Innovation could be Australia’s ultimate competitive weapon if our leaders get the settings right
By Professor Daniel Samson, Professor of Management (Operations Management), University of Melbourne
While government provides the national framework and some infrastructure and incentives for entrepreneurs and innovators, the bulk of ‘wealth creation through doing new things’ (not a bad practical definition of innovation) in Australia must be done by the profit-seeking private sector.
Research conducted at the University of Melbourne has found that innovative wealth creators do two kinds of things well:
1. They set up organisational conditions that will encourage innovation and make it thrive.
2. They are good at deciding which projects to take forward and progress.
The research, comprising a survey of 2000 managers and a large number of case studies of companies and entrepreneurs across Australia and beyond, revealed that successful, innovative companies have a clear set of innovation drivers in place at the organisational level. We found that these drivers tend to manifest very differently at the “big” end of town compared to pure start-ups.
We discovered that innovation is always driven by strong and energetic leaders who implement a focused strategy.
This rings true right from early stage, fast growing companies like online electronics retailer Kogan, through to more mature and larger organisations such as CSL, although these businesses differ greatly in the way they implement their strategies.
We also found that innovation strategy is strongly connected and extremely important to the overall business mission. For example, resources are allocated for innovation activities and trials, and innovation is treated as an investment just like any other, but with careful consideration of risk.
The boundaries of an organisation’s mainstream of business activities, and its innovation ‘new-stream’ are carefully organised to ensure the right innovation projects are chosen in the first place, and their chances of scale-up for commercial gains are maximised. The ‘new-stream’ is kept acutely aware of opportunities that might exist in the outside world for adapting, joint venturing, acquiring and spinning off innovations, which is often called ‘open innovation’.
Products, services and business models are becoming so complex these days that few firms can do it all alone, and the traditional approach of keeping things under a veil of secrecy are often suboptimal. Consider Apple, Google and Samsung. They don’t just get lucky more often than other firms, they systematically invest in a focused way, manage a portfolio of ‘new-stream’ projects, strategically measure their innovation performance, recognise and reward innovation contributions, and derive great benefits and superior returns on overall investment (on their combined mainstream and new-stream assets) as a result.
Once the conditions for innovation are set and operating, an organisation is said to have a ‘systematic innovation capability’. This enables investing wisely in choosing the right innovation initiatives and implementing them hard, individually and collectively.
Our research has shown that success in innovation projects comes from rigorously testing and screening (“stage-gating”) ideas from inception to mainstreaming.
The key questions to ask when looking to implement a new product are:
1. Function: does the product create superior value to existing offerings?
2. Marketing: will it sell and is there a sound channel to the customer?
3. Scale-up: is the design sufficiently robust for mass production?
4. Leadership: are the human resources in place, capable of driving the development and launch?
5. Intellectual property: is control or ownership of all aspects of the intellectual property in place?
6. Sustainable development: are the environmental and social impacts acceptable or better?
7. Strategic alignment: does this initiative fit with the existing mainstream?
8. Financial viability: does the initiative provide a risk-adjusted return on investment?
For companies that do the two critical activity streams well (set up their systematic innovation capability and choose and manage their portfolio of innovation initiatives) there are huge gains to be made.
Highly innovative organisations solidly outperform lowly innovative organisations, in terms of growth rates and profitability.
Finally, let’s consider the national economic picture over the next decade. The bad news is that Australia has a high cost structure. Hence, we are losing some international battles for ‘footloose’ investments such as the automotive manufacturing and assembly sector. The good news is that innovation has no ceiling and Australia is not in any way at a competitive disadvantage in this innovation race.
Innovation can be ‘the ultimate competitive weapon’ for Australia and if our government gets its settings right, and more importantly, our organisations realise the opportunity and invest effectively, then one day we will have a Samsung, Apple, Google, Tesla, or 3M with Australia as its home.
Our economy needs a good few big businesses that thrive from innovation and many smaller versions of them as we lose cost sensitive operations, businesses and industries. This vision for a successful and prosperous Australia, based on innovation, is clearly possible, and anything else is unthinkable in the long term unless we accept that future generations will live at a lower standard of living than at present. Innovation adds jobs and dollars to the economy which has a high multiplier effect.
Professor Danny Samson and Marianne Gloat are the authors of Innovation and Entrepreneurship: Creating new value, available through Oxford University Press.