Corporate Australia lagging on Innovation

Australian companies are failing to innovate and take risks at a time when their national economy needs them to boost its stagnating growth and productivity, a study has found.

The study – the first of its kind in Australia – surveyed over 500 company directors about their innovation policies. The survey’s findings are stark, revealing Australian boardrooms struggled to prioritise innovation, lacked an awareness of the need to change, and lag international counterparts when it comes to innovating.

The study builds on Minerva Analytics’ major report ‘The Invisible Drag on UK R&D’, published in August, which found incentive plans given to FTSE 350 company directors did not encourage innovation or corporate research and development (R&D).

Where innovation-related metrics were used, Minerva found these invariably sit alongside, and are frequently outweighed by, short-term financial measures that can be enhanced by cutting innovation. A massive 91% of the companies utilised a metric that discouraged innovation, the report revealed.

The Australian study – undertaken by the Australian Institute of Company Directors (AICD) and University of Sydney Business School and titled ‘Driving Innovation: The Boardroom Gap’ – also makes for sobering reading.

While three-quarters (75%) of company directors said innovation featured in their strategic plan, nearly half admitted momentum was lost over time – with little oversight of how any innovation plan was being realised.

Worryingly, nearly a quarter (24%) admitted innovation has never been or was only an occasional board agenda item, while over a half (57%) were not aware of the total expenditure allocated to R&D and innovation activities. 

Australian boards also seem to lack critical technical and innovation skills, with only a paltry 3% of those surveyed saying their company has science and technology skills.

Asked how often innovation has featured as an agenda item in the past three years, nearly a fifth (17%) said it had never been on the agenda, 40% said it was an occasional agenda item, and 39% stated it was an ongoing agenda item.

Compounding this, over a quarter (27%) said boards had taken no action to elevate innovation to the boardroom for consideration, while a fifth (21%) stated it was requested irregularly or as needed.

The fact half of Australian boards are only sporadically looking at innovation suggests other external pressures are shaping board agendas.

Factors such as shifting government regulation and increased scrutiny of director activity were apparent in both the survey and within interviews.

One senior director noted they believed “the pendulum has swung too far in favour of governance at the expense of creating additional value” when discussing boardroom programmes.

The top three barriers to innovation identified by directors were human talent shortages, with 31% citing this as an obstacle; limited financial resources (28%); and the market’s focus on short-term financial performance (19%). They also saw Australia’s regulatory environment and corporate culture as contributing to risk-averse decisions.

Putting the survey results in context, Australia’s total gross domestic spending on R&D is currently ranked 21st within the OECD.

In addition, the Innovation and Science Australia 2030 plan, ‘Prosperity through Innovation’, found that contribution of business expenditure of R&D (BERD) was just 1.01% of GDP.

“The global trend is for national BERD growth, whilst Australia’s has fallen. This sees Australia’s investment levels below countries such as South Korea, Israel, Sweden, Denmark, Finland, Iceland, Norway and Singapore,” the study said.

As a consequence, the AICD has put forward a number of recommendations for boards to help drive innovation.

These include establishing a budget and executive incentives for long-term innovation, setting clear expectations of management regarding calculated risk-taking, and lifting directors’ technology and digital literacy whereby innovation forms part of a director’s continuing education.

“Innovation should not be viewed as optional, or just a concern of the black t-shirt millennials of technology companies,” Angus Armour, managing director and CEO of the AICD warned. “It is a central part of corporate strategy and risk management, two core responsibilities of the board.”

“This study establishes a baseline for our understanding of how the Australian director community views the challenge of innovation, and identifies further areas where more work must be done. It also presents a challenge for the AICD – how can we help directors put innovation onto boardroom agendas across the nation,” Armour added.

Last Updated: 27 September 2019
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