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EXPLANATORY NOTES


INTRODUCTION

1 This release presents key indicators on business use of information technology (BUIT) and business innovation in Australia, as collected by the 2005-06 Business Characteristics Survey (BCS). Previously, these IT and innovation indicators were produced from the separate annual Business Use of IT and biennial Innovation surveys, respectively.

2 Collection of these data using the BCS vehicle is part of the ABS' Integrated Business Characteristics Strategy (IBCS). This strategy integrates the collection and quality assurance of data required for input into the Business Longitudinal Database (BLD) and the production of point in time estimates for BUIT, Innovation and a broad range of other non-financial business characteristics. A key part of the IBCS is the production of annual BUIT and business innovation indicators, with a more detailed set of items for each of these topics collected every second year (i.e. in alternating years).

3 The BCS is the survey vehicle for the IBCS and is an annual survey. The 2005-06 BCS is the first fully integrated collection and had a focus on BUIT. The 2006-07 BCS will collect detailed innovation information.

4 The purpose of this release is to provide users with results for the main BUIT and Innovation indicators as soon as possible after the reference period. While this release is almost 18 months after the reference period, this relatively late timing is the result of a phased in approach taken to the introduction of this new collection. The 2005-06 BCS was dispatched in March 2007. By the 2008-09 reference year, the survey is expected to be dispatched immediately after the end of the reference period and the release of key indicators is expected to take place approximately 6 months after this.

5 As a result of implementing IBCS, there has been some impact on comparability of the BUIT and business innovation data included in this release with that resulting from the previous separate collections. Some of this is as a result of integration including changes to scope and the composition of the sample; more fundamental changes such as expanded and changed measures of innovation have had a significant impact on comparability of those data. Users of these statistics are advised to read these Explanatory Notes carefully to ensure they are aware of, and understand, the impacts.

STATISTICAL UNITS DEFINED ON THE ABS BUSINESS REGISTER

6 The ABS uses an economic statistics units model on the ABS Business Register to describe the characteristics of businesses, and the structural relationships between related businesses. The units model is also used to break groups of related businesses into relatively homogenous components that can provide data to the ABS.

7 In mid 2002, to better use the information available as a result of The New Tax System (TNTS) introduced in July 2000, the ABS changed its economic statistics units model. The new units model allocates businesses to one of two sub-populations. The vast majority of businesses are in what is called the Australian Taxation Office (ATO) Maintained Population, while the remaining businesses are in the ABS Maintained Population. Together, these two sub-populations make up the ABS Business Register population.

ATO MAINTAINED POPULATION

8 Most businesses and organisations in Australia need to obtain an ABN, and are then included on the ATO Australian Business Register. Most of these businesses have simple structures; therefore the unit registered for an ABN will satisfy ABS statistical requirements. For these businesses, the ABS has aligned its statistical units structure with the ABN unit. The businesses with simple structures constitute the ATO Maintained Population, and the ABN unit is used as the economic statistical unit for all economic collections.

ABS MAINTAINED POPULATION

9 For the population of businesses where the ABN unit is not suitable for ABS statistical requirements, the ABS maintains its own units structure through direct contact with businesses. These businesses constitute the ABS Maintained Population. This population consists typically of large, complex and diverse businesses. The new statistical units model described below was introduced to cover such businesses.

10 Enterprise Group: This is a unit covering all the operations in Australia of one or more legal entities under common ownership and/or control. It covers all the operations in Australia of legal entities which are related in terms of the current Corporations Law (as amended by the Corporations Legislation Amendment Act 1991) including legal entities such as companies, trusts, and partnerships. Majority ownership is not required for control to be exercised.

11 Enterprise: The enterprise is an institutional unit comprising (i) a single legal entity or business entity, or (ii) more than one legal entity or business entity within the same Enterprise Group and in the same institutional sub-sector (i.e. they are all classified to a single Standard Institutional Sector Classification of Australia sub-sector).

