While the concept of innovation is nothing new (pardon the pun), the rapidly-increasing rate of technological progress as well as the recent political narrative has led to ‘innovation’ being a key fixture on Board meeting agendas around the country.
Last year, Australian businesses spent $30bn on innovation- which sounds like a substantial sum, but only places us 19th on the innovation list (comparative to market size), and back in 76th on innovation efficiency.
More concerning is a recent CBA report, which revealed that while 82% of Australian businesses believe they are innovating, only 44% are actually undertaking activities that the Oslo methodology would classify as true innovation.
So, what are the other businesses doing? Well, no doubt they are pursuing valuable business opportunities and generating revenues – but, critically, they are making business improvements as opposed to innovating. Against this backdrop, it’s also critical that businesses and Board members have an opportunity mindset to create momentum and unlock their innovation.
Cutting through the innovation noise
One possible explanation for the shortcomings of Australian businesses striving for innovation is that the concept itself is not well understood or articulated. Activities such as IT upgrades, repackaged product offerings, staff hires, and website facelifts are routine business improvements that are often mislabelled or viewed as innovation.
While not all-encompassing, a useful working definition of innovation is “the creation or identification of a new, viable business offering” – ‘new’ in the sense that the relevant industry has not previously considered or delivered the offering, and ‘viable’ in that it creates value for customers, stakeholders or the business itself and preferably goes beyond products to platforms, business models and customer experiences. Since innovation extends beyond pure technology advancement, it is also worthwhile to note that an ‘invention’ (in the legal sense) is not essential for innovation – but in many instances will be integral.
With conservative estimates suggesting that intangible assets, including intellectual property, represent 80% of the value of a typical business – innovation, as a primary generator of those assets, can no longer be seen as optional.
Understanding why many Australian companies are not innovating requires an appreciation of how innovation risk is perceived at a Board level.
All too often, and much to the horror of Boards, we hear the phrase “fail fast, fail cheap”, but a logical addition to this popular start-up catch phrase is “fail smart”. In other words, if innovation failure does occur, let it not be because the proper diligence processes were overlooked from the outset.
Innovation should be viewed with an opportunity mindset and as a strategic opportunity to gain (or maintain) a competitive advantage in the market – so a starting point should always be a deep understanding of your market – what your customers want, how you will service them better than your competitors, and how you will build greater value in your brand as your single biggest asset.
When imagining what an innovation playbook may look like for an organisation, many Directors immediately recall statistics of start-up failures and arrive at a relatively conservative model for innovation that often tends towards improvement. While the agility and disruptiveness of start-ups should be emulated by corporates, the approach to innovation should be far more strategic – adopting a mixture of sustained and disruptive innovation that is underpinned by solid business intelligence.
Like any other corporate strategy, innovation is one that inherently involves risks – some that can be identified in advance and managed, and some that cannot. What allows these risks to be efficiently mitigated, and palatable to the Board, is an innovation decision-making process that is enabled through a robust intellectual property strategy. However, even with this measured approach, management must enable innovation by clearly articulating the organisation’s risk appetite, and by making the necessary funds available – funds that may traditionally be viewed as risk capital.
Four innovation dimensions every Board should know
A significant challenge faced by many organisations is that they lack the internal capability to navigate the risks associated with innovation opportunities as they arise – leaving them unable to impartially validate these opportunities.
At Deloitte, our Virtual Intellectual Property Office (VIPOTM) looks at innovation strategically through the following four dimensions:
- Alignment: this involves aligning the business strategy, and key commercial drivers of the business, with a supporting intellectual property strategy.
- Identification: implementing the intellectual property strategy to identify innovation opportunities – both from within the organisation and from the broader innovation ecosystem.
- Validation: utilising IP business intelligence for the assessment and progression of innovation opportunities – including a holistic consideration of associated risks, commercialisation opportunities, and potential competitive advantage.
- Commercialisation: identifying opportunities to leverage IP associated with innovation commitments – based on both financial and non-financial factors.
By incorporating these aspects into our VIPOTM service and taking a prospective rather than a retrospective approach, organisations can develop and implement a strategic innovation framework aimed at delivering greater returns on innovation activities.
Are you ready to innovate?
 CommBank Business Insights Report, “Unlocking Everyday Innovation” National Report FY17 Accessed at: https://www.commbank.com.au/content/dam/commbank/assets/business/can/move-forward/commbank-business-insights-report-unlocking-everyday-innovation.pdf
 Methodology defined in the Oslo Manual published by the OECD. Accessed at: http://www.oecd.org/sti/inno/oslomanualguidelinesforcollectingandinterpretinginnovationdata3rdedition.htm
 Deloitte’s Board Effectiveness Report, September 2016: Courage in the boardroom: winning in uncertain times. Accessed at: https://www2.deloitte.com/au/en/pages/audit/articles/board-effectiveness-september-2016.html