This article follows on from our post Is Australia doing enough to remain prosperous in the future?, where we looked at the challenges and opportunities for Australia to stay competitive on a global stage.
A report recently commissioned by the CSIRO’s data innovation group Data61, and released by AlphaBeta Advisors, has highlighted a massive opportunity that digital innovation could unlock in Australia.
The report, Digital Innovation: Australia’s $315b opportunity, analyses eight key industries (from precision healthcare, agriculture, to proactive government), where Australia is well positioned to leverage current strengths, and where digital innovation can amplify those strengths on a global scale.
The report’s analysis of OECD data suggests that the impact of digital innovation in advanced economies is in the region of 11% of GDP, half of which comes from new digital products and services.
Digital innovation in Australia, however, has had an impact of 7.4% of GDP, lagging behind other OECD countries substantially. When Australian companies do innovate, 72% is what the report labels as ‘New to the Business’, which you might infer as being incremental innovation, likely new enhancements of an existing product or service.
The data echoes what we heard at the AFR Innovation Summit; that Australian businesses mainly go after the low hanging productivity fruit. Launching a genuinely brand new product or service isn’t easy in and of itself, let alone a successful one, and is something that big corporates in Australia seem to shy away from.
To a large extent, the Australian market is saturated with a couple of big players across the majority of consumer-facing industries. At that scale, eeking out a few % market share isn’t worth taking big gambles on. Instead, making what you’ve got better is the safer option. Challenger brands, on the other hand, can take bigger risks because the rewards are quite likely greater.
With my time working in Innovation, both in large corporates and now on the agency side with ustwo, I am pretty familiar with the barriers that businesses need to overcome to unlock their innovation aspirations, and what benefits may come from lifting our digital capabilities as a nation.
The Leadership of Innovation
An innovation culture doesn't start just from the bottom up. It has to be top down, and push right through to middle management. Moving into a space of genuinely new products and services takes a very different mindset from a leadership perspective. One of the best examples of a leader getting new things to market is Amazon’s Jeff Bezos. Famously, he has eschewed delivering (perceived) shareholder value or short-term gains, instead focusing relentlessly on Amazon’s customers. We all aspire to have Amazon’s success; however very few of us would be comfortable to take the same path!
Dealing with ambiguity, not expecting short-term ROI, making decisions fast for the right reasons, not knowing what might happen, and being comfortable with all of the above, are essential ingredients of successful innovation. Where things often come unstuck is in the middle management layer. Senior execs may have the vision or intent, the people on the ground feel empowered; however middle management is stuck in the middle trying to figure out how to keep both sides happy. KPI’s, budgets, internal processes, compliance and risk, HR etc.
The ‘reality layer’ of an organisation is to keep the lights on, and this reality can have a profound impact on pushing through to developing new revenue streams or thinking about longer-term diversification.
Breaking (apart) innovation intent
A framework that can help guide your innovation intent is the 3 horizon model, which can plot where your current portfolio of ideas is sitting. The 3 horizon model can be broken down like this:
- Horizon 1: Working with what you’ve got. Improving and evolving existing products and services, servicing current customer bases. An example might be an automotive manufacturer releasing an updated model, or an airline bundling in hotels to the booking experience. This is everyday innovation and is about growing existing revenue streams.
- Horizon 2: Pushing outwards from your current offerings or capabilities into new, yet relatable, realms. This could be about adapting an existing capability to new markets, such as a peer-to-peer ridesharing company moving into the food delivery market. Or it could be an auto manufacturer who has traditionally made exotic sports cars expanding into the SUV market. Horizon 2 is largely about new revenue streams for the business, in somewhat comfortable surroundings.
- Horizon 3: Creating brand new products or services that could live on their own as separate businesses, as they’re unrelated to any existing products, services or capabilities you currently have. An example could be a computer manufacturer expanding into selling music, or an airline moving into the health insurance space. Horizon 3 is about a company trying new things, taking risks and longer-term diversification.
Product teams will be operating in their element within horizon 1. Getting customer feedback, evolving their product, working through the backlog. This is how a product team should be operating day to day. The overall direction of the product, and the portfolio or business unit the product sits in, will also be focused on improving what’s there at the moment.
Australian businesses, from experience, operate pretty comfortably in the horizon 1 space. Horizons 2 and 3 are far less comfortable spaces to play in, yet this is where the value lays from an economic perspective, according to the CSIRO’s report. The ability for an existing team or area within a business to think and execute into horizon 2 is difficult, and into horizon 3 almost impossible. Keeping the lights on, so to speak, is and always should be the priority for your BAU teams.
Who does the new stuff then?
'Innovation in a box' style initiatives (a la the Adobe Kickbox) are a good first step in order to start the innovation ball rolling at the coalface, giving people a ‘starters kit’ for how to identify and solve problems, and test new ideas. It can be tough for people to juggle both their ‘keeping the lights on’ role, and bootstrap their own innovation efforts, especially if the ideas they’re exploring don’t overlap with their day to day role.
To help stoke the innovation fires in a very visible way, companies might implement something like a specific innovation team, or an Innovation Lab. This team, the likes of which I cut my teeth in at the Commonwealth Banks Innovation Lab, are there to identify and incubate problems worth solving, ideas worth exploring and developing concepts for desirability. However, without a build capability, allocated budget, and the mandate to compete or disrupt the existing business, Labs can fall short in their ability to launch new products to market, and instead can look like a marketing or sales function. Early on the CBA Lab didn’t have a build capability. That changed about half way through my time there and now they’re doing all kinds of super cool and inspiring things!
A skunks works team, Innovation Lab or any other variation of someone else’s approach to Innovation is only part of an answer. In Part 2 of this article, we’ll explore an interesting model for a whole of organisation approach from Samsung, and the difference between building the right thing vs building the thing right.
Need help getting new ideas out of the early stages and into the light of day, quickly? Reach out and say hello email@example.com