Managing innovation: what works and why it's especially important in Australia

Wednesday, November 25, 2015 - 17:08

Guest post by Professor Danny Samson

This article originally appeared in AIM: for leadership and management excellence, AIM's bimonthly magazine exclusively for Members.

Innovation can be defined as the creation of value through implementing new or enhanced products, services, processes, technologies or organisational methods and business models.

Innovation can be radical or incremental and is occurring in all corners of our economy, creating a great deal of wealth and employment, while improving the goods and services off ered to consumers. This occurs all the way from the traditional big end of town, in companies such as Toyota and Telstra, through to the ‘new economy’ with a raft of businesses such as Kogan, Carsales, Airbnb and Uber that are based on entrepreneurial ideas and opportunistic new business models.

Innovation is especially important in Australia, which operates in a high-cost environment. Organisations in lower-cost economies to our north (e.g. China and India) have substantially reduced any advantage in the quality of goods and services that we might have had last century.

The really good news on innovation is twofold: first, we have no disadvantage with innovation in the way we have problems with cost competitiveness; second, there is no limit on innovation, for example in biotechnology, new business models or new internet-based services. We have only scratched the surface of what is possible and valuable.

At the enterprise level our research, based on detailed case studies and comprehensive surveys (including one we conducted with AIM), has indicated that some key ingredients of success must be strongly in place for innovation to be a systematic part of an organisation’s makeup. A systematic approach is required to achieve success: Apple and Samsung don’t just get lucky more often than the rest of us.

First comes innovation strategy, which is in two parts: innovation must be a significant part of the organisation’s overall business strategy. It must be prioritised and connected to the mission and general business goals. The innovation strategy itself must then be focused and specific, such as in 3M where it relates to innovative materials, Toyota where it primarily relates to supply chain and product design/ engine innovation, or Kogan where it is about data analytics and optimisation of offerings and supply sourcing.

Strategy turns effectively into action when the ‘new streams’ of innovation activities are soundly resourced, where the balance of priority between these new streams of work and the organisation’s mainstream is right and where the innovations can effectively be absorbed into the mainstream for full commercialisation.

Global biotech CSL proactively manages its portfolio of innovation projects, which are connected to business objectives and are individually project managed, which is a hallmark of a disciplined and systematic approach that works well.

As with many important things leadership is key to innovation success. Our research demonstrates the critical importance of leading innovation from the front, including hands-on demonstration of innovation, setting of innovation KPIs and recognising/rewarding innovation contributions.

When senior leadership is committed and the resources and systems are in place, then innovation can take hold effectively, which is crucial. Unleashing creativity in the workforce is a vital aspect of success and is a significant ‘difference’ factor between highly innovative organisations and those which are hardly so.

Another key element of innovation success is a clear focus on the consumer, whether it is in the profit-seeking, government or not-for-profit sector. Without exception, all the highly innovative organisations we have observed had a focus and determination on finding new and different ways to create value for stakeholders, primarily the consumer.

And finally comes the ability to manage risk and change. By their very nature new products, services, processes and certainly organisational business models mean doing things differently, so embracing changes in how things are done, and perhaps what is done are important elements of innovation capability.

Related to that, it is a fact of life that in the world of innovation, not everything you try will work, so an ability to sensibly accept and take risks must be integral to all elements of innovation work.

Professor Danny Samson is a professor in the faculty of business and economics at the University of Melbourne. He is also chairman of AIM’s Academic Board.