Thinking outside the square

Companies that fail to think creatively will find themselves at the back of the pack or out of business. Sam Walker discusses how their directors can help them become more innovative.

The only constant is change, and change is taking place at a faster rate than ever before in our history, thanks to rapid technological advancements. And, in times of flux and great economic uncertainty, new ideas and creative thinking are the key to productivity, growth, future jobs, staying ahead of the competition and, sometimes, even survival.

Entrepreneur Scott Frew’s catch-cry is: "Innovate or die". "It’s probably the most important thing I try to tell people," he says.

The forward-thinking computer programmer started his career believing his work was not creative, but soon realised the new ideas and concepts he was coming up with were centred on thinking outside the box.

That mentality has helped him build numerous innovative multi-million dollar enterprises, which are now affecting business productivity around the globe.

Frew, who owns Distribution Central and iasset.com and is a non-executive director of several companies, believes innovation is critical in today’s business environment.

"All the businesses I have built, historically, are fast growing and innovative in what they do," he says.

"If you’re not being innovative you’re not taking a safe course of action. You’re not adjusting and keeping pace with the market. You’re not going anywhere," he says.

Australia is no stranger to innovation – we are a nation that has grown up on the back of creative thinkers forced to find new ways in a harsh and unforgiving environment, and that thinking has persisted through the generations.

But what exactly is innovation and how does Australia rate in today’s ever-changing global market?

Innovation Australia chairman David Miles says Australia has slipped backwards in recent years and our businesses need to be careful they are not left behind.

"Innovation is about taking new ideas to market. It’s not about invention or about research," Miles says.

"Innovation is about turning knowledge into money or useful products. Increasingly, we are in a globally competitive market and our ability in Australia to compete in that market will, to a large extent, depend on our ability to innovate."

Australia is lagging behind nations such as those in Scandinavia, which, driven by necessity, are leading the way, and the US and Canada.

In these countries, the importance of innovation is recognised at a bipartisan level in government. And, according to Miles, there is a link between Australia’s decline in innovation and government incentives.

He admits that global financial crises do not help and that the recent financial instability has contributed to venture capital drying up in Australia.

However, when times are tough and companies are tightening belts, it is arguably the most important time for them to be thinking outside the square. Rather than just reining in expenditure, boards are advised that the best practice would be to think creatively about the changes they can make and the costs they can cut.

Innovation experts are in general agreement that any move to foster creativity, and encourage lateral thinking and new ideas, needs to be driven by the board and communicated to executives and staff.

Dr Amantha Imber, inventiologist and founder of Inventium, an innovation consultancy, believes the board’s role in driving innovation is critical.

"The messages the senior management team are getting from the board can really determine expectations and how much of a risk taker the organisation is," explains Imber. "If you don’t innovate, you will actually decline, as opposed to stay the same," she says.

However, it is not necessarily a requirement for the directors to be the innovators. "Ultimately, it’s up to management to drive the culture and the board to set the parameters," says Miles.

Those parameters need to be incorporated into the company’s strategy.

Imber recommends a separate innovation strategy, different from traditional business strategies, which encourages the organisation to pursue existing markets.

Terry Stinson FAICD, CEO and managing director of clean energy technology group Orbital, says members of the Orbital board were all attracted by its history of innovation and green profile.

In recent years, the core business of the Perth-based company has evolved from selling ideas to also selling products. "Innovation at Orbital is driven by our strategic plan," says Stinson.

While it is imperative for boards to focus on innovation, Stinson says the level of focus will depend on the individual company, and companies like Orbital will not survive if they do not innovate.

Stinson says all businesses must evolve and innovation is part of that process.

Directors need to ask whether their organisation is innovative, whether they want to be innovative and if so, how the board is going to drive and focus on innovation.

The board needs to be active in developing and delivering the strategic plan and should help guide the organisation on the best ways to use innovation to deliver on objectives.

"Our board has a good understanding of innovation. This helps us to drive the strategy," says Stinson.

David Iverach, chairman of Biopower Systems, a small, start-up company developing unique technology to convert ocean energy into electricity, is more cautious about the term "innovation", which he sees as a buzzword.

Iverach believes boards need to facilitate an atmosphere conducive to clever problem solving, which commonly involves change.

"Change is always hard but it’s made easier when everyone is clear about the need for it and sees the sense of it," says Iverach. "It is also easier in organisations that have made a habit of being adaptive and flexible. But change for change’s sake seems a bit silly to me.

"Customers, competitors and changing circumstances are always throwing up problems and solving them well is the opportunity. So staying alert to what’s going on around you is critical. What could possibly be coming over the horizon? The worst thing in business is to be surprised. Boards have an important role to play in avoiding that."

