Worried about innovation and digital? You’re not alone…

James Mabbott, Partner, Head of KPMG Innovate

It is not surprising to see ‘Digital and Innovation’ ranked as the clear number one priority issue for resolution in 2018. As we look into 2018 we see the pressure on Australian business has increased. Two significant events have taken place and a third may be just around the corner. The American giant Amazon has entered the Australian market just in time for Christmas and the New Year sales. The Tesla battery array in South Australia has gone live. And sometime next year it is likely that Facebook will allow its 15 million active Australian users to use its Facebook Messenger service for payments.

These events may herald a new wave of change and transformation across the banking, retail, and energy sectors. They also show what is at stake when Australian businesses indicate they need to get their digital and innovation houses in order. Yet whilst ‘digital’ has certainly gone mainstream in terms of the executive agenda, innovation is an area where we continue to lag as a nation.

There are some positive signs, with several of our largest companies setting up venture arms and innovation labs. Some have even invested in training for new ways of working, such as Agile methodologies or Design Thinking. To make these efforts stick, however, concerted leadership is required.

That’s because, by and large, the real innovation challenge facing our businesses is cultural, and to change culture requires leadership. In the context of innovation it is what we say and do as leaders that will set the tone for the whole organisation. How do we talk about innovation? What do we say at the board table, with our people, and in our communities? And how do we act? Is there alignment between what gets said and what gets done?

The first thing to do is to make a commitment to innovation. Make it clear inside and outside the organisation that innovation is important. This commitment must also be backed up by providing funding, providing access to tools, and setting measures that reinforce the desired behaviour. Remuneration processes and goals for leaders and staff alike need to reflect the desired outcome. It needs to be clear how innovation connects back to your business strategy and what role everyone in the organisation plays in terms of idea generation, experimentation, and distribution of innovative solutions.

Your organisation also needs to make it safe to innovate. This means looking at how you deal with failure and risk-taking in the organisation. This is why methodologies such as Design Thinking and Agile are important: because they give people tools and processes to follow in developing out ideas and testing approaches.

Having spaces that encourage innovation, such as a lab, are also a good idea. These spaces give a clear signal to people that here is a space that is safe for experimentation, idea generation, and prototyping. A lab, coupled with clearly defined innovation domains, also sets clear boundaries for where the organisation wants to innovate. Most importantly for leaders, the key is how we respond to failure. If it is not safe to fail, it is not safe to innovate. And organisations that don’t innovate cannot learn and grow.

So the intention we need as leaders and within our organisation is to be curious. If the key to growth and long-term survival is adaptability and change the necessary mindset is curiosity. By being curious we create the opportunity for change in an organisation. It means we naturally start to assume an outwards orientation. We pay more attention to customer behaviour and ask “why did they do that?” We also have the opportunity to more quickly identify and pick up on the trends that matter. A curious organisation will look beyond what it does for the customers of today and seek to understand what it will be providing to the customers of tomorrow. Curiosity allows an organisation like Amazon to go from selling books in the 1990s to providing web services today.

But it is not enough to provide direction, safety and be curious. An innovative organisation must also have a bias for action. This means taking steps to test hypotheses and run experiments.

So as leaders we need to be asking what ideas do we have and how are we testing these? Who is accountable for running experiments in our organisation? How many are we running? What are the results of these experiments? And what are we going to do next? Because when we are faced with uncertainty it can be easy to do nothing and wait for a direction to become clear. The fast follower strategy has served Australian businesses well, but in a world where the stakes are increasingly shifting to ‘winner takes all,’ we need to find our own way and deliberately step out into the unknown.

To navigate uncertainty means coupling action to future focus. Special attention needs to be focused on the weak signals of today that have the potential to shape tomorrow.

Innovation is most powerful when used to drive growth. To spot growth opportunities means we need to be both cognisant of and close to, changes in society, regulation, technology, and economics. We need to have a careful eye on whether these changes have the potential to create opportunity or disrupt current business practices. Looking at patent lodgements, venture capital flows, new technology developments, and customer trends can help identify where to focus.

The role of leadership in this process is to continually ask the organisation: “what should we try next?” Driving efficiency and productivity will only take an organisation so far. In a growth context, it’s a zero sum game.

Finally, to take advantage of opportunities, find weak signals, and to capture ideas, means rethinking our relationship with our people and how we engage with them. A lot of time and effort in an organisation goes into is how best to communicate to our people. A consequence of this is that we have made it hard to listen.

To innovate effectively means having a focus on establishing a dialogue where leaders effectively communicate to the broader organisation where and how they want to innovate, and the tools and support available. From here it is about being able to listen to the ideas our people have and to be open to hearing their input and perspectives.

Most organisations are not good listeners. Most of our communications infrastructure tends to be dedicated to getting messages from the top of the organisation to the bottom, and not the other way around. However, it is often our people who are closest to the customer. They are the ones who will see opportunities that are not immediately apparent to the executive. This is where in-house crowdsourcing, hack-a-thons, and accelerator programs can give people a voice and opportunity to contribute to the future growth agenda of an organisation beyond their day-to-day roles.

So if Australian business leaders are serious about tackling the digital and innovation agenda in 2018 we would do well to embody some clear character traits from those who do it best:

• there must be a clear commitment to innovation, where our leaders’ actions match the message;
• risk taking and failure will be expected and even celebrated for the learning and growth opportunities it can provide;
• our organisation will have an outwards orientation, underpinned by a curious mindset, and focus on the customer;
• there will be a bias for action and experimentation; • the organisation will look not just outwards but over the horizon to see what’s next; and
• leaders will actively listen to their people, customers, and communities to establish

The organisations that do this well will set themselves up for growth. They will be better prepared to face disruptive forces and potentially harness those same forces for their own benefit. Having organisations like Amazon, Facebook, and Tesla increase their presence in our market is a timely reminder that when you get it right, innovation can be a powerful force for growth in any business.

Read the full report, Keeping us up at night: the big issues facing business leaders in 2018

2 thoughts on “Worried about innovation and digital? You’re not alone…

  1. Having direct experience with some of the self described ‘top people’ in the education sector I would tend to agree with both the late Donald Horne (The Lucky Country), and former NewsCorp Australia head Kim Williams, that many managers and leaders in Australia are not equipped to deal with change or ‘digital’. According to Williams:

    ‘Former News Corp Australia chief executive Kim Williams says Australia “is not managing the change at all well” as digital disruption upends the global economy…’

    https://www.businessinsider.com.au/kim-williams-why-australia-still-isnt-ready-for-the-digital-era-2015-5

    1. Hi Andrew – thank you for sharing – this is an important conversation and one we have to all face into. Kind regards James

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