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During this such a outline with regards to fostering enterprise innovation exploring further the leadership of innovation.
Fostering Enterprise Innovation:
Exploring Further the Leadership of Innovation
May 2010
IBSA wishes to acknowledge the work of Professor Victor J Callan and Sarah Esposo of The University
of Queensland Business School who have undertaken the research to follow up the outcomes of
IBSA’s Enterprise Innovation Summit and have prepared this report.
For further information about this report or any other work being undertaken by Innovation & Business Skills
Australia Ltd, please visit www.ibsa.org.au.
© 2010 Innovation and Business Industry Skills Council Ltd
All rights reserved. Apart from any use permitted under the Copyright Act 1968, no part of this publication may be reproduced, stored in a retrieval system,
or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise, without written permission from the publisher, Innovation
and Business Industry Skills Council Ltd (‘IBSA’).
Innovation & Business Skills Australia Ltd
Level 11, 176 Wellington Pde
East Melbourne, Vic 3002
Tel: 03 9815 7000, Fax: 03 9815 7001
Email: [email protected]
Contents
Contents .................................................................................................................................................................. 3
Fostering Enterprise Innovation .............................................................................................................................. 5
Foreword ............................................................................................................................................................ 5
Introduction ......................................................................................................................................................... 6
Our national innovation system .......................................................................................................................... 6
Methodology ....................................................................................................................................................... 6
Section 1: ................................................................................................................................................................ 8
Leadership and innovation ...................................................................................................................................... 8
Leaders influence innovation but….. .................................................................................................................. 8
Leaders of innovation promote the right culture .................................................................................................... 10
Support learning ............................................................................................................................................... 10
Support strong shared goals ............................................................................................................................. 11
Adopt a failure-tolerant leadership style............................................................................................................ 12
Reward innovation ............................................................................................................................................ 13
Conclusions around building innovation cultures .............................................................................................. 14
Leaders promote capabilities for innovation .......................................................................................................... 14
Skills and up-skilling ......................................................................................................................................... 15
Skilling leaders on the job ................................................................................................................................. 16
The role of service providers in building innovation leaders ............................................................................. 18
The role of Government in supporting innovation ............................................................................................. 24
Lessons from other countries about building capability .................................................................................... 28
Conclusions around building capability ............................................................................................................. 30
Leaders promote innovation through collaboration ............................................................................................... 30
External collaboration ....................................................................................................................................... 31
Internal collaboration ........................................................................................................................................ 32
Conclusions around building collaboration ....................................................................................................... 34
Section 2: .............................................................................................................................................................. 35
Leadership, culture, capability and collaboration in startup firms .......................................................................... 35
Entrepreneurship, risk and innovation .............................................................................................................. 36
Financial and other supports around managing risk ......................................................................................... 40
Supporting entrepreneurs: Strategies and recommendations .......................................................................... 41
The development of an industry charter ........................................................................................................... 43
References ............................................................................................................................................................ 45
5
Fostering Enterprise Innovation
Foreword
In response to the need to continue to lift innovation practices in Australian enterprises, Innovation and Business
Skills Australia (IBSA) in June 2009 held an Enterprise Innovation Summit at Parliament House in Canberra. The
starting premise was that a compelling case exists for how engagement in enterprise innovation increases
national productivity, prosperity and social well-being. The Summit focused more on the development of a new
agenda to improve the leadership and management of Australian enterprises, and the skills of our workforce
more broadly, to increase Australia’s capacity and capability for continued innovation. As noted in the IBSA
report from the Summit, further discussion was needed to examine how leadership, management and culture
within organisations contribute to building innovation and productivity.
In developing this new agenda around leadership and management in more detail, IBSA undertook to explore
further four key ideas that emerged from the Summit participants around:
1. Examining the interconnectedness between leadership, innovation, skills formation and productivity in
the workplace
2. Developing a better understanding of innovation, risk and entrepreneurship as experienced by startup
firms
3. Undertaking research to better understand the experiences of young Australian entrepreneurs
4. Investigating further the concept of a National Industry Charter for Innovation and Leadership.
In line with this ‘follow-up’ agenda, we are pleased to present the current report which explores the leadership of
innovation by looking at past Australian and international research, and also by incorporating into these findings
the views of a wide range of younger and more experienced Australian entrepreneurs, business figures and
other observers of the innovation journey in Australia. We reiterate the importance of Australia’s government
and enterprise leaders being serious about encouraging innovation as the underpinning for future national
prosperity.
John Vines
IBSA Chair, May 2010
6
Introduction
Our national innovation system
In response to Venturous Australia: A Review of the National Innovation System, the Australian Government has
increased the national budget for science and innovation from $6.88 billion in 2008-2009 to $8.25 billion in 2009-
10 — a 25% rise in funding. Driving such investment is substantial evidence that an innovation economy
provides a better future. Innovation economies have more engaged workforces and more productive
organisations with more skilled and capable people.
To guide its own thinking in this area, IBSA has defined innovation as the conscious exploitation of ideas leading
to a new or modified product, process or service which adds economic and/or social value. Innovation therefore
is about the intentional introduction and application of new ideas, processes, products or procedures into a job
role, team or organisation, where their adoption significantly benefits the individuals, the teams, the organisation
or wider society.
A key focus of this report is upon the role of leaders in driving innovation. As will be highlighted, leaders at all
levels in our organisations are key drivers in planning and delivering the transformation that emerges around
innovation. Australian organisations require leadership that encourages, recognises, and rewards creativity and
innovation at all levels in the enterprise. In addition, leaders are central in promoting and sustaining
organisational cultures that embrace diversity, tolerance, talent and technology. While management is about
maintaining the status quo, leadership is about change and transformation.
This report is divided into two sections:
Section 1 reviews the links between leadership, culture, capability and collaboration in driving innovation in
enterprises. It highlights the key role of business leaders, Governments and service providers in driving
Australia’s innovation agenda. It also reviews current innovation initiatives provided by Governments and various
service providers and examines how current programs and initiatives address these core enablers of innovation
— culture, capability and collaboration. Practical strategies on leadership and capability development are also
provided.
Section 2 reviews innovation in emerging enterprises and the special issues faced by startups. It looks at the
nature of entrepreneurs, the risks they face and strategies to promote more entrepreneurship in Australia.
Methodology
Our strategy in preparing this report was two-fold: the first was a targeted review of the literature to establish the
links between leadership, culture, capability and collaboration in driving innovation. We consulted past research
to identify the special issues faced by new entrepreneurs and emerging enterprises, including the types of risks
they experience in the early stages of their new venture.
7
The second approach we took was to talk to a number of business leaders and entrepreneurs across Australia to
investigate their startup experiences, their thoughts on innovation, risk, entrepreneurship and on ways to improve
innovation in Australia. Business leaders and entrepreneurs were selected based upon evidence of their
contributions toward driving innovation in their business and in the wider community; write-ups of their
achievements around innovation; and through nomination by IBSA and other business leaders. We conducted
focused interviews with twenty-six entrepreneurs and business leaders either face-to-face or by phone during
March to May 2010. Interviews ranged from 20 to 60 minutes in length.
The following is a list of those interviewed:
• Bruce Biltoft, Managing Director, Memcor Australia
• Howard Buckley, Chief Executive Officer, Sungrid Limited
• Doron Ben-Meir, Chief Executive Officer, Commercialisation Australia, Department of Innovation,
Industry, Science and Research
• Captain David Coates, Adjunct Professor, Griffith University
• Geoff Fary, Assistant Secretary, ACTU
• Dr Alan Finkel, Chief Technological Officer, Better Place Australia
• Professor John Foster, School of Economics, The University of Queensland and Member of the Cutler
Review of the National Innovation System
• Trevor Glen, Chief Executive Officer and Co-Founder of Sarugo (and Memory Box)
• Stewart Gow, Manager, Venture Capital Invest Queensland
• Deryck Graham, Executive Director, Quickstep Technologies
• Hugh Guthrie, Principal Research Consultant, National Centre for Vocational Education Research
• Lusia Guthrie, Chief Executive Office and Managing Director, LBT Innovations
• Jaegopal Hutapea, Angel Investor, and Founder of World Energy Storage Technology
• Narelle Kennedy, Chief Executive Officer, Australian Business Foundation and Member of the Cutler
Review of the National Innovation System
• David Kitchen, Chief Executive Officer and Founder of Brewers Choice
• Yazz Krishna, Chief Executive Officer, Five Faces
• Hugo Le Messurier, Managing Director, LeMessurier Solutions
• John Mactaggart, World Angel Investor and Director of Technology One
• Andrew McGrath, Chief Executive Officer and Founder of McSoft T/A Workslink
• Hew McDonald, Operations Manager and Founder of Evolving Workshop Technologies
• Allan McPherson, Managing Director, McPherson Group
• Lynette Mayne, Executive Chair, Work Wear World
• Nev Power , Chief Executive Officer of Australian Operations, Thiess
• Steve Vamos, Founding President of the Society for Knowledge Economics
• Bob Waldie, Chief Executive Officer, Opengear
• Peter Westfield, Co-Chair, Australian Innovation Festival and Director, Adair Communications
• Nicholas Wilkinson, Managing Director and Chief Executive Officer of Keystone Medical
• Dr David Wyatt, Non-Executive Director, Papyrus Australia Limited.
8
Section 1:
Leadership and innovation
The consensus at the Enterprise Innovation Summit was that there is already a case for greater engagement in
enterprise innovation to increase our national productivity. However, a major next step is to foster innovation
capacity and capability by developing a new agenda around leadership and management in Australian
enterprises. As noted by the Society for Knowledge Economics and others, we need leaders across our
economy with the strategic and operational capabilities to build work cultures that encourage more workplace
innovation
1
To this end, the next section brings together the findings of national and international research into leadership
and innovation. It points out that leaders must play a key role in driving Australia’s innovation agenda through
their focus on three core activities:
.
• Building culture
• Building capability
• Modelling and supporting collaboration.
Leaders influence innovation but…..
Innovative nations survive and thrive more than less innovative nations. Continued innovation in organisations is
a key part of their longer term survival
2
. However, few reports have examined the precursors of longer-term
innovation, especially how the attitudes and behaviours of leaders determine better outcomes around increased
levels of innovation
3
. Those reports that have examined the links between leadership and innovation reveal that
the links are complex, and mediated by a range of factors
4
Empirical studies reveal four sets of leadership skills and abilities that positively influence the success rates in
organisations in implementing change and in driving innovation
.
5
1. Ability to coach – the leaders inspire others to be at their best and to establish supportive partnerships
with employees that make them feel engaged and empowered
:
2. Ability to reward – leaders of innovation know that rewards need to be flexible and gradual, valuing
small contributions, milestones and incremental change
3. Ability to involve and support others – leaders of innovation connect with their employees, soliciting
feedback and offering high levels of support that facilities employees’ involvement and commitment
which is critical to successful innovation and change
4. Ability to promote teamwork and collaboration – leaders view innovation as a collective endeavour that
is about creating cultures and systems that sustain innovation.
1
Society for Knowledge Economics, 2008, 2009; Dodgson et al., 2008
2
Damanpour & Schneider, 2006
3
Bass & Riggio, 2006
4
Eisenbeiss et al., 2008; Avolio, Zhu, Koh, & Bhatia, 2004
5
Bel, 2010
9
Given these capabilities, what is the most effective style of leadership around promoting innovation?
Transformational leadership is the most effective style overall
6
By encouraging new ways of looking at problems and by modelling less conventional ways to solve problems at
work, transformational leaders encourage their team members to value attempts around previously untested
ways to solve problems
. Organisations that have more transformational
leaders across all levels are more likely to be consistently high-performing. More transformational leaders
provide the intellectual stimulation and collective vision that fosters both the creativity and productive team work
necessary for innovation. More transformational leaders encourage followers to challenge existing assumptions,
to reframe problems, and to approach old situations in new ways. By providing a vision for the team and the
organisation, these leaders promote greater levels of challenge and meaning around the work being completed.
7
Whereas non-transformational (i.e., transactional) leadership is focused on maintaining the status quo and
fostering continued performance on well-defined tasks, transformational leadership highlights the necessity for
change and constant evolution to business operations and culture. Howard Buckley, the CEO of the dynamic and
growing new business Sungrid, talks about the importance of leaders building a culture of innovation and
aspiration. He believes that the right choice of leader has been critical to the success of this WA solar energy
startup company in being clearer about what the firm is good at, and where it can maintain its competitive edge.
. In support of these research findings, Dr Alan Finkel of Better Place Australia believes
that effective leaders of innovation identify and set challenges, and they know that intelligent people will always
respond to challenges. They also lead by example, modelling creative and unconventional behaviours that may
stimulate innovation.
Deryck Graham is a founding Executive Director of Quickstep Technologies that began as a startup in Perth in
2001. The initial Quickstep process was developed out of the family’s garage. Today this business is a listed
company that offers composite materials engineering and manufacturing for the aerospace and defence
industries in Australia, together with Centres of Excellence in Germany, the UK and USA. He highlights the
significance of the partnership between transformational leadership and innovative technology:
“No matter how clever is your technology, the investment public will bet on the quality of the
leadership in your business. It is this judgement about your technology and the leadership of the
firm that they will weigh up in believing that you can generate a return to shareholders. The right
leadership and management are required at different stages in the growth of the business. In our
case, we have hired different types of CEOs with different capabilities at different stages of the
growth of the company.”
In summary, there is a large body of research evidence into transformational leaders. They inspire individual
creativity and innovation at the team level. In turn, the actions of these teams make more innovative
6
Elkins & Keller, 2003 Bass & Riggio, 2006; Eisenbeiss et al., 2008 Hülsheger et al., 2009
7
Liao & Chuang, 2007; Garcia-Morales, Llorens-Montes & Verdu-Jover, 2008; Bass & Riggio, 2006
10
organisations. At the same time, some studies do not show a consistent relationship between transformational
leadership and innovation
8
However, one explanation for this finding is the role of other factors that mediate the relationship between
leadership and the outcomes around innovation (see Figure 1). These factors are now discussed, and include
business culture, employee capability and levels of collaboration.
.
Figure 1. Leaders promote innovation and higher productivity through building culture, capability and
collaboration
The following sections examine in more detail how leaders of innovation:
• Promote culture
• Build capability
• Support and inspire collaboration.
Leaders of innovation promote the right culture
Following Figure 1, we now focus upon how leaders of innovation build cultures that:
• Support learning
• Have strong shared goals
• Tolerate failure
• Reward innovation.
Support learning
Organisational leaders play a key role in shaping an internal culture conducive to innovation — a culture that
encourages learning, tolerates failure, and supports its innovators
9
. Innovation leaders take steps to build
cultures which promote and sustain learning
10
8
Eisenbeiss et al., 2008; Wilson-Evered, Härtel & Neale, 2001
. There is solid evidence around the links between getting the right
culture and climate in organisations, and getting higher levels of innovation. Studies of R & D units, for instance,
9
Damanpour, 1991
10
Senge, 1990
11
reveal that climate and culture emerge as the most important predictors of innovation
11
. Organisations with
cultures promoting challenge and risk taking are more innovative as a whole
12
Towards promoting this innovative edge, IBSA has provided a checklist for implementing an innovation culture.
This list suggests that the use of a more facilitative leadership style encourages and supports employees in
thinking more about improvements to products, processes or services
.
13
Lynette Mayne, the former CFO of Lend Lease Corp and current Executive Chair of Work Wear World, a
successful boutique provider of uniforms, expands on this issue. She says the following about the role of leaders
in building an innovative culture:
.
“Leadership is a crucial part in making a company successful and unique, so you really need to
have the right leadership to create the kind of culture that you need for innovation. Innovation is
about companies being able to re-invent themselves all the time, so that means you have to have
the right leadership that encourages everyone and have statements that characterise what the
company stands for. At Lend Lease, one of the slogans we had was 'dare to be different'—so
encouraging every employee that they can always improve their jobs, and if they do so they will be
rewarded accordingly. Having an innovative culture and having everyone believe that they are the
innovators in the company is really important.”
We know that innovative organisations prize learning and innovation as a core capability. Significantly, we know
that learning cultures create, acquire and transform knowledge, and they are very effective at shaping the
behaviours of employees to reflect this new knowledge and the insights provided
14
• promotes innovation by empowering its people
. In fact, a true learning
culture:
• encourages diversity and collaboration between individuals with diverse backgrounds, as individuals
with more diverse backgrounds and experiences challenge established practices and beliefs that
actually hinder innovation
• welcomes new entrants and their diverse ideas into existing work groups
• creates continuous learning opportunities for employees, and often with their customers and partners
15
Support strong shared goals
.
In innovative workplace cultures, there is support for creativity and innovation, and in particular support for
independence in pursuing new ideas. The leaders of teams, as mentioned above, are critical here in promoting
these climates and cultures for innovation.
For instance, in a meta-analysis of over 100 independent studies, Hülsheger and his research team found that
goal interdependence was the most influential team level factor for innovation in the workplace. Team processes
11
Abbey & Dickson,1983; Scott & Bruce, 1994
12
Nystrom,1990
13
IBSA, 2008
14
Nonaka & Takeuchi (1995); Durrance,1998; Farson &Keyes, 2002
15
Lam, 2002
12
showed stronger links with innovation than any other factor
16
A number of entrepreneurs interviewed noted the value in choosing CEOs with different experiences and skill
sets at different stages in the development of startups. However, Dr David Wyatt who is an entrepreneur and
business angel warns that buying-in leadership skills at later stages in the growth of the startup business can
create culture clashes that reduce the innovative spirit. In particular, when leadership is brought in from outside,
he argues that those individuals must be less willing to work in sometimes chaotic cultures. These individuals
need to juggle the importance of keeping core cultural values and behaviours but also the need to introduce
different values and behaviours that promote the firm’s next goals.
. This finding underlines the importance of leaders of
innovation in setting common team goals, and it is in line with other findings of the important role of supervisors
and team leaders in providing the workplace team with clearly stated, shared and visionary goals.
Adopt a failure-tolerant leadership style
Risk is an integral part of innovation. Successful innovative organisations use risk constructively to learn
17
However, few companies actually know how to deal with the large number of new ideas originating from middle
and lower management. Numerous case studies reveal that highly successful companies like Google, Sony,
Canon, 3M and Virgin have encouraged employees to put forward ideas that at first might seem to be too
outrageous and highly risky.
. In
cultures that promote innovation, we are more likely to see attitudes where stumbles on the innovation path are
forgiven by leaders. Failure-tolerant leaders help people overcome fear, and in the process, create a culture of
intelligent risk-taking which leads to sustained innovation. Moreover, while employee freedom to innovate is
important, as suggested earlier, it is the involvement of leaders and managers that produces really creative acts
and innovative outcomes in the business.
18
The Royal Dutch Shell Group of companies, another business identified as a world leader in innovation, has
found that many of its most worthwhile innovations have come from employees via email. Jack Welch at General
Electric used group sessions called workouts that supported the initial idea, but then brought in managerial
support for review early in the process to select the best new ideas. To promote his “speak up” culture, it is
reputed that at one stage Richard Branson of the Virgin Group allowed every employee to have his phone
number.
Such initial ideas have little assessment of their costs, risks, time and resources. It
is the role of the leaders in these businesses to provide processes that allow employees to scope the innovation
further in terms of its risks and costs. These business cases provide more thoughtful and well-researched
arguments that outline the potential risks for review at the next stages.
16
Hülsheger, Anderson, & Salgado, 2009
17
Denhardt & Denhardt, 2002
18
Harryson,1997; Farson & Keyes, 2002
13
Bob Waldie, Chairman and CEO of Opengear, an innovative developer of next generation console server
solutions, stresses the importance of developing a future-oriented business culture that capitalises on new
opportunities. As many other entrepreneurs we interviewed noted, he sees the importance of having the end
goal as an aim from the start. Reflecting on his startup experiences, Bob Waldie makes it clear to his employees
that he does not mind failure, as long as they quickly put a process in place that stops the problem from
recurring. In his business culture, failure is a sign that the firm is moving towards where it should be. The
Opengear culture also watches for complacency and falling into comfort zones:
“We look for the newest, and best, and freshest way doing things rather than how we did it last time; we
do strive actively to innovate. The company is very conscious of falling into the comfort zone of the way
things were done before. It is part of our culture to constantly advocate to do things differently.”
In contrast to such stories, a number of the entrepreneurs and business leaders interviewed were critical of
Australia’s efforts to identify and promote our champions of innovation. Our national culture is viewed as not
supportive of entrepreneurs and innovators, and this view is backed up by research
19
A number of those interviewed believed that Australia even has a culture of fear around entrepreneurship and
around starting up any business. Trevor Glen, Co-Founder and Director of Sarugo, a successful software
engineering startup company based in Adelaide, sums it up by stating that:
. Some interviewees talked
about the need for cultural change. In particular, Australian Governments need to be more accepting that some
innovations will be winners, but others will lose money at least in their initial attempts. Some believed that the
USA has established the right attitude towards innovators, and did a far better job than Australia in
acknowledging its entrepreneurial heroes and heroines.
“The big challenge is for Australia to change that culture. We need to know that it’s ok to get out there
and give it a go -- even if you don't make it -- you need to give it a go or else you'll never know. We
need to make people feel empowered to do that. Innovation should really come from the individuals
rather from the bigger businesses -- because that drive that the individual has to take those great ideas
and make it into a successful business would be more than anything a big business could do, so we
need to foster that seed in startup companies and help them actually become successful.”
Reward innovation
Although cultures and the right support from leaders and managers are important, it is people who innovate.
Through their cultures, and the actions of their leaders, there are clear signals that innovation is valued,
rewarded and critical for the success and growth of the organisation
20
A major issue is about providing people with time to innovate. While there are excellent examples of creative
ideas that have emerged under extreme time pressures, the best creative outcomes emerge when employees
. How business leaders provide time to
innovate is one part of this strategy to reward and support innovators.
19
Karpin Report, 1995
20
Tarry, 2002
14
are protected by their leaders from such pressures
21
. There are many examples of how leaders set up work
cultures where employees have blocks of time, can collaborate with others on an as needs basis, have time to
attend conferences, workshops, site visits and to participate in their professional networks. For instance, 3M has
instituted the 15% option where employees are encouraged to spend up to 15% of their working week on
projects of their own choice, with seed capital being made available to researchers in several ways
22
Many of the business leaders we interviewed were not at the stage of providing their employees with access to
considerable internal funds to explore new ideas. Rather, they gained very good returns around allowing
employees the time to attend technical workshops, innovation events and festivals, and to visit universities,
suppliers and industry research parks to talk to others about their ideas and challenges.
. The 3M
researcher can apply for seed capital from their business unit manager. If this request is denied, they can take
their idea to another business unit within the company, while they seek funds through their internal 3M grants.
Conclusions around buil ding innovation cultures
• Transformational leadership is strongly linked to innovation in firms
• Leaders play a pivotal role in shaping organisational culture
• Work culture has a strong influence on levels of innovation and productivity
• Leaders who promote innovation build cultures that are supportive of learning, have strong shared
goals, are failure tolerant in their style, and reward innovation and their innovators.