For some industries change is inevitable and technological advances, such as the internet, have driven some industries to the brink of extinction and forced radical change.

Vanessa Gavan, founder and managing director of Maximus International, an innovation consultancy, says there are industries that will not be around in five to 10 years’ time. "For some sectors, the need to innovate is very significant."

The music industry has already gone through radical change, the newspaper industry is in crisis and DVD rental stores are facing significant changes, to name a few.

The traditional, long-standing and conservative newspaper industry was put on notice about the decline in print media 10 years ago and failed to take action.

Frew suggests the industry might have weathered the storm better if new directors had been brought in, with a finger on the pulse of modern technology and more in tune with the changing needs of consumers.

Certainly, board diversity makes for a more dynamic organisation and broader spectrum of thinking.

Diversity of experience, education and gender is as important for innovation, says Stinton, as is the need for someone creative on the board.

There are many ways for boards to foster innovation.

Imber recommends that large organisations think like a really lean start-up, which by its nature has to take a creative approach.

Research and development (R&D) is also integral to organisations wanting to foster new ideas and it should be incorporated in the budget.

However, Stinson says the board should be asking its executive what the money for R&D will be spent on, whether these are the right projects, whether they fit within the strategy and when the organisation can expect to see a return.

Angus M. Robinson MAICD, a Sydney-based executive and founding member of Innovating Innovation Australia, a working forum that evolved from an online Australian Institute of Company Directors discussion group on LinkedIn, says organisations need to determine the commitment they want to make to innovation.

"If a board is determined to incorporate more innovation into the organisation a financial commitment to R&D, skills training, review of customer-service programs and processes should be high on the agenda when setting organisational goals for regular review," says Robinson.

There are also many programs and incentives available to Australian businesses, and directors and executives should be aware of them and the opportunities they present.

Miles cites the R&D Tax Incentive, which provides a rebate on investment in R&D to businesses with a turnover of less than $20 million.

"You can’t drive innovation without funds," he says.

While some people are programmed to be more left-brain oriented, Imber says there are ways to encourage and teach creative thinking.

It can be as easy as starting with a lick of paint or some bright decorations in the office with warm colours, particularly red, orange and yellow, scientifically proven to stimulate creativity, while a minimalist office environment can stifle creativity.

Exercise or spending time in the natural environment is also great for creative thinking and problem solving.

Miles recommends encouraging competition in the work place or allowing downtime to just think.

Australian employees are being driven harder, are working longer and spending long periods in front of screens. Miles says it doesn’t leave time for free thinking.

A quick look at the offices of Google and it is clear employees are entrenched in an environment designed to inspire creativity, with lots of colour, play rooms, comfortable lounges and big windows overlooking gardens.

Successful IT companies like Google have also appointed chief innovation officers, ensuring innovation is a prominent part of their business practice.

Whether every organisation needs to create such a position is open to debate and comes down to a company’s approach to new ideas.

Stinson says Orbital is made up of a strong team of creative minds all looking at new ways to make money while having fun at work and every person in the building is an innovator.

Innovation can also be written into KPIs or job descriptions.

Creating a designated position is not necessarily as important as driving a culture of innovation and following through with it.

For an organisation to thrive, Robinson says innovation must be its lifeblood, with the CEO at the heart of it.

Gavan suggests organisations take a "bottom-up" approach and encourages management teams to incorporate processes that allow ideas to filter up from employees.

Certainly, an avenue for employees to share their ideas without facing criticism or rejection helps an organisation’s creative process.

However, Gavan says it is also crucial to have leaders with transformational thinking rather than those entrenched in a "business as usual" mentality.

Innovation goes hand in hand with risk and the consensus among creative thinkers is that taking risks and accepting failure are necessary parts of moving forward. Many Australian companies, however, can be quite risk averse and dismissive of failure.

"The great thing about failure is that rich learning can come from it," says Imber.

Frew, who has learnt from numerous failed company ideas, says it is particularly important that executives feel comfortable that they can fail and still keep their jobs.

Just as there are ways to promote and encourage creative thinking, there are things that are sure to kill innovation.

"Risk aversion is the fundamental killer of innovation and poor customer focus is another," says Robinson, who also cautions against a remuneration system that rewards CEOs and executives but fails to incentivise and reward employee-initiated innovation.

Hierarchy, bureaucracy, overly analytical and critical management styles can all stifle innovation.

Gavan says conservative thinkers should not be too quick to judge new ideas, which could be massaged into solutions to problems or money-making practices. "Sometimes what ends up being a good idea might not at first seem like one," she says.