Some companies "do innovation" better than most. But just what is it that they're doing differently?
In his first Five Year Plan as president in 2016, Xi Jinping declared China would be among the top 15 patent filers globally by 2020. His country met that goal and then some. The latest World Intellectual Property Indicators report shows that China’s IP office received 1.4 million patent applications in 2019 – more than twice that of the next most productive country, the United States (with 621,453), and 47 times that of Australia (29,758).
Patent numbers are only one measure of innovation outputs (and a raw one) but Australia lags behind its OECD partners in other innovation benchmarks. Only nine per cent of innovations introduced locally in 2018-19 could be defined as having “novelty” here or abroad, according to the Department of Industry, Science, Energy and Resources. “The majority of Australian organisations take an existing idea from elsewhere and modify it for the domestic and, in some cases, international market,” says Nathan Baird, founder of customer-driven innovation and growth firm Methodry.
“In Australia, we punch well above our weight with research,” says James Deverell, director of CSIRO Futures, the science agency’s strategic advisory arm. “Where we struggle at times is the translation of that research into meaningful outcomes.” There are exceptions: Baird points to Speedo, Cochlear and Atlassian. Here we look at the organisations currently driving innovation effectively to see what processes they have in place.
“It’s not just about the widget”
In CSIRO’s Thriving Through Innovation: Lessons From The Top report from December, lead author Jerad Ford wanted to “poke holes in the false narrative” that 30 years of constant growth in Australia are due to local companies being good at adopting technology. (The report found instead that “adopting other people’s R&D, buying other people’s tech” detracts from financial performance.) The opportunity, he says, is to take up emerging technologies no-one else is using. At the same time, “you don’t get innovation novelty – something new to Australia or the world – by sitting in your basement R&D lab.”
CSIRO recommends an “open innovation system” that starts with corporate entrepreneurial spirit – the willingness to look for opportunities and take bets through technology – and connects with external partners and customers. “Companies come to us wanting to investigate how the intersection between mega-trends and an emerging technology create a market opportunity and how they can unlock it,” says Ford.
But to maximise value, “it’s not just about the innovation, it’s not just about the widget”, he says. Batting off competing products requires complementary innovations in the business model and back-of-house processes. Ford cites the Rebel Whopper, a plant-based burger that tastes like meat. Its patty uses technology created by CSIRO, which partnered with Main Sequence Ventures and Competitive Foods to start a meat-alternative company, v2food. In 18 months, it went from new proprietary lab science to a fully formed product across the Hungry Jack’s chain and also in Burger King in New Zealand. “So we have an ability, a recipe, but also a capability – a manufacturing-process innovation that we’re rolling out from pilot to industrial scale,” says Ford. “This combination of product innovations, process innovations and market-channel innovations is a business model that’s hard to replicate.”
“It’s seldom you accidentally invent the Post-it Note”
3M, seen as one of the world’s most inventive companies, starts any innovation project by defining the strategy then employing sophisticated problem-solving that might include bringing in partners.
“The best in the world start with a clear strategy of what they want to achieve then take a portfolio approach to investing in innovation by building a portfolio of new technologies or potential innovations that meet the need,” says Deverell. “The very best set aside 10 or 20 per cent of that portfolio to be cutting-edge and take a heavy-handed approach to cutting their losses; they’ll take risks but shut it down if it’s not working.”
CSIRO’s ON program is an accelerator that helps researchers de-risk ideas by quickly and cheaply configuring them into products using Silicon Valley lean principles. “It’s seldom you see the 3M exercise, where you accidentally invent the Post-it Note,” says Fredrik Lindström, chief digital officer at the Commonwealth Bank, referring to the chance find of a reusable adhesive during the development of another product. “It’s not uncommon for organisations to end up doing innovation for innovation’s sake. If you don’t have a business strategy and customer need, you’re going to come up with a lab thing that will never make a difference to anyone.”
“Creativity loves constraints,” says Amantha Imber (pictured), founder of management consultancy Inventium. “You don’t want a scattergun approach, where employees go blue-sky with ideas. Instead, you want to identify what the biggest problems customers have that we want to solve.”
To avoid creating white elephants, “have short iterations or sprints to quickly identify what brings value and what’s already available”, says Lindström. He recommends companies restrict their teams to delivery cycles of about two weeks to limit waste. “In legacy environments the delivery cycles can be up to six months, one of the key blockers for innovation and experimentation.”
