Written by External Source on September 26, 2023

Sergio Barbosa: Radical rethink needed to keep local companies innovating

SA is falling behind, but solid funding and a shift in approach can reverse the slide

[External Source: BusinessDay]

Once regarded as having one of the most innovative cultures in the world, SA is now falling behind. Local organisations need to radically overhaul their attitudes towards innovation, and if they can’t get it right internally they should outsource it. This will not only guarantee success but can also help operationalise innovation after development.

SA has long been recognised for its innovative culture, finding unique ways to address the country’s many societal and business challenges. However, the latest Global Innovation Index shows that while our innovation outputs have lifted slightly over the past two years, we are still ranked only 61 out of 132 economies, behind Mauritius at 45. What’s more, we are investing less in innovation, with our innovation input ranking slipping from 49 in 2020 to 69 in 2022. 

SA is definitely not as innovative as it once was. We are dealing with the acute effects of some severely inhibiting factors. These include a growing brain drain; a lack of investment in education by the government; and restrictive fiscal policies for companies, which are encouraged to import innovation rather than invest in it locally. We have noticed even our financial services sector is starting to lose its sparkle. Vision 2025 needs a lot more impetus if we are to remain competitive in the global financial services market from an innovation perspective. 

A key place to begin addressing the innovation issue is for the private sector to take the initiative to invest more. There are many methodologies to determine how much to invest and where to apportion the focus. One of the more referenced strategies is the McKinsey 70/20/10 rule, where 70% of the effort is focused at the business’s core operations, 20% on what the consultancy refers to as “adjacent step outs” and the remaining 10% should be apportioned to breakthrough innovation.

Another way is to identify a company’s growth gap — where a business would identify the gap between current and future opportunities and its current capability, investing in initiatives that will close that gap and enable it to address future growth opportunities. 

In general, the larger the effect you want to make on your revenue projections, the more you should spend on innovation. I don’t see large local companies being calculated about their innovation spend at all. It feels more like a tick-box on an executive summary than a thought-through strategic initiative. As a result, companies dive into an innovation initiative without proper discovery and fail to realise the value of true innovation. 

No time to be timid

Once the budget has been settled, companies should empower their innovation entities by removing the usual constraints of the operational departments. A timid approach should be avoided at all costs. 

Too often innovation happens in an area where success won’t deliver a big enough effect. A cautious approach sees businesses innovating in small pockets, solving small problems. They should be targeting important areas that will have the biggest effect on revenue and profitability. What’s more, the innovation should be structured and run outside, and even in competition with the business-as-usual teams. These “skunk works” innovation divisions should have a strong culture of learning and should be restricted only by the budget.

A skunk works project is a project developed by a relatively small and loosely structured group of people who research and develop a project, often with a large degree of autonomy, primarily for the sake of radical innovation. The term originated with Lockheed’s World War 2 Skunk Works project.

Take it outside

Innovation almost never happens inside the constraints of the business-as-usual environment. The most successful innovations have happened through a model where it was contracted out, either as a skunk works effort such as described previously, or even through an acquisition. Another viable and highly successful way to innovate is to contract the innovation project out to a trusted third party.

Innovation partners act as the skunk works team for hire. They come with their own tooling and processes designed specifically for innovative product building. Taking a managed team approach allows the contractors to move from discovery to a market-ready product. If empowered properly, they can then continue the innovation process right through to product maturity and finally business as usual, where the company can once again absorb the successful innovation back into its world. 

Tax incentives 

In a positive move, the finance minister announced an extension to the research & development (R&D) tax incentive for another 10 years. The relaxation of the requirements for R&D for internal processes has been particularly welcomed. This could be a game-changer, because successful innovation in companies starts by optimising something internally as a result of behavioural data from customers, in an outside-in approach. Previously, R&D tax incentives were allocated only to bringing new products or innovations into the market — a notoriously difficult thing to do, let alone succeed at. 

Looking ahead, SA may be going through a bit of an innovation slump but should not be written off. We have so much to learn from other regions. Whether it’s the collaborative approach and risk-taking culture of Silicon Valley, the culture of rapid prototyping at grassroots level in Shenzhen, or how Stockholm prioritises education, equality, diversity and sustainability.

Global companies still welcome SA teams into new projects. Our pragmatic approach to problem solving and our tenacity in the face of adversity are characteristics that we should all leverage to drive innovation at home and abroad. With solid funding and a shift in how we approach innovation we will quickly be back on top.

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