12 Type of Activity Unit (TAU): The TAU is comprised of one or more business entities, sub-entities or branches of a business entity within an Enterprise Group that can report production and employment data for similar economic activities. When a minimum set of data items is available, a TAU is created which covers all the operations within an industry sub-division (and the TAU is classified to the relevant sub-division of the ANZSIC). Where a business cannot supply adequate data for each industry, a TAU is formed which contains activity in more than one industry sub-division. Where a TAU has significant activity in more than one industry, the ABS will 'split' the TAU to maintain industry homogeneity.

SCOPE AND COVERAGE

13 The scope of the BCS for the purposes of point in time estimates including BUIT and business innovation is all employing businesses in Australia with the exception of businesses assigned to the following sector (Standard Institutional Sector Classification of Australia) and industry (Australian and New Zealand Standard Industrial Classification) classifications:

SISCA 3000 General government
SISCA 6000 Rest of the world
ANZSIC Division A Agriculture, forestry and fishing
ANZSIC Division M Government administration and defence
ANZSIC Division N Education
ANZSIC Sub-division 97 Private households employing staff
ANZSIC 7340 Financial asset investors
ANZSIC 7412 Superannuation funds
ANZSIC 9610 Religious organisations

15 The frame for the Business Characteristics Survey is a subset of the ABS Business Register, covering employing business only. These are defined as those business which register for the ATO's Pay As You Go Withholding (PAYGW) scheme. It is not unusual for some of these 'employing businesses' to have zero employment at various times during the reporting period. The frame is updated quarterly to take account of new businesses, businesses which have ceased employing, changes in employment levels, changes in industry and other general business changes. Businesses which have ceased employing are identified when the ATO cancels their Australian Business Number (ABN) and/or PAYGW registration. In addition, businesses with less than 50 employees which did not remit under the PAYGW scheme in each of the previous five quarters are removed from the frame. The estimates in this publication include an allowance for the time it takes a newly registered business to be included in the survey frame.

SURVEY METHODOLOGY

16 The sample design for this survey is complex due to serving dual purposes which include collection of characteristics data for the ABS Business Longitudinal Database and production of point in time estimates for a range of non-financial business characteristics. While there are scope differences between the BLD and point in time estimates, the intention is to maximise the number of businesses selected for which data collected can contribute to both purposes. More information about the BLD is contained in the Discussion paper: The first iteration of the Business Longitudinal Database, 2004-05 (cat. no. 8164.0). The explanation given in the following paragraphs has been simplified to provide a summary explanation of the design of the sample used to produce the estimates included in this release. If you require further information on the survey methodology for the BCS, please email your query to innovation.technology@abs.gov.au.

17 Collection of data included in this release was undertaken based on a random sample of approximately 8,800 businesses using a mail out questionnaire. The sample was stratified by industry and an employment based size indicator. All businesses on the ABS Business Register identified as having 200 or more employees were included in the sample.

18 Apart from the scope differences, the main change in the sample design of the 2005-06 BCS compared to most recent BUIT and Innovation surveys is the loss of state or territory as a stratification variable. The loss of state or territory stratification may impact on the quality of state or territory estimates that are intended for inclusion in future related releases for the 2005-06 BCS.

19 In an effort to reduce load on individual businesses, standard practice in most ABS business surveys is to each year, rotate out one third of sampled businesses. This normally results in around 66% of sampled businesses being common between cycles and minimises impact on outputs resulting from new businesses being included. In previous BUIT surveys, higher rates of rotation have impacted on the comparability of estimates for some output classifications. As the 2005-06 BCS was the first integrated collection and incorporated a new sample design, it was not possible to control the rate of sample rotation.

20 To minimise this potential effect, efforts were made to maximise the overlap of businesses selected in the 2005-06 BCS sample with those included previous BUIT and Innovation surveys. However, to meet all of the requirements for the dual purpose of the BCS (ie. both longitudinal and point in time), only relatively low levels of overlap were ultimately possible. There were also resource and provider load constraints impacting on this. Approximately 16% of businesses included in the sampled component of the 2004-05 BUIT survey are common to the sampled component of the 2005-06 BCS and approximately 28% of businesses in the sampled component of the 2005 Innovation survey are common to the sampled component of the 2005-06 BCS. The impacts of this relatively low level of sample overlap on comparability with previously released BUIT and Innovation data are outlined later in these Explanatory Notes. The common sample rate for subsequent surveys will be higher.