Leaders promote capabilities for innovation
Returning to Figure 1, the focus now moves to how leaders of innovation promote capabilities around innovation.
Training and development are key parts of capability development. The decisions made by the leaders of
innovation about training and development are essential stepping stones in the capability building process
23
According to a recent global survey, training and skill development programs are more effective in driving
business performance in companies where senior leaders set the training agenda
.
24
The link between capability and innovation was clearly articulated in a project prepared by Australian Industry
Group (AiG) and Delloite Consulting
. As such, leaders of
innovation firms have a central role in directing initiatives aimed at building capability for innovation in their work
cultures and employees.
25
21
Amabile, Hadley & Kramer, 2002
. Possessing the relevant skills emerged to be core to firms’ abilities to
engage in innovative practices. Shortage of skills in science, engineering and technology; business and
management capabilities and communication and interpersonal skills, all affect a firm’s innovative capacity.
Leadership and management skills emerged as particularly vital in extracting the business value from ideas, and
22
Studt, 2003
23
Helfat & Peterraf, 2003
24
Gryger, Saar, & Schaar, 2010
25
Australian Industry Group & Deloitte,2008
15
in developing and implementing creative ideas and knowledge management strategies. Without this capability,
firms did not remain globally competitive.
Skill s and up-skilling
The National CEO Study conducted by AiG and Deloitte found that 68% of Australian firms were identified as
suffering from skill shortages. This impact was greatest in the construction industry and in small businesses
26
It is noteworthy, however, that different sectoral innovations require different human capital
.
Industry leaders who perceive a shortage of skills among employees in their business also perceive a lack of
innovation in their business. These findings suggest that policies aimed at lifting the nation’s skills base will have
positive effects on business innovation in Australia.
27
. Human capital is
made up not only of technical knowledge, but also of personal skills, and the individual expertise that people
develop during their professional life
28
. For instance, technical skills are the key in enabling successful
innovations in manufacturing firms in Finland. However, industry sectors with a high share of highly skilled
employees in terms of formal education and work experience engage in above average product innovation—
specifically in science-based industries
29
A national survey on skilling practices across seven industry sectors in Australia revealed that nearly two-thirds
of all firms reported using upskilling as an innovation strategy
. Taken together, these findings suggest that strategies aimed at
building human capital to lift innovation must tailor initiatives to the needs of specific industry sectors and the
type of innovations that they produce.
30
• The greatest barrier to upskilling cited by industry leaders was costs, followed by staff leaving following
training, and the lack of government incentives
. However, it was noted that firms need to invest
in high quality training in order for upskilling to lead to greater innovation. Other key findings included:
• More than three-quarters of respondents indicated that they use informal in-house training sessions to
introduce new skills to existing workers
• While informal in-house training is the upskilling method most used by Australian firms, formal in-house
training is the most highly regarded
• Mentoring is another highly regarded method for upskilling, despite being the fourth most adopted by
firms.
It is of some concern that the methods most used by Australian firms to upskill employees (informal in-house
training) are not the methods businesses consider most effective (formal in-house training). Corroborating these
findings, there is evidence that most companies in the USA use informal on-the-job-training to upskill employees,
although this type of informal training is most effective when it is reinforced through formal training
31
26
Ibid
27
Schneider, Gunther, & Brandenburg, 2010; Leiponen,2005, Vinding,2006
28
Foray, 2007
29
Schneider, Gunther, & Brandenburg 2010
30
Australian Industry Group & Deloitte, 2008
31
Gryger, Saar, & Schaar, 2010
16
Skill ing leaders on the job
It is well-established that on-the-job learning is the major way that people learn to become better leaders of their
business. Table 1 provides a range of workplace strategies that leaders of innovation can consider around
building capability. As can be seen, most of these options are applicable to leaders at all levels of the business
(i.e. CEOs, team leaders, supervisors), and include considerable variety from challenging assignments, to
delegated roles, mentoring and coaching to action learning projects.
Most managers learn about leadership on the job, from observing good and bad role models, and from resolving
organisational challenges and personal hardships
32
Table 1: Ten options in the workplace for building leadership capability
. In particular, challenging workplace assignments and
projects are well attuned to the business of innovation in that they honour all styles of learning: creative
discussion, information gathering, practical instruction and self-discovery. Also the results of the assignments
and projects can be presented at a later time to coaches, their executives and partners.
Learning options Benefits
1. Trial and error. An effective way to learn about
being innovative by being given the chance to try a
new skill or activity, in a controlled situation, learning
from mistakes. Requires good supervision and the
attitude in the business that if you don’t make some
mistakes, you are not learning.
Provides opportunities to learn about risks around startups
and business, and to define what can go wrong, why, and
what can be done about it.
2. Challenging assignments. Taking on direct
responsibility for an innovation or new project.
Provides an opportunity to learn and to develop special
expertise around project management skills or knowledge.
The new leader needs to be supported as they take on this
special project, with access to advice and possibly additional
training.
3. Reviewing successes. Helpful in analysing and
planning for future success. This can be done
individually or ideally, with the full team involved in
the project.
Provides an opportunity for leaders to share their knowledge
and experience with each other. Allows for new leaders of
innovation to emerge. Helpful in identifying new innovations
that might be taken onto other work to save cost and time.
4. Appropriate delegation. Delegation provides an
efficient use of resources, increases multi-skilling
and ensures smooth handovers. It also builds more
empowered cultures that can support employees
taking the initiative around new ideas to improve
productivity.
Makes those given the responsibility build skills around
setting boundaries, asking for feedback and determine what
support is required. This may be linked with secondment and
job rotation that encourages employees to recognise the new
skills that they will acquire if they are to stay with the business
for the longer term.
5. Mentoring. A mentor provides a source of
feedback and general support. They are a ‘trusted
advisor’ or ‘career friend’. It is important that they
both support and challenge the leader of innovation
to get effective learning. They should have business
experience, but not necessarily around
entrepreneurship and startups.
Provides a way of sharing expertise and experience within
the business, assists in career development, provides an
opportunity for both parties to reflect on work practices. Many
entrepreneurial companies choose to use outside mentors,
but internal mentors are a good option if these individuals are
carefully selected and trained in the role.
6. Coaching. A more experienced business person
and entrepreneur who acts as ‘coach’ encouraging
the development of specific new skills or knowledge.
Coaching in startups for example can be a team
leader, supervisor or manager level.
Assists new or less experienced leaders to learn quickly. A
good coach asks questions that encourage and challenge the
learner to think about their skills, behaviours and careers in
the industry.
32
MCall et al., 1988
17
Learning options Benefits
7 Observation, shadowing and visits. Learning
from watching other leaders in action such as
watching others performing specific tasks,
contributing to team projects, visiting projects being
completed by the business at various sites.
A useful tool to look for new innovations and best practice
methods for the delivery of innovation projects. Also gives an
opportunity to evaluate how business practices might evolve
or change.
8. Networking. Allows leaders to meet other people
formally or informally to grow their business
networks inside or outside the company. Networks
help to grow the number and variety of people that
leaders feel that they can approach to get things
done or to overcome roadblocks around projects.
The benefits are around helping leaders to gain access to
new information and support that they might need to help with
their current roles or more generally their careers in the
industry.
9. Action learning groups. Groups of 5 or 6 people
work on a project or problem identified by the
business, but the issue is new or outside the day to
day expertise of members of the group. Often
involves setting up personal and group contracts
and it is used for personal and group development.
Many businesses use action learning projects to develop the
expertise and confidence of newer or high potential leaders.
The outcomes can be considerable around innovations,
initiatives around improved production, and new products and
services to trial.
10. Workshops, discussion groups and
communities of practice. Where groups of leaders
explore issues together, drawing on real life
experiences. These are used as a focus for
information sharing. This can be formal or informal
and focus on one area or select different topics for
each meeting.
These groups can be used as a means of sharing knowledge
gained through networking, conferences, and workplace
innovations.
The Centre for Creative Leadership in the USA provides an Innovative Leader program that adopts an action-
learning approach wherein, before attending the program, participants are asked to think about a challenge they
are struggling with, and create a short video
33
Day 1: A New Approach to Business Innovation
. The challenge requires an innovative solution. Participants
present this challenge to their fellow participants on the first day of the program. This challenge is reworked and
reframed throughout the program in order to gain clarity about how a new approach will lead to better products,
services, and processes. An overview of the training agenda is outlined below:
• Create connections with fellow participants and share challenges you are experiencing related to
innovation
• Understand innovative thinking versus business thinking
• Learn how to reframe your challenges
• Experiment with innovation processes that will lead to ideal customer experiences.
Day 2: Applying Innovation Leadership to Organisational Challenges
• Understand how to quickly assess the climate for innovation
• Learn leadership practices that will help move innovation initiatives forward
• Develop a plan for how you will encourage innovation in your team when you return to work.
Although studies highlight the importance of building capability in new enterprises, many of the entrepreneurs
interviewed reported that their company did not have the resources to invest in formal in-house training. Howard
Buckley of Sungrid puts it as follows: “Training is often seen to be irrelevant for the startup; it has to be assumed
that you do not have the time to train-up your employees. In reality though, you need to.”
33
Centre for Creative Leadershiphttp://www.ccl.org/leadership/programs/ILWAgenda.aspx?pageId=3062
18
Nick Wilkinson, CEO and Director of Keystone Medical, a successful startup company specialising in the
development and commercialisation of cutting-edge medical devices, acknowledged that training takes up
valuable time and money. As a result, Keystone prefers to hire people who already have the capability to do the
job rather than taking someone off the shelf and training them to get to where they want them to be. Deryck
Graham at Quickstep Technologies relates how they have sourced people from across the world due to the high
levels of technical expertise required to continue to provide advanced composite manufacturing solutions that
allows them to stay competitive.
Of those entrepreneurial companies who did engage in some form of training, the predominant form of training
was informal. Andrew McGrath, Founder and CEO of Workslink, a startup company delivering information
management solutions for the construction industry asserts that: “capability comes as part of doing the actual job
so there is no actual need for skills training in terms of actual formal training. It’s just learn-it-as-you-go.”
Similarly, Bob Waldie of Opengear described his startup business as a moderately small company. At present,
they do not have a lot of resources to support formal in-house training. Instead, they rely on staff to talk and
share with each, to do their own professional development and to read and keep up-to-date with current
knowledge in the area. They do put people through courses and conferences, but no formal training program is
provided in-house.
The role of service providers in building innovation leaders
Much research has investigated the role of Government and businesses in leading innovation, but there is a lack
of research on the role of service providers in enabling innovation. This issue was also raised at the IBSA
Summit. Service providers include industry, unions, professional organisations, suppliers, research and
educational institutions. They provide services directly to enterprises to support innovation, and may also act as
intermediaries between Government and Australian enterprise.
A number of entrepreneurs interviewed highlighted the important role that Government, service providers and
business leaders can play in more collaborative approaches with small businesses to drive continued innovation.
For instance, Bob Waldie, CEO of Open Gear, highlighted that “the Government’s key tool is its capacity as a
customer and its use of product and technology as a partner in developing innovation with small businesses and
not as a tax redirector.” Others also cited the key role of service providers partnering with business in taking their
ideas to market. For instance, Trevor Glen of Sarugo suggested that “one of the things that service providers
may need to do is to be more flexible in terms of how they provide services to startups and be flexible around the
way they get paid. Maybe they can take equity stakes in companies to help them get started. This is how service
providers can help but obviously they are taking a risk by doing that as well.”
It is widely acknowledged in the interviews with entrepreneurs and business leaders that a promising step
forward is the establishment in November 2009 of the Australian Government’s Industry Innovation Councils.
19
Composed of innovation leaders from industry, unions, professional organisations, research organisations, and
government, the Councils are:
• Providing strategic advice on innovation priorities to the Minister of Innovation, Science, Industry and
Research
• Championing innovation in industry
• Building connections and collaborating across Councils, innovation initiatives, and other organisations.
The Government’s response to the Cutler review emphasised that the inter-relationships between Government,
business leaders, and service providers must be examined and strengthened in order to facilitate innovation.
Business leaders, service providers and the Government are all part of the innovation system; and it was
emphasised by many of those interviewed, as noted in the Government’s innovation agenda for the 21
st
century,
that innovation systems are made stronger by strengthening the constituent parts
34
The success of implementation of innovation initiatives is, in part, contingent upon the success of the
partnerships. Service providers such as educational institutions and business consultants also can help build the
capability and capacity of young entrepreneurs to grow and develop successful ventures. The Australian Anthill,
for example, provides opportunities for young entrepreneurs to network with others who will provide them with
the necessary support to grow their new ventures.
. Consequently, it is
imperative that efforts be directed toward evaluating partnerships between Government, service providers,
business leaders and entrepreneurs in implementing innovation programs and initiatives.
Hugh Guthrie of the National Centre for Vocational Education Research highlights how this body supports the
diffusion of innovation in the vocational education sector through commissioned research, workshops,
conferences and benchmarking exercises. Geoff Fary of the ACTU actually sees unions more as stakeholders
than service providers that must maintain a position of independence. While he is very positive about the quality
of leadership in Australian organisations, he believes that some business leaders fail to fully consider the
significant role and value of employee engagement at the workplace level.
Lynette Mayne, of Work Wear World, describes the key role of service providers around facilitating innovation in
Work Wear World:
“Service providers play a very big role in helping small business. We treat our service providers like they
are part of the family. If you do this, then you can leverage their skills and expertise. For example, for us
at Work Wear World, even though we're small, we have the best suppliers and we treat them like part of
the family-- they give us access to all their competitive products so we were the first to put cotton behind
a micromesh polo to enhance safety in work uniforms. So service providers can be a wonderful source
of fostering innovation.”
Table 2 summarises innovation programs provided by selected service provider organisations in Australia. As
seen in Table 2, the majority of innovation programs provided by the organisations reviewed foster innovation by
building capability, culture, and collaboration — with only a few programs targeting leadership development
34
Australian Government Department of Innovation, Industry, Science and Research, 2009
20
initiatives. There a number of organisations across Australia founded by business leaders within industry who
aim to promote innovation in Australia by mentoring small business owners and aspiring entrepreneurs.
Organisations such as Brisbane Angels and Australian Business Community Network (ABCN) are good
examples. Brisbane Angels is an organisation of business leaders who assist aspiring entrepreneurs to build
their new ventures. They coach and mentor new entrepreneurs, helping them develop leadership skills for
innovation and sound business principles.
David Gow of Invest Queensland has been prominent in founding and managing the Mentoring for Growth
program through the Queensland Department of Employment, Economic Development and Innovation. It
provides CEOs (usually the founders) with access to high level knowledge and business networks that they
would not normally access. The program helps skill up entrepreneurs (companies up to $50 million in sales
turnover) through contacts with volunteer business leaders, investors and consultants. For over eleven years this
award winning program has provided mentoring to over one thousand SMEs, with 125 of them raising $135
million in angel capital. Currently there are over 100 mentors on the database for the program.
Table 2: Innovation programs in selected service providers
Source Description of Programs and Services Provided Innovation
Enabler/s targeted
Innovic. INNOVIC is an
Australian not for profit
organisation and a leading
provider of services to
innovators, inventors,
entrepreneurs and small to
medium enterprises. Services
provided include consulting,
mentoring, training, and
commercialisation support.
INNOVIC helps to turn new ideas
into viable products and new
businesses.
Next Big Thing Award: A global competition and annual
award to find and showcase new inventions and innovations
that have the potential to become ‘the next big thing.
’iLink: A service linking innovators and startup businesses
to INNOVIC’s network of i-link members. i-link assist clients
with new ideas to connect with industry specialists, service
providers, and business organisations with expertise in
different aspects of the commercialisation process.
Grant Match: Provides a thorough search of government
grants, support programs, taxation benefits and other
funding that match individual needs.
Patent Search: Examines intellectual property databases in
Australia, Europe and the U.S and provides a report
detailing any existing or similar concepts.
Culture Capability
Collaboration
Australian Anthill. Anthill was
initially launched as a business
magazine specifically dedicated
to innovation and
entrepreneurship. Since then,
Anthill has extended its services,
providing a range of endeavours
to support innovation and
entrepreneurship in Australia,
such as awards, competitions
and an online community.
Cool Company Awards: A program to publicly
acknowledge and celebrate Australian organisations that are
doing things differently to bring about positive change.
30 under 30: A program to support young entrepreneurs
and is evolving from an awards program to become
Australia’s only national peer-to-peer network for young
business owners – including Teentrepreneurs. The aim is to
foster a culture of entrepreneurship in Australia.
Pitch Club: A supportive and fun networking event, where
people with ideas, capital and skills can connect.
Participants are invited into a miniature boxing ring, where
they are given 90 seconds to communicate their ideas and
objectives. The objective of Pitch club is to create a member
driven organisation to facilitate investment in early stage
ventures.
Culture
Collaboration
Capability
Australian Innovation. Australian Innovation Festival: A national festival with an Culture
21
Source Description of Programs and Services Provided Innovation
Enabler/s targeted
Australian Innovation is a key
source for up-to-date information
on Australian Innovation and
Entrepreneurship. They drive
initiatives to increase public
awareness of the importance of
innovation and entrepreneurship.
aim to encourage and support networking and business
opportunities for participants in the areas of research and
development, and technology commercialisation, across all
industry sectors. The Festival is a not-for-profit initiative
which aims to inspire a culture of innovation in all
Australians, by reinforcing our rich, innovative history and an
entrepreneurial spirit, which is comparable to the best in the
world.
Collaboration
Capability
Australian Business Review.
Australian Business Review was
established in 2006 to provide
business coaching and
consulting services to owners
and managers of small to
medium enterprises.
Your Business Success: A Program business coaching
program designed to help fix immediate business issues and
work on creating profitable assets. It contains 80 case
studies on DVD, 5 business coach designed manuals to
help map business solutions and ongoing contact with a
business coach.
Leadership
Capability
Business Enterprise Centres
(BEC) Not-for-profit organisation
that aims to support and grow a
national network of Business
Enterprise Centres that provide a
key point of contact for small
business seeking quality
business information advice and
guidance.
For start-ups firms, they assist in providing small business
forums, advice around strategic partnerships and helping
members attract funding from key stakeholders. BEC staff
bring their small/ micro business experience and counselling
skills to helping to reduce the high failure rate in the first 3
years of business. BEC staff complete assessments of
businesses around problem areas (e.g. low sales, financial
management, marketing), and work with the business
owners to create plans and action steps that are monitored
around evidence of improvements.
Capability
Collaboration
Brisbane Angels. Brisbane
Angels provides the vehicle to
allow independent investors to
collaborate, co-invest, share risk,
increase portfolio diversification,
with networking and peer
validation of early stage deals.
Brisbane Angels' members invest their own money to
provide seed and early-stage capital ranging generally from
$5K to $250K ($50 to $500k as a group).Members mentor
and coach entrepreneurs, serve as directors, provide
industry contacts and assist with team building, strategic
planning and subsequent fundraising.
Leadership
Capability
Collaboration
Culture
Enterprise Connect. Part of the
Department of Innovation,
Industry, Science and Research
with the role to connect business
to the knowledge, tools and
expertise to improve productivity,
competitiveness and growth.
Services are delivered through a network of state-based
Manufacturing Centres and five specialist Innovation
Centres. They include the Creative Industries Innovation
Centre based in Sydney, and Clean Energy Innovation
Centre based in Newcastle. Centres are staffed by teams of
highly skilled Business Advisers who deliver a customised
and free Business Review. The overall aim is to help expand
markets, boost local economies and create new jobs in
regional Australia.
Capability
Collaboration
New Enterprise Incentive
Scheme (NEIS). A national
network of providers under Job
Services Australia in locations
around Australia. NEIS providers
include local organisations, such
as Business Enterprise Centres,
TAFE Small Business Centres,
community organisations, and
private sector businesses.
Job Services Australia has set aside specific training places
under the Australian Government’s Productivity Places
Program for eligible job seekers who wish to establish their
own small business. The NEIS provider assists in gaining
access to accredited training that allows the development of
a business plan. If the plan is approved, there is access to a
NEIS Assistance that includes an allowance, rental
assistance and business mentoring and support during the
first year of business operation. If the person is assessed as
highly disadvantaged or is an Indigenous Australian, NEIS
provides additional mentoring and support in starting the
new business.
Capability
Collaboration
22
Source Description of Programs and Services Provided Innovation
Enabler/s targeted
Small Business Advisory
Services Program. Low cost
advisory services for small
businesses through AusIndustry
The program provides access to information and advice on
issues important to sustaining and growing a small business
in response to the current global financial crisis. There are
36 Business Enterprise centres across Australia funded
under the program.
Capability
Collaboration
InnovationXChange (IXC). A
non-profit global exchange that
delivers intermediary service to
business and research.
Intermediary Service: Uses a network of creative and
skilled scientists and technologists operating under strict
codes of ethics and confidentiality. Provides safe access to
ideas and connects to fit the strategy of a business. Also
uses a proprietary step-wise disclosure process that allows
people to safely approach any potential partner while
retaining control over what information is revealed and
when.
Capability
Collaboration
Innovate SA (formerly the SA
Centre for Innovation). An
independent incorporated
organisation that provides a
range of advisory and support
programs to South Australian
enterprises looking to grow their
business.
Selected services include:
Process Engineering: Services to monitor, evaluate and
improve organisational performance
Product Development: Helps businesses create product
prototypes, protect intellectual property, and prepare
products for commercialisation
R&D Commercialisation: Provides advice on accessing
capital, new technology, and partnerships from research
organisations or companies in Australia and overseas.
Venture Capital SA: Helps business attract and secure
investor interest.
Capability
Culture
Collaboration
Australian Business and
Community Network (ABCN)
Established in 2004 by a group
of senior business leaders to
provide mentoring, partnering
and support programs to
students and schools that would
benefit the most.
Selected programs:
Partners in Learning: Links business (CEOs and
executives) and educational professionals (Principals and
senior teachers) to share experiences, solve problems and
explore leadership challenges.
Growing Opportunities and Learning Skills (GOALS): A
one-on-one mentoring partnership between high school
students and volunteer business leaders that aims to widen
the life choices of students considered to be at risk of
disengaging from school.
Technology, Enterprise, and Mathematics (TEAM):
Mentoring program aimed at Year 10 students who have an
interest in maths and IT subjects. The objective is to
stimulate the student’s interest in technology and maths
through project management workshops.
Leadership
Culture
Capability
Collaboration
Innovation and Business Skills
Australia
One of eleven Industry Skills
Councils with a mission to build
capability, professionalism and
innovative capacity in Australia’s
workforce through sharp and
focused consultation on skill
needs. Core focus is on applied
industry research, support
resources, professional
development and continuous
improvement of its Training
Packages.
Selected services include:
Innovation Skills Training: A guide for trainers and
assessors to foster the innovation skills of learners through
professional practice
Workshops: Specialist interactive professional development
workshops for businesses, individuals and VET practitioners
with tangible outcomes.
Events: Special events which bring together leaders of
enterprise innovation, tertiary sector leaders, and industry
associates to explore ways to lift innovation in Australian
enterprise.
Online Workforce Innovation Survey Tool: allows HR
managers to easily survey their staff and consider their
capability for innovation.
