Cameron Begley & Dr Victor Pantano
27 May 2024
The call for innovation in corporate Australia seems to be perennial, with government talking of aspirational improvement in domestic investment, discussions in multiple forums and writings supporting the notion, yet limited progress appears to be made. With domestic innovation policy finding new momentum through AUKUS, sovereign capability strategies and ongoing talk of the need for innovation in the boardroom (Company Director, Australian Institute of Company Directors, December 2023, p81), why is the Australian private sector not embracing the emerging policy and market opportunities?
Two recent reports from AICD and the Department of Industry touch on matters such as (different types of) risk appetite, with the AICD report drawing out competitive and (stock)market pressures, culture and the relationship between boards and innovation (as a broad concept and as a force in market evolution) issues. The DISR report identified demand side challenges around industry scale and complexity, supply side misalignments in capabilities, capacity and incentives and efficiencies in the innovation process, reflecting on inter-governmental program cohesiveness, market opacity and the associated challenges in forming relationships and asynchronous timing between supply and demand.
But the local industry context is challenging. PwC conducted their 27th global survey of 4,702 chief executives across 105 countries in October 2023. The findings were presented at the 2024 Davos forum in Switzerland. It found that 53 percent of CEOs globally said they would need to innovate for their companies to remain economically viable within the next 10 years. In contrast, 85 percent of Australian CEOs believed their business would still be economically viable a decade from now if it remained on its current path without major changes.
Culture is the overarching driver for the assessment and adoption of science and innovation in corporate activities. DISR conclude that what is typically lacking are the capabilities (and possibly capacity) on how to embrace the arising opportunities. In the absence of corporate capabilities, it would be natural to consider innovation as an externality and a risk to the steady state, or status-quo of an organisation’s operation that may be more focused on operational excellence (rather than product or market innovation) to deliver reliable returns to shareholders.
How innovation and science can be integrated and capitalised upon is where technologies meet markets. It’s often referred to as the valley of death in new ventures, however this is a simplification of the fundraising journey and doesn’t necessarily account for the cultural, market and product development journeys that run in parallel with the financial support needed to bring innovation to market. Then, there is a second, less spoken of, valley of death, being the scaling of a product offering to address more market share or move into adjacent market opportunities.
The capabilities required to traverse these valleys rarely sits within a single organisation and typically need to be assembled to seize the identified opportunities. A team typically changes as a function of the maturity of emerging products, markets and financial status of the firm involved. The assembly of such teams inherently relies on a series of relationships, typically external to any specific party. The opacity of these linkages (as noted by DISR) presents (yet) another domestic challenge in technology transfer and successfully bringing innovations to market.
Seeing science and innovation as a risk, is perhaps an instinctive starting point when seeking to preserve a current market position, status quo or set of assumptions that are foundational to stakeholder and shareholder positioning. However, this presents inherent multidimensional risks to a board and its business. It is often said that change is the only certainty and given the arc of human history where the species has continuously innovated, the notion of externalising or even ignoring innovation then appears fraught at best, and negligent at worst – the latter description being deliberately chosen given the duties and obligations of directors.
Historically large corporations had in-house R&D and product development teams, which were largely disbanded and became externalised through the 1970s and 1980s. A recent paper on universities and economic growth in The Economist (Ivory Sour, 10 February 2024) suggests that the loss of internal corporate capabilities inhibits the ability to transfer and ultimately monetise university research outputs. Competition policy and the constraints of forming large oligopolies was also discussed as a key to driving corporate innovation (as being unable to acquire other firm’s innovation meant internal idea development was paramount to growth).
A more recent trend in innovation and technology transfer has been the rise of venture capital and the subsequent establishment of new ventures. This global phenomenon, with its roots in Silicon Valley, has spread with variations into most developed and many developing economies. However, not all technologies lend themselves to the demands of venture capital and there should be a greater role for established firms, be they listed, private or indeed Not For Profits (NFPs), to actively engage in technology transfer to drive value creation through new goods and services.
However, the challenge of assembling these capabilities, coupled with the risk settings of these boards, may be inhibiting this pathway. The DISR report reflects the current new venture trend where ownership appears to be the focus. With a broader approach to technology transfer, it is in fact the right to use IP that sits at the heart of value creation, not necessarily the ownership of a given asset. Relationships, and in turn contracts can typically navigate whatever arrangements are considered best for the circumstances at hand – one size certainly doesn’t fit all!
These recent commentaries provide timely perspectives on innovation efficiencies and adoption. What continues to be missed in these discussions are the issues of risk appetite and culture, which are foundational determinants in the future success of Australia to convert its research advantages into innovative and sustained success.
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