REFERENCE PERIOD

21 The reference period for most of the characteristics items included in the 2005-06 Business Characteristics Survey is the year ended 30 June 2006. Financial data relates to the most recent financial year ended on or before 30 September 2006.

DEFINING "INTERNET ORDERS" AND "INTERNET INCOME"

22 In both the BCS and BUIT surveys, the ABS has used the Organisation for Economic Co-operation and Development (OECD) definitions of e-commerce transactions when collecting data on Internet orders and Internet income. The OECD defines an Internet transaction as the sale or purchase of goods or services conducted over the Internet. The goods and services are ordered over the Internet, but the payment and the ultimate delivery of the good or service may be conducted on or off-line. Internet income is, therefore, defined as income resulting from goods and services ordered over the Internet.

23 ABS experience in collecting data for receipt of orders via the Internet and Internet income continuously highlights the difficulty of defining an Internet commerce transaction in a way which is understood by businesses and suits all forms of Internet commerce. For instance, for some businesses, the Internet transaction initiates and completes the purchase, while for others the Internet transaction finalises details of a purchase which was initiated by a non-Internet based agreement or contract. In order to apply consistent treatment in the collecting and editing Internet orders and Internet income data, over several cycles of the BUIT survey the ABS refined the definition of an "Internet order" to include only those transactions where the final commitment to purchase occurs via the Internet or web. An important element of the definition remains that payment and the ultimate delivery of the good or service is not relevant, that is, either or both may be conducted off-line. This definition still holds for the 2005-06 BCS and the Internet orders and Internet income data presented in this release. The definition has also been adopted by the OECD for inclusion in the ICT Use by Businesses: Revised OECD Model Survey.

24 It then follows that the concept of Internet income presented in this release relates to income resulting from orders received via the Internet or web for goods or services, where an order is a commitment to purchase. Like previous BUIT surveys, the 2005-06 BCS has highlighted issues which affect the quality and interpretation of estimates of Internet income and the proportion of businesses receiving orders for goods and services via the Internet or web. Readers should consider these issues when using these estimates.

25 Some orders for goods and services are initiated over the Internet and are then subject to ongoing payments. Ongoing payments may occur over a long period of time and via non-Internet based media. For consistency in compiling the income measure and to ensure that it covers all income flowing from the initial order over the Internet, the ABS would ideally like to include ongoing payments via the Internet, but recognises that most businesses are unable to track these payments. Estimates of Internet income resulting from the 2005-06 BCS and previous BUIT surveys may be understated due to this measurement issue.

26 As in previous BUIT surveys, many businesses in the 2005-06 BCS did not maintain records on the basis of the Internet income measure as defined and therefore needed to estimate its value. For some large businesses, the estimation of Internet income continues to be difficult and in some instances responses were inconsistent with those of previous surveys. While the ABS has reduced this error through analysis of responses and consultation with businesses, this form of error cannot be completely eliminated.

IMPACT ON BUSINESS USE OF IT OUTPUTS ARISING FROM THE IMPLEMENTATION OF THE IBCS

27 From 1999-2000 to 2004-05, the BUIT survey was conducted on an annual basis. Prior to 1999-2000, the BUIT survey was only conducted twice, in respect of the 1993-94 and 1997-98 financial years. The survey had a set of core items for which data was collected each year. The remainder of survey content was dynamic and updated each survey cycle to reflect emerging and changing uses of IT. Annual collection of core items continues through the BCS vehicle, however the remainder of BUIT content (i.e. the dynamic component) is collected biennially rather than annually.

28 Collection of items through a different survey vehicle alone can have some impact on resulting data due to context effect, e.g. having multiple topics covered in one survey form can often change the interpretation of questions based on the context set by earlier topics and questions compared to an entire survey on a single topic. Changes to question wording can also change the way a question is interpreted. Testing of survey forms aims to ensure such effects are minimised. A majority of the BUIT survey content was moved to the BCS vehicle with no change to question wording. Quality assurance of key BUIT outputs indicates that the change of survey vehicle including a predominantly new sample has had minimal impact on the estimates at the Australian level. However the impact on estimates at lower levels of output such as by employment size and industry has been more noticeable.