Capability,
Collaboration
Culture
Leadership
23
Source Description of Programs and Services Provided Innovation
Enabler/s targeted
Society of Knowledge
Economics
A non-profit organisation which
aims to address Australia’s
critical need to develop more
innovative, fulfilling and high
performing workplaces.
Research and Partnering Program: Brings together
people from across governments, academia, industry,
unions and associations to investigate, research, test and
develop practical programs and tools for Australian
workplaces.
Culture
Capability
Collaboration
Leadership
Business Connect. Offers
business leaders and
entrepreneurs an integrated
package of educational
knowledge-based events and
online resources to increase their
effectiveness and help them to
build a better and more
sustainable business.
Home Based Business Seminars with the Office of Small
Business and Switzer Group.
Small Business Expo and Money Expo 2005.
A range of management seminars and workshops.
Capability
Collaboration
Culture
Inventium. A company that
applies the science of
psychology and neurology to
boosting creativity and
innovation.
Training programs: Creative thinking and idea generation,
Facilitation skills, Decision-making skills, Idea selling, and
Persuasive presentation skills.
Workshops: A range of innovation workshops and projects
using scientifically proven idea generation and techniques.
Keynotes: Offers inspiring and educational keynote
speakers for events around the world.
Recruitment: Services that assist organisations in recruiting
and selecting creative employees.
Culture
Capability
Collaboration
Leadership
Swinburne University Master of Entrepreneurship and Innovation: A program
developed for people who intend to start new, innovative
businesses or play a leading role in an innovative unit of an
established organisation.
Capability
Leadership
Culture
Smart Company. A free news,
information and resource site for
Australian entrepreneurs, and
small and medium business
owners to help keep them ahead
of their competition.
News, business trends and Smart Blogs: Posts daily
news briefings, business trends and ideas from around the
world and blogs from a network of expert bloggers; profiles
the views of Australia’s best business experts including
exclusive features, case studies, and podcasts.
Culture
Capability
There are a range of service providers across Australia that provide consulting services, training, tools and
publications to support innovation in businesses. For instance, Innovix and Australian Innovation have partnered
with the Australian Government to build innovation capacity in Australian enterprise. Innovix provides a
consulting service called Grant Match to help Australian business and entrepreneurs find Government services
(e.g., grants, tax benefits, and support programs) that address their unique business needs. Innovate SA has
also partnered with universities and Government agencies in providing services that support innovation in
emerging enterprises. Similarly, Australian Innovation assists with the administration of the Australian
Government's innovation and venture capital programs designed to support industry innovation. They also
monitor ongoing government innovation programs.
Emphasising the importance of evaluating innovation levels in organisations, IBSA, in collaboration with
Australian Human Resource Institute, is in the process of developing an online Workforce Innovation Survey Tool
24
to enable HR managers to easily survey their staff and consider their capability for innovation. The tool covers
four domains: generating ideas, risk taking, workplace relationship effectiveness, and turning ideas into products,
processes and services. This tool will soon support a more targeted expenditure of workforce development
solutions and allow organisations to measure whether there have been any changes in workforce capability as a
result of development initiatives.
Peter Westfield of Australian Innovation is Co-Chair of the Australian Innovation Festival. As a service provider
Australian Innovation promotes public awareness of the importance of innovation and entrepreneurship through
an emphasis on research, development and commercialisation. Under his management is the Festival that is a
not-for-profit initiative that aims to inspire a culture of innovation in all Australians by reinforcing our innovative
history and an entrepreneurial spirit. He believes the Australian Innovation Festival is comparable to the best in
the world.
Formal education programs provided at universities also provide an avenue for developing the capabilities of
innovative leaders. For instance, Swinburne University offers a Master of Entrepreneurship and Innovation
program for people who intend to start a new, innovative business or play a leading role in an innovation unit of
an established organisation. Similarly, the University of Queensland Business School has a Corporate Education
Program where entrepreneurs participate in a short course in Innovation Leadership or take the course as part of
a larger program to obtain a Graduate Certificate in Executive Leadership. The purpose of the Innovation
Leadership course is to equip managers with the skills necessary to lead innovation for sustainable competitive
advantage. The course is based on international best practice in innovation leadership and presents an
integrated framework from leading edge strategic management and innovation ideas to help managers lead
innovation within their organisations. In addition, there is the Enterprize competition at the University of
Queensland Business School that invites those with novel ideas or at the startup stage to prepare a business
case. The short listed competitors provide a 5 minute pitch to a large public audience around their innovation.
The winner takes away $100,000 in cash to support the next stages of their innovation.
With IBSA support, the inaugural BIG (Business, Innovation, Growth) Education Directory is currently in
preparation through Australian Innovation. The online and print publication will provide an index to all tertiary
level innovation and entrepreneurship courses and qualifications available in Australia.
The role of Government in supporting innovation
Leadership is not only the responsibility of enterprise leaders, but also of Government and service providers
(e.g., consultants, industry councils, and educational, research and training institutions). Professor John Foster
who was a Member of the Cutler Review of the National Innovation System believes that a more dynamic
innovation policy is required that is aimed at making entrepreneurial activity the hallmark of our industries,
irrespective of their size. The Government cannot afford to adopt a laissez-faire approach, but rather it needs to
act to secure productivity gains by creating the environment that allows entrepreneurial behaviour to flourish in
25
our firms today. He believes that this approach is required to position Australia for the next wave of productivity
growth, and to contend with emerging challenges such as our aging population and the declining tax base
35
The Society for Knowledge Economics summarises the role of Government as leaders in fostering innovative
practices by
.
36
• Promoting the vision, importance and case of building high performing workplaces
:
• Creating and implementing enterprise programs aimed at increasing awareness and adoption of best
practice
• Collaborating with industry, government and others in research that provides better understanding and
clear proof of the links between leadership, culture, and management (LCM) and innovation and
productivity and fulfilment at work.
• Evolving education curriculum across all systems to reflect basic skills needed to lift LCM capabilities
• Providing exemplars, role models, and best practices
• Improving governance across all workplaces related to management of human capital and intangible
issues.
Following the Cutler Review, the Government has taken strong and decisive action around providing adequate
funding to lift innovation in Australian enterprise. A selection of key government programs aimed at enabling
innovation are summarised in Table 3. Noteworthy initiatives implemented post-Cutler include the new
Researchers in Business (RiB) Program within Enterprise Connect. The Australian Government has committed
$10 million to support the placement of researchers from universities or public research agencies into businesses
to help develop and implement new ideas with commercial potential. The Government provides up to 50% of the
researcher’s salary costs to promote collaboration between researchers and businesses and to speed the
dissemination of expertise.
Another new program launched in January 2010 is Commercialisation Australia (formerly the COMET program) –
a $196 million support initiative for home-grown innovation. Mr Doron Ben-Meir who has extensive experience in
the venture capital industry and commercialisation was recently announced as the inaugural CEO.
Commercialisation Australia provides a new, simplified form of assistance to researchers, entrepreneurs, and
innovative firms to commercialise their ideas.
In talking to Doron Ben-Meir, he proposes that Commercialisation Australia will bring together three key elements
which are unmatched by other programs to focus resources and attention on the complex task of turning good
intellectual property into financially viable businesses. Firstly, financial assistance will be in the form of broadly
three new products: Skills and Knowledge Grants (up to $50,000, 20% matched by the client); Proof of Concept
Grants (up to $250,000; matched by the client); and Early Stage Commercialisation repayable grants (interest
free, up to $2 million; matched by client). These products are designed to focus on the needs of early stage
businesses at different points in their development. All are milestone based.
35
Foster, 2010
36
Society for Knowledge Economics, 2009
26
Secondly, every client of Commercialisation Australia will be assigned an experienced Case Manager with
diverse skills in the commercialisation process. Case Managers are either successful business builders in their
own right, former senior executives or professional consultants who have hands on experience in taking
intellectual property along a commercial pathway. Case Managers will provide a core component of their service
delivery to help entrepreneurs focus their efforts on what really matters and, hopefully, avoid some of the
mistakes that have been made by many others before them. Thirdly, in addition to the Case Managers, Business
Mentors will be identified through a new database of highly experienced business people who have an interest in
assisting early stage businesses from time to time in their particular areas of interest. He argues that these three
elements combined will deliver a "venture catalyst" service that does far more than simply distribute financial
assistance to struggling innovators - it delivers business building infrastructure and guidance right when it's most
needed.
Many of the entrepreneurs interviewed spoke of the importance of winning small amounts of funds at critical
times during the startup phase, and in getting to the market. Lusia Guthrie of LBT Innovations is CEO of a five
year old healthcare company specialising in laboratory automation. This company has been advantaged at
critical stages in its initial growth and ASX listing by R&D benefits, a Commercial Ready Grant and Export
Development Grant funding. Like others interviewed, her company will be applying for the Commercialisation
Australian funding around further products that provide innovative solutions around managing other microbiology
problems.
Also focusing on building culture and capability for innovation, the Government plans to introduce a new R&D
Tax Credit in July 2010 — a more simplified system relative to the current R&D Tax Concession scheme that
provides better incentive for business to invest in research and innovation. Under the new Tax Credit scheme,
firms with an annual turnover of less than $20 million receive a tax refund of 45 per cent of their R&D spending
when they file their tax return. This measure effectively doubles the standard level of support for innovative small
and medium sized companies. However, it is noteworthy that while the Government programs reviewed here
focus on building capability, collaboration and a culture of innovation; they do not explicitly address the issue of
leadership development to facilitate innovative practices in enterprise.
Table 3. A selection of programs offered by the Australian Government to support innovation
Source Innovation Program Description Innovation
Enabler/s
targeted
G
Enterprise Connect Australian Government initiative that
provides comprehensive support to
Australian small and medium sized
enterprises (SMEs) to help them become
more innovative, efficient and competitive.
Enterprise Connect comprises two
components – Manufacturing Centres and
Innovation Centres. Together, they provide a
Collaboration,
Capability
27
AusIndustry is the
Australian Government's
principal business program
delivery division in the
Department of Innovation,
Industry, Science and
Research. They are
committed to delivering
business services that build
on three key drivers of
economic growth -
innovation, investment and
international
competitiveness.
national network of services and support for
eligible SMEs to access expert, practical
advice and support tailored to their individual
firms.
Commercialisation
Australia
Commercialisation Australia represents a
radical new approach to commercialising
promising Australian research and ideas.
Formerly known as the Commonwealth
Commercialisation Institute, it will provide
multi-tiered assistance to talented
researchers, entrepreneurs, and innovative
firms take their ideas to market. It will give
successful applicants access to specialist
advice and services; funding of up to
$250,000 for proof of concept activities; and
funding up to $2 million for early stage
commercialisation activities.
Collaboration,
Culture, Capability
R&D tax credit From 2010-11, the Government will replace
the R&D Tax Concession with a
simplified R&D Tax Credit which cuts red
tape and provides greater incentive for
business to invest in research and
innovation. The new Tax Credit will provide a
45 per cent refundable credit for firms with
an annual turnover of less than $20 million –
equivalent to a Tax Concession of 150 per
cent. This means that firms will receive a tax
refund of 45 per cent of their R&D spending
when they file their tax return.
Culture, Capability
Innovation Investment
Follow on Fund
The Australian Government’s Innovation
Investment Follow-on Fund (IIFF) is a
venture capital fund. It is a temporary,
targeted and timely response to address the
lack of capital available to the most
promising innovative companies during the
global financial crisis. The fund will enable
these early stage companies to continue to
develop and to commercialise research.
Culture, Capability
Industry Cooperative
Innovation Program
The Industry Cooperative Innovation
Program is a merit-based grants scheme
that seeks to encourage business-to-
business cooperation on innovation projects
that meet strategic industry needs and
enhance productivity, growth and the
international competitiveness of Australian
industries.
Collaboration,
Culture, Capability
The Cutler Review’s Venturous Australia report identified the need for the creation of a National Centre for
Innovation Research, responsible for high quality independent research which is strongly relevant to policy and
practice. The Centre could be the Rosetta Stone for innovation in Australia that allows researchers in universities
to get closer to understanding the needs and opportunities of entrepreneurs, while giving entrepreneurs access
to laboratories and seminar rooms. Such a Rosetta Stone for nation-wide collaboration on innovation exists in
28
the United Kingdom with the Government-funded National Innovation Research Centre backed by Cambridge
University and Imperial College. Other countries are also building such systems of support to boost their
innovative practice.
The Australian Business Foundation backs this concept. Its Founding Chief Executive Narelle Kennedy
emphasises the importance of viewing innovation as a system, and she believes that this system can be better
understood through such research. She argues that seeing business innovation as a system that is continually
being transformed around building sustained sources of competitive advantage is the better pathway to follow
than “shining the torch on leadership, creativity and innovation alone, as this will get the wrong answers”.
In particular, the evidence-based research agenda of the Australian Business Foundation is aimed at gaining a
better understanding of this business innovation system and they want to promote fresh insights that might boost
the capabilities of our innovation leaders and their organisations across a wide range of industry sectors.
Lessons from other countries about building capability
Previous reports such as The Society for Knowledge Economics have already provided numerous examples of
international initiatives that promote coordinated efforts across Government and business to raise workplace
practices and innovation capabilities
37
No one who was interviewed believed that any single country could be nominated as the stand-out exemplar
around effective Government policies around promoting the capabilities of their nations and its organisational
leaders around innovation. Countries mentioned included the USA, Finland, Sweden, Ireland and Germany.
However, different countries were known for promoting capabilities around innovation for specific industry
sectors. For example, Singapore was cited as a good example of how to apply strategic investment in people
and new technology well ahead of R&D in the water desalination and wastewater treatment industry.
. In particular, Government led workplace development programs in Ireland
and Finland are nominated as worthy of further review and consideration by the Australian Government.
At the IBSA Summit, Bernie Cullinan, CEO of Clarigen, a company based in Ireland providing comprehensive
outsourced human resource solutions, emphasised the role of leadership in driving innovation in Ireland. Her
company offers a Leadership Program based on four pillars: inspire, educate, coach and execute. The program
focuses on building strategy, culture and leadership and in facilitating execution. Fundamental to the program is
that each participant makes a commitment prior to acceptance of their development ambitions. Participants who
have undergone the program report that it has led to increased capability to recognise strengths and
weaknesses amongst their teams.
Bruce Biltoft from the Siemens owned water technology company, Memcor Australia, reported how well Siemens
identifies its high potential leaders. This international business then gives opportunities to these new leaders to
develop their capabilities and skills sets around general management and innovation through rotations and
37
Society for Knowledge Economics, 2009
29
development programs. His own company of Memcor Australia has used a successful sponsorship with the
University of New South Wales Co-Op program to access quality chemical engineering graduates. In promoting
their development, there is rotation from the R&D areas into other parts of the Memcor business.
Table 4 provides highlights from a review of innovation policies and programs implemented by OECD countries.
It reveals that human capital development is at the heart of innovation initiatives in many countries, with efforts
aimed at school children, university students, with skills shortages, lifelong learning and internationalisation as
major drivers around enhancing human capability
38
Table 4. International innovation policies focusing on building capability
. However, as noted in this same OECD review, while many
countries have implemented a variety of human capital programs, these are not necessarily linked to their
broader national innovation goals.
Country Focus of Policy Programs and Policies
Austria Enhances the interests of the younger population
in Science, Technology and Innovation and by
encouraging them to pursue a scientific career in
order to meet the challenges of the future.
A new program called “Sparkling Science” has been
launched by the Federal Ministry of Science and
Research. This program combines high-level
research with science promotion in schools bringing
together pupils and researchers in order to inspire
pupils to pursue a career in science and technology.
“Forshung macht Schule” (Science in Schools)
offers innovative education in science and
technology and gives pupils the possibility to interact
with engineers already working in industry. A special
focus is given to the promotion of girls and young
women.
Belgium Focuses on expanding the pool of highly trained
researchers by making research more attractive,
and stimulating international and inter-sectoral
mobility.
A new doctoral program where basic principles will
be the cooperation between doctoral students, the
supervising academic institution and the enterprise,
the commitment by the non-academic partner to co-
fund 50% of the salary and the continuing high
standard of the doctoral research. Also supporting
incoming researchers with a startup project,
including the development of a research group
where appropriate, aimed at opening up new lines of
research
Chile Innovation strategy is structured around three
pillars: business innovation; human capital for
innovation; and science with strategic orientation
Lifelong learning approach to build up a coherent
system of learning opportunities relevant for the
economic clusters and the world of work in general;
giving the generation still in school the skill
foundations to enter the world of work; giving low
skilled and qualified adults a ‘second chance’.
Overall there is up-skilling or re-skilling effort of the
current active population that lacks the new
workplace competencies underpinning the
knowledge economy. A Competency Certification
System is focused on solving the main human
capital gaps and shortages that are making it difficult
38
OECD Workshop on Advancing Innovation, 2008
30
for the economic clusters prioritised by the National
innovation Strategy to fulfil their innovative potential.
Finland Focuses on creating a learning environment for
motivating innovation on a broad basis; revising
taxes and other factors that weaken Finland’s
attractiveness to experts; and developing
management training.
Types of policies include improving mobility and the
attracting experts; developing individuals and
entrepreneurship e.g., including entrepreneurship,
creativity, and innovation in the curricula of all
stages of education; providing incentives for training
and continuous learning in the working life;
establishing a top level development environment
for learning so as to become an international
pioneer in developing teaching methods and
technical tools; and supporting reforms of
organisational environments to improve the quality
of working life
Germany Focuses on enhancing qualifications and
motivation of the population to pursue lifelong
learning.
Internationalisation strategy involving the
strengthening of research cooperation with global
leaders; international exploitation of innovation
potentials; intensifying the cooperation with
developing countries in education, research and
development on a long-term basis; and a focus on
modernising and enhancing education training
(“Promotion via Education”).
Conclusions around buil ding capability
• Leaders are the critical decision-makers around developing capability
• The capability of leaders at all levels of the firm influences innovation
• The capability of employees is strongly linked to levels of innovation
• Since the Cutler review, the Government has made steady progress toward lifting innovation in
Australian enterprises, although current initiatives do not adequately address the need to develop
innovative leaders
• Research on the role of service providers in leading innovation is lacking.
• More work must be done to strengthen the partnerships between Government, service providers, and
business leaders in driving innovation.
Leaders promote innovation through collaboration
Returning to Figure 1 for the final time, the focus now moves to how leaders of innovation promote collaboration
that drives innovation. An entrepreneur cannot innovate alone. The positive impact of collaboration, alliances,
and networks in driving innovation has been strongly supported in previous work
39
. Collaboration encompasses
connections with people and organisations outside the organisation (external collaboration), and those within the
organisation (internal collaboration). However, as noted in the 2010 Australian Innovation Summary Report, the
Australian innovation system consistently underperforms on most measures of collaboration and networking
40
In particular, the leader of an organisation is responsible for forging a collaborative culture to support innovation
and in managing strategic relationships between the company and its network of partners. Steve Vamos of the
.
39
Bel, 2010; Nosella, Petroni, & Verbano, 2006; Walumba et al., 2008
40
Department of Innovation, Industry, Science and Technology, 2010.
31
Society for Knowledge Economics emphasises the need to more fully recognise the importance of intangibles
such as knowledge, relationships and the need to promote forward-looking, open-minded organisations that are
committed to collaboration.
“If we accept that the world is highly networked and organisations are networked, more management
time will be put into building connections between people. Leaders need to be obsessed with
removing roadblocks that stop people being enabled, encouraged and from getting their jobs done.
The rubber hits the road where the manager meets the employee. Leadership, culture and
management practices that promote collaboration have a critical role in promoting workplace
productivity and innovation.”
External col laboration
The lead time for knowledge to become applicable technology and to begin to be accepted in the market is
decades rather than single digit years. Truly innovative ideas do not come out of isolation. They generally
originate from several disciplines, a combination of quite different technologies or a combination of ideas and
inputs from customers, information technology specialists, academics and other business partners. It is claimed
that Silicon Valley businesses are successful as ideas, capital and talent circulate freely. However, Valley
companies have thought very carefully about the support, rewards and remuneration practices that encourage
their innovators to stay. 3M, for instance, uses dual career paths where its best researchers can choose to follow
a technical or a management career path with equal advancement opportunities.
Many Silicon Valley organisations are also very effective in using partnerships and alliances to develop
innovations. However, there are contrasting positions about the role of partnerships and innovation. One view is
that outsiders are excluded for fear of losing intellectual property. The alternative view is that innovation is best
seen as a form of knowledge brokering across organisations through partnerships and networks.
In short, the bulk of evidence is that innovation requires ideas and expertise from a wide array of sources
41
Opengear is also a strong believer of collaborating with people outside the business. They are actively engaged
in an open source community and Bob Waldie observes that this sort of collaboration enables the company to
look at different ways of solving problems and improving products. Sharing the same view, David Kitchen,
founder and CEO of Brewers Choice, a successful startup company that provides quality home brew supplies in
Australia comments that:
.
Protection around intellectual property can be provided by formal partnerships that outline ways and processes
for sharing skills and knowledge. Also formal alliances often mean that projects are maintained despite cutbacks
or global financial crises. Also deep partnerships between organisations and people from within and across
businesses build trust and often produce more informal arrangements that promote more sharing of resources
and knowledge. Great leaders who forge great partnerships allow the partner organisations to punch well above
their weight.
41
Wolpert, 2002; Leifer et al., 2000; Callan & Ashworth, 2004
32
“Collaboration is something that we strive hard to do as a business. If you have companies working
together as a business, even if they may seem to be competitors, I think collaboration can be really
important because you can bring different things to the table -- like the service providers who provide
their services to the startup business for an equity stake -- at the end of the day they are collaborating to
take that idea to market . So collaboration, and making it easy for companies to work together, is an
important factor.”
Innovation organisations also use partnerships and alliances to get to know new talent that might be attracted
into the business. Employees are entrusted with details of new concepts and share this information among
others inside and outside the organisation in the hope of finding appropriate partners
42
In a study of Australian industry partnerships, industry reported a strong preference for longer-term
partnerships
. Many companies today
use partnerships with their customers for feedback on their performance kits, new materials and prototypes.
Customer feedback also is gained by internet sites that provide an opportunity for innovation exchanges between
customers, buyers, suppliers and others. Sites welcome outside interest and are designed to attract buyers and
sellers of new technologies, services and products, all of whom might add value to the emerging idea.
43
Internal collaboration
. Building and demonstrating trust is critical to the success of partnerships around innovation. As
partnership development requires a great investment in time, industry is reluctant to spend too much time
chasing a new partner when a good partner is already working with them. Also a key component to effective
partnering is having leaders of innovation and others who have strong capabilities in initiating and managing the
stages of partnerships. Also they note that it is important to avoid creating ‘heroes’ on whom the success of the
whole partnership might rest. One solution is to recruit others who work with these partnership managers and
who, in time, can successfully replace them.
Leaders of innovation need capabilities in building teams and teamwork. We know that innovation is a collective
act that often occurs through relationships between members of a work team, as well as with others. Teams are
a major tool for promoting learning and innovation. A climate in a work team that supports creativity helps team
members to feel more comfortable in taking risks, to try new things and to exchange information more freely
44
“When I was the CEO of Financial Services at Lend Lease, we had a number of different companies
within the business. I challenged them to come up with ideas to improve the business. They came up
with amazing ideas and we told them to select the top three ideas they came up with and to take control
of putting these ideas into action. We did that over a period of time. Collaborative teams would come
together and make total business changes that significantly improved the business.”
