Despite a decade of warning bells and poor performance data, Australian innovation is still slipping against much of the world. Government can’t turn this around, nor our start-up industry. If company directors across the broader economy don’t take the lead, who will?

If the iron ore price hadn’t bounced back in the second half of 2016, following the 0.5% drop in GDP in the September quarter, it’s highly likely Australia would now be in a deep recession. Our non-resources sectors are simply not strong enough to have prevented it.

After 25 years of record, resource-led economic growth in Australia, the non-resources sectors of our economy have been allowed to become relaxed and comfortable without anyone much noticing, or caring. While the US and much of the EU responded aggressively and effectively to the GFC – because they had to – Australia didn’t, because we didn’t have to. We just carried on digging holes and sticking it on a ship to China, and the GFC passed us by with barely a ripple.

Take a look behind Australia’s resources facade and you’ll find an economy that’s just not as focused on innovation as much of the world is. For example, since 2012, the US has moved from 10th to 4th on the Global Innovation Index. The UK from 5th to 2nd. But Australia has slipped from 17th to 19th.

What’s holding us back? Prominent Australians are increasingly expressing their frustrations, and offering explanations with a consistent message:

Glenn Stevens: (from AFR) In his final extensive interview, RBA governor Glenn Stevens has delivered a rebuke to the nation and its leaders, warning that 25 years of record economic growth have bred complacency over what it takes to fix the budget and prepare for the next crisis, and threatened to leave voters and politicians with the deluded view that it’s “just the natural state of affairs, that we don’t need to do anything to achieve it”.

Andrew Liveris: (from AFR) “Australia doesn’t (compete with other countries) that way. Australia more or less says – what we have is a great country, great people, a great lifestyle and 25 years of economic growth. So why bother?”

Maile Carnegie: (from AFR) “As a nation we are still wallowing around pretending like we don’t understand what the formula is to drive innovation. We know what the formula is. The issue is we aren’t doing it – so let’s talk about why we aren’t doing it.”

Digging deeper into the Global Innovation Index data highlights just how deeply the structural innovation problems run in the Australian economy. We are tenth in the world in Innovation Inputs (ie idea generators), but ranked number 72 out of 141 countries in Innovation Efficiency (ie converting ideas into business and social benefit). This gap between 10th and 72nd represents the well-documented ‘brain drain’ that is seeing Australia’s ideas and talent going offshore.

If we don’t turn this around, as the data shows, it doesn’t end well. The accelerating rate of churn within the S&P 500 since 2010 maps through to half of the S&P 500 being replaced in the next decade, signifying the most turbulent times ahead for business in modern history. Businesses that aren’t innovating – that aren’t reinventing themselves – are simply not surviving.

What’s it going to take before Australia starts to take innovation seriously? Where to begin?

Innovation begins with asking questions. Asking the right questions, from the top down, is the beginning of the governance required for effective enterprise innovation:

● Are we innovating effectively?
● Are we innovating at all?
● Are we innovating the right things?
● Are the right stakeholders being involved?
● Are we investing enough in innovation?
● What return are we getting on our innovation investment?
● Are we at risk of disruption? What are we doing to mitigate this?

Having the systems and processes in place to objectively answer questions like these provides the board with the information they need to govern the innovation program effectively, and support management in innovating effectively.

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