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The Callaghan conundrum: Is Callaghan Innovation failing – or on the cusp of success?

If scientists are the French, creative but unpredictable, and businesspeople are the Germans, reliable but unspectacular, then one thing a modern economy needs is a band of Belgians who can, as it were, speak both languages.

In New Zealand, this role has for the last two years been played by the 400 or so hardy souls at Callaghan Innovation, the Crown agency set up in 2012 to – in its own words – “accelerate the commercialisation of innovation by firms in New Zealand”. But it’s not much fun being the Belgians. Factionalism and division are never far away, and respect from the neighbours can be hard to earn.

Callaghan Innovation had a difficult birth, and reports on its progress so far are mixed. New Zealand’s business community seems cautiously happy with the way it’s trying to help them do more R&D, but a recent study shows our company R&D numbers are woeful – and getting worse.

And the nation’s scientists are very worried indeed, arguing that the bureaucrats are winning out over the scientists, and that the agency’s creation has meant the sidelining of the basic, ‘blue skies’ research that ultimately holds the key to a nation’s success. 

As it hits its second birthday, Callaghan Innovation has a lot to prove.

New Zealand has one of the developed world’s worst records when it comes innovation – the process of translating cutting-edge science into things the rest of the world wants to buy. One reason is that the country invests just 1.3% of annual GDP on R&D, as opposed to an OECD average of over 2%, and as much as 4% for innovation leaders like Israel.

More bureaucrats than scientists: Callaghan Innovation started life with 258 scientists and engineers, and 158 non-scientists; it now has just 199 scientists and engineers, and 179 non-scientists

Enter Callaghan Innovation – the latest incarnation of a Government push to rectify our innovation woes. Named after the pioneering New Zealand scientist Paul Callaghan, who died in 2012 (see box page 56), it is a Crown agency combining the old Industrial Research Limited (IRL) with some of the functions of the former Ministry of Science and Innovation (MSI). 

It has  three separate – and not always complementary –  functions: 

  • using some of the IRL scientists to carry out the remaining R&D work; 
  • advising businesses on how to go about their own R&D; 
  • handing out $140 million a year in grants and other support, as MSI used to do. 

The overarching mission was to be, for New Zealand business, a “single front door” to the scientific world.

Much of the concern around Callaghan Innovation is about what is happening to pure ‘blue skies’ science; the sort of research that scientists argue lays the foundation for later commercial products. 

But it was clear from the outset that this was not a priority for Callaghan Innovation. Leading IRL scientist, superconductivity expert Jeff Tallon, warned in a NZ Herald opinion piece in late 2012 that science and scientific research were being “set aside in some vague hope of creating economic value through mere innovation in packaging and marketing”. 

Jeff Tallon

Tallon and some 50 of his basic research colleagues were in December 2013 shifted out of Callaghan Innovation; Tallon now works for the MacDiarmid Institute in Wellington.

Shaun Hendy is a high-profile scientist and science communicator, and co-author with Paul Callaghan of Get Off the Grass, his last book before he died. Hendy worked at IRL and then Callaghan before shifting to Auckland University. When the agency launched, Hendy said its success would hinge on whether it could increase the number of scientists at the expense of bureaucrats. 

But having started life with 258 scientists and engineers, and 158 non-scientists, Callaghan now has just 199 scientists and engineers, and 179 non-scientists. 

Business journalist and broadcaster Rod Oram, who has written extensively on innovation, says most of Callaghan Innovation’s funding is for near-term development and commercialisation of existing technology. 

“It is far more ‘D’ than ‘R’. 

“The really unkind thing to say is that it’s deeply ironic that it has Paul Callaghan’s name on the door, because the institution is the antithesis of what he was actually arguing for… blue skies [research].” 

Shaun Hendy

Research capability

One former IRL staffer, who didn’t want to be named, says Callaghan’s remaining scientists, who are now supposed to work on projects of interest to industry, will struggle. 