.
Significantly, team support for innovation predicts greater levels of innovation, as well as more novelty and a
greater number of innovations. Lynnette Mayne talks about the importance of teamwork and collaboration in
contributing to the success of Lend Lease Corporation:
42
Leifer et al., 2000; Wolpert, 2002
43
Callan & Ashworth, 2004
44
Shalley & Gilson, 2004
33
Teams come in many forms, and each form has its merits around promoting innovation. The cross-functional
team enables relationships to be strengthened between functions, while still allowing room for individual
expertise to become apparent. Kodak’s development of the disposable camera and Volvo’s culture of innovations
around safety and design are cited as benefits from integrating functions across a company. It is also known that
learning is much more successful if it is communicated through small project teams rather than through a
company-wide approach.
For instance, talking about the value of teams in driving business growth of Keystone Medical, Nick Wilkinson
commented that:
“Keystone has done very well because our team and shareholder register is exceptional for such a
small company. Our shareholders include Newcastle University commercialisation arm, a professor of
physics as the director, two other medical device owners as directors, and the owner and CEO of a
company that turned over 500 million a year as the other two directors. The better quality the team, the
more doors open, the more confidence it gives you, and the more confidence it gives people to try your
product.”
In promoting innovation cultures, communities of practice are group processes where members can choose to
work together because of a shared expertise and passion for a joint enterprise. These self-selected, collaborative
work groups usually form in response to an issue or shared problem that requires an innovative solution.
Research reveals that effective communities of practice are not easy to build or sustain, and are often difficult for
management to regulate. However, they are another mechanism found to be used to promote innovation through
getting people to collaborate and to share experiences around issues in free-flowing creative ways that foster
new approaches to various problems and challenges.
Innovation labs are also being used as a tool that promotes teamwork and to teach innovation
45
Jaegopal Hutapea, a successful serial entrepreneur, Angel investor, and founder of multiple companies focusing
on renewable energy sources in Australia and Asia talks about the key role of teamwork and collaboration in
enabling Australian startup companies to fully utilise the capability in their organisations:
. Experimentation
is encouraged through a relaxation of departmental and central agency controls. Labs can last for a few days
only to provide an environment for rule busting ideas, while attendees are encouraged to learn from radical
innovations outside their industry. As well, employees are coached in developing low-cost, low-risk ways of
testing their ideas. Finally, the best ideas are presented to a venture board for possible funding.
“Australia is known as a country of inventors, so what does this mean? The education is there, the
individual capability is there. But it does not necessarily have the group capabilities. You have to
remember, if you go outside, just like when you go out to the soccer field, you might have one go-getter,
one good player—but if there is no other player to kick you the ball, you will never kick the ball or make
a goal. The same applies to innovation. You may have a good inventor but you also need good finance
people, and good marketing people, good production people and good distributors. So you have to set
all this up and become one unit—so it becomes a good symphony—everyone plays their own tune.”
45
Abramson & Littman, 2002
34
Identification with the team is about the sense of belonging to the team and experiencing the team’s successes
and failures as one’s own. When team members are highly identified with their team, they experience the
collective’s interests as their own self-interest. This identification with the team drives higher levels of effort by
team members, even well outside what is expected
46
Again, the leader of teams plays a critical role. Strong leadership increases the salience of identifying with the
team, and in being team players. In fact, team members who most identify with their team leader, and with the
team, are more willing to act more consistently in ways to achieve the team’s objectives
. It is the old adage: “ordinary people doing extraordinary
things”. Highly identified individuals are more willing to limit their own personal gain for the good of the team.
Higher levels of identification promote more positive perceptions of the team and increase team members’
motivation and willingness to cooperate with others. This sense of identity also promotes agreed ways of
behaving and values that support innovation, such as for example, trying to be good communicators with other
team members and to be more collaborative.
47
. In particular, the
evidence shows that more transformational leaders encourage innovation not only directly, but also through their
effects in promoting processes that build team identity and team climate
48
In summary, having a more transformational team leader encourages those in the team to more fully identify with
their team, and in turn, to be more engaged around outcomes around higher levels of innovation and
performance. As mentioned previously, there is a strong case for organisations to promote more transformational
styles of leadership as they foster individuals’ identification with the team around achieving more innovative
outcomes
.
49
Conclusions around buil ding collaboration
.
• Collaboration, alliances, and networks drive innovation
• Because innovation requires ideas and expertise from a wide array of sources, leaders of innovation
must be skilled in building supportive team climate and teamwork
• Team support for innovation predicts greater levels of innovation, as well as more novelty and a greater
number of innovations
• Team members, who most identify with their team leader, and with their team, are more willing to act
more consistently in ways that achieve objectives around innovation.
46
van Knippenberg, van Knippenberg, De Cremer, & Hogg, 2004; Riketta & Nienaber,2007
47
Walumbwa et al., 2008
48
Eisenbeiss et al., 2008; Jung et al., 2003 van Knippenberg et al., 2004; Paulsen, Maldonado, Callan and Ayoko,2009
49
Riketta & Nienaber, 2007; van Knippenberg et al., 2004
35
Section 2:
Leadership, culture, capability and collaboration in startup
firms
Organisational attributes change over different stages of a firm’s existence and different management practices
are needed at different stages
50
. The organisational life cycle is usually divided into five stages: startup, growth,
maturity, decline and death (or revival). Each stage has a unique growth challenge. In particular, the startup
phase is characterised by growth through innovation, and a key challenge identified across many studies is a
crisis of leadership.
There was a consensus among those interviewed that innovation is a key priority in startup firms and the type
and quality of leadership adopted by the firm can make or break the new venture. The Society for Knowledge
Economics would like to take this discussion to another level. Steve Vamos has called for a National Workplace
Leadership Institute that would serve to assist startups, and to place leadership and innovation more on our
national agenda.
For example, John Mactaggart of Technology One Ltd, and member of the board of directors of World Business
Angels, observes that early on companies need to be more innovative. He warns that as the business grows,
companies can rest on their laurels and begin to think that there is no need to innovate further. Effective
leadership plays a key role in driving the levels of focus upon the innovation activity more consistently across all
stages in these emerging enterprises. Yazz Krishna, Founder and Managing Director of Five Faces, an
innovative startup company in specialising in digital signage, acknowledges the importance of leadership in the
startup stage. He comments that “a business cannot go far without good leadership; leaders bring people
together and provide the direction of the business.”
Similarly, Trevor Glen of Sarugo believes that both internal and external leadership is important for the emerging
enterprise:
“Leadership is really important; you need internal leadership from within the company to drive the
direction and to make sure you're going in the right direction. You also need leaders within the
community who you can aspire to. I think celebrating the successes of people who have come from
similar backgrounds, who have started a company and made it a success, and who are now doing really
well for themselves, is important. We need to make sure that those people are identified and paraded so
people can say “Yes I can do it. There are people out there who have done it”.
Studies investigating the impact of leadership in newer small enterprises show that
51
• human capital is the more important resource in the early than later stages of growth, but early stage
firms often lack these resources
:
50
Quin & Cameron, 1983
51
Nosella, Petroni & Verbano, 2006; Koberg, Ulenbruck & Sarason, 1996; Quinn and Cameron, 1983.
36
• stable leadership and management’s commitment to leading the firm help it grow overtime and play a
key role in developing and consolidating capabilities within the firm that in turn drive the capacity for
innovation
• the survival of startup firms is determined by the strength and quality of relationships established with
external partners.
Entrepreneurship, risk and innovation
In exploring the topic of risk, we began by talking to three people who have a long history in industries that must
manage risk well. Captain David Coates emphasised how the airline industry in Australia and elsewhere has
moved very much towards managing risk by building more open two-way partnerships with other airlines and
with their civil aviation authorities. In Australia, these increased levels of collaboration have included adopting
principles around the learning organisation, especially in the training and supports for pilots in making critical
decisions around safety.
Thiess is a large Australian construction company that manages billion dollar high risk projects that currently
include the high profile desalination plant in Victoria. Nev Power, the CEO of its Australian operations, reports
that the business has sophisticated risk mitigation processes and systems, and in particular, an organisational
culture that has at its core, values focused upon safety, innovation and performance. Continued innovation at
Thiess is a response to “having lots of problems that require clever solutions that cement the competitive
advantage and edge for the business”. These solutions are gained through managing risk through a wide range
of strategies that include collaborations with technical experts, partnerships with local and international firms,
actively recruiting people with knowledge and capability around partnerships, innovation and risk management,
and by R&D activities that have accessed the Government’s tax incentive scheme.
Finally, Allan McPherson, CEO of the McPherson Group and a business entrepreneur who provides financial
management services to high net worth clients, many of whom are successful entrepreneurs. His role is to talk
through with his clients the range and level of risks around their investment decisions, attempting to anchor
clients’ thinking around what he believes is a more accurate assessment of the real risks and more probable
returns given the history of such investments. As these three examples reveal, appropriate risk management
often starts with promoting thinking where people explore, research and then put in place appropriate ways for
managing identified risks.
For the entrepreneurs interviewed, beginning a new venture and an emerging business is at once exciting,
challenging and risky. At the same time, many of the entrepreneurs interviewed believed that with hindsight, their
risks around the startup phase and early stages were not managed well. Many believed that they only
recognised the up-side, and there was little risk mitigation. However, as their ideas moved to stages around
raising funding and commercialisation, more contact with industry associations, mentoring schemes, potential
37
investors, business angels and applications for Government funding drove stronger efforts to build processes
and systems for managing cash, people, credit and suppliers, just to name a few of the areas cited.
Studies also show that entrepreneurs face a larger number of different types of risk than do non-entrepreneurs
52
.
In an attempt to describe the risk taking activity of entrepreneurs, researchers Thomas Monroy and Robert
Folger developed a typology of entrepreneurial styles
53
In summary, what are the risks?
. They found that not all entrepreneurs are driven by
financial gain. Not every person who founds a new business enterprise does so by seeking to minimise financial
risk and to maximise financial return. People who successfully innovate and start businesses come in all shapes
and sizes. However, they do have a few things others do not. In the deepest sense, they are willing to accept risk
for what they believe in. They have the ability to cope with a professional life riddled by ambiguity, and a
consistent lack of clarity. Most have a drive to put their imprint on whatever they are creating. And while
unbridled ego can be a destructive thing, it is difficult to find an entrepreneur whose ego isn't wrapped up in the
enterprise.
Financial risk - in most new ventures the individual puts a significant portion of their savings or other resources
at stake. Many people in our society are unwilling to risk their savings, house, property and salary to start a new
business. Most entrepreneurs have to carry considerable debt in order to pursue development, marketing and
promotional campaigns. Overall, the entrepreneur is forced to live and to endure enormous capital requirements.
The majority of entrepreneurs interviewed cited financial risk as the biggest risk encountered in early phases of
their business.
As David Kitchen, Founder of Brewers Choice notes, when starting up a business, “the risk of losing everything
is significant.” Financial strain is heightened among young entrepreneurs embarking on their first business like
Yazz Krishna, Managing Director of Five Faces. Krishna highlights that the financial risk and difficulties faced by
young entrepreneurs are compounded because they are not yet financially stable. Even for seasoned
entrepreneurs like John Mactaggart of the World Business Angels Association, managing cashflow and looking
for sources of funding remains as one of the biggest risks.
Mactaggart states that “finding funding is exceptionally hard. Finding funding and finding a customer for a
product are two totally different things and it is diffcult for the entrepreneur to swap from selling a product to
selling a business.” For Trevor Glen, CEO of Sarugo, the ability of a business to secure funding early in their
venture is both the greatest risk and the greatest necessity in sustaining the growth of a new business:
“One of the risks around innovation is whether you can get the funding to start the business,
whether you can put it up yourself or get external funding. Probably the biggest risk is that you
won’t get that funding and you won't be able to launch your product. I think funding still remains
to be a big issue, and a lot of Australians still seem reluctant to invest in early stage business.
52
Allen, 1999; Dollinger, 1995; Naffziger, 1995
53
Monroy & Folger, 1993
38
They want to wait and see if they get a run from the board first which is understandable, but
that means a lot of these businesses don't make it as far as they could because they don't get
that support early on.”
Time risks - taking a similar perspective on the financial risks encountered by new enterprise, Nick Wilkinson of
Keystone Medical asserts that the biggest risk that any startup or entrepreneur faces is wasting time due to lack
of funding to achieve key business priorities:
“You're wasting time if you haven’t done the work and the market doesn’t want your product or
you're wasting time because you don't have the money to employ people you wish to employ.
Therefore you take longer to get to a certain point than you would otherwise. It all comes back
to wasting time and in a business wasting time means a lack of money, and it’s also the time
you can't get back.”
The majority of early stage entrepreneurs interviewed reported that they took on multiple roles in their business
including managing the business, investor relations, sales and marketing, accounting, and product development.
As such, many of these new entrepreneurs were overburdened with numerous responsibilities and felt under-
funded and under-supported.
Career and personal risks - while some of the most common entrepreneurial goals are independence, wealth,
and work satisfaction, those who achieve these goals often pay a high price. A question frequently raised by
would-be entrepreneurs is whether they will be able to find a job or go back to their old job if their venture should
fail. This is a major concern to managers who have a secure organisational job with a high salary and a good
benefit package. This is clearly a risk that is faced by unsuccessful entrepreneurs.
Researchers have labelled as “entrepreneurial stress” the back problems, indigestion, insomnia and headaches
that can be reported by busy entrepreneurs. To achieve their goals, however, our entrepreneurs were willing to
tolerate these effects of stress. The rewards justified the costs.
Lusia Guthrie who has successfully launced several biotechnology startups, notes that the demands of leading
startups can have a large impact upon the personal life of the entrepreneur. She believes that leaders of
innovation need to have capabilities that reveal resilience, flexibility, openess to learning and a willingness to
build a team of people with different but overlapping skills sets. In a similar vein, David Kitchen raises the
significant personal costs tied up to starting up a business:
“If your business does not go as you planned from day one, the toll on you is very substantial
and there is difficulty separating your work problems from your personal life. Facing hard times
in the business can have a negative effect on the family so there is a risk to that. There are a
substantial amount of costs in the early stages. You lose a vast amount of your freedom if you
aren’t able to liberate yourself from the day-to-day tasks involved in setting up a business.”
Barriers to entry - this issue includes the need to grapple with proprietary technology, products and processes.
Where established firms hold patents on products and processes that the new venture requires, they have the
ability to either keep the new venture out of the industry or to make it very expensive to enter. Most favorable
location is another form of proprietary barrier. Established firms, being further along on the learning and
39
experience curve, are probably more cost efficient in their operations-- something that will take time for the new
venture to achieve. These proprietary factors are all substantial barriers to entry for a new venture.
Jaeopal Hutapea from World Energy Techonology talks about intellectual property risks faced by new
enterprises and what startups can do to manage this risk:
“During the innovation process, one risk is to be copied by other people. How do you minimise this
risk? One is to protect yourself with the very costly patent right but in order to do this you have to have
a large sum of money. The second is to not worry about the risk, to go to the market, produce it at a
very competitive price so then the others will not need to copy but will be willing to work together with
you like a distributor or sales representative –because for sure they know that your product is very
competitive so there is no point to copy.”
Winning over and keeping customers - new entrants to an industry face products and services that have well-
established brand loyalty and loyal customers. The new venture typically has to consider extensive and
expensive marketing campaigns focused on making the customer aware of the benefits of the new venture's
products. The cost of undertaking this strategy can be a significant barrier to entry unless customers are
dissatisfied with the competing brands. Howard Buckley of Sungrid puts this as: “the successful and continued
disposition of the idea into the market”.
An added dilemma is the psychology of the consumer. As a new entrant into an industry, the entrepreneur
needs to spend considerable time and money convincing customers that their product is worth switching to.
There is a high level of uncertainty about the likelihood of such campaigns being successful. In addition, the new
venture must persuade established distribution channel members to accept the new product or service and must
prove that it will be beneficial to distributors to do so. This persuasion process can be costly for the new venture.
Dealing with Governments - many industries have a high degree of government regulation which can create
further pressures. Governments can prevent a new venture from entering an industry through strict licensing
requirements and by limiting access to raw materials through laws or high taxes and to certain locations via
zoning restrictions. There are often very high costs and considerable time delays and lobbying that are required
by the entrepreneur to meet these regulation requirements. David Kitchen of Brewers Choice reports that
stringent liquor licensing regulations and signage restrictions have imposed some barriers to expansion and
marketing of his business. Howard Buckley and Luisa Guthrie raise similar regulatory challenges in the solar
technology and biotechnology industries, respectively.
A lack of community support for entrepreneurship - reports from the Karpin Inquiry found that Australians
have overwhelmingly negative opinions about small business and entrepreneurship. Negative comments made
up 84% of responses
54
A variety of negatives were cited by the Australian public when asked in the Karpin Report to think about going
into small business. These responses highlighted dealing with long hours, competition, lack of finance/capital,
. Running or owning a small business is not an attractive picture to the Australian public.
54
Karpin, 1995
40
Government regulations, having sole reponsibility for decisions and the fear of going bankrupt. Also Australian
parents do not want their children to go into small business and to engage in entrepreneurial activities. Parents
view the lifestyle as too hard, too much pressure on family life and lacking job security.
Dr David Wyatt has successfully taken to market a number of startups, including the startup PanBio that became
one of Australia’s fastest growing businesses in the 1990’s. Now working with the recently ASX listed Papyrus
Australia, he believes that Australia still has a “cultural problem with business failure” as he labels it, where we
tend to blame the Government, or Governemnt blames the entrepreneur, for failed new business ventures.
Trevor Glen of Sarugo expands on this issue by stating that:
“Some people within our own families might have been a little reluctant to support us because they are
scared of the whole idea of a startup or entrepreneurship. There is a pretty negative idea in Australia
about starting your own business. I think most people are scared of it and that is not a good thing. This
is an Australian cultural heritage that has been ingrained in us. I think it is changing but I still experience
it today, so this is something that needs to change”
However, there are efforts to change the mind set of children and their parents. Dr Alan Finkel of Better Place
Australia speaks passionately about the DEEWR funded initiative that he is championing to encourage more
school-aged children to be engaged in science, and to create attitudinal change in our children. This STELR
Project (Science and Technology Education Leveraging Relevance’) is a national secondary school science
education initiative of the Australian Academy of Technological Sciences and Engineering (ATSE). The program
is now running in over 200 Australian schools, promoting interest among school children in taking up careers in
the enabling sciences such as biology, physics, chemistry and mathematics. Children focus their attention upon
how science can be used to respond to key social issues such as better responses to global warming around the
innovative applications of renewable energies. Interestingly, as noted in Table 4, Austria has a Science In
Schools initiative with similar goals.
Financial and other supports around managing ri sk
Reflecting on the sources of support that have helped their businesses grow, entrepreneurs interviewed
identified that the following programs and services played a key role in supporting the early phases of their
ventures:
• Local government programs like the NSW government’s Tech Voucher program. Nick Wilkinson from
Keystone reports that through the Tech Voucher program, Keystone received a grant that allowed them
to engage a university to do product testing on their behalf or solve an idea or business challenge they
had. Instead of handing out cash, this program facilitates ways of solving problems in an emerging
business. When innovating or collaborating with partners outside Australia, Jaegopal Hutapea adds that
local governments in other countries play a key role in helping the entrepreneur understand local
business practices, legislation, culture and “do’s and don’ts of the local business culture”
• Federal government grants and the new range of programs from COMET and Commercialisation
Australia. A large number of our entrepreneurs reported that these programs helped them recognise if
they actually have a business (at the first stage) and to provide them with growth capital to do so
• Business angel investors and mentoring. There was a strong consensus among those interviewed that
having a vibrant angel community to support them financially and to provide mentoring around building
capabilities around leadership and innovation were an essential source of support in developing their
41
business. COMET was very positively regarded around its value in supporting payment towards
establishing access to an experienced business mentor.
• Organisations supporting innovation. Trevor Glen from the Adelaide-based startup Sarugo cited the
invaluable support received from quasi-government organisations such as Innovate SA:
“We have some great support in South Australia with Innovate SA. They are a quasi Government
department that is predominantly funded through the State Government here. They provide support to
startup companies to educate them and ensure they are receiving the advice that they need. The
training that Sarugo and Memory Box (a product spinoff from Sarugo) have received through that
program has probably made a difference between us being here and not. We learned even simple
things like cash flow management that we understood in principle but not as much in practice -- training
courses like that are really important.”
Yazz Krishna from the Brisbane-based startup Five Faces reports that the organisation iLab Incubators helped
drive the growth of his business. iLab is a company based in Queensland that aims to nurture startup technology
business through the delivery of a range of services for a 2-year period. Five Faces received a variety of support
from iLab including skills training courses, virtual office support, mentoring from a panel of business advisors and
assistance with raising capital to grow the business. The mentoring received from the panel of business advisors
was particularly important in helping the business make key decisions to facilitate growth.
Hew McDonald has gained considerable support and flow-on benefits through media awards and competitions
that have the profiled his invention of an elevating platform for mechanics. He was successful in winning a
section of the ABC New Inventors program. In addition, he was runner up in the Northern Territory Innovation
Awards, and a finalist in the awards for a national magazine. These successes gave his invention both credibility
and visibility, and he was able to leverage off these awards in follow-up contacts with companies interested in his
elevating platform. Within this mix of support was success also in winning a COMET grant.
Supporting entrepreneurs: Strategies and recommendations
Given the many challenges that entrepreneurs face when building their new ventures, it is important to develop
and implement strategies to support younger entrepreneurs and their new enterprises. The three drivers of
innovation introduced earlier —capability, collaboration, and culture—can be used by leaders and others as a
guiding framework for devising strategies to encourage and support entrepreneurship in Australia. These
strategies should revolve around providing younger entrepreneurs access to a range of resources and
information and the development of new structures of support that are culturally embedded
55
. Examples are
presented in Table 5 that reflect upon the key themes in this report around how leaders of innovation play vital
roles in building capability, collaboration and business cultures.
55
Nasser, du Preez & Herrmann, 2003
42
Table 5. Recommended strategies to promote entrepreneurship
Strategies to build capability
Strategies to promote collaboration
Strategies to build an
entrepreneurial culture
Access to pools of knowledge
regarding opportunities in particular
markets
Access to expertise to explore these
particular opportunities
Access to appropriate sources of
business development training
Ongoing support in the form of
knowledge and expertise to ensure the
growth of the business beyond initial
incubation and early survival.
