AGSM 2009 - Driving Smart Ideas

AGSM senior lecturer Dr Geoff Waring and adjunct lecturer Christopher Witt argue that innovation is often misunderstood. It is time, they say, for Australians to recognise the importance of ideas generation at all levels of society and business. Innovation is not just about using great ideas to create great wealth – even if we marvel at the ingenuity of a product such as the Australian-developed “black box” flight recorder, an entrepreneur such as Microsoft’s Bill Gates, or a brilliant brand such as Google.

You have to be innovative to grow fast.

Illustration: Gregory Baldwin

“In my experience there is a romanticised view of innovation,” argues Mr Witt, a partner in The Kalori Group, a boutique investment firm. “Let’s remember there is also innovation at every level, every day, seen and unseen.” Day-to-day examples abound: how schools respond to technology, how medical care adapts to changes in information flows, how recycling efforts protect the environment. Such initiatives are not necessarily money driven, but they do have a significant, positive impact on society.

Mr Witt says: “I put the challenge to you – there’s a lot more innovation being done day to day at the level of the individual, and they are applying their skills in all ranks and walks of life.”

Hoist with one’s own petard
Australians pride themselves on being an inventive lot. The Hills Hoist, bionic ears, plastic banknotes, penicillin. However, a Business Council of Australia (BCA) report, titled New Concepts in Innovation, questions our approach to innovation.

We have fallen for the belief, it claims, that innovation is predominantly about the development of gadgets through research and development spending. Yet in a knowledge-based, service-oriented economy, innovation is dependent on the quality of our human capital.

Superior corporate performance, the BCA says, is often as much a product of "organisational innovation” as technology. In the age of the Internet and global interconnectivity, technology merely becomes a means to an end. The BCA calls for a new understanding of business innovation – in government, economic policy, business strategy, workplaces and the community.

Its checklist for reform recommends greater commitment to developing human capital; more awareness of the impact on innovation of tax, regulatory and workplace relations policy settings; creation of superior capabilities through training; and educating ourselves and our organisations about the importance of innovation.

Those in protected oligopoly markets will innovate less than those pushed by the rivalry of international competition.

There is some good news. Dr Waring says a large proportion of start-up businesses in Australia compared with other countries demonstrates our natural entrepreneurial flair. The less-heartening reality is that these start-up businesses often do not reach their full potential.

“Where we’re weaker is the development of these small businesses into big business …the bottleneck is there,” he explains. Proof of this claim is a think-tank’s observation that Australia has a historically poor record of commercialising public-sector research. An Australian Business Foundation study suggests the nation’s innovation drive will stall unless we improve the links between public and private sector research and development.

The report compares the national innovation systems of Finland, Sweden and Australia and identifies Australia’s “commercialisation gap’’ as a serious issue that requires fixing.

It concludes that many small businesses – the engine room of the Australian economy – shun truly innovative ideas for reasons ranging from the inability to diversify risk to a fear of high capital costs.

Dr Waring believes part of the problem is an old chestnut – the tyranny of distance. He draws confidence, however, from a shrinking global business environment.

“And as the private equity market becomes more developed and sophisticated here, capital will flow to the businesses that can take advantage of lower transport and information and communication costs, and we will catch up.

Adjunct lecturer Christopher Witt (left) and Dr Geoff Waring (right) argue that Australians should recognise the importance of ideas generation at all levels of society and business.

Downturns ramp up innovation
Ironically, the strong performance of the Australian economy over the past decade may have been an inhibitor of innovation. Mr Witt claims it often takes an economic downturn for innovation to flourish.

“Until [people and companies] are under threat, only then do they turn externally and start genuinely looking for new opportunities … So it seems that when times are good, innovation actually slows down within larger businesses. And when times are poor, it speeds up.

"One of the main findings of the BCA report is that customers are generating the need for business innovation.

"It says education and training systems should therefore focus not only on the development of technical and applied capabilities but also workplace skills such as communication, teamwork, problem solving, creativity, entrepreneurship and leadership.

Dr Waring contends that many large Australian workplaces are entwined in a culture of anti-innovation. “They are driven by their shareholders to grow rapidly, so they wish their staff could be more entrepreneurial, but they’re very much trapped by the incentives of a large organisation and the need to be equitable.”

Dr Waring is buoyed at the shift away from people only wanting to work in high-paying consulting firms or investment banks.

“After a few years of doing PowerPoint presentations to big corporates and not seeing their ideas implemented, they get more than a bit unfulfilled. Now they’re coming back after a couple of years and saying, ‘I want to join a small company and be rewarded on my merits’.”

Superior corporate performance is often as much a product of organisational innovation as technology.

No time to rest
According to Mr Witt, good and enduring innovations (think life-saving medical advances) are too often linked with those that bring riches through the exploitation of assets (think airports or toll roads).

He is sure, however, that a plethora of new tools – more university courses, better research facilities and the Internet, for starters – will encourage innovation.

“For example, the Internet is probably the greatest single device that I’ve ever known in my career for enabling and bringing together disparate elements of any solution.”

Looking to the future, Mr Witt argues that Australian companies must not ignore China, which is likely to be the global economic powerhouse of the next 100 years. And while China cannot get enough of our coal and gas now, they warn that Australia has to become more than just a coal mine of the world. Other innovative business ideas must be developed for export to China and beyond. In that sense, Dr Waring says global competition is forcing a change of mindset in Australia – a shift he welcomes.

“The evidence is that those in protected oligopoly markets will innovate less than those pushed by the rivalry of international competition.” Dr Waring urges ambitious Australian companies to be bold. “You have to be innovative to grow fast.”