03.06.2019 10 MIN

Why Innovation Matters


Innovation is the key to remaining relevant amidst a sea of digital disruptors.

ADAPT research shows that many Australian CIOs are not taking innovation as seriously as they should. A follower mindset has crept into the historically innovative Australian business psyche.

Most organisations – and Australia as a whole – would benefit from more innovation, more R&D and a more positive attitude towards creating our future. Many are reluctant to innovate because they find it difficult to align risk investments with potential business and revenue returns.

Nimble digital start-ups are disrupting traditional business models. Innovation demands new sales channels and new platforms – digital, mobile, social, omnichannel. Australian organisations need to look at the successes of local disruptors and emulate approaches in thinking, design and culture.

 

How Innovative is Australia?

In his keynote presentation at AWS Summit Executive Forum in April, Paul Bassat, Co-Founder of Australian venture capital group Square Peg, outlined what he believes Australia needs to do to innovate better. He used two key sets of numbers to show how Australian companies are failing to invest in the future.

According to the OECD business expenditure on research and development (BERD) report, Australia spends just 1% of its GDP on research and development, a figure which has declined from a peak of 1.4% in 2008. Australia spends only one third as much of its GDP on R&D as the top five countries in the OECD.

And the 2018 Industrial R&D Investment Scoreboard, published by the European Commission, showed only 14 Australian companies in the top 2,500 global R&D investors. Highest is Telstra in 199th spot. The combined R&D expenditure of these 14 Australian companies is less than one-quarter of that of the world’s top R&D investor, Samsung or number two, Amazon. Samsung spends 7.2% of its revenues on R&D and Amazon 14.5%. Telstra spends 4.1%. Australia’s entire R&D expenditure is less than that of Amazon.

“Technology problems were traditionally solved on a national basis,” said Bassat. “Iconic brands become dominant locally, but today’s software-driven businesses are solving problems on a global scale.

“Australian companies are not well placed in this era of global technology disruption. We have a low level of R&D spend. Our local leaders need to operate in the world of global winners, but too many focus on short-term profits rather than long term growth.”

He pointed to some “amazing exceptions” such as Atlassian, Cochlear and ResMed and a string of other successful Australian technology companies. “We need more local champions. We have the raw ingredients and talent, the capital and regulatory environment.”

So what’s missing?

 

The Role of the Australian CIO

CIOs should be one of the key drivers of innovation within the organisation. They often hold the key to improving competitive performance through IT.

In the research survey for ADAPT’s CIO Edge event in February 2019, we asked attendees how innovative their organisations are. One quarter says they innovate from within, another quarter says they are early adopters of new technologies. But half say they wait for technologies to be proven or that they outsource their innovation.

In a separate question, we ask what proportion of the IT budget is spent on the three separate activities of Run the business, Grow the business and Transform the business. Most of the budget, across the board, is spent on back-office, running the business activities (see chart).

For organisations which innovate from within, the proportion of the IT budget spent running the business is significantly lower, while the proportion spent transforming the business is significantly higher. The most innovative spend 26% on transformation projects, compared to just 14% for the laggards.

Business transformation is one of the key goals for most IT organisations. The more that can be spent on it, the more successful and more competitive the organisation becomes. The data clearly shows that the more innovative the organisation, the higher the proportion of the IT budget that can be aligned to key business and customer priorities.

ADAPT contends that by investing in transformational and innovative technologies and approaches, risk can actually be reduced and engagement increased. A ‘trial fast, fail small, learn quickly’ culture will drive a wider and more successful innovation mindset across the whole organisation. New technologies can help with building and testing inexpensive prototypes, while any failures cause minimal disruption and provide lessons for future success.

 

What You Need to Do

Innovate to divert expenditure from back-office IT to new front-office initiatives. That will help you drive key business outcomes and shift the perception of IT from inhibitor to enabler. Some practical steps you can take:

  • Innovation is a mindset. Understand what it means and practice it. Learn from today’s digital disruptors to understand how you too can be disruptive.
  • Foster and reward a culture of innovation in your employees. Identify key staff members who can help you drive innovation to support your business growth strategy.
  • Stay on top of trends in the market – emerging technologies, new business processes, even political developments and current events. Formalise a way to collect new ideas from your employees and your customers.
  • Take calculated risks, so long as they are not career-limiting. Brainstorm and workshop ideas with peers and colleagues, within and outside the organisation.
  • Network more and look for clever ideas. Embrace innovations in different organisations or industries that you can leverage and build on.
  • With many CEOs recognising that innovative IT can be the enabler of differentiated business outcomes and efficiencies, a CIO’s ability to effectively demonstrate innovation is more important than ever.
  • Work only with those vendors who can prove they have the products and services that enable you to innovate.

 

The Bottom Line

Innovative ideas can come from anywhere. Rather than treat them as a threat, you should leverage new ideas to learn and increase competitiveness. Innovation is a commercial imperative. We operate in a digital world, which means we are all digital companies and need to think that way.

CIOs risk failure without forward thinking IT strategies and execution. The key dynamic in the information era is disruption. Indeed, innovation is often defined as ‘creative disruption’. Disruption affects two groups – the disruptor and the disrupted. It is your attitude to innovation and your ability to execute the strategies it suggests that will determine which of these two groups you and your organisation belong to.

At the AWS Summit, Glenn Gore, Worldwide Lead Solutions Architect for Amazon Web Services, summed it up when he said:

I spend a lot of time thinking about tomorrow, and what technology can do today to create change for tomorrow.”

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