Australian boardrooms have not recognised the “urgent need to prioritise innovation” and were lagging the rest of the world in coming to grips with disruption, a new report has found.
The ‘Driving Innovation: the boardroom gap’ report, completed by the Australian Institute of Company Directors and the University of Sydney Business School, investigates director practice across a range of sectors, through member surveys, interviews with directors and a global literature review.
It makes for “sober reading” and “paints a picture of Australian boardrooms that struggle to prioritise innovation and are too often focused on traditional risks”, AICD chief executive Angus Armour said.
“The study tells us that innovation is often missing from Australian boardroom agendas. It reveals that traditional risks are the focus rather than the risks – and opportunities – associated with innovation and disruption,” Mr Armour said.
“Without directors driving this conversation, and requiring innovation to be on the board’s agenda, we will struggle to fulfil our potential as a nation and maintain our level of prosperity,” he said.
“Innovation should not be viewed as optional, or just a concern of the black t-shirt millennial of technology companies. It is a central part of corporate strategy and risk management, two core responsibilities of the board.”
The survey reveals a significant gap between boards recognising the importance of innovation and the boards actually doing something to address it.
Of those surveyed, 75 per cent said their organisation had an “innovation vision” or that innovation featured in their strategic plan, but 57 per cent said that innovation has never been or was only an occasional board agenda item.
More than half of the directors surveyed said they were not aware of the percentage of their organisation’s total expenditure allocated to research and development and innovation activities.
The top factors blamed for a lack of addressing these issues was access to talent, a lack of financial resources and a short-term financial focus. Australia’s regulatory environment was also blamed for an acute focus on short-term financial performance.
Only 35 per cent of those surveyed said that their board had the right skills and experience to assess the ethical and practical implications of modern technology. The report found that only 3 per cent of directors held science and technology expertise, or had international expertise.
“Australian boards lack critical technical and innovation skills, and need to increase access to specialist advice. More must be done to broaden the director talent pool to include individuals with science and technology backgrounds,” the report said.
The report shows a “director community that feels overwhelmed by internal and external pressures, and struggling to look up and see what is on the rapidly approaching horizon”.
It also included five key recommendations to Australian companies to address the issues identified.
Companies need to lift their directors’ technology and digital literacy, it said.
“Directors do not need to be technical experts, but they must be able to understand how key technological developments will impact their business. Innovation should form part of directors’ program of continuing education,” the report said.
It also said that clear expectations need to be set for company management on calculated risk-taking that drives innovation.
“This is fundamental to fostering a culture that allows innovative ideas to surface, be tested and then implemented promptly,” it said.
The AICD also recommended that innovation be featured regularly on boardroom agendas, a shared language on innovation be developed with management and the establishment of a budget and executive incentives for long-term innovations.