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This report aims to assess the extent to which skills shortages are impacting on Australian businesses, as well as the strategies firms are using to increase the skills of current employees. The survey also takes an in-depth look at the links between the skills of a company and their focus on innovation to drive business success. This study identifies that skill shortages are restricting the ability of Australian businesses to be innovative. Of the 68% of businesses citing skill shortages, almost two in every three businesses said it was restricting their ability to be innovative. The skill sets required for innovation and industry competitiveness incorporate: skills enabling all individuals to be adaptive and problem-solve ('soft' skills); technical skills; and management skills. The study found that problem-solving is rated as the most important 'soft' skill (31.7%), followed by communication (25.8%), adapting to change (23.5%), and teamwork (18.9%). For the majority of firms (nearly two-thirds), upskilling is being used as the main driver to increase innovation. Expenditure on upskilling (excluding training of new employees) is estimated to increase from 0.46% of turnover in 2007 to 0.54% in 2008. While formal in-house training and mentoring are regarded as the most highly valuable method of upskilling, informal training was the most common method of training. This finding suggests that costs, as well as access to and availability of formal in-house training, may be factors restricting current upskilling efforts. Overall, the study identifies that skills are on the radar of Australian business as a key driver of competitiveness and innovation.