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Poor innovation growth stifles economy

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South African companies have only improved their innovation by marginal amounts over the last year — and it’s not enough to stimulate the economy.
According to Accenture’s Innovation Index 2017, released at the Accenture Innovation Conference yesterday, the country scored an additional two points from 2016 to reach 52 points in 2017. Over a three-year period, the score has only increased by six points.
This means growth is not advancing at the pace required to translate into stable economic growth.
The index suggests that South African companies are not spending their allocated budgets on innovation due to economic uncertainties. On average, companies are putting aside 45 %of their annual revenue for innovation developments, but actual spending is cautious and conservative at 36%.
“In a rapidly digitising business environment where new players are disrupting traditional revenue streams across all industry sectors, it is now more important than ever for companies to be stepping up their innovation game,” says William Mzimba, chief executive of Accenture South Africa and chairman of Accenture Africa.
“Digital innovation is reshaping industries by disrupting traditional business and operating models. But it is also having a profound impact on society, presenting both challenges and opportunities for businesses and policy-makers on the African continent. Innovation champions know this and their approach is seeing them achieve almost double the innovation ROI of the rest of the market.”
According to Yusof Seedat, director of Accenture Research, key is to establish the most effective way to drive the innovation agenda in these challenging times. “The good news, however, is that pockets of excellence do exist. There is a clear distinction between Innovation Leaders — companies that are successfully managing to execute across the various stages of the innovation value chain scoring 65 points and above on the Index (27% of the total sample), and the rest of the market — those that are struggling to move beyond their innovation strategy and not achieving their true potential in terms of innovation.”
Accenture measured innovation maturity across five stages: innovation strategy, ideation, absorption, execution as well as benefits and impact.
Throughout the stages, Accenture found that as companies mature their innovation capability, their focus shifts from just developing ideas towards a more comprehensive innovation value chain. Early innovation initiatives focused almost exclusively on brainstorming and ideation. This has recently been augmented with a concerted effort to ensure that relevant ideas are well executed.
“Interestingly, ‘absorption’ emerged as a key stage between ‘ideas’ and ‘execution’. Idea absorption indicates a company’s ability to successfully filter, prioritise and channel the best ideas to the execution stage,” Seedat says. “This stage is a crucial linking stage between two very different innovation skills: the creative ideation space and the clinical execution space.”
The index shows that companies are aware of the need to innovate: they score high at the strategy stage (83 points) which entails creating the plans and vision set to innovate. However, they score lower on all other aspects, from ideation (44 points) to absorption, at 53 points, execution at 59 points and, finally, achieving the desired benefits at 37 points.
“Companies are struggling to seamlessly translate their innovation strategy to well-executed innovations that realise maximum benefits. Our findings point to several areas creating this anomaly — from weak innovative cultures and poor organisational processes that do not fully support the innovation vision of organisations, to inadequate information dissemination and collaboration, and narrowly focused innovation policies,” Seedat says.
Institutionalising structured innovation capability is necessary to fuel growth, the report notes. This is a responsibility that extends far beyond the office of the CEO, however — organisations’ entire top teams have to be on board. Key is that these individuals do not all have to be creative masterminds; more important is their ability to draw out the skills of others to build an innovation culture.
At the strategy stage, innovation is indeed on the radars of South Africa’s most forward-thinking businesses — 90% of innovation leaders have instilled an innovation culture, according to the report. In these companies, innovation is seen as an important part of employees’ daily jobs. This stands in contrast to 65% of the rest of the market.
Moreover, leaders recognise that cultivating innovation means hiring intelligently. When it comes to skills, only 56% of companies in the rest of the market recruit those with specific skill sets to support innovation-related activities, as opposed to 100% of innovation leaders.
Powering strategic decision making with data is also a key innovation enabler for leaders, with 80% saying they see the full potential of business intelligence and analytics to drive innovation and inform strategy compared to 35% of the rest of the market.
Innovation leaders scored 67 for Ideation — the stage during which strategy is turned into actual concepts — leading the rest of the market (at 36 points) by a large margin.
A factor setting innovation leaders apart is collaboration within and outside the organisation, the report shows. Eighty percent of Innovation Leaders have digital platforms in place for employees to interact and share ideas, versus 37% of the rest. Further, a mere 44% of rest-of-market organisations encourage or make use of cross-teaming and collaboration between different stakeholders, as opposed to 85% of innovation leaders.
The third stage of the value chain, absorption, measures companies’ ability to sort through, prioritise and align around the good ideas generated during ideation. Low absorption limits companies’ ability to execute and stymies innovation efforts over the long term.
Innovation leaders score 77 for this metric, with the rest of the market coming in at 44. The country’s most innovative companies are fast movers: 80% of innovation leaders are more adept at taking a year or less from initial prototype development to full commercialisation, the report found.
At the execution stage, 85% of innovation leaders are focusing on disruptive innovations, leading the rest of the market by 32 points overall, at 82 to 50.
Yet it is in terms of benefits and impact that the gulf between innovation leaders and the rest of the market is most pronounced. Leaders scored 65 points at this stage, while the rest of the market trailed at 25. Measurement is one key element: the Index shows that 73% of innovation leaders implement performance indicators encompassing workflows and business processes critical to the success of innovative development. Just 38% of the rest of the market follow suit.
Leaders also continuously monitor, evaluate and look for improvements. They do this by assessing changes in the ratios of innovation outputs to inputs, the mix of different types of innovation investments and their related risks. They also know the value of customer feedback. Ninety percent of Innovation Leaders get feedback from customers through online and offline channels, versus 43% of the rest of South African businesses.
“Despite challenges associated in measuring innovation, leaders find ways of measuring and monitoring innovation performance across the value chain stages,” Seedat says.
Innovation has to become a more central part of South Africa’s economic growth model and the need to foster a business climate and culture conducive to breed innovation is vital. For South African companies, innovation follow-through — by implementing innovation strategy — will prove critical in the coming years, the Index notes.
To gear up for 2018 and beyond, the Index encourages all South African companies to take note of how innovation leaders enable, measure and drive success.