Mentoring with the support of other
successful business people to ensure
that young entrepreneurs learn by
experience and develop sound
business principles
The development of strategic alliances to
ensure the sustainability of young enterprises
Access to markets through a network of
marketing brokers
Creating mechanisms to link entrepreneurs to
people and resources that facilitate business
growth
Organising regular networking events for
young entrepreneurs to meet and connect
with senior business leaders
Creating virtual communities of support for
entrepreneurs to share experiences, advice,
contacts, and knowledge, particularly for
those in remote areas
Access to simple capital formation in
order to startup a new venture
Positive social recognition by society
at large for this new form of
entrepreneurial success
Appropriate trade, investment, and
tax policies to promote the ongoing
sustainability of entrepreneurs as the
new source of wealth and job creation
in the economy
Regulatory frameworks and
legislation which enable business
success rather than stifle
entrepreneurial creativity
As the strategies listed in this Table suggest, business leaders, Government and service providers all have a role
in supporting new entrepreneurs and entrepreneurial activity. For instance, Government plays a key role in
creating an entrepreneurial culture by providing the necessary regulatory environment to enable rather than
inhibit business success.
In recognition of this fact, the Australian Government has recently launched a set of programs specifically
catering to the needs of small business:
• Small Business Online: A program aimed at equipping small businesses with the skill and know-how
to improve their web facilities and e-commerce capabilities. Support provided during the two-year life of
the initiative will include training seminars on e-business, advice on establishing an online presence and
the development of other e-business resources.
• Small Business Support Line: As part of the 2009-10 Budget, the Government announced funding of
$10 million over two years to establish a unique free support line and referral service dedicated to small
business. The service commenced in September 2009, and offers initial advice to small business
owners and takes a whole of Government approach to assist them improve their sustainability and
foster better business management practices through the global recession.
• Small Business Tax Break: For eligible assets acquired between 13 December 2008 and 31
December 2009, and installed by 31 December 2010, small businesses are able to claim a bonus tax
deduction of 50 per cent of their cost. This Small Business Tax Break represents an increase from the
previous rate of 30 per cent and provides greater incentive for investment in new capital items, such as
computer hardware and business vehicles, and capital improvements to existing machinery and
equipment.
43
In addition, given the many risks encountered by entrepreneurs in their startup ventures, an important question of
interest is what sources of support can help new entrepreneurs effectively manage risk? We put this question to
the entrepreneurs we interviewed and they came up with the following recommendations:
• Educate the Angel community to communicate better about the types of investments and risks that they
will make. By doing this it was believed that entrepreneurs can find out more quickly and easily if they
will get funding or not
• Educate startup companies to make sure they are aware of what to do to get funding and to manage
risks through more workshops, better web sites and more promotion through service providers
• Government programs like the COMET program have helped many entrepreneurs manage the financial
risks in their early stages. Hugo Le Messurier of LeMessurier Solutions has acted as a COMET
business adviser in South Australia. He has brought to this role experience as an entrepreneurial leader
a proven track record in successfully managing startup companies. He believes that COMET funding
has allowed those in startups to access business leaders in entrepreneurship and innovation that they
could not otherwise have afforded. He supports the matched-funding models like those of COMET as
“you must have some skin in the game”
• More Government programs that model USA examples of dedicated initiatives that accept higher risk,
such as its Small Business Innovation Research (SBIR) funding managed by the National Institute of
Standards and Technology (NIST). Dr Alan Finkel of Better Place Australia gave this example, where
SBIR Programs do not fund projects that have already established a proof-of-concept
• Continued mentoring support from business leaders who have a proven track record of business
success and who have done it all before. Their role is seen as critical around alerting innovation leaders
to the knowledge and skills sets required to be successful in managing risk. This is particularly important
for startups and the Government should support more mentoring programs. A number of those
interviewed suggested that programs like this must continue and more funding should be allocated to
startups. The Government must also be more consistent in the services and programs they provide. For
instance, many individuals were bemused about the way COMET is being replaced with
Commercialisation Australia and the lack of program support during the change-over
• Ensure that the Government understands the risks faced by small business so that they can be in a
better position to assist startups in managing these risks
• Service providers have a key role to inform and provide forums for those in startup companies to learn
about the better management of risks.
The development of an industry charter
An idea put forth at the Enterprise Innovation Summit was the possible development of an industry charter on
Innovation and Leadership with a view to fostering more innovation in Australian enterprises. In talking to
entrepreneurs about this idea, the general consensus was that an industry charter for innovation would not be a
useful approach to lift innovation in Australia. Rather some believed that a charter might take the focus away
from where innovation occurs on the ground. Others experienced with charters had not seen them operate
successfully at the enterprise level.
Individuals would rather see the investment put into better worked exemplars, cases studies and more shared
learning resources that reflect the needs of those working in leadership roles who are looking at better ways to
promote innovative thinking, cultures and capabilities in their businesses. They would especially like to see time
and energy put into local initiatives that successfully bring entrepreneurs together, citing the value provided
already by their local networking groups like First Tuesday Clubs, Founders Forums, and similarly named local
44
initiatives. Such forums aim to meet the needs of those still working “at the ground floor of innovation” in getting
their innovation to market.
The small number of those who thought it could potentially be useful to provide a charter had the following ideas
about what an industry charter on innovation might look like:
• The aim of the charter would be to have Australia as the leader in innovative cultures and employee
ownership. Thus one objective would be to create a small business culture in Australia, second-to-none,
internationally
• A charter could enunciate what is meant by innovation. The charter could be organised around a key set
of principles and key themes that would be further described in the document. It could describe
Government and other sources to enable innovation linked to the stage in the innovation cycle
• The objectives of the charter should be to foster innovation and to give a framework for people to
engage in innovation by better assessing the existing potential for innovation in their business
• The charter could support some “bid ideas” around better supporting the leaders of innovation
• The charter could reflect upon the best ideas for models in Singapore, USA, France, Ireland and other
countries that are providing investment in the ideas of entrepreneurs in order to successfully get them to
market.
45
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doc_697638140.pdf
During this such a outline with regards to fostering enterprise innovation exploring further the leadership of innovation.
Fostering Enterprise Innovation:
Exploring Further the Leadership of Innovation
May 2010
IBSA wishes to acknowledge the work of Professor Victor J Callan and Sarah Esposo of The University
of Queensland Business School who have undertaken the research to follow up the outcomes of
IBSA’s Enterprise Innovation Summit and have prepared this report.
For further information about this report or any other work being undertaken by Innovation & Business Skills
Australia Ltd, please visit www.ibsa.org.au.
© 2010 Innovation and Business Industry Skills Council Ltd
All rights reserved. Apart from any use permitted under the Copyright Act 1968, no part of this publication may be reproduced, stored in a retrieval system,
or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise, without written permission from the publisher, Innovation
and Business Industry Skills Council Ltd (‘IBSA’).
Innovation & Business Skills Australia Ltd
Level 11, 176 Wellington Pde
East Melbourne, Vic 3002
Tel: 03 9815 7000, Fax: 03 9815 7001
Email: [email protected]
Contents
Contents .................................................................................................................................................................. 3
Fostering Enterprise Innovation .............................................................................................................................. 5
Foreword ............................................................................................................................................................ 5
Introduction ......................................................................................................................................................... 6
Our national innovation system .......................................................................................................................... 6
Methodology ....................................................................................................................................................... 6
Section 1: ................................................................................................................................................................ 8
Leadership and innovation ...................................................................................................................................... 8
Leaders influence innovation but….. .................................................................................................................. 8
Leaders of innovation promote the right culture .................................................................................................... 10
Support learning ............................................................................................................................................... 10
Support strong shared goals ............................................................................................................................. 11
Adopt a failure-tolerant leadership style............................................................................................................ 12
Reward innovation ............................................................................................................................................ 13
Conclusions around building innovation cultures .............................................................................................. 14
Leaders promote capabilities for innovation .......................................................................................................... 14
Skills and up-skilling ......................................................................................................................................... 15
Skilling leaders on the job ................................................................................................................................. 16
The role of service providers in building innovation leaders ............................................................................. 18
The role of Government in supporting innovation ............................................................................................. 24
Lessons from other countries about building capability .................................................................................... 28
Conclusions around building capability ............................................................................................................. 30
Leaders promote innovation through collaboration ............................................................................................... 30
External collaboration ....................................................................................................................................... 31
Internal collaboration ........................................................................................................................................ 32
Conclusions around building collaboration ....................................................................................................... 34
Section 2: .............................................................................................................................................................. 35
Leadership, culture, capability and collaboration in startup firms .......................................................................... 35
Entrepreneurship, risk and innovation .............................................................................................................. 36
Financial and other supports around managing risk ......................................................................................... 40
Supporting entrepreneurs: Strategies and recommendations .......................................................................... 41
The development of an industry charter ........................................................................................................... 43
References ............................................................................................................................................................ 45
5
Fostering Enterprise Innovation
Foreword
In response to the need to continue to lift innovation practices in Australian enterprises, Innovation and Business
Skills Australia (IBSA) in June 2009 held an Enterprise Innovation Summit at Parliament House in Canberra. The
starting premise was that a compelling case exists for how engagement in enterprise innovation increases
national productivity, prosperity and social well-being. The Summit focused more on the development of a new
agenda to improve the leadership and management of Australian enterprises, and the skills of our workforce
more broadly, to increase Australia’s capacity and capability for continued innovation. As noted in the IBSA
report from the Summit, further discussion was needed to examine how leadership, management and culture
within organisations contribute to building innovation and productivity.
In developing this new agenda around leadership and management in more detail, IBSA undertook to explore
further four key ideas that emerged from the Summit participants around:
1. Examining the interconnectedness between leadership, innovation, skills formation and productivity in
the workplace
2. Developing a better understanding of innovation, risk and entrepreneurship as experienced by startup
firms
3. Undertaking research to better understand the experiences of young Australian entrepreneurs
4. Investigating further the concept of a National Industry Charter for Innovation and Leadership.
In line with this ‘follow-up’ agenda, we are pleased to present the current report which explores the leadership of
innovation by looking at past Australian and international research, and also by incorporating into these findings
the views of a wide range of younger and more experienced Australian entrepreneurs, business figures and
other observers of the innovation journey in Australia. We reiterate the importance of Australia’s government
and enterprise leaders being serious about encouraging innovation as the underpinning for future national
prosperity.
John Vines
IBSA Chair, May 2010
6
Introduction
Our national innovation system
In response to Venturous Australia: A Review of the National Innovation System, the Australian Government has
increased the national budget for science and innovation from $6.88 billion in 2008-2009 to $8.25 billion in 2009-
10 — a 25% rise in funding. Driving such investment is substantial evidence that an innovation economy
provides a better future. Innovation economies have more engaged workforces and more productive
organisations with more skilled and capable people.
To guide its own thinking in this area, IBSA has defined innovation as the conscious exploitation of ideas leading
to a new or modified product, process or service which adds economic and/or social value. Innovation therefore
is about the intentional introduction and application of new ideas, processes, products or procedures into a job
role, team or organisation, where their adoption significantly benefits the individuals, the teams, the organisation
or wider society.
A key focus of this report is upon the role of leaders in driving innovation. As will be highlighted, leaders at all
levels in our organisations are key drivers in planning and delivering the transformation that emerges around
innovation. Australian organisations require leadership that encourages, recognises, and rewards creativity and
innovation at all levels in the enterprise. In addition, leaders are central in promoting and sustaining
organisational cultures that embrace diversity, tolerance, talent and technology. While management is about
maintaining the status quo, leadership is about change and transformation.
This report is divided into two sections:
Section 1 reviews the links between leadership, culture, capability and collaboration in driving innovation in
enterprises. It highlights the key role of business leaders, Governments and service providers in driving
Australia’s innovation agenda. It also reviews current innovation initiatives provided by Governments and various
service providers and examines how current programs and initiatives address these core enablers of innovation
— culture, capability and collaboration. Practical strategies on leadership and capability development are also
provided.
Section 2 reviews innovation in emerging enterprises and the special issues faced by startups. It looks at the
nature of entrepreneurs, the risks they face and strategies to promote more entrepreneurship in Australia.
Methodology
Our strategy in preparing this report was two-fold: the first was a targeted review of the literature to establish the
links between leadership, culture, capability and collaboration in driving innovation. We consulted past research
to identify the special issues faced by new entrepreneurs and emerging enterprises, including the types of risks
they experience in the early stages of their new venture.
7
The second approach we took was to talk to a number of business leaders and entrepreneurs across Australia to
investigate their startup experiences, their thoughts on innovation, risk, entrepreneurship and on ways to improve
innovation in Australia. Business leaders and entrepreneurs were selected based upon evidence of their
contributions toward driving innovation in their business and in the wider community; write-ups of their
achievements around innovation; and through nomination by IBSA and other business leaders. We conducted
focused interviews with twenty-six entrepreneurs and business leaders either face-to-face or by phone during
March to May 2010. Interviews ranged from 20 to 60 minutes in length.
The following is a list of those interviewed:
• Bruce Biltoft, Managing Director, Memcor Australia
• Howard Buckley, Chief Executive Officer, Sungrid Limited
• Doron Ben-Meir, Chief Executive Officer, Commercialisation Australia, Department of Innovation,
Industry, Science and Research
• Captain David Coates, Adjunct Professor, Griffith University
• Geoff Fary, Assistant Secretary, ACTU
• Dr Alan Finkel, Chief Technological Officer, Better Place Australia
• Professor John Foster, School of Economics, The University of Queensland and Member of the Cutler
Review of the National Innovation System
• Trevor Glen, Chief Executive Officer and Co-Founder of Sarugo (and Memory Box)
• Stewart Gow, Manager, Venture Capital Invest Queensland
• Deryck Graham, Executive Director, Quickstep Technologies
• Hugh Guthrie, Principal Research Consultant, National Centre for Vocational Education Research
• Lusia Guthrie, Chief Executive Office and Managing Director, LBT Innovations
• Jaegopal Hutapea, Angel Investor, and Founder of World Energy Storage Technology
• Narelle Kennedy, Chief Executive Officer, Australian Business Foundation and Member of the Cutler
Review of the National Innovation System
• David Kitchen, Chief Executive Officer and Founder of Brewers Choice
• Yazz Krishna, Chief Executive Officer, Five Faces
• Hugo Le Messurier, Managing Director, LeMessurier Solutions
• John Mactaggart, World Angel Investor and Director of Technology One
• Andrew McGrath, Chief Executive Officer and Founder of McSoft T/A Workslink
• Hew McDonald, Operations Manager and Founder of Evolving Workshop Technologies
• Allan McPherson, Managing Director, McPherson Group
• Lynette Mayne, Executive Chair, Work Wear World
• Nev Power , Chief Executive Officer of Australian Operations, Thiess
• Steve Vamos, Founding President of the Society for Knowledge Economics
• Bob Waldie, Chief Executive Officer, Opengear
• Peter Westfield, Co-Chair, Australian Innovation Festival and Director, Adair Communications
• Nicholas Wilkinson, Managing Director and Chief Executive Officer of Keystone Medical
• Dr David Wyatt, Non-Executive Director, Papyrus Australia Limited.
8
Section 1:
Leadership and innovation
The consensus at the Enterprise Innovation Summit was that there is already a case for greater engagement in
enterprise innovation to increase our national productivity. However, a major next step is to foster innovation
capacity and capability by developing a new agenda around leadership and management in Australian
enterprises. As noted by the Society for Knowledge Economics and others, we need leaders across our
economy with the strategic and operational capabilities to build work cultures that encourage more workplace
innovation
1
To this end, the next section brings together the findings of national and international research into leadership
and innovation. It points out that leaders must play a key role in driving Australia’s innovation agenda through
their focus on three core activities:
.
• Building culture
• Building capability
• Modelling and supporting collaboration.
Leaders influence innovation but…..
Innovative nations survive and thrive more than less innovative nations. Continued innovation in organisations is
a key part of their longer term survival
2
. However, few reports have examined the precursors of longer-term
innovation, especially how the attitudes and behaviours of leaders determine better outcomes around increased
levels of innovation
3
. Those reports that have examined the links between leadership and innovation reveal that
the links are complex, and mediated by a range of factors
4
Empirical studies reveal four sets of leadership skills and abilities that positively influence the success rates in
organisations in implementing change and in driving innovation
.
5
1. Ability to coach – the leaders inspire others to be at their best and to establish supportive partnerships
with employees that make them feel engaged and empowered
:
2. Ability to reward – leaders of innovation know that rewards need to be flexible and gradual, valuing
small contributions, milestones and incremental change
3. Ability to involve and support others – leaders of innovation connect with their employees, soliciting
feedback and offering high levels of support that facilities employees’ involvement and commitment
which is critical to successful innovation and change
4. Ability to promote teamwork and collaboration – leaders view innovation as a collective endeavour that
is about creating cultures and systems that sustain innovation.
1
Society for Knowledge Economics, 2008, 2009; Dodgson et al., 2008
2
Damanpour & Schneider, 2006
3
Bass & Riggio, 2006
4
Eisenbeiss et al., 2008; Avolio, Zhu, Koh, & Bhatia, 2004
5
Bel, 2010
9
Given these capabilities, what is the most effective style of leadership around promoting innovation?
Transformational leadership is the most effective style overall
6
By encouraging new ways of looking at problems and by modelling less conventional ways to solve problems at
work, transformational leaders encourage their team members to value attempts around previously untested
ways to solve problems
. Organisations that have more transformational
leaders across all levels are more likely to be consistently high-performing. More transformational leaders
provide the intellectual stimulation and collective vision that fosters both the creativity and productive team work
necessary for innovation. More transformational leaders encourage followers to challenge existing assumptions,
to reframe problems, and to approach old situations in new ways. By providing a vision for the team and the
organisation, these leaders promote greater levels of challenge and meaning around the work being completed.
7
Whereas non-transformational (i.e., transactional) leadership is focused on maintaining the status quo and
fostering continued performance on well-defined tasks, transformational leadership highlights the necessity for
change and constant evolution to business operations and culture. Howard Buckley, the CEO of the dynamic and
growing new business Sungrid, talks about the importance of leaders building a culture of innovation and
aspiration. He believes that the right choice of leader has been critical to the success of this WA solar energy
startup company in being clearer about what the firm is good at, and where it can maintain its competitive edge.
. In support of these research findings, Dr Alan Finkel of Better Place Australia believes
that effective leaders of innovation identify and set challenges, and they know that intelligent people will always
respond to challenges. They also lead by example, modelling creative and unconventional behaviours that may
stimulate innovation.
Deryck Graham is a founding Executive Director of Quickstep Technologies that began as a startup in Perth in
2001. The initial Quickstep process was developed out of the family’s garage. Today this business is a listed
company that offers composite materials engineering and manufacturing for the aerospace and defence
industries in Australia, together with Centres of Excellence in Germany, the UK and USA. He highlights the
significance of the partnership between transformational leadership and innovative technology:
“No matter how clever is your technology, the investment public will bet on the quality of the
leadership in your business. It is this judgement about your technology and the leadership of the
firm that they will weigh up in believing that you can generate a return to shareholders. The right
leadership and management are required at different stages in the growth of the business. In our
case, we have hired different types of CEOs with different capabilities at different stages of the
growth of the company.”
In summary, there is a large body of research evidence into transformational leaders. They inspire individual
creativity and innovation at the team level. In turn, the actions of these teams make more innovative
6
Elkins & Keller, 2003 Bass & Riggio, 2006; Eisenbeiss et al., 2008 Hülsheger et al., 2009
7
Liao & Chuang, 2007; Garcia-Morales, Llorens-Montes & Verdu-Jover, 2008; Bass & Riggio, 2006
10
organisations. At the same time, some studies do not show a consistent relationship between transformational
leadership and innovation
8
However, one explanation for this finding is the role of other factors that mediate the relationship between
leadership and the outcomes around innovation (see Figure 1). These factors are now discussed, and include
business culture, employee capability and levels of collaboration.
.
Figure 1. Leaders promote innovation and higher productivity through building culture, capability and
collaboration
The following sections examine in more detail how leaders of innovation:
• Promote culture
• Build capability
• Support and inspire collaboration.
Leaders of innovation promote the right culture
Following Figure 1, we now focus upon how leaders of innovation build cultures that:
• Support learning
• Have strong shared goals
• Tolerate failure
• Reward innovation.
Support learning
Organisational leaders play a key role in shaping an internal culture conducive to innovation — a culture that
encourages learning, tolerates failure, and supports its innovators
9
. Innovation leaders take steps to build
cultures which promote and sustain learning
10
8
Eisenbeiss et al., 2008; Wilson-Evered, Härtel & Neale, 2001
. There is solid evidence around the links between getting the right
culture and climate in organisations, and getting higher levels of innovation. Studies of R & D units, for instance,
9
Damanpour, 1991
10
Senge, 1990
11
reveal that climate and culture emerge as the most important predictors of innovation
11
. Organisations with
cultures promoting challenge and risk taking are more innovative as a whole
12
Towards promoting this innovative edge, IBSA has provided a checklist for implementing an innovation culture.
This list suggests that the use of a more facilitative leadership style encourages and supports employees in
thinking more about improvements to products, processes or services
.
13
Lynette Mayne, the former CFO of Lend Lease Corp and current Executive Chair of Work Wear World, a
successful boutique provider of uniforms, expands on this issue. She says the following about the role of leaders
in building an innovative culture:
.
“Leadership is a crucial part in making a company successful and unique, so you really need to
have the right leadership to create the kind of culture that you need for innovation. Innovation is
about companies being able to re-invent themselves all the time, so that means you have to have
the right leadership that encourages everyone and have statements that characterise what the
company stands for. At Lend Lease, one of the slogans we had was 'dare to be different'—so
encouraging every employee that they can always improve their jobs, and if they do so they will be
rewarded accordingly. Having an innovative culture and having everyone believe that they are the
innovators in the company is really important.”
We know that innovative organisations prize learning and innovation as a core capability. Significantly, we know
that learning cultures create, acquire and transform knowledge, and they are very effective at shaping the
behaviours of employees to reflect this new knowledge and the insights provided
14
• promotes innovation by empowering its people
. In fact, a true learning
culture:
• encourages diversity and collaboration between individuals with diverse backgrounds, as individuals
with more diverse backgrounds and experiences challenge established practices and beliefs that
actually hinder innovation
• welcomes new entrants and their diverse ideas into existing work groups
• creates continuous learning opportunities for employees, and often with their customers and partners
15
Support strong shared goals
.
In innovative workplace cultures, there is support for creativity and innovation, and in particular support for
independence in pursuing new ideas. The leaders of teams, as mentioned above, are critical here in promoting
these climates and cultures for innovation.
For instance, in a meta-analysis of over 100 independent studies, Hülsheger and his research team found that
goal interdependence was the most influential team level factor for innovation in the workplace. Team processes
11
Abbey & Dickson,1983; Scott & Bruce, 1994
12
Nystrom,1990
13
IBSA, 2008
14
Nonaka & Takeuchi (1995); Durrance,1998; Farson &Keyes, 2002
15
Lam, 2002
12
showed stronger links with innovation than any other factor
16
A number of entrepreneurs interviewed noted the value in choosing CEOs with different experiences and skill
sets at different stages in the development of startups. However, Dr David Wyatt who is an entrepreneur and
business angel warns that buying-in leadership skills at later stages in the growth of the startup business can
create culture clashes that reduce the innovative spirit. In particular, when leadership is brought in from outside,
he argues that those individuals must be less willing to work in sometimes chaotic cultures. These individuals
need to juggle the importance of keeping core cultural values and behaviours but also the need to introduce
different values and behaviours that promote the firm’s next goals.
