Learning to innovate: Unleash your potential

Today, innovation has become another buzzword. Its meaning has been muddied by an exhausting number of conversations between peers and scholars worldwide.

According to the Institute of Public Accountants (IPA), innovation is and always has been the implementation of new ideas, with the goal of creating value.

Looking at it from a business perspective, it generally means coming up with new and more efficient ways of doing things via computer software or machinery.

Is Australia innovative?

According to the 2018 Global Innovation Index, co-authored by Cornell University, INSEAD and the World Intellectual Property Organisation, Australia is ranked at 20, behind smaller economies such as Ireland and Luxembourg.

Australia’s main weaknesses, the report reads, are its business sophistication, knowledge and technology output levels, as well as its innovation linkages. In an effort to grow the capacity to innovate in Australia, in 2017 the government devised a national plan for action to put Australia into the international top tier by 2030.

The plan makes 30 recommendations that underpin five strategic policy imperatives:

• Education: respond to the changing nature of work by equipping all Australians with skills relevant to 2030;
• Industry: ensure Australia’s ongoing prosperity by stimulating high-growth firms and raising productivity;
• Government: become a catalyst for innovation and be recognised as a global leader in innovative service delivery;
• Research and development: improve R&D effectiveness by increasing translation and commercialisation of research; and
• Culture and ambition: the plan advocates the creation of national missions that will be central to promoting innovation in certain areas (such as medicine).

The establishment of goals to be achieved by 2030 highlights the importance the federal government, departments and agencies place on innovation, the IPA said in its recent Small Business White Paper.

It warned, however, that there is still an apparent lack of appropriate acknowledgement by small businesses of the importance of innovation to their growth.

The Australian Bureau of Statistics reports that only one in seven small businesses see innovation as important.

“That statistic alone illustrates that more needs to be done to create and promote incentives for small businesses to improve their prospects of future success,” the IPA judged.

In fact, the small business sector, as a huge component of the economy, has the potential to positively influence Australia’s productivity growth.

However, apart from operating in an increasingly complex global environment, small businesses are experiencing a range of barriers to innovation, the IPA signalled.

The professional body advised the government to fine-tune its innovation policy in an effort to assist businesses to understand the value of innovation and, where appropriate, provide incentives to encourage innovative thinking.

“Our results show compelling evidence that the innovation capability of start-ups and young firms underpins the observed firm-employment dynamics, significantly influencing employment outcomes in the Australian economy,” said the IPA.

Moroney & Associates principal Mitchell Moroney agrees. He notes that the government must step up its policies on innovation.

“The government does provide some support for innovation, through certain grants and initiatives, however I do believe they need to reassess their policies and really think how they can provide the best outcome for small businesses,” he says.

Mr Moroney adds that for Australia to stay competitive it must increase innovation.

“Australia is a small world economy, and if it wants to keep up and excel against the likes of Asian countries who are renowned for their innovation, the government must look at how to increase innovation both from local businesses as well as entice multinational innovation companies to our shores,” he says.

In his opinion, the main barriers to innovation faced by small businesses are cost and time related.

Financial cost of entry

Aside from the direct cost, it also includes the risk associated with implementing new systems and procedures, Mr Moroney says. And although innovation is often about making bets, small businesses are caught up with questions such as: what if my clients don’t respond? What if it doesn’t work how it should?

Time cost of entry

Business innovation is not an overnight adjustment, it takes time and planning, he advises.

“It requires learning about the pros and cons, implementing the change and tracking the results,” Mr Moroney says.

Apart from the physical costs associated with rolling out a new product or service, or trying out a new business model, time is a commodity small businesses often lack.

“Although necessary for any business to thrive, many small business owners simply don’t have the time. Generally, the small business owner,is also the main income producer, which severely limits the amount of time available for innovation,” he adds.

Psychological cost of entry

The psychological cost of innovation is often overlooked, judges Mr Moroney.

He points out that while conversations are heard about challenges to innovation, only a few voice their concerns about the psychological costs, which can be summed up in a couple of short questions.

“Is the business owner prepared to spend less time with their family? This could be short term during the implementation phase or long term for expansions and policy changes,” he says.

“Is the small business even open to change? A common theme of business owners is, why would I change? I have been doing it this way for 40 years?”

These costs, Mr Moroney says, must be mitigated if businesses are to actually innovate.

Talent is the key

The IPA emphasised in its White Paper that talent, not technology, is the key to innovation. It warns that if wider skill requirements are not addressed, “bottlenecks” are likely to be created downstream.

“Technical skills across the workforce, and particularly interdisciplinary skills that bridge areas of expertise, are particularly important for innovation and are often subject to market failures,” the IPA said.

However, the IPA advises that despite the complexities of innovation, it is possible to abstract an underlying set of stages typically followed by inventive firms.

These include:

1. Searching for new opportunities. This typically involves firms searching externally for new markets, technologies or delivery mechanisms they can exploit by building on their existing capabilities and connections to customers and suppliers.
2. Selecting which opportunities to support. Once a range of opportunities has been found, firms need to make strategic decisions, under conditions of uncertainty, about which options to pursue and which to reject.
3. Implementation. Once the strategic decision has been made, firms need to implement their strategy and allocate time, people and resources to ensure the process is effectively undertaken. Innovation is inherently uncertain, and this will typically involve formal and informal experimentation to develop new products and services that provide value.
4. Capturing value. Creating value for customers does not guarantee commercial success, as firms need to find ways to monetise the value they have created. Innovations, particularly disruptive innovations, often create non-monetary forms of value, such as improved brand recognition, which firms can also capture. Firms can capture value by learning from their experiences to improve their future innovation processes.

The IPA cautions, however, that these steps in the process of innovation will only be successful if business owners and their staff are able to focus on building the business overall, rather than making what they do solely a matter of habit.