29 As noted in previous issues of Business Use of Information Technology (cat. no. 8129.0) estimates of IT use by industry are affected by the nature, number and size of the businesses classified to the individual division. Some industry divisions have large numbers of smaller businesses which can have very different IT use to that of larger businesses. For example, the activity and number of businesses included in the Communication services division ranges from a small number of very large businesses that provide telephony or Internet services (these have high levels of IT use) to a large number of small postal delivery contractors (these have low levels of IT use). The outcome of this diverse range of business activity along with the distribution of the industry's population can be that results for some industry appear to be at odds with what could be expected. As a result of the smaller than usual sample overlap in the 2005-06 BCS, this effect is possibly more pronounced, particularly for estimates by industry or industry by employment size. Comparisons for BUIT output with that published in previous issues of Business Use of Information Technology (cat. no. 8129.0) below the Australian level should only be made with caution.

DEFINING "INNOVATION"

30 The 2005-06 BCS draws on the conceptual definitions and guidelines included in the 'Oslo Manual, Guidelines for Collecting and Interpreting Innovation Data' (Third Edition, 2005). This manual provides a framework for the collection of innovation statistics and specifies the definitions of innovating businesses and innovation-active businesses that are used by the ABS. The 2005-06 BCS draws on this manual for the questions used in the form and in how outputs are presented.

IMPACT ON MEASURES OF INNOVATION ARISING FROM THE IMPLEMENTATION OF THE IBCS

31 In recent years, the ABS has conducted two Innovation Surveys, one for the calendar years 2001 to 2003 and another for the calendar years 2004 and 2005. There were some changes to the concepts measured between these two surveys. The collection of innovation statistics as part of the BCS has resulted in further changes to the range of innovation concepts being measured. Conceptually the scope of innovation measures have been expanded to better align to the framework provided in the 'Oslo Manual, Guidelines for Collecting and Interpreting Innovation Data' (Third Edition, 2005). In addition, the scope of innovation statistics has been expanded to include businesses with 0-4 persons employed and those classified to the Health and community services and Personal and other services industry divisions.

32 One of the major changes to the collection of innovation statistics made as part of BCS implementation were the questions included on the 2005-06 BCS used to produce the innovation activity measures which are significantly different to those of previous Innovation Surveys. The questions are more detailed in nature than the broader indicator questions used in previous innovation surveys. The 2005-06 BCS also extended innovation type to include marketing methods. Furthermore, indicators for status of activity that had either been abandoned or was still in development were collected separately and expanded to include type of innovation: The 2005 Innovation Survey collected a single indicator (i.e. whether any innovation had either been abandoned or was still in development).

33 Innovation statistics collected by the BCS are in respect of a single, financial year reference period. This differs from the 2003 and 2005 Innovation Surveys which were based on three year (i.e. 2001, 2002 and 2003)) and two year (i.e. 2004 and 2005) calendar years, respectively, for characteristic type data. It should be noted that migration of innovation items to the BCS vehicle will still enable estimates for some innovation items to be compiled for multiple reference years, e.g. two year periods. These data will be released following the 2006-07 BCS.

34 As indicated in paragraph 20 of these explanatory notes, the BCS had a much smaller overlap for businesses selected in both the 2005 Innovation Survey and 2005-06 BCS samples than what would have typically occurred between cycles if the Innovation survey had remained a separate survey. Quality assurance aimed at ensuring that any change in responses to innovation questions for businesses common to both the 2005 Innovation Survey and the 2005-06 BCS were valid. As with BUIT estimates, this change in sample has had an impact on the estimates.

35 Users should be aware that all of the changes noted above have had a significant impact on the comparability of innovation estimates included in this release and those included in Innovation in Australian Business (cat. no. 8158.0) and comparisons should not be made.