“If you don’t have clear metrics, often there’s no clarity of thought”
Innovative organisations structure their innovation processes then measure how they’re doing. The 2020 Australian Financial Review BOSS Most Innovative Companies list found that the ranking companies scored 43 per cent higher than other firms when gauging their innovation efforts. Mirvac, for example, the year’s Most Innovative Property, Construction and Transport company, calculates hours spent talking to customers, the number of projects that use its innovation methodology and how many staff are trained in it (a third of its workforce when its win was announced in October), diversity of teams on the projects and time to finish an innovation sprint. The Starlight Children’s Foundation, which topped the Most Innovative Government, Education and Not-for-Profit list, has key innovation metrics in fundraising (income from new initiatives), operations (time and resources saved) and clients’ satisfaction with its programs because, says CEO Louise Baxter (pictured), “no matter how good a new program is, if kids who are seriously ill in hospital don’t think it’s fabulous we’re not successful”.
3M applies an all-management metric on revenue from its new products; roughly a third of its sales come from stock introduced in the past five years. “If you’re not measuring your performance in some regard, if you don’t have clear metrics, it’s often a sign there’s not clarity of thought in the early stages of the innovation process,” says Deverell.
Ford adds that many organisations struggle to hold early-stage innovation to a standard, given the project could have a huge market impact but is so uncertain. Standard execution metrics, such as return on investment, do not apply. So innovation managers de-risk the concept using metrics such as how many product/customer hypotheses have been tested; how many product stage-gates have been passed; how many downloads of the product have happened; what’s the referral rate?
“You cannot bolt on an innovation culture”
It may come as a surprise that the Starlight Foundation, celebrated for its innovation efforts, partly rewards its most enterprising staff with gift vouchers worth only $25. For those employees, the more meaningful reward is their CEO’s recognition on the foundation’s online feedback platform.
“The relationship between reward and innovation is a tricky one,” says Imber, an organisational psychologist. She says while many companies use external motivators, such as cash prizes, “we know that as soon as you remove the prize, motivation typically dries up. Intrinsically motivating rewards, such as giving employees time and resources to work on ideas that excite them, result in more sustainable behaviour change.”
Winners included on the 2020 AFR BOSS Most Innovative Companies list are 44 per cent more likely to recognise their employees’ innovation efforts. Imber points to the practice of most of these companies to reward failure and thereby encourage risk-taking. Tata Group, an Indian conglomerate, has Dare to Try Awards, which recognise projects that failed but had valuable lessons. Procter & Gamble has a Heroic Failure Award and Wall of Failures at its Cincinnati headquarters to honour insightful flops.
“You have to allow the occasional mishap,” says Lindström, who makes clear his expectation that his team at the Commonwealth Bank will explore their own ideas rather than “get tied up in the engine room”. He doesn’t constrain their areas of exploration or use Google’s 20 Per Cent rule, where employees work on personal projects on one day in five. “Very few organisations are capable of institutionalising that because you risk a scenario where you’re absolutely not innovative the rest of the time and have this day when you go nuts and do semirelevant stuff at best. I try to find a way to get it ingrained into the organisation.”
The Starlight Foundation’s Baxter is adamant there be no standalone innovation department at the not-for-profit “because you’re sending a clear message that that’s what they do and not what you do”. People tend to view innovation, she says, as “some huge, bright, shiny something – very different, very new – but you can innovate through simplification, by removing a step in an old operating system”.
She likes the definition of innovation as “any change that adds value to the organisation. This means anyone can be innovative on any day.” All Starlight staff are trained in positive psychology “because positive people are more creative and because you need a work culture where people feel safe to take risks.”
Across the organisation, Starlight has trained 30 Innovation Champions, who are not “doers” of innovation but cheerleaders who help others to solve problems and also hold them back from rushing at the first idea. “You cannot bolt on an innovation culture. If you overlay an innovation program on a dysfunctional, negative culture you’re setting yourself up to fail.”
Nathan Baird, author of Innovator’s Playbook: How to Create Great Products, Services & Experiences That Your Customers Will Love, admires how the hotel-guest acquisition platform SiteMinder organises multidisciplinary teams around each key customer product, “meaning an engineer’s home team isn’t the engineering team but their multidisciplinary product team”.