. This finding underlines the importance of leaders of
innovation in setting common team goals, and it is in line with other findings of the important role of supervisors
and team leaders in providing the workplace team with clearly stated, shared and visionary goals.
Adopt a failure-tolerant leadership style
Risk is an integral part of innovation. Successful innovative organisations use risk constructively to learn
17
However, few companies actually know how to deal with the large number of new ideas originating from middle
and lower management. Numerous case studies reveal that highly successful companies like Google, Sony,
Canon, 3M and Virgin have encouraged employees to put forward ideas that at first might seem to be too
outrageous and highly risky.
. In
cultures that promote innovation, we are more likely to see attitudes where stumbles on the innovation path are
forgiven by leaders. Failure-tolerant leaders help people overcome fear, and in the process, create a culture of
intelligent risk-taking which leads to sustained innovation. Moreover, while employee freedom to innovate is
important, as suggested earlier, it is the involvement of leaders and managers that produces really creative acts
and innovative outcomes in the business.
18
The Royal Dutch Shell Group of companies, another business identified as a world leader in innovation, has
found that many of its most worthwhile innovations have come from employees via email. Jack Welch at General
Electric used group sessions called workouts that supported the initial idea, but then brought in managerial
support for review early in the process to select the best new ideas. To promote his “speak up” culture, it is
reputed that at one stage Richard Branson of the Virgin Group allowed every employee to have his phone
number.
Such initial ideas have little assessment of their costs, risks, time and resources. It
is the role of the leaders in these businesses to provide processes that allow employees to scope the innovation
further in terms of its risks and costs. These business cases provide more thoughtful and well-researched
arguments that outline the potential risks for review at the next stages.
16
Hülsheger, Anderson, & Salgado, 2009
17
Denhardt & Denhardt, 2002
18
Harryson,1997; Farson & Keyes, 2002
13
Bob Waldie, Chairman and CEO of Opengear, an innovative developer of next generation console server
solutions, stresses the importance of developing a future-oriented business culture that capitalises on new
opportunities. As many other entrepreneurs we interviewed noted, he sees the importance of having the end
goal as an aim from the start. Reflecting on his startup experiences, Bob Waldie makes it clear to his employees
that he does not mind failure, as long as they quickly put a process in place that stops the problem from
recurring. In his business culture, failure is a sign that the firm is moving towards where it should be. The
Opengear culture also watches for complacency and falling into comfort zones:
“We look for the newest, and best, and freshest way doing things rather than how we did it last time; we
do strive actively to innovate. The company is very conscious of falling into the comfort zone of the way
things were done before. It is part of our culture to constantly advocate to do things differently.”
In contrast to such stories, a number of the entrepreneurs and business leaders interviewed were critical of
Australia’s efforts to identify and promote our champions of innovation. Our national culture is viewed as not
supportive of entrepreneurs and innovators, and this view is backed up by research
19
A number of those interviewed believed that Australia even has a culture of fear around entrepreneurship and
around starting up any business. Trevor Glen, Co-Founder and Director of Sarugo, a successful software
engineering startup company based in Adelaide, sums it up by stating that:
. Some interviewees talked
about the need for cultural change. In particular, Australian Governments need to be more accepting that some
innovations will be winners, but others will lose money at least in their initial attempts. Some believed that the
USA has established the right attitude towards innovators, and did a far better job than Australia in
acknowledging its entrepreneurial heroes and heroines.
“The big challenge is for Australia to change that culture. We need to know that it’s ok to get out there
and give it a go -- even if you don't make it -- you need to give it a go or else you'll never know. We
need to make people feel empowered to do that. Innovation should really come from the individuals
rather from the bigger businesses -- because that drive that the individual has to take those great ideas
and make it into a successful business would be more than anything a big business could do, so we
need to foster that seed in startup companies and help them actually become successful.”
Reward innovation
Although cultures and the right support from leaders and managers are important, it is people who innovate.
Through their cultures, and the actions of their leaders, there are clear signals that innovation is valued,
rewarded and critical for the success and growth of the organisation
20
A major issue is about providing people with time to innovate. While there are excellent examples of creative
ideas that have emerged under extreme time pressures, the best creative outcomes emerge when employees
. How business leaders provide time to
innovate is one part of this strategy to reward and support innovators.
19
Karpin Report, 1995
20
Tarry, 2002
14
are protected by their leaders from such pressures
21
. There are many examples of how leaders set up work
cultures where employees have blocks of time, can collaborate with others on an as needs basis, have time to
attend conferences, workshops, site visits and to participate in their professional networks. For instance, 3M has
instituted the 15% option where employees are encouraged to spend up to 15% of their working week on
projects of their own choice, with seed capital being made available to researchers in several ways
22
Many of the business leaders we interviewed were not at the stage of providing their employees with access to
considerable internal funds to explore new ideas. Rather, they gained very good returns around allowing
employees the time to attend technical workshops, innovation events and festivals, and to visit universities,
suppliers and industry research parks to talk to others about their ideas and challenges.
. The 3M
researcher can apply for seed capital from their business unit manager. If this request is denied, they can take
their idea to another business unit within the company, while they seek funds through their internal 3M grants.
Conclusions around buil ding innovation cultures
• Transformational leadership is strongly linked to innovation in firms
• Leaders play a pivotal role in shaping organisational culture
• Work culture has a strong influence on levels of innovation and productivity
• Leaders who promote innovation build cultures that are supportive of learning, have strong shared
goals, are failure tolerant in their style, and reward innovation and their innovators.
Leaders promote capabilities for innovation
Returning to Figure 1, the focus now moves to how leaders of innovation promote capabilities around innovation.
Training and development are key parts of capability development. The decisions made by the leaders of
innovation about training and development are essential stepping stones in the capability building process
23
According to a recent global survey, training and skill development programs are more effective in driving
business performance in companies where senior leaders set the training agenda
.
24
The link between capability and innovation was clearly articulated in a project prepared by Australian Industry
Group (AiG) and Delloite Consulting
. As such, leaders of
innovation firms have a central role in directing initiatives aimed at building capability for innovation in their work
cultures and employees.
25
21
Amabile, Hadley & Kramer, 2002
. Possessing the relevant skills emerged to be core to firms’ abilities to
engage in innovative practices. Shortage of skills in science, engineering and technology; business and
management capabilities and communication and interpersonal skills, all affect a firm’s innovative capacity.
Leadership and management skills emerged as particularly vital in extracting the business value from ideas, and
22
Studt, 2003
23
Helfat & Peterraf, 2003
24
Gryger, Saar, & Schaar, 2010
25
Australian Industry Group & Deloitte,2008
15
in developing and implementing creative ideas and knowledge management strategies. Without this capability,
firms did not remain globally competitive.
Skill s and up-skilling
The National CEO Study conducted by AiG and Deloitte found that 68% of Australian firms were identified as
suffering from skill shortages. This impact was greatest in the construction industry and in small businesses
26
It is noteworthy, however, that different sectoral innovations require different human capital
.
Industry leaders who perceive a shortage of skills among employees in their business also perceive a lack of
innovation in their business. These findings suggest that policies aimed at lifting the nation’s skills base will have
positive effects on business innovation in Australia.
27
. Human capital is
made up not only of technical knowledge, but also of personal skills, and the individual expertise that people
develop during their professional life
28
. For instance, technical skills are the key in enabling successful
innovations in manufacturing firms in Finland. However, industry sectors with a high share of highly skilled
employees in terms of formal education and work experience engage in above average product innovation—
specifically in science-based industries
29
A national survey on skilling practices across seven industry sectors in Australia revealed that nearly two-thirds
of all firms reported using upskilling as an innovation strategy
. Taken together, these findings suggest that strategies aimed at
building human capital to lift innovation must tailor initiatives to the needs of specific industry sectors and the
type of innovations that they produce.
30
• The greatest barrier to upskilling cited by industry leaders was costs, followed by staff leaving following
training, and the lack of government incentives
. However, it was noted that firms need to invest
in high quality training in order for upskilling to lead to greater innovation. Other key findings included:
• More than three-quarters of respondents indicated that they use informal in-house training sessions to
introduce new skills to existing workers
• While informal in-house training is the upskilling method most used by Australian firms, formal in-house
training is the most highly regarded
• Mentoring is another highly regarded method for upskilling, despite being the fourth most adopted by
firms.
It is of some concern that the methods most used by Australian firms to upskill employees (informal in-house
training) are not the methods businesses consider most effective (formal in-house training). Corroborating these
findings, there is evidence that most companies in the USA use informal on-the-job-training to upskill employees,
although this type of informal training is most effective when it is reinforced through formal training
31
26
Ibid
27
Schneider, Gunther, & Brandenburg, 2010; Leiponen,2005, Vinding,2006
28
Foray, 2007
29
Schneider, Gunther, & Brandenburg 2010
30
Australian Industry Group & Deloitte, 2008
31
Gryger, Saar, & Schaar, 2010
16
Skill ing leaders on the job
It is well-established that on-the-job learning is the major way that people learn to become better leaders of their
business. Table 1 provides a range of workplace strategies that leaders of innovation can consider around
building capability. As can be seen, most of these options are applicable to leaders at all levels of the business
(i.e. CEOs, team leaders, supervisors), and include considerable variety from challenging assignments, to
delegated roles, mentoring and coaching to action learning projects.
Most managers learn about leadership on the job, from observing good and bad role models, and from resolving
organisational challenges and personal hardships
32
Table 1: Ten options in the workplace for building leadership capability
. In particular, challenging workplace assignments and
projects are well attuned to the business of innovation in that they honour all styles of learning: creative
discussion, information gathering, practical instruction and self-discovery. Also the results of the assignments
and projects can be presented at a later time to coaches, their executives and partners.
Learning options Benefits
1. Trial and error. An effective way to learn about
being innovative by being given the chance to try a
new skill or activity, in a controlled situation, learning
from mistakes. Requires good supervision and the
attitude in the business that if you don’t make some
mistakes, you are not learning.
Provides opportunities to learn about risks around startups
and business, and to define what can go wrong, why, and
what can be done about it.
2. Challenging assignments. Taking on direct
responsibility for an innovation or new project.
Provides an opportunity to learn and to develop special
expertise around project management skills or knowledge.
The new leader needs to be supported as they take on this
special project, with access to advice and possibly additional
training.
3. Reviewing successes. Helpful in analysing and
planning for future success. This can be done
individually or ideally, with the full team involved in
the project.
Provides an opportunity for leaders to share their knowledge
and experience with each other. Allows for new leaders of
innovation to emerge. Helpful in identifying new innovations
that might be taken onto other work to save cost and time.
4. Appropriate delegation. Delegation provides an
efficient use of resources, increases multi-skilling
and ensures smooth handovers. It also builds more
empowered cultures that can support employees
taking the initiative around new ideas to improve
productivity.
Makes those given the responsibility build skills around
setting boundaries, asking for feedback and determine what
support is required. This may be linked with secondment and
job rotation that encourages employees to recognise the new
skills that they will acquire if they are to stay with the business
for the longer term.
5. Mentoring. A mentor provides a source of
feedback and general support. They are a ‘trusted
advisor’ or ‘career friend’. It is important that they
both support and challenge the leader of innovation
to get effective learning. They should have business
experience, but not necessarily around
entrepreneurship and startups.
Provides a way of sharing expertise and experience within
the business, assists in career development, provides an
opportunity for both parties to reflect on work practices. Many
entrepreneurial companies choose to use outside mentors,
but internal mentors are a good option if these individuals are
carefully selected and trained in the role.
6. Coaching. A more experienced business person
and entrepreneur who acts as ‘coach’ encouraging
the development of specific new skills or knowledge.
Coaching in startups for example can be a team
leader, supervisor or manager level.
Assists new or less experienced leaders to learn quickly. A
good coach asks questions that encourage and challenge the
learner to think about their skills, behaviours and careers in
the industry.
32
MCall et al., 1988
17
Learning options Benefits
7 Observation, shadowing and visits. Learning
from watching other leaders in action such as
watching others performing specific tasks,
contributing to team projects, visiting projects being
completed by the business at various sites.
A useful tool to look for new innovations and best practice
methods for the delivery of innovation projects. Also gives an
opportunity to evaluate how business practices might evolve
or change.
8. Networking. Allows leaders to meet other people
formally or informally to grow their business
networks inside or outside the company. Networks
help to grow the number and variety of people that
leaders feel that they can approach to get things
done or to overcome roadblocks around projects.
The benefits are around helping leaders to gain access to
new information and support that they might need to help with
their current roles or more generally their careers in the
industry.
9. Action learning groups. Groups of 5 or 6 people
work on a project or problem identified by the
business, but the issue is new or outside the day to
day expertise of members of the group. Often
involves setting up personal and group contracts
and it is used for personal and group development.
Many businesses use action learning projects to develop the
expertise and confidence of newer or high potential leaders.
The outcomes can be considerable around innovations,
initiatives around improved production, and new products and
services to trial.
10. Workshops, discussion groups and
communities of practice. Where groups of leaders
explore issues together, drawing on real life
experiences. These are used as a focus for
information sharing. This can be formal or informal
and focus on one area or select different topics for
each meeting.
These groups can be used as a means of sharing knowledge
gained through networking, conferences, and workplace
innovations.
The Centre for Creative Leadership in the USA provides an Innovative Leader program that adopts an action-
learning approach wherein, before attending the program, participants are asked to think about a challenge they
are struggling with, and create a short video
33
Day 1: A New Approach to Business Innovation
. The challenge requires an innovative solution. Participants
present this challenge to their fellow participants on the first day of the program. This challenge is reworked and
reframed throughout the program in order to gain clarity about how a new approach will lead to better products,
services, and processes. An overview of the training agenda is outlined below:
• Create connections with fellow participants and share challenges you are experiencing related to
innovation
• Understand innovative thinking versus business thinking
• Learn how to reframe your challenges
• Experiment with innovation processes that will lead to ideal customer experiences.
Day 2: Applying Innovation Leadership to Organisational Challenges
• Understand how to quickly assess the climate for innovation
• Learn leadership practices that will help move innovation initiatives forward
• Develop a plan for how you will encourage innovation in your team when you return to work.
Although studies highlight the importance of building capability in new enterprises, many of the entrepreneurs
interviewed reported that their company did not have the resources to invest in formal in-house training. Howard
Buckley of Sungrid puts it as follows: “Training is often seen to be irrelevant for the startup; it has to be assumed
that you do not have the time to train-up your employees. In reality though, you need to.”
33
Centre for Creative Leadershiphttp://www.ccl.org/leadership/programs/ILWAgenda.aspx?pageId=3062
18
Nick Wilkinson, CEO and Director of Keystone Medical, a successful startup company specialising in the
development and commercialisation of cutting-edge medical devices, acknowledged that training takes up
valuable time and money. As a result, Keystone prefers to hire people who already have the capability to do the
job rather than taking someone off the shelf and training them to get to where they want them to be. Deryck
Graham at Quickstep Technologies relates how they have sourced people from across the world due to the high
levels of technical expertise required to continue to provide advanced composite manufacturing solutions that
allows them to stay competitive.
Of those entrepreneurial companies who did engage in some form of training, the predominant form of training
was informal. Andrew McGrath, Founder and CEO of Workslink, a startup company delivering information
management solutions for the construction industry asserts that: “capability comes as part of doing the actual job
so there is no actual need for skills training in terms of actual formal training. It’s just learn-it-as-you-go.”
Similarly, Bob Waldie of Opengear described his startup business as a moderately small company. At present,
they do not have a lot of resources to support formal in-house training. Instead, they rely on staff to talk and
share with each, to do their own professional development and to read and keep up-to-date with current
knowledge in the area. They do put people through courses and conferences, but no formal training program is
provided in-house.
The role of service providers in building innovation leaders
Much research has investigated the role of Government and businesses in leading innovation, but there is a lack
of research on the role of service providers in enabling innovation. This issue was also raised at the IBSA
Summit. Service providers include industry, unions, professional organisations, suppliers, research and
educational institutions. They provide services directly to enterprises to support innovation, and may also act as
intermediaries between Government and Australian enterprise.
A number of entrepreneurs interviewed highlighted the important role that Government, service providers and
business leaders can play in more collaborative approaches with small businesses to drive continued innovation.
For instance, Bob Waldie, CEO of Open Gear, highlighted that “the Government’s key tool is its capacity as a
customer and its use of product and technology as a partner in developing innovation with small businesses and
not as a tax redirector.” Others also cited the key role of service providers partnering with business in taking their
ideas to market. For instance, Trevor Glen of Sarugo suggested that “one of the things that service providers
may need to do is to be more flexible in terms of how they provide services to startups and be flexible around the
way they get paid. Maybe they can take equity stakes in companies to help them get started. This is how service
providers can help but obviously they are taking a risk by doing that as well.”
It is widely acknowledged in the interviews with entrepreneurs and business leaders that a promising step
forward is the establishment in November 2009 of the Australian Government’s Industry Innovation Councils.
19
Composed of innovation leaders from industry, unions, professional organisations, research organisations, and
government, the Councils are:
• Providing strategic advice on innovation priorities to the Minister of Innovation, Science, Industry and
Research
• Championing innovation in industry
• Building connections and collaborating across Councils, innovation initiatives, and other organisations.
The Government’s response to the Cutler review emphasised that the inter-relationships between Government,
business leaders, and service providers must be examined and strengthened in order to facilitate innovation.
Business leaders, service providers and the Government are all part of the innovation system; and it was
emphasised by many of those interviewed, as noted in the Government’s innovation agenda for the 21
st
century,
that innovation systems are made stronger by strengthening the constituent parts
34
The success of implementation of innovation initiatives is, in part, contingent upon the success of the
partnerships. Service providers such as educational institutions and business consultants also can help build the
capability and capacity of young entrepreneurs to grow and develop successful ventures. The Australian Anthill,
for example, provides opportunities for young entrepreneurs to network with others who will provide them with
the necessary support to grow their new ventures.
. Consequently, it is
imperative that efforts be directed toward evaluating partnerships between Government, service providers,
business leaders and entrepreneurs in implementing innovation programs and initiatives.
Hugh Guthrie of the National Centre for Vocational Education Research highlights how this body supports the
diffusion of innovation in the vocational education sector through commissioned research, workshops,
conferences and benchmarking exercises. Geoff Fary of the ACTU actually sees unions more as stakeholders
than service providers that must maintain a position of independence. While he is very positive about the quality
of leadership in Australian organisations, he believes that some business leaders fail to fully consider the
significant role and value of employee engagement at the workplace level.
Lynette Mayne, of Work Wear World, describes the key role of service providers around facilitating innovation in
Work Wear World:
“Service providers play a very big role in helping small business. We treat our service providers like they
are part of the family. If you do this, then you can leverage their skills and expertise. For example, for us
at Work Wear World, even though we're small, we have the best suppliers and we treat them like part of
the family-- they give us access to all their competitive products so we were the first to put cotton behind
a micromesh polo to enhance safety in work uniforms. So service providers can be a wonderful source
of fostering innovation.”
Table 2 summarises innovation programs provided by selected service provider organisations in Australia. As
seen in Table 2, the majority of innovation programs provided by the organisations reviewed foster innovation by
building capability, culture, and collaboration — with only a few programs targeting leadership development
34
Australian Government Department of Innovation, Industry, Science and Research, 2009
20
initiatives. There a number of organisations across Australia founded by business leaders within industry who
aim to promote innovation in Australia by mentoring small business owners and aspiring entrepreneurs.
Organisations such as Brisbane Angels and Australian Business Community Network (ABCN) are good
examples. Brisbane Angels is an organisation of business leaders who assist aspiring entrepreneurs to build
their new ventures. They coach and mentor new entrepreneurs, helping them develop leadership skills for
innovation and sound business principles.
David Gow of Invest Queensland has been prominent in founding and managing the Mentoring for Growth
program through the Queensland Department of Employment, Economic Development and Innovation. It
provides CEOs (usually the founders) with access to high level knowledge and business networks that they
would not normally access. The program helps skill up entrepreneurs (companies up to $50 million in sales
turnover) through contacts with volunteer business leaders, investors and consultants. For over eleven years this
award winning program has provided mentoring to over one thousand SMEs, with 125 of them raising $135
million in angel capital. Currently there are over 100 mentors on the database for the program.
Table 2: Innovation programs in selected service providers
Source Description of Programs and Services Provided Innovation
Enabler/s targeted
Innovic. INNOVIC is an
Australian not for profit
organisation and a leading
provider of services to
innovators, inventors,
entrepreneurs and small to
medium enterprises. Services
provided include consulting,
mentoring, training, and
commercialisation support.
INNOVIC helps to turn new ideas
into viable products and new
businesses.
Next Big Thing Award: A global competition and annual
award to find and showcase new inventions and innovations
that have the potential to become ‘the next big thing.
’iLink: A service linking innovators and startup businesses
to INNOVIC’s network of i-link members. i-link assist clients
with new ideas to connect with industry specialists, service
providers, and business organisations with expertise in
different aspects of the commercialisation process.
Grant Match: Provides a thorough search of government
grants, support programs, taxation benefits and other
funding that match individual needs.
Patent Search: Examines intellectual property databases in
Australia, Europe and the U.S and provides a report
detailing any existing or similar concepts.
Culture Capability
Collaboration
Australian Anthill. Anthill was
initially launched as a business
magazine specifically dedicated
to innovation and
entrepreneurship. Since then,
Anthill has extended its services,
providing a range of endeavours
to support innovation and
entrepreneurship in Australia,
such as awards, competitions
and an online community.
Cool Company Awards: A program to publicly
acknowledge and celebrate Australian organisations that are
doing things differently to bring about positive change.
30 under 30: A program to support young entrepreneurs
and is evolving from an awards program to become
Australia’s only national peer-to-peer network for young
business owners – including Teentrepreneurs. The aim is to
foster a culture of entrepreneurship in Australia.
Pitch Club: A supportive and fun networking event, where
people with ideas, capital and skills can connect.
Participants are invited into a miniature boxing ring, where
they are given 90 seconds to communicate their ideas and
objectives. The objective of Pitch club is to create a member
driven organisation to facilitate investment in early stage
ventures.
Culture
Collaboration
Capability
Australian Innovation. Australian Innovation Festival: A national festival with an Culture
21
Source Description of Programs and Services Provided Innovation
Enabler/s targeted
Australian Innovation is a key
source for up-to-date information
on Australian Innovation and
Entrepreneurship. They drive
initiatives to increase public
awareness of the importance of
innovation and entrepreneurship.
aim to encourage and support networking and business
opportunities for participants in the areas of research and
development, and technology commercialisation, across all
industry sectors. The Festival is a not-for-profit initiative
which aims to inspire a culture of innovation in all
Australians, by reinforcing our rich, innovative history and an
entrepreneurial spirit, which is comparable to the best in the
world.
Collaboration
Capability
Australian Business Review.
Australian Business Review was
established in 2006 to provide
business coaching and
consulting services to owners
and managers of small to
medium enterprises.
Your Business Success: A Program business coaching
program designed to help fix immediate business issues and
work on creating profitable assets. It contains 80 case
studies on DVD, 5 business coach designed manuals to
help map business solutions and ongoing contact with a
business coach.
