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Weekly Updates2.1 Are our firms up to the challenge?
Panel discussion
The objective of this panel discussion was to home in on the leadership challenges and priorities for business.
Are Australian firms too comfortable, and focussed on easy domestic markets? Is there a sense that firms need to constantly innovate to remain competitive? Does Australia have enough world-class firms? Where do we find stand-out business leaders who promote competitiveness through innovation?
Narelle Kennedy provided her perspective from engaging with and challenging firms to thought leadership; Leslie Butterfield gave a perspective on the innovation leadership challenges as an entrepreneurial and visionary CEO at the frontline; and Alan Kohler gave a perspective from the helicopter view of a media commentator on business.
2.1.1
Narelle Kennedy, Australian Business Foundation
The Australian Business Foundation, about to reach its tenth year of operation as an independent research centre founded and funded by business, probes beyond the obvious with evidence-based research specialising in business innovation, new business models and opportunities in a knowledge-based economy. The Foundation's research aims to uncover and understand business realities and to pick up earlier the 'soft signals' of the issues likely to have most impact on the long lasting future competitiveness and capabilities of Australian enterprises.
Based on intelligence from the Australian Business Foundation's own and related research, I offer the following responses to the question of whether Australian firms are up to the innovation challenge.
1. There are unrecognised, hidden forms of innovation and patterns of competitive behaviour by Australian businesses that excessively narrow definitions of innovation (as just radical discovery, invention or technological breakthrough) simply fail to detect or to value.
Sadly, this narrow equation of innovation with research, science and technology is commonplace and persistent.
The alternative wider angle on innovation has at its core the concept of the smart application of knowledge that transforms businesses.
Knowledge is not just from formal R&D, but from learning by doing, learning by using technology and equipment and learning by interacting with others.
Professor Keith Smith, writing in May 2006 for the Australian Business Foundation on Innovation and the Knowledge Economy in Australia warns us not to limit our understanding of economically useful knowledge to R&D outputs, to linear models of commercialisation or to frontier technologies.
Professor Smith puts the case that low and medium technology industries, many in mature and traditional sectors like manufacturing, are in fact, knowledge-intensive, innovative and growing steadily. For example, food processing, metal products, wood and timber products, chemicals, printing and publishing, transport, mechanical engineering, mining, hospitality industry, health, financial services and the like.
These unsung innovative industries are low on research, but high on knowledge. Their knowledge takes the form of market research, design skills, customer relationships, engineering development, in-house training and operational skills from new capital goods. It can involve the re-use of knowledge; from purchasing licences to use the IP created by others. Their knowledge also comes indirectly, from their associations with universities, researchers, industry and professional organisations, standards bodies, consulting engineers and the like.
The knowledge behind the innovation in so-called low-tech, low research and development industries is not visible in current innovation indicators.
Professor Alan Hughes of the University of Cambridge makes a similar case where he cites from his research of the USA and UK with colleagues at MIT that innovation and productivity growth comes from unexpected quarters. High technology producing sectors are less important than high technology using sectors. New business models in retailing, wholesaling and security and commodity brokering are the sectors leading US productivity growth--not the usual suspects.
Customers, suppliers, competitors and internal knowledge are the dominant sources of innovation in firms, not universities and research institutes. (The latter are important, but not for their stock of codified knowledge.)
The active ingredient of innovation is business transformation. This means not just new products and technologies, but novel processes, work and organisational practices and market and business relationships.
Fundamental new patterns of competitive business activity are emerging in Australian firms. These firms are achieving success by redefining their business offerings and operations and by building new capabilities that allow them to better solve customer problems and respond to opportunities as market needs evolve and change.
The Australian Business Foundation's research identifies this new competitive behaviour being revealed in practices as follows:
* new hybrid business offerings that blend products and services for customer problem solving;
* proficiency as technology integrators (rather than as just either technology producers or users) by generating and acquiring technologies and combining them in imaginative ways to develop value-added products and services that better meet customer needs; and
* competing by superior knowledge management or by sustained incremental innovation, which results in cumulative distinctive capabilities in the enterprise.
For case examples of these, I refer you to the publication just launched by the Australian Business Foundation and Deloitte called The Reality of Innovation Unzipped--see Brevini Australia for product/services bundling, CEA Technologies for technology integration and both One World for Children and GPC Electronics as different examples of incremental innovation and innovation by knowledge management.
These are all illustrations of the often unrecognised reality of business innovation. Innovation is generally viewed too narrowly, being equated with expenditure on research and development or the production of new scientific discoveries or technology breakthroughs. This blinkered view of innovation results in opportunities that are lost or insufficiently exploited.
The current predominance of the 'science, technology and research push' approach to innovation should be replaced by one that supports business engagement with customers and markets, i.e., a focus on the 'demand pull' dimension of innovation.
The greatest value from innovation comes not from the production of a new technology or the next generation product, but from imaginative and novel ways of solving customer problems or meeting market needs, and continually being able to do this as conditions and circumstances change. Integral to this are the business systems and management competencies to replicate and scale up such business offerings including for the global market.
This characterisation of innovation needs to be re-interpreted back to companies themselves, even those who are in fact innovating--but far too often as 'accidental' innovators who undervalue and understate their own achievements. This brings me to a further insight about whether our firms are up to the challenge.
2. Don't be simplistic in analysing the challenge facing Australian business. Too often we lay the blame on the risk aversion or lack of competency of Australian managers, or the complacency of serving only domestic markets or trying to compete by low cost and high volume, or the absence of an entrepreneurial culture in Australia.
Be in no doubt that there are structural reasons and sound rational grounds for Australia's pattern of innovation to date. While there may be examples of myopia, cowardice or incompetence, there are more complex underlying explanations that need to be acknowledged. For example:
* The importance of SME's--limited in their ability to absorb and use knowledge simply by their size and resources constraints and by their ability to sustain a sufficiently large and diverse portfolio of activities to manage risk or failure.
* High dependency and concentration of multinational enterprises--Australia is one of the most dependent of OCED countries on the operations of firms headquartered overseas (Thorburn et al.). Limited benefits to Australia of their R&D spending, focusing on the interests of the global parent and not Australia with little technology transfer or global supplier linkages.
* Limited ability to hold critical mass in key sectors--even where Australia has created innovative products and services and secured entry into global markets.
* Australia suffers from an industry structure in many sectors populated by one or two large players and a vast bulk of SMEs, but with few home-grown world-class major 'platform' companies, like Nokia in Finland, Ericsson in Sweden or Philips in Holland. These platform firms have the capability of capturing and holding the economic 'value-add' from their innovative technologies and global brands and bringing a stream of both novel products and entirely new businesses to the market. The existence and success of such enterprises ensures the continued viability and contribution of those industry sectors to their national economies. Australia can build successful companies that operate globally but, in many instances, the sector gradually falls to foreign ownership, with the bulk of the value created flowing to overseas equity holders, e.g. mining, food processing, wine.
* The effect of rapidly industrialising and high growth countries like China, India, Russia and Brazil on Australia's trade relationships and share of global exports. Adds to the imperative for a place in distributed global production and supply chains, and to the value of Robert Reich's virtual enterprises in the form of 'global webs of enterprise'.
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