The forgotten lever in Australia’s competitiveness agenda

Real innovation won't happen unless business leaders are willing to tackle Australia's risk-averse corporate culture.


Corporate Australia has a patchy record on innovation. Some companies excel at innovation while others are bogged down by complacency. Recently, both government and business have claimed they are more serious than ever about improving our economy-wide international competitiveness. Innovation has become a grave orthodoxy, joylessly worshipped by business bureaucrats and unworldly policy wonks alike.
 

But with the federal government’s MYEFO this month came news that seven of the Innovation Australia initiatives to be cut for budget savings have already been scrapped.

It is an interesting twist, considering that on October 14 the government announced its Industry Innovation and Competitiveness Agenda, a suite of policies intended to direct public funds and the economy’s efforts toward boosting growth in five lucky industries.

These industries are to have innovation force-fed to them because their own appetite has been too weak. But without addressing the underlying reasons for Australia’s weak appetite for innovation, the government’s competitiveness agenda will languish, like so many industry policies before it.

In a speech earlier this year, the deputy governor of the Reserve Bank, Philip Lowe, warned that Australia’s culture of risk aversion not only stifles innovation, it threatens our future living standards. Lowe suggested that the government incentivise innovation, but it is doubtful whether government actually has the necessary policy levers to change corporate culture. 

The power to change corporate culture is in the hands of our business leaders -- and their hands alone.

A 2013 survey of more than 2000 managers by the University of Melbourne and the Australian Institute of Management confirmed that a risk-averse company culture was one of the biggest obstacles to innovation in Australian organisations. The study identified the attributes of those firms that considered innovation leaders as opposed to innovation laggers. Their leaders had a more enlightened approach to taking calculated risks and a systematic strategy for managing them. Whereas the innovation laggards might well like the idea of innovating but rarely had a system embedded in the organisation for trying out ideas and managing their subsequent risks.

While firms may pay lip service to being innovative and are eager for expansion into international markets, many Australian companies are hamstrung by the systematic avoidance of uncertainty, undermining their best intentions to innovate. For them, innovation seems all too hard.

Many of Australia’s boardrooms have become complacent, overseeing organisations locked in by inertia and inflexibility while advances in global markets pass them by. In recent decades we’ve witnessed a flattening of the marketplace and those factors that had previously created competitive advantage -- scale and global footprint, efficient supply chains, manufacturing quality, specialist expertise -- have been swept aside by technological disruption and heightened global competition.

While business leaders understand the game has changed, many are hard pressed to know what to do about it. Some cast around in desperation for innovation toolkits to keep ahead of the curve, or to reinvent themselves entirely. And this is where corporate Australia’s risk aversion manifests itself most dramatically: at the point where companies must negotiate those disruptive forces and re-formulate their business models. 

The challenge for most companies is not coming up with new ideas for value propositions, but the lack of willingness of the organisation to change itself into something other than it is today. The weight of history, combined with complacency or risk aversion, can be a deadly millstone around the neck of an organisation that is unwilling to move beyond what it knows and is good at today.

If the leadership team isn’t able to conceive of the organisation fundamentally changing what it is, no amount of innovative ideas about new business models
will rescue it.

The cultural shift required by Australian management teams is significant. Those managers and investors who thrive on certainty and action will have to get used to ambiguity, they will need to embrace concepts like design thinking and visualisation, rather than analysis and spreadsheets. They will need to rethink core management processes, in particular, the business case process.

When companies need to come up with a significant investment thesis, they typically go through a process of preparing a business plan that forecasts an expected level of return over a period of time. But really innovative ideas are too uncertain to make it out the other end of a process like this, especially now when some of the toughest competition in the market is coming from companies that haven’t figured out how to monetise their model. 

There is a way to explore future business models without killing those valuable unquantifiable ideas -- that is by using design to de-risk innovation. US management thinker Jim Collins referred to this approach as ‘shooting bullets rather than cannon balls’, whereby an organisation can take small bets on a number of business model prototypes and learn quickly which will thrive or fail before putting the full weight of the organisation behind a big change. This way an organisation can be ready with mature ideas and a variety of options for new revenue streams before it needs to shoot that cannon ball.

This approach, which sees companies developing a portfolio of business model innovations, seems pretty simple. But without courageous leaders willing to operate in ambiguity rather than complacent business people reliant on certainty, real innovation simply won’t happen, no matter what incentives or policies the government puts in place. You can’t help a patient with no will to live.

Tim Fife is director of capabilities at Second Road, a management consultancy based in Sydney. www.secondroad.com.au

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