He also respects engineering, design and advisory company Aurecon, which in 2015 invited its staff to send in a list of the “biggest dumb things we do” and then proceeded to fix or dump 100 issues in 100 days. “It was an energising campaign to start off our innovation journey,” explains John McGuire, Aurecon’s chief design officer.
“It showed the business that we were serious about transforming and it was interesting for our top management to see how many dumb things accumulate in a business over time – how things get ‘stuck’ in the business because of habit and status quo.”
“If everyone’s booked, where’s the room for ingenuity?”
San Francisco-based IT and services company GitLab has greater insight than most about fostering innovation in a distributed workforce; as the world’s largest all-remote company, it has 1300-plus employees working from 65 countries. It prefers asynchronous communication – information that’s exchanged independent of time, such as emails, collaborative documents and group forums – supported by a project management and collaboration tool and a small tech stack where communication is strictly divided into work and socialising platforms.
“A remote-first company defaulting to asynchronous communication sounds obvious,” says Imber. “But most companies default to synchronous communication in the form of meetings.”
She recalls how many business leaders during 2020’s shift to remote working stressed about losing the innovation that comes from casual staff conversations. “Water-cooler moments can be done better asynchronously because it takes advantage of all personality types – it’s inclusive of introverts and those extroverts who prefer to think before they speak.” When anyone can share a one-sentence idea companywide, the feedback and incubation are deeper than from a random meeting of two. In its online Guide To Internal Communication, project-management and collaboration platform Basecamp details the principles and etiquette of its “real-time sometimes, asynchronous most of the time” policy. It includes nuggets like “Five people in a room for an hour isn’t a one-hour meeting, it’s a five-hour meeting.”
A remote set-up – unless its environment is stressful – can mean uninterrupted work sessions that allow people to achieve and maintain a state of “flow”. As GitLab’s head of remote Darren Murph told Imber in her How I Work podcast, “If everyone’s booked [in meetings] at 100 per cent, where’s the room for ingenuity? Teams are worried about serendipitous conversations? Let me tell you: being booked at 100 per cent is a guarantee that your company’s going to have no innovation and no serendipitous conversations because there’s no time.”
Banking on change
Fredrik Lindström joined the Commonwealth Bank as CDO in 2020, the same year it invested in buy-now, pay-later service Klarna and launched venture-building entity x15ventures.
A consulting firm once described the role of chief digital officer as having a limited lifespan because once digitalisation is embedded across the organisation, their job is done. Is that true?
A common misconception is that digitalisation is taking what you’ve always done and making it digital. But you reach a pivot point when the amount of digital capabilities available creates new digital opportunities that never existed in the physical world. For example, it used to be that a net bank looked like a virtual branch – and that was useful – but now you can easily connect the bank and customers’ environments with, say, accounts payable and accounts receivable; the customers’ ERP [enterprise resource planning] systems could be connected. You can generate value that simply wasn’t achievable before.
What types of technology are you most excited about?
This is perhaps a disappointing answer: data – transforming data into insights and information. People are still people in the digital world. Everyone wants to be recognised for the individual they are. Banking was obsessed with fintechs a few years ago because they’re good at providing a personalised digital experience. If you don’t know anything about your customer, you’ll provide an anonymous, irrelevant digital experience, which you have to avoid at all costs.
Do you encounter innovations that customers aren’t ready for?
In banking, we have an important role to play in that. Some of the things you allow – and almost expect – Google or Facebook to do for you are a no-go zone for us. We have to remain a trusted entity. What, apart from the COVID-19 pandemic, is changing customer expectations? The expectations of a digital experience are set by somebody else and have been for years. When you have a great online experience on Amazon, you expect the banking digital experience to be on a par. As digital services get connected, it’s becoming increasingly easy [for customers] to source from many parties and the benefits of being a universal financial-services provider diminish. So the user experience is absolutely king.
What’s the biggest challenge of your role?
The technological innovation around us is far more than we could ever digest or pretend to understand so we have to remain focused. If things aren’t relevant [to the bank], we have to have the courage to say, “You know what? Fascinating technology but for our purpose and our customers, that won’t generate substantial benefits in the next two years. Therefore, we’re going to park it and revisit it.” We need to forget this fear of missing out.