The Problem With Australian Innovation Programs: and Lessons for Other Countries (Part 2 in series)

By: Anthony Ferrier

Over the past few months I have been spending time with a range of Australian companies, getting to better understand their business models and approaches to innovation.

While there is plenty of good news for Australian businesses and their innovation practices (see my previous article), there is a justified sense of concern around maintaining sustained, robust growth in the face of digital and exponential disruption.

A new Gartner report highlights challenges as the Australian economy prepares for digital transformation and radical disruption, with the following quote from author Jenny Beresford, “Like enterprises around the world, two-thirds of Australian organisations say they are ‘transforming’ in some way. Based on discussions with clients, however, we estimate that the number of organisations that are really transforming their business model — a necessary step in digital disruption — is closer to 10 per cent.”

As a counter to my previous article, I have listed some thoughts on what does not seem to be working within the Australian innovation marketplace. As always, this list (starts macro and gets more tactical) is based on personal observations and so let me know if you agree / disagree with any points?

Investors and Dividend Payments

One of the greatest strengths of the Australian economy is a mandatory (since 1992) retirement savings program, called Superannuation. This has created a vast pool of investment funds (4th largest globally valued at A$2.6 trillion / US$1.9 trillion), that has fueled the growth of the Australian business sector. However, a hallmark of this system is an expectation of sustained, large annual cash dividends by listed companies, which sucks cash away from innovative investment.

Further, under this system almost all wage earners are company shareholders (via managed funds). These often unsophisticated investors demand steady returns and share movement, which pressures companies to invest in incremental improvements rather than towards more risky, but potentially higher-reward, innovative opportunities.

Analysts / Media / Politics

Over the past 5-7 years there has been a substantial shift in how analysts in most global investment markets calculate valuations. Especially in the US, new economy companies are driving benchmark valuations, with an expectation of robust innovative pipelines and resulting growth, supported by cultures that embrace the challenge of developing new, disruptive ideas. Within this environment, established companies are often playing catch up and have no choice but to develop a valid innovation storyline, or their valuation suffers. While analysts play a role in this game, the media and politicians lavish attention on companies that talk and act around innovation, creating a self-fulfilling cycle.

However, it almost seems the opposite in Australia, where businesses that embrace a model for disruptive innovation can be pillared by analysts, politicians and the media. A recent example was the shift of AGL towards more sustainable energy sources, which saw a drop in share price (other factors were also at play), in-part driven by a regular stream of attack by several prominent talk radio hosts. Politicians then jumped into the fray, taking the opportunity to score points related to global warming. I’ve seen this situation repeated in a couple of different circumstances such as Qantas when they launched their discount airline Jetstar and more recently Suncorp. This underlying thinking is out of step with global trends and value expectations.

Fat and Happy

The reality is that the economy has been through a series of structural changes that have sustained economic growth over 27 years. This is an incredible achievement, but with the forces of disruptive innovation only just starting to play a role within the Australian economy, the sense of complacency amongst leadership is concerning.

Lack of Leadership Diversity

In any economy, diversity levels shrink as you head towards senior leadership levels. While this is frustrating, and is changing in some economies, it doesn’t seem to be changing within Australia. In fact, a recent report stated that leadership within Australian companies are stubbornly white, old and resistant to changing the status quo. Australian businesses are also behind global averages on the levels of women in corporate leadership positions, though that is slowly changing. We all talk about diversity of opinion being crucial to the success of innovative action, but that doesn’t seem to make its way to the top of Australian businesses.

Innovation Theatre

While some companies have built and maintain successful innovation efforts (focused on driving organizational impact and growth), too often I have seen what I would describe as Innovation 101. In these cases, there is plenty of talk about innovation, programs may be established, but little real impact is generated. Unfortunately, this seems to be a standard phase of innovation maturity, but it’s still frustrating to see these efforts given the global maturity of thinking around innovation at this point in time. BTW, a sure sign of this is the constant turnover of innovation leaders within Australian businesses.

Results Focused

I was recently talking to a senior innovation leader at a major financial institution, who told me that they were getting around to tracking hard dollar metrics as a result of their program, which had been in place for years! I’d hear similar stories from other leaders, which undermines the credibility of innovative actions by senior executives. Without hard impact being tracked, innovation programs won’t be in a position to drive fundamental change. It’s as simple as that.

Siloed Approach

In the past, innovation processes were positioned as some kind of dark arts, that only professionals can practice effectively. And sure, in certain situations, such as Design Thinking (see below) that can be true. However it seems that the innovation function in Australian businesses is often positioned as separate from the rest of the organization. This is the wrong approach, as employees from all levels and areas should be expected to develop new ideas, using resources that are made available to them. While this democratized approach has been taken up globally, it seems to be lagging in the Australian context.

Design Thinking

At almost every company I talk to there is a drive towards ‘Design Thinking’ type processes. While the US and European markets have tended to move away from this approach, using it in selected circumstances, in Australia it seems to be thrown at every problem that anyone can dream up. Don’t get me wrong, as a technique it can create some real value, but to be truly successful you need practitioners who truly understand the process, supported by leadership who will sustain investment through the inevitable failures. Further, given the level of investment and risk profile, it needs to be deployed in select circumstances. From what I see, few Australian companies are at this point of maturity and this approach is often misused, resulting in turnover of practitioners and regular changes in program direction.

I think that it’s important to recognize that it’s not all bad. Few companies that I have been talking to exhibit all of these traits, and the overall quality of innovation activity is impressive. Further, as referenced, I am still learning about the Australian market, and so perhaps some of my assumptions are off base? Let’s see where it goes in the years ahead, and let me know your thoughts on this and my previous list?

By Anthony Ferrier