“After a period of 3-5 years, there’s no renewal of the technical knowledge, because the research base has been eroded,” the former staffer says. 

“Consequently their ability to do things creatively with industry then starts to decline, because they don’t have that base of research knowledge.  They eventually become estranged from the market. Industry will then start complaining about institutions over-promising and under-delivering.”

Some observers question whether Callaghan Innovation should be trying to house scientists at all. An agency designed to connect businesses with researchers across New Zealand arguably shouldn’t have its own team of scientists, since it’s hard to be an ‘honest broker’ if there’s a strong temptation to favour your own team over those based elsewhere. 

Someone with close knowledge of IRL and Callaghan Innovation says the decision was taken to leave some scientists in the latter so that it had “people with deep technical expertise” and therefore would “genuinely have something to offer” to business. But the tension that created – between the honest broker and scientific powerhouse roles – remains “the deepest problem” the agency faces.

Rod Oram

No conflict

Mary Quin, Callaghan Innovation’s chief executive, isn’t having a bar of these criticisms. Speaking from the agency’s brand new offices, located near the Wellington waterfront (and not, significantly, at IRL’s industrial-style Gracefield campus), she says she is “really excited and pleased” about progress. 

“I think we have got a lot of capability and talent in place now. That’s well aligned with the support the high-value manufacturing and services sector tell us they need.”

Quin denies any tension in the agency’s dual roles as connector and doer of research, pointing to her decision to bar Callaghan Innovation scientists from competing for the Government’s contestable funding hand-outs. That cost the agency $1.8 million, and caused some internal problems, but was a necessary decision, Quin says. 

“For us to be successful in achieving our mission is very much dependent on us having very collaborative relationships with the R&D system in New Zealand. We will be increasingly focusing our capability in research and development in ways that complement what others provide.” 

Part of that is developing a New Zealand-wide map of “who is doing what, down to individual teams of researchers”, to avoid overlaps.

The really unkind thing to say is that it’s deeply ironic that it has Paul Callaghan name’s on the door, because the institution i sthe antithesis of what he was arguing for … blue skies [research].

She insists Callghan scientists won’t get out of touch with cutting-edge research because its new national technology networks (based around seven key areas, including food processing and biotechnology) will sponsor events where researchers can exchange state-of-the-art scientific knowledge. 

 She says, “our people will be actively involved in those networks.” 

Some claim many of the agency’s scientists are deeply unhappy about how things have played out, and Quin concedes a staff engagement survey taken in 2014 showed morale to be “low”. However, she also claims to have seen a “very positive and steady shift” since then. 

Malcolm Blair, Callaghan’s Public Services Association union organiser, says low staff morale is hardly surprising, given the question mark over the role of research within Callaghan. 

 He says, “[people] are still not sure just what their role is.” 

Quin insists the researchers remain a core part of the service the agency offers to business.

“[My] expectation and hope is, as we become more and more effective in our outreach to business … the demand for the product development aspect of research and development will keep growing in New Zealand, and the demand for scientists and technicians and engineers will continue to grow.” 

But expectation and hope is not the same thing as a guarantee that the agency will retain its scientific ability, is it? 

“I think there are very few things you can give a firm guarantee on,” Quin says, “apart from death and taxes.”

Promoting collaboration

Quin says the response from business to Callaghan Innovation’s core role, helping companies navigate the innovation scene, has been positive. 

She says, “We see a real opportunity to bring groups of firms together, because we are out there talking to so many. We can get firms together and say, ‘working collaboratively as a group, we can solve this problem much more quickly and more effectively.’” 

Businesses haven’t, however, been quick to trust Callaghan Innovation with their funds: the agency’s annual report shows commercial revenue for 2013-14 was $5.3 million below budget, “due to lower than expected demand for both overseas and domestic research services and products”.

Business New Zealand head Phil O’Reilly, who helped prepare the Powering Innovation report, says “the beast that was born” was different to what he and others recommended in 2011, and that it “got off to a bit of a slow start” – a view shared by other commentators. 

