10th Dec 2003. Creating and Exploiting Intangible Networks: How Radiata was able to improve its odds of success in the risky process of innovating.
This seminal report/case study demonstrates how a network of highly-skilled people who know and trust each other can result in breakthrough innovation in Australia, of global impact. People networks are critical to achieving more favourable odds in the inherently risky process of innovating. In this case, the people network is based around wireless LAN engineers, research, development and commercialisation; the lifecycle of Radiata, sold to Cisco in November 2000 for A$567m.
Radiata Communications Pty Ltd developed a single microprocessor-based wireless Local Area Network (LAN) device that complied with a new international standard for wireless LAN systems. Following interim investments by Cisco Systems and another company called Broadcom, Radiata was eventually acquired by Cisco Systems for AUS$567m in November 2000 (with the deal finalised in January 2001). Radiata is now widely cited as an example of successful research commercialisation in Australia.
The Radiata case study shows how the pre-existing innovative capacity created by a domestic network associated with Australian radio-astronomy and electronic engineering was utilised by Australian entrepreneurs benefiting from exposure to US networks and business practices. The ability to develop semiconductor chips that integrated modem and radio functions via a minimum number of costly and time-consuming design iterations was a critical intangible asset. This ability was based upon a thorough understanding of how best to use available state-of-the-art Computer Aided Design (CAD) tools for designing CMOS integrated circuits. These design tools allow the number of iterations in design and development to be minimised. This dramatically reduces the time and cost required to complete the ‘D’ component of R&D (ie. experimental development).
The combination of these three key ‘intangible’ assets, combined with strategic efforts to identify business opportunities within the regulatory framework provided by a new international standard for wireless LANs, were critical to success. The odds of success were never that high, but the existence of these networks and the ways in which they were exploited generated far better odds of success than would otherwise have been possible.
The main lesson learnt for science and innovation in Australia is that attention needs to be focussed upon the intangible ‘asset values’ created by networks of highly skilled scientists, engineers and entrepreneurs. These asset values are based upon an increased probability of success in innovating. This is turn is related to an increased probability of achieving a high proportion of design targets on the first major design iteration, thereby maximising the speed and minimising the cost of the overall design and development process. The availability of technologies that allow the time and cost of completing experimental development (‘D’ in R&D) to be minimised provide the scope for skill and experience to substitute for higher levels of investment in the innovation process. This competitive opportunity based upon ‘low D R&D’ is of particular importance to a small economy like Australia that does not have the advantage of economies of scale in finance for innovation. $1m goes a long way in research but is quickly spent on development. Being
unusually smart about how we do R&D therefore partly offsets the disadvantages of being a small economy.
Fostering the capacity to use these networks and skills in such a way that the location-specific disadvantages of attempting to innovate in Australia are minimised is therefore important. Radiata presented itself as a US company carrying out R&D in Australia. This argument was key to ‘selling’ the investment proposition on the basis of the reduced investment risks that this scenario generated. Globalisation provides an opportunity for Australian innovators to offset any riskinflating disadvantages that stem from innovating in Australia, whilst also allowing any locational advantages to be exploited – such as cost-effective R&D. However, this juggling of these locational advantages and disadvantages can only be achieved if the game is played explicitly on this basis.
International experience and contacts together with state-of-the-art research infrastructure are critical to being able to play such a role in the global innovation system. By implication, an insular Australia-focussed approach would increase the investment risks faced and consequently decrease innovative capacity.