Steve Jobs once said that innovation distinguishes between a leader and a follower.
By this standard, Australia is full of followers, all in desperate need of leadership. It's been established that Australia is an innovation laggard, compared to the digital direction and progress of 49 of our peers, and HBR's Digital Evolution Index discusses some of the reasons behind out 'stall out' status.
In this second part of the three-part series, CIO explores why leadership remains the key component to real change in Australian business.
Managing innovation in the digital age is not short of challenges. A previous study by Capgemini, in partnership with IESE Business School, found that executives and senior management need to implement a top-down approach to innovation that involves well-articulated innovation strategy and formal governance.
The flip side is that from that top-down culture, you should then also form a bottom-up approach to innovation, where employees can contribute new ideas and observations around the external business environment.
The study found the majority of companies do not have an explicit innovation strategy (58 per cent), while across the board, governance levers for the formal management of innovation were largely overlooked, with only 30 per cent having real organisational structure for innovation.
Speaking as the keynote for CEDA's recent Digital Bytes Breakfast event, CIO for the Reserve Bank Australia (RBA), Sarv Girn, discussed digital leadership, and the critical nature of collaboration, courage and culture when it comes to forging a path to innovation.
"At the start of the digital revolution, we saw technology being used mainly for productivity improvements... However, now through the application of digital technologies, entire business models are being changed, some even disappearing within short timeframes, replaced with new models just as quickly," says Girn.
Such companies include Uber, which is redefining the taxi industry without actually owning any cars, and Air BNB, which has more rooms available to travellers than any hotel chains, but doesn't actually buy or build any hotels.
"Leadership needs to evolve to embrace these new approaches demanded by the digital economy. It's not about forgetting the traditional approaches to leadership, but about building upon them," says Girn.
"Successful leaders in the digital age prosper most with a new focus on collaboration, courage and culture."
Girn believes innovation isn't just about who you work for, but who you work with, so leaders should encourage collaboration, not only within their own organisational unit but also across the industry.
"A leadership style that inspires discussion, idea generation, and enquiry becomes crucial in the context of digital disruption," he says.
"Many organisations that have prospered in this digital age have had a strong approach to engagement across their industry, either for harnessing ideas and possibilities, lining up partnerships for increased market share, research and development, or tapping into the talent pool around the world."
This collaboration is needed in addition to, and not at the expense of, the core intellectual property and know-how of the organisation in a highly competitive environment.
"The approach of inventing it all yourself is not one that has prospered," adds Girn.
Indeed, while giants like Apple design their own devices, it still relies on a sophisticated integration of suppliers to physically build and deliver an end product. Google relies on daily customer feedback on their online services, then reacts and adapts to that on a regular basis.
Meanwhile, telco companies regularly collaborate with phone manufacturers and retailers on plans, launches and unique value propositions.
"In the digital economy, the difference in collaboration required from leaders stems from the fact that ideas and threats may not come from your own sector...[Now] insights and ideas may arise from a completely unrelated sector or entrepreneurial source that can scale a startup with unprecedented speed," Girn says.
Some organisations will bring digital consultants into the organisations or onto boards to garner new insights, while some corporates are running hackathons, providing a platform for external developers to compete in order to deliver innovative new methods or approaches to doing business.
Gavin Heaton, digital consultant and co-founder of the Disruptor's Handbook, is currently working with Qantas on its upcoming hackathon to develop new software applications that will benefit consumers.
"Hackathons are great ways of shifting the focus of a company and its sense of itself by bringing some of that outside-in innovation," he says.
"You're generating the ideas you need and getting feedback on what you're already planning by engaging a very different sort of community in a very short period of time."
Businesses that only rely on the help of external developers, customer feedback, or partnering organisations could be missing out on a valuable internal resource, however.
Often it is your own employees that hold valuable insights, for no extra cost. This is especially the case now that there is an influx of younger, more tech savvy people entering the workforce. Girn says while Gen X and Gen Y workers are today fighting to win the digital race, for Gen Zs entering the workforce, digital disruption may well be business as usual.
"Instead of bringing in people from the outside, why not listen to the people on the inside who knows there needs to be change?" asks Karen Scott Davie, digital consultant, CIO Executive Council member.
"Often it's a myriad of both. Your audience isn't just customers and external stakeholders."
Creating a culture that allows your staff to contribute directly to the success of the company could have great results. One way to encourage innovation from your own staff is to provide the time and space dedicated solely to idea generation and feedback.
The RBA often has 'lunch and learn' sessions to empower its younger cohorts with knowledge and interaction, while also relying on internal competition such as 'code-a-thons' where staff work in teams to come up with IT solutions to help the business flourish.
