Innovation increases profitability

Recent ABS reportingº indicates that innovative businesses earn greater profits. Innovation-active businesses continue to report an increase in business performances and activities from the previous year than non-innovation-active businesses. Highlights are: Twice the proportion of innovation-active businesses reported an increase in productivity and total number of jobs or positions compared to non innovation-active businesses. 50% more innovation-active businesses reported an increase in profitability and income from sales of goods or services than reported by non-innovation-active businesses.

Greater than twice the proportion of innovation-active businesses were likely to sell goods or services overseas than non-innovation-active businesses. More than half of the businesses (55%) had at least one barrier that significantly hampered their general business activities or performance, with the most commonly stated barrier being ‘lower profit margins to remain competitive’ (27%). ºSelected Characteristics of Australian Business: 2012-13 ABS Cat. No. 8167.0, released on 18 September 2014 Goods or services – Any good or service or combination of these which is new to a business (or significantly improved). Operational processes – New or significantly improved methods of producing or delivering goods or services (including significant change in techniques, equipment and/or software).

Organisational/managerial processes – New or significantly improved strategies, structures or routines of a business which aim to improve performance. Marketing methods – New or significantly improved design, packaging or sales methods aimed to increase the appeal of goods or services of a business or to enter new markets. It is worth considering (and surprising) which industries are proactive with innovation: How is your industry performing? How does your business innovate? Is it ad hoc? Or does your business have culture based on innovation? Do you have processes in your business that promote continuous improvement and innovation? Does your business spend time “Working on the Business” in order to promote innovation, change and improvement.

Peter Debus is a Director of PrincipleFocus NSW, a Chartered Accountant and Chartered Tax Adviser.