BUSINESS COUNTS IN THIS RELEASE AND COMPARABILITY WITH OTHERS PUBLISHED BY THE ABS

36 Estimates of the number of businesses operating in Australia can be derived from a number of sources within the ABS. They may relate to a particular point in time or may be presented as an average annual figure. However, these estimates will not always show the same results. Variations will occur because of differing data sources, differing scope and coverage definitions between surveys, as well as variations due to sampling and non-sampling error. More information about business counts can be found in the information paper A Statistical View of Counts of Businesses in Australia (cat. no. 8162.0).

37 The Business Characteristics Survey is not designed to provide high quality estimates of numbers of businesses for any of the output classifications (for example, state and territory or industry) and the number of businesses in this publication are only included to provide contextual information for the user. A more robust source of counts of Australian businesses is available from Counts of Australian Businesses, including Entries and Exits, Jun 2003 to Jun 2006 (cat. no. 8165.0).

OUTPUT CLASSIFICATIONS

38 For output purposes, businesses are classified to employment size ranges based on actual data reported in the survey. For other output groups (industry, capital city/other areas) the classification is drawn from information held about the business on the ABS Business Register.

UPCOMING RELATED RELEASES

39 Upcoming ABS data releases from the 2005-06 Business Characteristics Survey and a brief description of these are listed below:

40 Business Use of Information Technology, 2005-06 (cat. no. 8129.0) Release (similar to previous issues of 8129.0) is scheduled for 7 December 2007. This release will provide detail classified by employment size, industry and state or territory for most items. There will be some commentary associated with these data and the full range of BUIT items collected via the BCS will be included. There are also plans to progressively release data cubes which will be appended from this catalogue entry providing additional detail relating to business use of IT (with some cross classification).

41 Selected Characteristics of Australian Business, 2005-06 (cat. no. 8167.0) This is a new release and it is scheduled for January 2008. It will include summary characteristics data for a selection of topics including business cooperative arrangements, performance measures, barriers, government financial assistance, finance sought, markets and competition, innovation rates and IT usage. It is possible that there may be additional outputs relating to business characteristics (with some cross classification of characteristics variables) released as data cubes.

MOST RECENT RELATED RELEASES

42 The most recent issues of other ABS releases on the use and production of information and communication technologies (ICT) in Australia are listed below:

Business Use of Information Technology, Australia, 2004-05 (cat. no. 8129.0)
Household Use of Information Technology, Australia, 2005-06 (cat. no. 8146.0)
Information and Communication Technology, Australia, 2004-2005 (cat.no. 8126.0)
Internet Activity, Australia, March 2007 (cat. no. 8153.0)
Use of Information Technology on Farms, Australia, 2004-05 (cat. no. 8150.0)

Innovation in Australian Business, 2005 (cat. no. 8158.0)
Patterns of Innovation in Australian Businesses, 2005 (cat. no. 8163.0)
Research and Experimental Development, Business, Australia, 2005-06 (cat. no. 8104.0)
Innovation in Australian Business, 2003, Expanded Confidentialised Unit Record File (cat. no. 8158.0.055.001)

Discussion Paper: The first iteration of the Business Longitudinal Database, 2004-05 (cat. no. 8164.0)
Innovation and Technology Update (Newsletter), June 2007 (cat. no. 8101.0)

DATA AVAILABLE ON REQUEST

46 As well as the statistics included in this publication, the ABS may have relevant data available on request. The availability of more detailed data are subject to confidentiality and quality checks. Inquiries should be made to the National Information and Referral Service on 1300 135 070.

ROUNDING

47 Estimates of proportions shown in the tables are rounded to one tenth of a percentage point. Where figures have been rounded, discrepancies may occur between the sum of the component items and the total. In addition, percentages have been calculated using the unrounded figures.

COMMENTS

48 The ABS welcomes comments and suggestions from users regarding ICT and innovation statistics. These comments should be addressed to the Director, Innovation and Technology Business Statistics Centre, Australian Bureau of Statistics, GPO Box K881, Perth, WA, 6842, or email innovation.technology@abs.gov.au.