporation and R&D 52 18 Throw the ball out Business by numbers Innovator Ian Taylor dares us to give The highs and lows of our New Zealand a sporting chance spending on R&D 54 Information sources ONES TO WATCH High-performing firms that demonstrate the Kiwi way of doing business 8i 32 Goodnature 36 Production Machinery Limited 40 StretchSense 44 Wakatū Incorporation 48 CALLAGHAN INCITE 3 4 CALLAGHAN INCITE Are we surfing or drowning? BY VIC CRONE TECHNOLOGY IS CHANGING OUR ENTIRE ECONOMY AND SOCIETY. EVERYONE KNOWS THAT. OR SO YOU’D THINK... CALLAGHAN INCITE 5 ... Except, as a recent survey of New Zealand of New Zealand’s GDP with only 123,000 business found, most of us think the impact employees — about 5% of our workforce. of technology will be minor, or far off in Productivity is not about how hard we work, the distant future. The MYOB report on the he said, it’s about what we do, and in today’s survey, The Age of Change, said just 44% of world it’s technology that counts. business operators believe their industry will In the next decade, around half of our jobs be significantly changed by technology in the will disappear. We can either replace them with next 10 years. higher-value technology-enabled jobs, or stand With respect, the other 56% of business by and watch our economy become irrelevant. operators are in for a shock. Doubling or tripling the contribution of The pace of technological change is dairy or tourism is not the answer, given gathering momentum. While this happens, the their respective demands on land, water and businesses facing disruption are falling further infrastructure, and their poor productivity behind the industry leaders as they gobble returns. Tech is New Zealand’s third-biggest up business opportunities. They can see the export sector, bringing in more than $16 billion great wave of change approaching and they a year in overall revenue. What this sector needs recognise that to get or stay on top, they must to expand is more brains, more ideas and more innovate — and that means spending on R&D. capital to bring those ideas to market. The indications are that New Zealand’s The businesses that will succeed are the commitment to investing in R&D is growing, ones that are prepared to disrupt themselves. but there’s a long way to go. This is happening in industries all the time. Uber Callaghan Innovation’s namesake, Sir Paul is working on self-piloting cars and drones to Callaghan, pointed out a few years ago that ensure it’s near the front of the queue when Samsung generates the equivalent of half autonomous ride-sharing takes over. “The businesses that will succeed are the ones that are prepared to disrupt themselves.” VIC CRONE Chief Executive of Callaghan Innovation 6 “Let’s be bold, disrupt the disruptors by being future- focused and embrace the opportunities this new era will bring to our country.” Locally, the meal delivery company My Food It’s bringing new products and services to Bag has eaten into its own business model the world that creates demand, grows wages by producing a budget-conscious option and boosts productivity. And guess what? that undercut its premium brand before any If you want to bring something new to the competitor did. world, you need to be doing R&D. It’s not But among New Zealand businesses, rocket science (although it could be). this kind of innovation is an exception, not We’re at a pivotal moment in our history. the rule. We invest about half the OECD It will take bravery to step into the unknown. average in R&D, even after a record rise in Let’s be bold, disrupt the disruptors by being R&D spending between 2014 and 2016. The future-focused and embrace the opportunities OECD’s Economic Survey of New Zealand this new era will bring to our country. Doing 2017 shows a correlation between our rate nothing is effectively deciding to wait for the of investment in R&D and our relatively low- wave to break over our heads. wage, low-productivity economy (with our It’s not too late for New Zealand’s big GDP sitting at 28th out of 34 in the OECD). earners to get their act together if they’re It’s not that the act of doing R&D increases prepared to be genuinely transformational, wages by magic. It’s that if you want to be an rather than incremental, in their response to export-driven business − which all sizeable or the onslaught of change. ambitious New Zealand companies need to Now’s a good time to think about that be to succeed − you need to come up with new-to-the-world idea. Give us a call. something no-one can get their hands on anywhere else. CALLAGHAN INCITE 7 Technological innovation is our only viable path to lifting earnings and productivity. “Our future lies in the Our future lies in finding the unexplored niches in global niches of technology. a world economy 500 times bigger than R&D investment is proven to develop more new-to-world our own.” products and services. SIR PAUL CALLAGHAN Business expenditure on R&D R&D grants encourage greater in New Zealand is the lowest business investment. among comparable economies. Our tech sector is leading the way in R&D investment. 8 CALLAGHAN INCITE Niche guys finish first Now more than ever, New Zealand Innovation, according to the OECD, businesses must harness the power of provides the foundation for economies innovation to ensure they’re in on the to grow and progress. And it is through action and not left sitting on the sidelines, innovation and the advances it brings that wondering what’s hit them. New Zealand will be able to keep pace as the As more and more aspects of our world changes. daily lives are digitised — from driving Despite the growing complexity and to healthcare to food production − the reach of the global marketplace, there remain speed of development will continue to countless as-yet-unrecognised opportunities. increase exponentially, changing the face of Celebrated New Zealand scientist Sir Paul economies and societies worldwide. Callaghan believed this country has a clear path Self-driving vehicles are rapidly growing to success. In a 2011 Dominion-Post opinion in sophistication, as data from the road miles piece, he said, “Our future lies in the niches driven each day is incorporated into machine of a world economy 500 times bigger than learning — Tesla alone gets a million miles our own.” He cautioned against trying to find of new data every 10 hours. And the cost of success in obvious areas where the world’s mapping genomes has plunged, from US$1 innovation investment is biggest. “We will be billion in 2001 to about $1,000 in 2013 and good where we happen to be good. We will $600 or less today. This puts personalised creep up on our competitors in the odd spots...” interventions such as medication formulated He was right. Who would have guessed for just one person within easy reach. that Xero would make New Zealand a world To ride the changes and stay relevant — leader in cloud-based accounting and another even to stay afloat — businesses will need local firm, Rocket Lab, shoot for the stars in to find the points of difference, the flashes space transportation? of brilliance that can turn clever ideas into Sir Paul also championed the importance of marketable products and services that are fit commercialising science to build a prosperous for the future. economy. He recognised that environmental We’ve examined the most current and constraints will prevent our biggest export authoritative data available to build a detailed earners — dairy farming and tourism — from picture of business innovation in New scaling up to greater economic heights. The Zealand. Our sources include reports from way ahead, he forecast, would be through the Organisation for Economic Cooperation technology. Knowledge-based exports and Development (OECD), Statistics NZ could generate significant earnings without information releases and Longitudinal consuming energy, affecting the environment Business Database, the TIN100 report, and or needing complex regulation. “There is no reports by MOTU Economic Public Policy limit to the numbers of such companies,” he and Research, the New Zealand Technology said, “except to the degree that our brains and Industry Association (NZ Tech), enterprise make such businesses possible. New Zealand Institute of Economic Research “Therein lies a future path for New (NZIER) and the Ministry of Business, Zealand. Our top 100 technology companies Innovation and Employment (MBIE). export $4 billion a year. We need 10 times that — a goal we are capable of achieving.” CALLAGHAN INCITE 9 NEW ZEALAND R&D R&D SPENDING BY NEW EXPENDITURE IN 2016 ZEALAND BUSINESSES IN 2016 1.3% 0.6% OF GDP COMPARED WITH OF GDP COMPARED WITH OECD AVERAGE OF OECD AVERAGE OF 2.4% 1.6% In its 2017 review of New Zealand’s economic As well as our low R&D activity, the performance, the OECD noted our strong OECD review refers to weaknesses in our financial position and forecast continuing international connections, capital investment robust growth.