As in most advanced capitalist economies, innovation in Australia is primarily defined narrowly as the application of scientific knowledge or radical technological change. But this is at odds with the reality of innovation, which is more likely to involve sustained, incremental improvements in products and processes, rather than technological breakthroughs. It is also likely to be driven by the need to solve customer and market problems more imaginatively than competitors.

At present, government policy in Australia is biased towards increasing the supply of science and research and commercialising new ideas and inventions. It pays little attention to supporting the capacity of firms to transform and adapt their business offerings to changing market conditions and customer needs. What can be done to address the bias in Australia's innovation policy?