Money Can’t Buy Innovation

By Tom Dissing, Principal, Fujitsu Consulting

Australian organisations have made little progress towards improving their performance on innovation in the past 12 months, according to the Fujitsu Innovation Index 2007. The Index fell from 64/100 in 2006 to 63/100 in 2007, despite a 37 per cent increase in spending on innovation by organisations.

While the major barriers to innovation continue to be lack of personnel dedicated to innovation (41 per cent) and insufficient budget (38 per cent), the study recorded a significant increase in resistance to change (13 per cent) and short-term mindsets (10 per cent).

The results show that innovation cannot be bought, but needs to be approached holistically. Organisations must provide strong leadership and a business environment in which innovation can flourish if we are to increase our overall innovation performance. This year’s Index also suggests that organisations must stop thinking about the next quarter and focus on their long-term future if they are ever to become truly innovative.

Innovation Drives Economic Growth

While Australia has long enjoyed a reputation as an early adopter of new technologies, it is our ability to innovate and create new products and services that has the greatest potential to create business value and drive growth.

The study highlights the tremendous diversity between the successful approaches of Australia’s Innovation Leaders and the lack of progress by the Laggards, who have yet to truly embrace or benefit from a commitment to innovation.

With innovation credited with delivering 29 per cent of increases in KPIs such as profit and customer satisfaction in 2007, the benefits of this approach cannot be overstated.

In the past 12 months, there has been some progress with a growing maturity in the innovation mindset demonstrated by the top performers. Yet many organisations still lack a pervasive culture of innovation with formal processes and structures to support it.

When we look at those companies which are leading the way on innovation in Australia, it’s not surprising to see the top performers come from the IT and business services sectors, industries that are highly competitive and where companies must innovate to stay ahead of the pack.

The study interviewed 271 organisations across all industry sectors in Australia and New Zealand, assessing them on 20 innovation attributes. These were grouped into the categories of input, process and leadership, with process contributing 44 per cent, input 31 per cent and leadership 25 per cent to overall innovation performance.

Interestingly, leadership’s contribution to innovation performance fell by 19 per cent from last year’s figure of 44 per cent, suggesting that many organisations have made significant progress in communicating the importance of innovation from the CEO.

This year, process attributes caused the most variability between organisations, in particular, processes to recognise and reward individual and team innovation, and to encourage an innovation culture.

The Innovation Leaders have not only embedded innovation into their core values, but measure them with KPIs. Their CEOs actively encourage innovation: they hold regular reviews and meetings where innovation strategies are discussed; they promote open communication and cross-pollination of ideas; and provide structures to receive anonymous feedback.

While the leading players made significant progress towards a culture of innovation, there were many organisations that reported growing barriers to innovation in the form of resistance to change and a short-term mindset.

Of particular concern is our performance in the area of radical innovation. While incremental innovation results were acceptable at 6.6 out of 10, we scored only 4.9 on radical innovation, which represents a significant advance in a product, service or technology.

Collaboration Key to Innovation Success

In an increasingly flat world of global competition, Australia must create areas of differentiation by collaborating with other organisations which have complementary skills, knowledge and resources. We must also be more willing to take risks and give people permission to fail.

Australia’s geographically isolated position has created a slightly sheltered environment that focuses more heavily on resources than the innovation and technology that are driving growth elsewhere.

This is not sustainable and Australian organisations must explore new models of innovation and collaboration that will equip us to compete on equal footing in the global arena.

Proctor & Gamble is piloting an open innovation model where companies submit new product proposals, and are rewarded with seed capital and business support based on their contribution. Instead of having thousands of scientists on the payroll, the company shares the risks and the rewards in a win-win scenario.

As we continue to develop a national culture of innovation and provide greater incentives for widespread collaboration towards radical innovation, Australia’s performance on this most vital of measures will inevitably improve, as will our competitive standing in the global economy.