Similarly, Scott Davie says during her time working on the board of Optus, there were internal competitions to come up with innovative new ideas, the best of which would receive funding.
"There were 10,000 ideas generated from that and in the end they sponsored around 10 ideas and implemented them rather than just the one, because they were overwhelmed," says Scott Davie.
"That sparked a cultural shift that showed they were willing to listen, willing to try something new and they wanted it from their own people."
A key reason to create a collaborative culture between management and employees, according to the Capgemini report, is motivation and engagement.
At the time the study was published, executives were mainly motivated by extrinsic transactional drives of innovation, wanting to be held accountable for growth, whereas employees were driven by high intrinsic transformational motivations.
Ninety per cent of employees considered innovative work exciting, and 89 per cent had a desire to improve things, while 87 per cent enjoyed being part of a team or taskforce for something new.
"Real innovation leadership requires executives to reduce the level of disconnect between themselves and employees when it comes to motivation for innovation," the Capgemini report reads. "The CEO is the most important source of innovation culture, but it has to take root informally as well."
Not enough organisations are striving to listen to their employees, however, and the Australian business community is lesser because of it.
"I constantly hear of people who say they have pitched ideas to their boss, and are constantly told 'no'," says Fergus Watts, digital consultant and CEO of Bastion Group.
"If you're going to bring people into your organisation, let them flourish, let them make big mistakes. Your people should be given an opportunity to truly grow and be challenged, and so tell them, 'if you can come up with a better way of doing things then we will do it'.
"Most leaders don't do that, they run the business the way it's always been run and you sit in a box all day, then you go home. I don't get the impression that businesses are really striving to be better every day."
Girn agrees that today's employees don't just need a vision; they need a challenge or a mantra they believe in, and one that allows them to compete. This includes having a specific digital goal in mind, and clear articulation of why the challenge or the need exists, and what this will do for the organisation and its customers.
"This is about developing a culture that accepts digital change and supports budding entrepreneurs to pitch ideas, gain feedback and grow," Girn says.
"This approach quenches the thirst that digital natives have for feeling engaged and wanting to express their view, which leads to many other related untapped ideas and views being captured."
However, this requires a total mindset change, an acceptance that new ideas may fail, and the attitude that it's okay for them to start again.
"In the Silicon Valley, the number of startups that an individual has been part of is seen as a valuable credential, not a black mark on their ability. This clearly is a new paradigm for us, as traditional leadership would see these as failures," says Girn.
The fear of failure is not by any means a foolish fear. But it's one that leaders will have to bear if they want to remain competitive, which the final crucial element to leadership is courage.
"Leaders in the digital economy need an extra dose of courage, more so now than ever before, and an approach that's nimble, adaptive and - if required - they can reconfigure or re-imagine the business model," Girn says.
Apple resized the iPhone to make it larger when the previous direction was to go smaller. Microsoft, traditionally in software, entered the hardware arena with new surface devices, while countless newspapers are challenged by the choices between print and digital offerings.
Then there were companies like Borders, HMV and Blockbuster that saw the market begin to turn digital, but were not quick enough to implement real change.
Companies today need a 'test and learn' approach, where seed projects may be allowed to grow and prove themselves, so long as leaders have the courage to write them off if they don't deliver value, says Girn. Conversely, if projects do show value, then leaders must have the courage to implement them.
"This isn't as simple as it sounds," says Girn. "Often the easiest decision is to continue investment in a project right until the end.
"On the other hand, a project that does deliver and sometimes disrupts the business model and historic revenue stream may be seen as an internal threat."
While looking to agile startups for inspiration, it's important that larger organisations with different structures don't try to completely emulate these smaller businesses, but rather take a leaf from their book.
While you can't suddenly transform a 100-year-old organisation into a cultural startup, the key was approaching change on a segment-by-segment basis, rather than trying to change a whole culture upfront.
"There will still be a part of the organisation that actually needs to do things in a more traditional way, with more structure and specifications and quality built in at every stage," Girn says.
"The challenge is working out which part of the organisation needs to move in a startup fashion, with more agility and collaboration, and which part of your organisation needs to be stable and reliable and fully secure."
While leadership required in the age of digital disruption has similar qualities to traditional leadership - vision, strategy, people and delivery - the speed and nature of change today warrants that we up the ante.
Girn says it's when traditional leaders are afraid of technology, or don't quite understand the opportunities or threats it brings, the difference required in leadership becomes much more clear. If anything, we can hope the growing combination of business savvy-technologists and technology-savvy business leaders will be the ones to drive true change.