Phil O’Reilly

However, O’Reilly says “business has been quite patient through that” and the sentiment is starting to shift. 

“Business has bought into the idea that Callaghan is there to help.” He says, “in the last six months to a year they have started to hit their straps with business.” 

Rather than create more bureaucracy, the agency has focussed on working with other bodies such as NZTE and is trying to create “a seamless face for business”, O’Reilly says. And the agency has “some reasonably sensible relationships with universities and Crown research institutes.” 

Taking it for granted

The R&D grant-giving programme, inherited from the old Ministry of Science and Innovation, is perhaps the most high-profile – and therefore contentious – part of the agency’s work. 

The most recent attack came from Trade Me founder Sam Morgan, who made headlines when he took aim at what he called the “stupid” scheme. “Thanks to all taxpayers for giving free money to publicly listed tech companies to benefit wealthy tech investors,” he tweeted.

Morgan, like others, fears the grants are just another form of ‘picking winners’ and often go not to start-ups but to companies who are already doing well. In response, Quin says there are “explicit criteria” for the grants, prioritising firms that already have some track record of expertise and investing, so as to reduce the risk to the taxpayer. 

Sam Morgan, TradeMe founder

A fuller defence of the grants comes from Will Palmer, chief executive movie data analytics firm Movio. 

Callaghan Innovation currently provides R&D grants that cover around a fifth of Movio’s R&D costs (see sidebar), including a joint $1.5 million exploration of the potential of a world-leading, cutting-edge piece of technology called No Sequel.

Palmer argues that much of the company’s research would not be done if it wasn’t for the Callaghan grants.

“For example, we wouldn’t have taken the punt of bringing a technology to New Zealand that’s so innovative, because we wouldn’t have had the confidence or the money … We just wouldn’t have had a crack at it.”

Overall, Palmer says, the company’s dealings with Callaghan Innovation have been excellent. “They are really good people who want to do good things”.

But after just two years (and with some of that time spent resolving internal problems), it’s hard to tell how far Palmer’s experience is being replicated, and whether Callaghan Innovation is making a tangible difference to the New Zealand economy. 

It’s also difficult to measure progress. True, business R&D spending hasn’t picked up post-recession; in fact a recent Grant Thornton survey showed only a very small (and falling) number of companies planning to up their R&D   in terms of commitment to research. (In the world, only Estonia, Argentina and Russia have a worst record.)

However, it’s hard to tie this specifically to what Callaghan Innovation does – or doesn’t do, Shaun Hendy says. 

“As New Zealanders, we’re reluctant to share ideas, we are overprotective of intellectual property. It’s a deep problem, and one of the things you might like Callaghan to do is change the dynamic we have now. I guess we will have to see how successful they are.”

O’Reilly sees two key challenges for Callaghan Innovation. The first is to be more visible. The second is to “accelerate the outreach to the business community”.

He would like to see Callaghan Innovation going beyond the usual innovation-savvy suspects, and tapping the “hundreds and hundreds” of New Zealand companies not yet doing R&D in any meaningful way.

Mary Quin

Ever cheerful, Quin says the focus going forward is on delivering tangible results for the New Zealand economy, becoming more effective at measuring success, and growing the number of firms taking advantage of the services Callaghan offers. 

So does she think New Zealand will hit its target to match OECD levels of R&D spending? “Callaghan Innovation will do everything in our power to achieve that.” 

That’s not the same as saying the target will be met, though, is it? “We will do everything in our power,” Quin says, firmly.

One potential danger for Callaghan Innovation is it may end up trying to do too much, and not doing any of it well. 

Oram wonders if it has the right ambition and the right people. 

“It’s doing the near-term commercialisation and having a rough go at that bigger picture stuff. “But whether they have got scientists who can speak business, or businesspeople who can speak science, I’m not sure.” ?

Review overview