Analysis and Commentary

Towards 3% R%D – Building innovation capability by Danny Samson

Analysis and Commentary

Today in our editorial series – Towards 3% R&D – Turbocharging Australia’s Innovation Effort – we look at the evidence from innovation research. Professor Danny Samson outlines the steps needed to turn R&D into business success.

Companies in Australia have a terrific opportunity to grow through innovation, given our access to global markets and the present government’s approach to supporting ‘Made in Australia’ goods and services.

In aggregate, we are starting from a low base as evidenced by the Harvard Atlas of Economic Complexity which ranks us 93rd, wedged between Uganda and Pakistan.

Despite our high GDP per capita of $60,444, our low degree of economic complexity leads to a forecast of economic growth which is ranked at an unflattering 112th.

At the individual company level, we can expect increasing support and facilitation from governments in Australia, who have recognised that the ‘dry’ approach has led us to become a nation of miners and farmers, educators and tourism operators with a quite hollow economy in between these sectors.

For small and large companies in any and every sector, increasing research and development expenditure may be a good start but it is not nearly enough, because the missing piece that has often let us down is the creation and implementation of a ‘systematic innovation capability’ for our businesses.

Such a capability takes the research and development results as an input and connects the organisation’s ‘new-stream’ to its main-stream of operations and marketing.

Conversely, without a systematic innovation capability, even the best of research and development efforts can often have a low chance of being converted into the ultimate goal for every business, which is commercial and financial success.

What innovation research tells us

My research at Melbourne University has shown that the creation of a systematic innovation capability should itself be a systematic process, involving planning and execution.

There are two ‘must have’ drivers to enable the innovation capability, namely an innovation strategy and strong leadership of innovation.

Innovation strategy defines the domain of a company’s innovation efforts and leads immediately to prioritisation of the scarce resources that will be applied.

This includes allocating monetary and labour efforts to product development, market research and the other elements that will create new sources of revenue that are hopefully profitable.

Leadership of innovation involves the most senior organisational members in hands on championing of the innovation efforts and contributing to the progression of the portfolio of innovation projects being carried out.

@AuManufacturing is publishing contributions from readers for our series – Towards 3% R&D – turbocharging our national innovation effort – over a, month and in an e-Book, and we urge you to contribute. Call Peter Roberts, 0419 140679 or write to [email protected].

The design of the innovation system, even for the smallest of companies, should consider and include the following elements:

  • There must be a well-developed innovation process, sometimes called the funnel, whereby the best of early stage ideas can be evaluated, screened for feasibility, developed and monitored. This includes being disciplined and indeed ruthless when needed, in killing off innovation initiatives that are underperforming and reallocating resources to where they can be used more effectively. Manage the project pipeline, with targets and regular reviews!
  • There must be a balance of resource allocation from the R&D effort to the customer focus end of the value chain, or in plain English, we need to balance the ‘technology push’ factor with ‘market pull’.
  • Our research showed that a principal source of innovative ideas comes from our very own employees, hence we need mechanisms, incentives and a culture which will stimulate the creation and ‘coughing up’ of these innovation ideas to seed the funnel referred to above. We should be scanning the external environment effectively as well for innovation ideas and opportunities, and once again this can be done systematically to great effect as against in an ad hoc manner.
  • Companies that have a successfully systematic innovation capability are not only proficient at measuring and assessing benefits and costs but also take full account of risk at both the individual project level and in aggregate. They recognise that risk usually goes hand in hand with potential returns and balance their portfolio of innovation activities with a blend of incremental innovations and a small number of radical innovations. One way to effectively manage such risks is to engage in collaborative or ‘open’ innovation, recognising that we don’t have to do all of the technical and market development ourselves, but can often benefit through joint ventures and the like.

An innovation system that works

These ideas above are based on clear evidence of ‘what works’, and particularly what is needed to sit firmly between an entity’s research and development works and its mainstream of commercial business activities.

Evidence shows that formalising such a systematic innovation capability rather than taking a ‘back of the envelope’ approach is likely to lead to better outcomes because it will stimulate stronger thinking, more consultation and ultimately more effective communication to the many stakeholders who will need to be involved in the in the implementation of the innovation strategy.

Dr Danny Samson is Professor of Management at the University of Melbourne where he teaches, conducts research and advises businesses on operations/supply chain, innovation and ESG strategies.

This series is brought to you through the support of our principal sponsor, public accounting, tax, consulting and business advisory BDO, and R&D tax incentive consultancy Michael Johnson Associates.

Picture: Dr Danny Samson

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