Leadership
Capability
Business Enterprise Centres
(BEC) Not-for-profit organisation
that aims to support and grow a
national network of Business
Enterprise Centres that provide a
key point of contact for small
business seeking quality
business information advice and
guidance.
For start-ups firms, they assist in providing small business
forums, advice around strategic partnerships and helping
members attract funding from key stakeholders. BEC staff
bring their small/ micro business experience and counselling
skills to helping to reduce the high failure rate in the first 3
years of business. BEC staff complete assessments of
businesses around problem areas (e.g. low sales, financial
management, marketing), and work with the business
owners to create plans and action steps that are monitored
around evidence of improvements.
Capability
Collaboration
Brisbane Angels. Brisbane
Angels provides the vehicle to
allow independent investors to
collaborate, co-invest, share risk,
increase portfolio diversification,
with networking and peer
validation of early stage deals.
Brisbane Angels' members invest their own money to
provide seed and early-stage capital ranging generally from
$5K to $250K ($50 to $500k as a group).Members mentor
and coach entrepreneurs, serve as directors, provide
industry contacts and assist with team building, strategic
planning and subsequent fundraising.
Leadership
Capability
Collaboration
Culture
Enterprise Connect. Part of the
Department of Innovation,
Industry, Science and Research
with the role to connect business
to the knowledge, tools and
expertise to improve productivity,
competitiveness and growth.
Services are delivered through a network of state-based
Manufacturing Centres and five specialist Innovation
Centres. They include the Creative Industries Innovation
Centre based in Sydney, and Clean Energy Innovation
Centre based in Newcastle. Centres are staffed by teams of
highly skilled Business Advisers who deliver a customised
and free Business Review. The overall aim is to help expand
markets, boost local economies and create new jobs in
regional Australia.
Capability
Collaboration
New Enterprise Incentive
Scheme (NEIS). A national
network of providers under Job
Services Australia in locations
around Australia. NEIS providers
include local organisations, such
as Business Enterprise Centres,
TAFE Small Business Centres,
community organisations, and
private sector businesses.
Job Services Australia has set aside specific training places
under the Australian Government’s Productivity Places
Program for eligible job seekers who wish to establish their
own small business. The NEIS provider assists in gaining
access to accredited training that allows the development of
a business plan. If the plan is approved, there is access to a
NEIS Assistance that includes an allowance, rental
assistance and business mentoring and support during the
first year of business operation. If the person is assessed as
highly disadvantaged or is an Indigenous Australian, NEIS
provides additional mentoring and support in starting the
new business.
Capability
Collaboration
22
Source Description of Programs and Services Provided Innovation
Enabler/s targeted
Small Business Advisory
Services Program. Low cost
advisory services for small
businesses through AusIndustry
The program provides access to information and advice on
issues important to sustaining and growing a small business
in response to the current global financial crisis. There are
36 Business Enterprise centres across Australia funded
under the program.
Capability
Collaboration
InnovationXChange (IXC). A
non-profit global exchange that
delivers intermediary service to
business and research.
Intermediary Service: Uses a network of creative and
skilled scientists and technologists operating under strict
codes of ethics and confidentiality. Provides safe access to
ideas and connects to fit the strategy of a business. Also
uses a proprietary step-wise disclosure process that allows
people to safely approach any potential partner while
retaining control over what information is revealed and
when.
Capability
Collaboration
Innovate SA (formerly the SA
Centre for Innovation). An
independent incorporated
organisation that provides a
range of advisory and support
programs to South Australian
enterprises looking to grow their
business.
Selected services include:
Process Engineering: Services to monitor, evaluate and
improve organisational performance
Product Development: Helps businesses create product
prototypes, protect intellectual property, and prepare
products for commercialisation
R&D Commercialisation: Provides advice on accessing
capital, new technology, and partnerships from research
organisations or companies in Australia and overseas.
Venture Capital SA: Helps business attract and secure
investor interest.
Capability
Culture
Collaboration
Australian Business and
Community Network (ABCN)
Established in 2004 by a group
of senior business leaders to
provide mentoring, partnering
and support programs to
students and schools that would
benefit the most.
Selected programs:
Partners in Learning: Links business (CEOs and
executives) and educational professionals (Principals and
senior teachers) to share experiences, solve problems and
explore leadership challenges.
Growing Opportunities and Learning Skills (GOALS): A
one-on-one mentoring partnership between high school
students and volunteer business leaders that aims to widen
the life choices of students considered to be at risk of
disengaging from school.
Technology, Enterprise, and Mathematics (TEAM):
Mentoring program aimed at Year 10 students who have an
interest in maths and IT subjects. The objective is to
stimulate the student’s interest in technology and maths
through project management workshops.
Leadership
Culture
Capability
Collaboration
Innovation and Business Skills
Australia
One of eleven Industry Skills
Councils with a mission to build
capability, professionalism and
innovative capacity in Australia’s
workforce through sharp and
focused consultation on skill
needs. Core focus is on applied
industry research, support
resources, professional
development and continuous
improvement of its Training
Packages.
Selected services include:
Innovation Skills Training: A guide for trainers and
assessors to foster the innovation skills of learners through
professional practice
Workshops: Specialist interactive professional development
workshops for businesses, individuals and VET practitioners
with tangible outcomes.
Events: Special events which bring together leaders of
enterprise innovation, tertiary sector leaders, and industry
associates to explore ways to lift innovation in Australian
enterprise.
Online Workforce Innovation Survey Tool: allows HR
managers to easily survey their staff and consider their
capability for innovation.
Capability,
Collaboration
Culture
Leadership
23
Source Description of Programs and Services Provided Innovation
Enabler/s targeted
Society of Knowledge
Economics
A non-profit organisation which
aims to address Australia’s
critical need to develop more
innovative, fulfilling and high
performing workplaces.
Research and Partnering Program: Brings together
people from across governments, academia, industry,
unions and associations to investigate, research, test and
develop practical programs and tools for Australian
workplaces.
Culture
Capability
Collaboration
Leadership
Business Connect. Offers
business leaders and
entrepreneurs an integrated
package of educational
knowledge-based events and
online resources to increase their
effectiveness and help them to
build a better and more
sustainable business.
Home Based Business Seminars with the Office of Small
Business and Switzer Group.
Small Business Expo and Money Expo 2005.
A range of management seminars and workshops.
Capability
Collaboration
Culture
Inventium. A company that
applies the science of
psychology and neurology to
boosting creativity and
innovation.
Training programs: Creative thinking and idea generation,
Facilitation skills, Decision-making skills, Idea selling, and
Persuasive presentation skills.
Workshops: A range of innovation workshops and projects
using scientifically proven idea generation and techniques.
Keynotes: Offers inspiring and educational keynote
speakers for events around the world.
Recruitment: Services that assist organisations in recruiting
and selecting creative employees.
Culture
Capability
Collaboration
Leadership
Swinburne University Master of Entrepreneurship and Innovation: A program
developed for people who intend to start new, innovative
businesses or play a leading role in an innovative unit of an
established organisation.
Capability
Leadership
Culture
Smart Company. A free news,
information and resource site for
Australian entrepreneurs, and
small and medium business
owners to help keep them ahead
of their competition.
News, business trends and Smart Blogs: Posts daily
news briefings, business trends and ideas from around the
world and blogs from a network of expert bloggers; profiles
the views of Australia’s best business experts including
exclusive features, case studies, and podcasts.
Culture
Capability
There are a range of service providers across Australia that provide consulting services, training, tools and
publications to support innovation in businesses. For instance, Innovix and Australian Innovation have partnered
with the Australian Government to build innovation capacity in Australian enterprise. Innovix provides a
consulting service called Grant Match to help Australian business and entrepreneurs find Government services
(e.g., grants, tax benefits, and support programs) that address their unique business needs. Innovate SA has
also partnered with universities and Government agencies in providing services that support innovation in
emerging enterprises. Similarly, Australian Innovation assists with the administration of the Australian
Government's innovation and venture capital programs designed to support industry innovation. They also
monitor ongoing government innovation programs.
Emphasising the importance of evaluating innovation levels in organisations, IBSA, in collaboration with
Australian Human Resource Institute, is in the process of developing an online Workforce Innovation Survey Tool
24
to enable HR managers to easily survey their staff and consider their capability for innovation. The tool covers
four domains: generating ideas, risk taking, workplace relationship effectiveness, and turning ideas into products,
processes and services. This tool will soon support a more targeted expenditure of workforce development
solutions and allow organisations to measure whether there have been any changes in workforce capability as a
result of development initiatives.
Peter Westfield of Australian Innovation is Co-Chair of the Australian Innovation Festival. As a service provider
Australian Innovation promotes public awareness of the importance of innovation and entrepreneurship through
an emphasis on research, development and commercialisation. Under his management is the Festival that is a
not-for-profit initiative that aims to inspire a culture of innovation in all Australians by reinforcing our innovative
history and an entrepreneurial spirit. He believes the Australian Innovation Festival is comparable to the best in
the world.
Formal education programs provided at universities also provide an avenue for developing the capabilities of
innovative leaders. For instance, Swinburne University offers a Master of Entrepreneurship and Innovation
program for people who intend to start a new, innovative business or play a leading role in an innovation unit of
an established organisation. Similarly, the University of Queensland Business School has a Corporate Education
Program where entrepreneurs participate in a short course in Innovation Leadership or take the course as part of
a larger program to obtain a Graduate Certificate in Executive Leadership. The purpose of the Innovation
Leadership course is to equip managers with the skills necessary to lead innovation for sustainable competitive
advantage. The course is based on international best practice in innovation leadership and presents an
integrated framework from leading edge strategic management and innovation ideas to help managers lead
innovation within their organisations. In addition, there is the Enterprize competition at the University of
Queensland Business School that invites those with novel ideas or at the startup stage to prepare a business
case. The short listed competitors provide a 5 minute pitch to a large public audience around their innovation.
The winner takes away $100,000 in cash to support the next stages of their innovation.
With IBSA support, the inaugural BIG (Business, Innovation, Growth) Education Directory is currently in
preparation through Australian Innovation. The online and print publication will provide an index to all tertiary
level innovation and entrepreneurship courses and qualifications available in Australia.
The role of Government in supporting innovation
Leadership is not only the responsibility of enterprise leaders, but also of Government and service providers
(e.g., consultants, industry councils, and educational, research and training institutions). Professor John Foster
who was a Member of the Cutler Review of the National Innovation System believes that a more dynamic
innovation policy is required that is aimed at making entrepreneurial activity the hallmark of our industries,
irrespective of their size. The Government cannot afford to adopt a laissez-faire approach, but rather it needs to
act to secure productivity gains by creating the environment that allows entrepreneurial behaviour to flourish in
25
our firms today. He believes that this approach is required to position Australia for the next wave of productivity
growth, and to contend with emerging challenges such as our aging population and the declining tax base
35
The Society for Knowledge Economics summarises the role of Government as leaders in fostering innovative
practices by
.
36
• Promoting the vision, importance and case of building high performing workplaces
:
• Creating and implementing enterprise programs aimed at increasing awareness and adoption of best
practice
• Collaborating with industry, government and others in research that provides better understanding and
clear proof of the links between leadership, culture, and management (LCM) and innovation and
productivity and fulfilment at work.
• Evolving education curriculum across all systems to reflect basic skills needed to lift LCM capabilities
• Providing exemplars, role models, and best practices
• Improving governance across all workplaces related to management of human capital and intangible
issues.
Following the Cutler Review, the Government has taken strong and decisive action around providing adequate
funding to lift innovation in Australian enterprise. A selection of key government programs aimed at enabling
innovation are summarised in Table 3. Noteworthy initiatives implemented post-Cutler include the new
Researchers in Business (RiB) Program within Enterprise Connect. The Australian Government has committed
$10 million to support the placement of researchers from universities or public research agencies into businesses
to help develop and implement new ideas with commercial potential. The Government provides up to 50% of the
researcher’s salary costs to promote collaboration between researchers and businesses and to speed the
dissemination of expertise.
Another new program launched in January 2010 is Commercialisation Australia (formerly the COMET program) –
a $196 million support initiative for home-grown innovation. Mr Doron Ben-Meir who has extensive experience in
the venture capital industry and commercialisation was recently announced as the inaugural CEO.
Commercialisation Australia provides a new, simplified form of assistance to researchers, entrepreneurs, and
innovative firms to commercialise their ideas.
In talking to Doron Ben-Meir, he proposes that Commercialisation Australia will bring together three key elements
which are unmatched by other programs to focus resources and attention on the complex task of turning good
intellectual property into financially viable businesses. Firstly, financial assistance will be in the form of broadly
three new products: Skills and Knowledge Grants (up to $50,000, 20% matched by the client); Proof of Concept
Grants (up to $250,000; matched by the client); and Early Stage Commercialisation repayable grants (interest
free, up to $2 million; matched by client). These products are designed to focus on the needs of early stage
businesses at different points in their development. All are milestone based.
35
Foster, 2010
36
Society for Knowledge Economics, 2009
26
Secondly, every client of Commercialisation Australia will be assigned an experienced Case Manager with
diverse skills in the commercialisation process. Case Managers are either successful business builders in their
own right, former senior executives or professional consultants who have hands on experience in taking
intellectual property along a commercial pathway. Case Managers will provide a core component of their service
delivery to help entrepreneurs focus their efforts on what really matters and, hopefully, avoid some of the
mistakes that have been made by many others before them. Thirdly, in addition to the Case Managers, Business
Mentors will be identified through a new database of highly experienced business people who have an interest in
assisting early stage businesses from time to time in their particular areas of interest. He argues that these three
elements combined will deliver a "venture catalyst" service that does far more than simply distribute financial
assistance to struggling innovators - it delivers business building infrastructure and guidance right when it's most
needed.
Many of the entrepreneurs interviewed spoke of the importance of winning small amounts of funds at critical
times during the startup phase, and in getting to the market. Lusia Guthrie of LBT Innovations is CEO of a five
year old healthcare company specialising in laboratory automation. This company has been advantaged at
critical stages in its initial growth and ASX listing by R&D benefits, a Commercial Ready Grant and Export
Development Grant funding. Like others interviewed, her company will be applying for the Commercialisation
Australian funding around further products that provide innovative solutions around managing other microbiology
problems.
Also focusing on building culture and capability for innovation, the Government plans to introduce a new R&D
Tax Credit in July 2010 — a more simplified system relative to the current R&D Tax Concession scheme that
provides better incentive for business to invest in research and innovation. Under the new Tax Credit scheme,
firms with an annual turnover of less than $20 million receive a tax refund of 45 per cent of their R&D spending
when they file their tax return. This measure effectively doubles the standard level of support for innovative small
and medium sized companies. However, it is noteworthy that while the Government programs reviewed here
focus on building capability, collaboration and a culture of innovation; they do not explicitly address the issue of
leadership development to facilitate innovative practices in enterprise.
Table 3. A selection of programs offered by the Australian Government to support innovation
Source Innovation Program Description Innovation
Enabler/s
targeted
G
Enterprise Connect Australian Government initiative that
provides comprehensive support to
Australian small and medium sized
enterprises (SMEs) to help them become
more innovative, efficient and competitive.
Enterprise Connect comprises two
components – Manufacturing Centres and
Innovation Centres. Together, they provide a
Collaboration,
Capability
27
AusIndustry is the
Australian Government's
principal business program
delivery division in the
Department of Innovation,
Industry, Science and
Research. They are
committed to delivering
business services that build
on three key drivers of
economic growth -
innovation, investment and
international
competitiveness.
national network of services and support for
eligible SMEs to access expert, practical
advice and support tailored to their individual
firms.
Commercialisation
Australia
Commercialisation Australia represents a
radical new approach to commercialising
promising Australian research and ideas.
Formerly known as the Commonwealth
Commercialisation Institute, it will provide
multi-tiered assistance to talented
researchers, entrepreneurs, and innovative
firms take their ideas to market. It will give
successful applicants access to specialist
advice and services; funding of up to
$250,000 for proof of concept activities; and
funding up to $2 million for early stage
commercialisation activities.
Collaboration,
Culture, Capability
R&D tax credit From 2010-11, the Government will replace
the R&D Tax Concession with a
simplified R&D Tax Credit which cuts red
tape and provides greater incentive for
business to invest in research and
innovation. The new Tax Credit will provide a
45 per cent refundable credit for firms with
an annual turnover of less than $20 million –
equivalent to a Tax Concession of 150 per
cent. This means that firms will receive a tax
refund of 45 per cent of their R&D spending
when they file their tax return.
Culture, Capability
Innovation Investment
Follow on Fund
The Australian Government’s Innovation
Investment Follow-on Fund (IIFF) is a
venture capital fund. It is a temporary,
targeted and timely response to address the
lack of capital available to the most
promising innovative companies during the
global financial crisis. The fund will enable
these early stage companies to continue to
develop and to commercialise research.
Culture, Capability
Industry Cooperative
Innovation Program
The Industry Cooperative Innovation
Program is a merit-based grants scheme
that seeks to encourage business-to-
business cooperation on innovation projects
that meet strategic industry needs and
enhance productivity, growth and the
international competitiveness of Australian
industries.
Collaboration,
Culture, Capability
The Cutler Review’s Venturous Australia report identified the need for the creation of a National Centre for
Innovation Research, responsible for high quality independent research which is strongly relevant to policy and
practice. The Centre could be the Rosetta Stone for innovation in Australia that allows researchers in universities
to get closer to understanding the needs and opportunities of entrepreneurs, while giving entrepreneurs access
to laboratories and seminar rooms. Such a Rosetta Stone for nation-wide collaboration on innovation exists in
28
the United Kingdom with the Government-funded National Innovation Research Centre backed by Cambridge
University and Imperial College. Other countries are also building such systems of support to boost their
innovative practice.
The Australian Business Foundation backs this concept. Its Founding Chief Executive Narelle Kennedy
emphasises the importance of viewing innovation as a system, and she believes that this system can be better
understood through such research. She argues that seeing business innovation as a system that is continually
being transformed around building sustained sources of competitive advantage is the better pathway to follow
than “shining the torch on leadership, creativity and innovation alone, as this will get the wrong answers”.
In particular, the evidence-based research agenda of the Australian Business Foundation is aimed at gaining a
better understanding of this business innovation system and they want to promote fresh insights that might boost
the capabilities of our innovation leaders and their organisations across a wide range of industry sectors.
Lessons from other countries about building capability
Previous reports such as The Society for Knowledge Economics have already provided numerous examples of
international initiatives that promote coordinated efforts across Government and business to raise workplace
practices and innovation capabilities
37
No one who was interviewed believed that any single country could be nominated as the stand-out exemplar
around effective Government policies around promoting the capabilities of their nations and its organisational
leaders around innovation. Countries mentioned included the USA, Finland, Sweden, Ireland and Germany.
However, different countries were known for promoting capabilities around innovation for specific industry
sectors. For example, Singapore was cited as a good example of how to apply strategic investment in people
and new technology well ahead of R&D in the water desalination and wastewater treatment industry.
. In particular, Government led workplace development programs in Ireland
and Finland are nominated as worthy of further review and consideration by the Australian Government.
At the IBSA Summit, Bernie Cullinan, CEO of Clarigen, a company based in Ireland providing comprehensive
outsourced human resource solutions, emphasised the role of leadership in driving innovation in Ireland. Her
company offers a Leadership Program based on four pillars: inspire, educate, coach and execute. The program
focuses on building strategy, culture and leadership and in facilitating execution. Fundamental to the program is
that each participant makes a commitment prior to acceptance of their development ambitions. Participants who
have undergone the program report that it has led to increased capability to recognise strengths and
weaknesses amongst their teams.
Bruce Biltoft from the Siemens owned water technology company, Memcor Australia, reported how well Siemens
identifies its high potential leaders. This international business then gives opportunities to these new leaders to
develop their capabilities and skills sets around general management and innovation through rotations and
37
Society for Knowledge Economics, 2009
29
development programs. His own company of Memcor Australia has used a successful sponsorship with the
University of New South Wales Co-Op program to access quality chemical engineering graduates. In promoting
their development, there is rotation from the R&D areas into other parts of the Memcor business.
Table 4 provides highlights from a review of innovation policies and programs implemented by OECD countries.
It reveals that human capital development is at the heart of innovation initiatives in many countries, with efforts
aimed at school children, university students, with skills shortages, lifelong learning and internationalisation as
major drivers around enhancing human capability
38
Table 4. International innovation policies focusing on building capability
. However, as noted in this same OECD review, while many
countries have implemented a variety of human capital programs, these are not necessarily linked to their
broader national innovation goals.
Country Focus of Policy Programs and Policies
Austria Enhances the interests of the younger population
in Science, Technology and Innovation and by
encouraging them to pursue a scientific career in
order to meet the challenges of the future.
A new program called “Sparkling Science” has been
launched by the Federal Ministry of Science and
Research. This program combines high-level
research with science promotion in schools bringing
together pupils and researchers in order to inspire
pupils to pursue a career in science and technology.
“Forshung macht Schule” (Science in Schools)
offers innovative education in science and
technology and gives pupils the possibility to interact
with engineers already working in industry. A special
focus is given to the promotion of girls and young
women.
Belgium Focuses on expanding the pool of highly trained
researchers by making research more attractive,
and stimulating international and inter-sectoral
mobility.
A new doctoral program where basic principles will
be the cooperation between doctoral students, the
supervising academic institution and the enterprise,
the commitment by the non-academic partner to co-
fund 50% of the salary and the continuing high
standard of the doctoral research. Also supporting
incoming researchers with a startup project,
including the development of a research group
where appropriate, aimed at opening up new lines of
research
Chile Innovation strategy is structured around three
pillars: business innovation; human capital for
innovation; and science with strategic orientation
Lifelong learning approach to build up a coherent
system of learning opportunities relevant for the
economic clusters and the world of work in general;
giving the generation still in school the skill
foundations to enter the world of work; giving low
skilled and qualified adults a ‘second chance’.
Overall there is up-skilling or re-skilling effort of the
current active population that lacks the new
workplace competencies underpinning the
knowledge economy. A Competency Certification
System is focused on solving the main human
capital gaps and shortages that are making it difficult
38
OECD Workshop on Advancing Innovation, 2008
30
for the economic clusters prioritised by the National
innovation Strategy to fulfil their innovative potential.
Finland Focuses on creating a learning environment for
motivating innovation on a broad basis; revising
taxes and other factors that weaken Finland’s
attractiveness to experts; and developing
management training.
Types of policies include improving mobility and the
attracting experts; developing individuals and
entrepreneurship e.g., including entrepreneurship,
creativity, and innovation in the curricula of all
stages of education; providing incentives for training
and continuous learning in the working life;
establishing a top level development environment
for learning so as to become an international
pioneer in developing teaching methods and
technical tools; and supporting reforms of
organisational environments to improve the quality
of working life
Germany Focuses on enhancing qualifications and
motivation of the population to pursue lifelong
learning.
Internationalisation strategy involving the
strengthening of research cooperation with global
leaders; international exploitation of innovation
potentials; intensifying the cooperation with
developing countries in education, research and
development on a long-term basis; and a focus on
modernising and enhancing education training
(“Promotion via Education”).
