It’s been a big month for Rocket Lab. As part of this year’s King’s Birthday Honours List, Rocket Lab’s founder, Peter Beck, was made a Knight Companion of the New Zealand Order of Merit for services to the aerospace industry, business and education.

If that wasn’t enough of an accolade, a week prior, Rocket Lab was named Company of the Year at the 2024 Hi-Tech Awards.

It’s moments like these, when our top people and organisations are celebrated, that we have a chance to acknowledge some of the best innovation that New Zealand has to offer – and where these brave and entrepreneurial people are rightly applauded for their efforts.

Innovating is hard. The outcomes are uncertain. Sourcing funding can be difficult, especially for start-ups. Not all entrepreneurial ventures work out – that is the inescapable risk of innovation.

However, there are obviously great success stories too, such as Rocket Lab. This should give heart to those courageous enough to give it a go. Technological change also demands that if we are to flourish economically as a society, we should support innovation within New Zealand.

Innovation benefits customers, communities, employees and shareholders

Large New Zealand companies such as software accounting firm Xero, and healthcare business Fisher & Paykel Healthcare (F&P) do plenty of heavy lifting when it comes to innovation. Both companies have put research and development investment at the core of their businesses for many years. Xero spent around $575 million or 34% of its revenue in product development in the past year alone. F&P similarly spent more than $170m or 10% of its revenue on research and development in the last financial year.

Investment in innovation has been essential for both companies to remain at the forefront of their respective industries, and in widening the advantage they have relative to competition. It has also underpinned tremendous growth in both companies. Xero has seen its employee base increase by 3,800 over a decade, to a total of 4,200+ employees globally today. Such impressive growth has clearly had strong economic benefits for the communities in which these employees live, including New Zealand. In addition, in incubating talented people within a firm like Xero, there is the added benefit when some of those people strike out on their own and put their Xero experience to work in new endeavours – a virtuous circle for innovation and economic development. Likewise, F&P has seen its employee base rise from 2,750 to 6,450 over the past decade, and no doubt has incubated plenty of talent over the years as well.

Their innovation spend has also been good for revenue and profit growth, which has driven healthy returns for shareholders – including many who are invested in these companies through their KiwiSaver schemes. Xero has returned around 15% per year for the past decade – which is impressive. F&P has done even better, compounding returns for shareholders at more than 20% a year over the past ten years.

These strong returns are unlikely to have happened had these companies not prioritised the expenditure on research and development.

Not all companies in New Zealand are as focused as Xero or F&P on how technology may disrupt their future. And admittedly some industries are evolving faster than others when it comes to technological change. However, all sectors of an economy are ultimately at risk of being disrupted by change and innovation. Management teams would do well to reflect on whether they’re doing enough to protect, prepare and profit from this potential disruption.

New Zealand could do more to foster innovation

Zooming out, we can consider how New Zealand is doing on the research and development front as a whole. Productivity and innovation are essential to lifting our standard of living and improving the prospects for our future in New Zealand.

Unfortunately, when viewed in aggregate, New Zealand is not doing that well when it comes to innovation investment. Both Xero and F&P look to be more outliers than the norm. New Zealand’s investment in research and development (private sector and public sector combined) totals approximately 1.5% of GDP, which puts us in the bottom half of OECD countries. What’s more, New Zealand is meaningfully behind other smaller economies, such as Denmark (2.8%), Switzerland (3.4%) and Belgium (3.4%).

As a country, we need to do more to foster innovation and increase the number of Xeros and F&Ps that are incubated on our shores. We need more collaboration across our business, education and government institutions to improve these statistics.

New Zealand just doesn’t have enough top talent in the tech sector. Immigration NZ cites a recent industry study which found that employers believe they’ll need up to 5,000 new digital technology professionals every year in the near future. Many companies are looking overseas to fill those roles.

Unleashing human potential through business & educational collaboration

Across the ditch in Australia, listed software provider, Wisetech, provides a great example of the role business can play in fostering productive talent domestically.

Wisetech has launched an “earn and learn” programme in which university students can apply to work at the company while completing their degrees. It’s being run in collaboration with the University of Technology Sydney. The students balance their tuition with working alongside skilled developers and engineers at Wisetech, meaning the students typically complete a three-year university degree in four years. However, in this hybrid model of education, the students gain invaluable work experience and skills along the way, marrying academic theory with practical business experience. In addition, Wisetech pays the students’ fees, enabling them to graduate without the yoke of debt around their necks. Wisetech estimates the remuneration package for the students (and cost of the university tuition) adds up to approximately NZD$325,000 over the four years.

Wisetech recruited 30 students in 2023 for the inaugural cohort, with this set to rise to 100 in the 2025 intake.

CEO and founder, Richard White argues this model accelerates the learning process for the students. It is a concept that he would like to see adopted and expanded across the business landscape in Australia.

Like Xero, Wisetech reinvests a substantial amount of its revenue each year in research and development – NZD$284m in the last financial year alone. Wisetech has also grown rapidly and delivered strong results over the years for customers, employees and shareholders alike.

Innovation – essential to successfully navigating the future

Much has been talked (and written) about around the rise of artificial intelligence and the potential impact it will have on society. An AI-driven future is a complex, difficult arena to navigate. It is likely to have many twists and turns and some anticipated and unanticipated outcomes.

But ignoring AI is not an option – it is coming for us, ready or not. Companies continuing to invest in innovation won’t get everything right. But by putting in the time and money, and having a go, their odds of being well positioned to navigate this changing environment are improved.

As a country, we should take moments like we have recently to celebrate the best of Kiwi ingenuity. Let us also use these moments to think through how education and government institutions, as well as businesses, can collaborate and foster further investment in research and development.

The quality of our future depends on it.

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This article was originally published in The Waikato Times on 12 June.