Firms must embrace innovation first
Australia needs to change its business culture. Science and research provide new opportunities and governments can facilitate greater activity, but innovation performance in Australia and elsewhere depends on actions in business.
Most innovation in every nation happens in firms. Australian businesses have a mixed record in innovation – the application of new ideas to advantage. We have some outstanding successes, for example, in parts of the mining, food and health industries, in some service sectors and amongst technology start-ups. However, we simply do not have enough of them to rebalance the economy in the face of the challenges that lie ahead for Australia. Too many boards of directors are sclerotic, compliance-orientated, risk-averse and unaware of the nature and importance of innovation. Too many firms, large and small, lack the management skills to use innovation to survive and thrive in a highly competitive and increasingly challenging world.
Amid the re-assessments taking place as a result of COVID-19, there is a priceless opportunity for Australian businesses to rethink how innovation is managed and, more fundamentally, reassess its nature and purpose. The global pandemic has shaken economies to their core and disturbed the social status quo. Factoring in ongoing political turmoil and the climate crisis, conditions are prime for a fundamental reset of innovation in business.
What do we know?
The findings of research into innovation during the past 70 years have been unambiguous. Innovative businesses live longer, grow more and generate larger profits. Innovation is risky and failures are inevitable, but failure to innovate is the greater risk.
Innovation is found across a wide range of activities: in new products and services, operations and production, organisational structures, paths to market and business models. Innovative firms adopt portfolio approaches, with the bulk of activity devoted to incremental changes, a proportion directed towards more substantial initiatives, and a small element designed to explore future options. Even the most innovative firms do not innovate by themselves: collaboration is crucial – with suppliers, customers, other firms and research institutions. Successful firms have effective processes in place to manage innovation, including in R&D and new product and service development, linking them with business objectives. Innovation strategies are core elements in the master plans of successful firms.
The best-run innovative firms have supportive governance structures, typically involving board-level responsibility for innovation, regular reporting on performance and clear and consistent articulation by leaders on the importance of investment in innovation. Such firms percolate the understanding that innovation is everyone’s responsibility, encourage employees to get excited about new ideas, and circumvent obstacles to change, often found in the permafrost of middle-management.
What is new?
Firms are having to navigate the turbulence created by the pandemic, threats to global trade and institutions, political and social polarisation, and disruptive technological change. They are adjusting to progressive movements such as Me Too and Black Lives Matter, and to a majority-Millennial workforce with evolved expectations of the working life. In this fluid environment, firms have the opportunity to rethink the very nature of business.
Pre-COVID-19, moves were afoot to rethink the purpose of business amid growing evidence that addressing societal issues and stakeholders’ priorities helps produce long-term value. A new approach to innovation has to be part of this reformation. Groups such as the US Business Roundtable of leading CEOs have questioned the singular pursuit of shareholder value, as opposed to creating value for stakeholders including employees, customers, suppliers and the broader community. The World Economic Forum’s "Great Reset" is marshalling support for a fundamental reset of the foundations of the economic and social system for a more equitable, sustainable and resilient future. The Great Reset provides a framework for the rethinking and reshaping of business purpose and behaviour. Australian businesses need to lead and manage innovation in this new context.
What is to be done?
Australian firms have to rethink and reset their innovation strategies, processes and practices in the light of new circumstances. This would involve deliberation on what has worked in the past and what might work better in an uncertain future. It requires the search for new opportunities and the astute application of new approaches, including novel governance arrangements, different organisational structures and the introduction of more appropriate metrics of performance.
Universities have a role to play in creating new options for the future, though business schools would need to undergo deep-seated change if they’re to contribute significantly. Viewed by vice-chancellors primarily as ATMs full of student fees, and with many staff wedded to producing meaningless academic articles, these schools need to prioritise collaborative research with firms, helping to deliver insights into the new environment. Training imperatives need to shift towards fostering skills in innovation and entrepreneurship. Firms, in turn, need to commit to supporting and working with externally-orientated and business-savvy academics.
Most fundamentally, and in line with thought leaders such as the World Economic Forum, businesses need to be more open and engaging with their stakeholders. Rather than being hailed as a positive, innovation is often associated with job losses, insecurity and increased workloads. The language of innovation – change, flexibility, agility, adaptability – needs to be applied beyond the confines of business efficiency to articulate the very purpose of business. Firms need to emphasise innovation’s value in improving quality of life and creating meaningful work, as well as reducing social inequality and cultivating environmental sustainability.
We need more and better information on the working conditions of those making, delivering and warehousing goods, and on the environmental cost of their manufacture and transportation. There needs to be an explosion in the crowdsourcing and crowdfunding of innovations and in the testing and prototyping of new ideas in hackathons, accelerators and incubators.
Greater diversity in design teams is required. What else? We need new educational and training programs, from those that encourage more females and minorities into careers in technology and innovation, to those that stimulate solutions across social and environmental causes. A greater diversity of voices has to be heard, not only on what innovations are needed but on how they are to be created. Innovation thrives in workplaces that embrace inclusion, playfulness, happiness and fulfilment.
There is no future in doing business in the same old ways. There is a different future awaiting, potentially a better one for all. By finetuning their innovation strategies, businesses can help make this one possible future a reality.
Mark Dodgson AO is professor of Innovation Studies at the University of Queensland Business School, and visiting professor at Imperial College London. He has written or edited 18 books on innovation, and over 100 articles and book chapters, and has researched and taught innovation in more than 60 countries.
This article is taken from the recently published digital book
Australia's Nobel Laureates Vol III State of our Innovation Nation: 2021 and Beyond