Conclusions around buil ding capability
• Leaders are the critical decision-makers around developing capability
• The capability of leaders at all levels of the firm influences innovation
• The capability of employees is strongly linked to levels of innovation
• Since the Cutler review, the Government has made steady progress toward lifting innovation in
Australian enterprises, although current initiatives do not adequately address the need to develop
innovative leaders
• Research on the role of service providers in leading innovation is lacking.
• More work must be done to strengthen the partnerships between Government, service providers, and
business leaders in driving innovation.
Leaders promote innovation through collaboration
Returning to Figure 1 for the final time, the focus now moves to how leaders of innovation promote collaboration
that drives innovation. An entrepreneur cannot innovate alone. The positive impact of collaboration, alliances,
and networks in driving innovation has been strongly supported in previous work
39
. Collaboration encompasses
connections with people and organisations outside the organisation (external collaboration), and those within the
organisation (internal collaboration). However, as noted in the 2010 Australian Innovation Summary Report, the
Australian innovation system consistently underperforms on most measures of collaboration and networking
40
In particular, the leader of an organisation is responsible for forging a collaborative culture to support innovation
and in managing strategic relationships between the company and its network of partners. Steve Vamos of the
.
39
Bel, 2010; Nosella, Petroni, & Verbano, 2006; Walumba et al., 2008
40
Department of Innovation, Industry, Science and Technology, 2010.
31
Society for Knowledge Economics emphasises the need to more fully recognise the importance of intangibles
such as knowledge, relationships and the need to promote forward-looking, open-minded organisations that are
committed to collaboration.
“If we accept that the world is highly networked and organisations are networked, more management
time will be put into building connections between people. Leaders need to be obsessed with
removing roadblocks that stop people being enabled, encouraged and from getting their jobs done.
The rubber hits the road where the manager meets the employee. Leadership, culture and
management practices that promote collaboration have a critical role in promoting workplace
productivity and innovation.”
External col laboration
The lead time for knowledge to become applicable technology and to begin to be accepted in the market is
decades rather than single digit years. Truly innovative ideas do not come out of isolation. They generally
originate from several disciplines, a combination of quite different technologies or a combination of ideas and
inputs from customers, information technology specialists, academics and other business partners. It is claimed
that Silicon Valley businesses are successful as ideas, capital and talent circulate freely. However, Valley
companies have thought very carefully about the support, rewards and remuneration practices that encourage
their innovators to stay. 3M, for instance, uses dual career paths where its best researchers can choose to follow
a technical or a management career path with equal advancement opportunities.
Many Silicon Valley organisations are also very effective in using partnerships and alliances to develop
innovations. However, there are contrasting positions about the role of partnerships and innovation. One view is
that outsiders are excluded for fear of losing intellectual property. The alternative view is that innovation is best
seen as a form of knowledge brokering across organisations through partnerships and networks.
In short, the bulk of evidence is that innovation requires ideas and expertise from a wide array of sources
41
Opengear is also a strong believer of collaborating with people outside the business. They are actively engaged
in an open source community and Bob Waldie observes that this sort of collaboration enables the company to
look at different ways of solving problems and improving products. Sharing the same view, David Kitchen,
founder and CEO of Brewers Choice, a successful startup company that provides quality home brew supplies in
Australia comments that:
.
Protection around intellectual property can be provided by formal partnerships that outline ways and processes
for sharing skills and knowledge. Also formal alliances often mean that projects are maintained despite cutbacks
or global financial crises. Also deep partnerships between organisations and people from within and across
businesses build trust and often produce more informal arrangements that promote more sharing of resources
and knowledge. Great leaders who forge great partnerships allow the partner organisations to punch well above
their weight.
41
Wolpert, 2002; Leifer et al., 2000; Callan & Ashworth, 2004
32
“Collaboration is something that we strive hard to do as a business. If you have companies working
together as a business, even if they may seem to be competitors, I think collaboration can be really
important because you can bring different things to the table -- like the service providers who provide
their services to the startup business for an equity stake -- at the end of the day they are collaborating to
take that idea to market . So collaboration, and making it easy for companies to work together, is an
important factor.”
Innovation organisations also use partnerships and alliances to get to know new talent that might be attracted
into the business. Employees are entrusted with details of new concepts and share this information among
others inside and outside the organisation in the hope of finding appropriate partners
42
In a study of Australian industry partnerships, industry reported a strong preference for longer-term
partnerships
. Many companies today
use partnerships with their customers for feedback on their performance kits, new materials and prototypes.
Customer feedback also is gained by internet sites that provide an opportunity for innovation exchanges between
customers, buyers, suppliers and others. Sites welcome outside interest and are designed to attract buyers and
sellers of new technologies, services and products, all of whom might add value to the emerging idea.
43
Internal collaboration
. Building and demonstrating trust is critical to the success of partnerships around innovation. As
partnership development requires a great investment in time, industry is reluctant to spend too much time
chasing a new partner when a good partner is already working with them. Also a key component to effective
partnering is having leaders of innovation and others who have strong capabilities in initiating and managing the
stages of partnerships. Also they note that it is important to avoid creating ‘heroes’ on whom the success of the
whole partnership might rest. One solution is to recruit others who work with these partnership managers and
who, in time, can successfully replace them.
Leaders of innovation need capabilities in building teams and teamwork. We know that innovation is a collective
act that often occurs through relationships between members of a work team, as well as with others. Teams are
a major tool for promoting learning and innovation. A climate in a work team that supports creativity helps team
members to feel more comfortable in taking risks, to try new things and to exchange information more freely
44
“When I was the CEO of Financial Services at Lend Lease, we had a number of different companies
within the business. I challenged them to come up with ideas to improve the business. They came up
with amazing ideas and we told them to select the top three ideas they came up with and to take control
of putting these ideas into action. We did that over a period of time. Collaborative teams would come
together and make total business changes that significantly improved the business.”
.
Significantly, team support for innovation predicts greater levels of innovation, as well as more novelty and a
greater number of innovations. Lynnette Mayne talks about the importance of teamwork and collaboration in
contributing to the success of Lend Lease Corporation:
42
Leifer et al., 2000; Wolpert, 2002
43
Callan & Ashworth, 2004
44
Shalley & Gilson, 2004
33
Teams come in many forms, and each form has its merits around promoting innovation. The cross-functional
team enables relationships to be strengthened between functions, while still allowing room for individual
expertise to become apparent. Kodak’s development of the disposable camera and Volvo’s culture of innovations
around safety and design are cited as benefits from integrating functions across a company. It is also known that
learning is much more successful if it is communicated through small project teams rather than through a
company-wide approach.
For instance, talking about the value of teams in driving business growth of Keystone Medical, Nick Wilkinson
commented that:
“Keystone has done very well because our team and shareholder register is exceptional for such a
small company. Our shareholders include Newcastle University commercialisation arm, a professor of
physics as the director, two other medical device owners as directors, and the owner and CEO of a
company that turned over 500 million a year as the other two directors. The better quality the team, the
more doors open, the more confidence it gives you, and the more confidence it gives people to try your
product.”
In promoting innovation cultures, communities of practice are group processes where members can choose to
work together because of a shared expertise and passion for a joint enterprise. These self-selected, collaborative
work groups usually form in response to an issue or shared problem that requires an innovative solution.
Research reveals that effective communities of practice are not easy to build or sustain, and are often difficult for
management to regulate. However, they are another mechanism found to be used to promote innovation through
getting people to collaborate and to share experiences around issues in free-flowing creative ways that foster
new approaches to various problems and challenges.
Innovation labs are also being used as a tool that promotes teamwork and to teach innovation
45
Jaegopal Hutapea, a successful serial entrepreneur, Angel investor, and founder of multiple companies focusing
on renewable energy sources in Australia and Asia talks about the key role of teamwork and collaboration in
enabling Australian startup companies to fully utilise the capability in their organisations:
. Experimentation
is encouraged through a relaxation of departmental and central agency controls. Labs can last for a few days
only to provide an environment for rule busting ideas, while attendees are encouraged to learn from radical
innovations outside their industry. As well, employees are coached in developing low-cost, low-risk ways of
testing their ideas. Finally, the best ideas are presented to a venture board for possible funding.
“Australia is known as a country of inventors, so what does this mean? The education is there, the
individual capability is there. But it does not necessarily have the group capabilities. You have to
remember, if you go outside, just like when you go out to the soccer field, you might have one go-getter,
one good player—but if there is no other player to kick you the ball, you will never kick the ball or make
a goal. The same applies to innovation. You may have a good inventor but you also need good finance
people, and good marketing people, good production people and good distributors. So you have to set
all this up and become one unit—so it becomes a good symphony—everyone plays their own tune.”
45
Abramson & Littman, 2002
34
Identification with the team is about the sense of belonging to the team and experiencing the team’s successes
and failures as one’s own. When team members are highly identified with their team, they experience the
collective’s interests as their own self-interest. This identification with the team drives higher levels of effort by
team members, even well outside what is expected
46
Again, the leader of teams plays a critical role. Strong leadership increases the salience of identifying with the
team, and in being team players. In fact, team members who most identify with their team leader, and with the
team, are more willing to act more consistently in ways to achieve the team’s objectives
. It is the old adage: “ordinary people doing extraordinary
things”. Highly identified individuals are more willing to limit their own personal gain for the good of the team.
Higher levels of identification promote more positive perceptions of the team and increase team members’
motivation and willingness to cooperate with others. This sense of identity also promotes agreed ways of
behaving and values that support innovation, such as for example, trying to be good communicators with other
team members and to be more collaborative.
47
. In particular, the
evidence shows that more transformational leaders encourage innovation not only directly, but also through their
effects in promoting processes that build team identity and team climate
48
In summary, having a more transformational team leader encourages those in the team to more fully identify with
their team, and in turn, to be more engaged around outcomes around higher levels of innovation and
performance. As mentioned previously, there is a strong case for organisations to promote more transformational
styles of leadership as they foster individuals’ identification with the team around achieving more innovative
outcomes
.
49
Conclusions around buil ding collaboration
.
• Collaboration, alliances, and networks drive innovation
• Because innovation requires ideas and expertise from a wide array of sources, leaders of innovation
must be skilled in building supportive team climate and teamwork
• Team support for innovation predicts greater levels of innovation, as well as more novelty and a greater
number of innovations
• Team members, who most identify with their team leader, and with their team, are more willing to act
more consistently in ways that achieve objectives around innovation.
46
van Knippenberg, van Knippenberg, De Cremer, & Hogg, 2004; Riketta & Nienaber,2007
47
Walumbwa et al., 2008
48
Eisenbeiss et al., 2008; Jung et al., 2003 van Knippenberg et al., 2004; Paulsen, Maldonado, Callan and Ayoko,2009
49
Riketta & Nienaber, 2007; van Knippenberg et al., 2004
35
Section 2:
Leadership, culture, capability and collaboration in startup
firms
Organisational attributes change over different stages of a firm’s existence and different management practices
are needed at different stages
50
. The organisational life cycle is usually divided into five stages: startup, growth,
maturity, decline and death (or revival). Each stage has a unique growth challenge. In particular, the startup
phase is characterised by growth through innovation, and a key challenge identified across many studies is a
crisis of leadership.
There was a consensus among those interviewed that innovation is a key priority in startup firms and the type
and quality of leadership adopted by the firm can make or break the new venture. The Society for Knowledge
Economics would like to take this discussion to another level. Steve Vamos has called for a National Workplace
Leadership Institute that would serve to assist startups, and to place leadership and innovation more on our
national agenda.
For example, John Mactaggart of Technology One Ltd, and member of the board of directors of World Business
Angels, observes that early on companies need to be more innovative. He warns that as the business grows,
companies can rest on their laurels and begin to think that there is no need to innovate further. Effective
leadership plays a key role in driving the levels of focus upon the innovation activity more consistently across all
stages in these emerging enterprises. Yazz Krishna, Founder and Managing Director of Five Faces, an
innovative startup company in specialising in digital signage, acknowledges the importance of leadership in the
startup stage. He comments that “a business cannot go far without good leadership; leaders bring people
together and provide the direction of the business.”
Similarly, Trevor Glen of Sarugo believes that both internal and external leadership is important for the emerging
enterprise:
“Leadership is really important; you need internal leadership from within the company to drive the
direction and to make sure you're going in the right direction. You also need leaders within the
community who you can aspire to. I think celebrating the successes of people who have come from
similar backgrounds, who have started a company and made it a success, and who are now doing really
well for themselves, is important. We need to make sure that those people are identified and paraded so
people can say “Yes I can do it. There are people out there who have done it”.
Studies investigating the impact of leadership in newer small enterprises show that
51
• human capital is the more important resource in the early than later stages of growth, but early stage
firms often lack these resources
:
50
Quin & Cameron, 1983
51
Nosella, Petroni & Verbano, 2006; Koberg, Ulenbruck & Sarason, 1996; Quinn and Cameron, 1983.
36
• stable leadership and management’s commitment to leading the firm help it grow overtime and play a
key role in developing and consolidating capabilities within the firm that in turn drive the capacity for
innovation
• the survival of startup firms is determined by the strength and quality of relationships established with
external partners.
Entrepreneurship, risk and innovation
In exploring the topic of risk, we began by talking to three people who have a long history in industries that must
manage risk well. Captain David Coates emphasised how the airline industry in Australia and elsewhere has
moved very much towards managing risk by building more open two-way partnerships with other airlines and
with their civil aviation authorities. In Australia, these increased levels of collaboration have included adopting
principles around the learning organisation, especially in the training and supports for pilots in making critical
decisions around safety.
Thiess is a large Australian construction company that manages billion dollar high risk projects that currently
include the high profile desalination plant in Victoria. Nev Power, the CEO of its Australian operations, reports
that the business has sophisticated risk mitigation processes and systems, and in particular, an organisational
culture that has at its core, values focused upon safety, innovation and performance. Continued innovation at
Thiess is a response to “having lots of problems that require clever solutions that cement the competitive
advantage and edge for the business”. These solutions are gained through managing risk through a wide range
of strategies that include collaborations with technical experts, partnerships with local and international firms,
actively recruiting people with knowledge and capability around partnerships, innovation and risk management,
and by R&D activities that have accessed the Government’s tax incentive scheme.
Finally, Allan McPherson, CEO of the McPherson Group and a business entrepreneur who provides financial
management services to high net worth clients, many of whom are successful entrepreneurs. His role is to talk
through with his clients the range and level of risks around their investment decisions, attempting to anchor
clients’ thinking around what he believes is a more accurate assessment of the real risks and more probable
returns given the history of such investments. As these three examples reveal, appropriate risk management
often starts with promoting thinking where people explore, research and then put in place appropriate ways for
managing identified risks.
For the entrepreneurs interviewed, beginning a new venture and an emerging business is at once exciting,
challenging and risky. At the same time, many of the entrepreneurs interviewed believed that with hindsight, their
risks around the startup phase and early stages were not managed well. Many believed that they only
recognised the up-side, and there was little risk mitigation. However, as their ideas moved to stages around
raising funding and commercialisation, more contact with industry associations, mentoring schemes, potential
37
investors, business angels and applications for Government funding drove stronger efforts to build processes
and systems for managing cash, people, credit and suppliers, just to name a few of the areas cited.
Studies also show that entrepreneurs face a larger number of different types of risk than do non-entrepreneurs
52
.
In an attempt to describe the risk taking activity of entrepreneurs, researchers Thomas Monroy and Robert
Folger developed a typology of entrepreneurial styles
53
In summary, what are the risks?
. They found that not all entrepreneurs are driven by
financial gain. Not every person who founds a new business enterprise does so by seeking to minimise financial
risk and to maximise financial return. People who successfully innovate and start businesses come in all shapes
and sizes. However, they do have a few things others do not. In the deepest sense, they are willing to accept risk
for what they believe in. They have the ability to cope with a professional life riddled by ambiguity, and a
consistent lack of clarity. Most have a drive to put their imprint on whatever they are creating. And while
unbridled ego can be a destructive thing, it is difficult to find an entrepreneur whose ego isn't wrapped up in the
enterprise.
Financial risk - in most new ventures the individual puts a significant portion of their savings or other resources
at stake. Many people in our society are unwilling to risk their savings, house, property and salary to start a new
business. Most entrepreneurs have to carry considerable debt in order to pursue development, marketing and
promotional campaigns. Overall, the entrepreneur is forced to live and to endure enormous capital requirements.
The majority of entrepreneurs interviewed cited financial risk as the biggest risk encountered in early phases of
their business.
As David Kitchen, Founder of Brewers Choice notes, when starting up a business, “the risk of losing everything
is significant.” Financial strain is heightened among young entrepreneurs embarking on their first business like
Yazz Krishna, Managing Director of Five Faces. Krishna highlights that the financial risk and difficulties faced by
young entrepreneurs are compounded because they are not yet financially stable. Even for seasoned
entrepreneurs like John Mactaggart of the World Business Angels Association, managing cashflow and looking
for sources of funding remains as one of the biggest risks.
Mactaggart states that “finding funding is exceptionally hard. Finding funding and finding a customer for a
product are two totally different things and it is diffcult for the entrepreneur to swap from selling a product to
selling a business.” For Trevor Glen, CEO of Sarugo, the ability of a business to secure funding early in their
venture is both the greatest risk and the greatest necessity in sustaining the growth of a new business:
“One of the risks around innovation is whether you can get the funding to start the business,
whether you can put it up yourself or get external funding. Probably the biggest risk is that you
won’t get that funding and you won't be able to launch your product. I think funding still remains
to be a big issue, and a lot of Australians still seem reluctant to invest in early stage business.
52
Allen, 1999; Dollinger, 1995; Naffziger, 1995
53
Monroy & Folger, 1993
38
They want to wait and see if they get a run from the board first which is understandable, but
that means a lot of these businesses don't make it as far as they could because they don't get
that support early on.”
Time risks - taking a similar perspective on the financial risks encountered by new enterprise, Nick Wilkinson of
Keystone Medical asserts that the biggest risk that any startup or entrepreneur faces is wasting time due to lack
of funding to achieve key business priorities:
“You're wasting time if you haven’t done the work and the market doesn’t want your product or
you're wasting time because you don't have the money to employ people you wish to employ.
Therefore you take longer to get to a certain point than you would otherwise. It all comes back
to wasting time and in a business wasting time means a lack of money, and it’s also the time
you can't get back.”
The majority of early stage entrepreneurs interviewed reported that they took on multiple roles in their business
including managing the business, investor relations, sales and marketing, accounting, and product development.
As such, many of these new entrepreneurs were overburdened with numerous responsibilities and felt under-
funded and under-supported.
Career and personal risks - while some of the most common entrepreneurial goals are independence, wealth,
and work satisfaction, those who achieve these goals often pay a high price. A question frequently raised by
would-be entrepreneurs is whether they will be able to find a job or go back to their old job if their venture should
fail. This is a major concern to managers who have a secure organisational job with a high salary and a good
benefit package. This is clearly a risk that is faced by unsuccessful entrepreneurs.
Researchers have labelled as “entrepreneurial stress” the back problems, indigestion, insomnia and headaches
that can be reported by busy entrepreneurs. To achieve their goals, however, our entrepreneurs were willing to
tolerate these effects of stress. The rewards justified the costs.
Lusia Guthrie who has successfully launced several biotechnology startups, notes that the demands of leading
startups can have a large impact upon the personal life of the entrepreneur. She believes that leaders of
innovation need to have capabilities that reveal resilience, flexibility, openess to learning and a willingness to
build a team of people with different but overlapping skills sets. In a similar vein, David Kitchen raises the
significant personal costs tied up to starting up a business:
“If your business does not go as you planned from day one, the toll on you is very substantial
and there is difficulty separating your work problems from your personal life. Facing hard times
in the business can have a negative effect on the family so there is a risk to that. There are a
substantial amount of costs in the early stages. You lose a vast amount of your freedom if you
aren’t able to liberate yourself from the day-to-day tasks involved in setting up a business.”
Barriers to entry - this issue includes the need to grapple with proprietary technology, products and processes.
Where established firms hold patents on products and processes that the new venture requires, they have the
ability to either keep the new venture out of the industry or to make it very expensive to enter. Most favorable
location is another form of proprietary barrier. Established firms, being further along on the learning and
39
experience curve, are probably more cost efficient in their operations-- something that will take time for the new
venture to achieve. These proprietary factors are all substantial barriers to entry for a new venture.
Jaeopal Hutapea from World Energy Techonology talks about intellectual property risks faced by new
enterprises and what startups can do to manage this risk:
“During the innovation process, one risk is to be copied by other people. How do you minimise this
risk? One is to protect yourself with the very costly patent right but in order to do this you have to have
a large sum of money. The second is to not worry about the risk, to go to the market, produce it at a
very competitive price so then the others will not need to copy but will be willing to work together with
you like a distributor or sales representative –because for sure they know that your product is very
competitive so there is no point to copy.”
Winning over and keeping customers - new entrants to an industry face products and services that have well-
established brand loyalty and loyal customers. The new venture typically has to consider extensive and
expensive marketing campaigns focused on making the customer aware of the benefits of the new venture's
products. The cost of undertaking this strategy can be a significant barrier to entry unless customers are
dissatisfied with the competing brands. Howard Buckley of Sungrid puts this as: “the successful and continued
disposition of the idea into the market”.
An added dilemma is the psychology of the consumer. As a new entrant into an industry, the entrepreneur
needs to spend considerable time and money convincing customers that their product is worth switching to.
There is a high level of uncertainty about the likelihood of such campaigns being successful. In addition, the new
venture must persuade established distribution channel members to accept the new product or service and must
prove that it will be beneficial to distributors to do so. This persuasion process can be costly for the new venture.
Dealing with Governments - many industries have a high degree of government regulation which can create
further pressures. Governments can prevent a new venture from entering an industry through strict licensing
requirements and by limiting access to raw materials through laws or high taxes and to certain locations via
zoning restrictions. There are often very high costs and considerable time delays and lobbying that are required
by the entrepreneur to meet these regulation requirements. David Kitchen of Brewers Choice reports that
stringent liquor licensing regulations and signage restrictions have imposed some barriers to expansion and
marketing of his business. Howard Buckley and Luisa Guthrie raise similar regulatory challenges in the solar
technology and biotechnology industries, respectively.
A lack of community support for entrepreneurship - reports from the Karpin Inquiry found that Australians
have overwhelmingly negative opinions about small business and entrepreneurship. Negative comments made
up 84% of responses
54
A variety of negatives were cited by the Australian public when asked in the Karpin Report to think about going
into small business. These responses highlighted dealing with long hours, competition, lack of finance/capital,
. Running or owning a small business is not an attractive picture to the Australian public.
54
Karpin, 1995
40
Government regulations, having sole reponsibility for decisions and the fear of going bankrupt. Also Australian
parents do not want their children to go into small business and to engage in entrepreneurial activities. Parents
view the lifestyle as too hard, too much pressure on family life and lacking job security.
Dr David Wyatt has successfully taken to market a number of startups, including the startup PanBio that became
one of Australia’s fastest growing businesses in the 1990’s. Now working with the recently ASX listed Papyrus
Australia, he believes that Australia still has a “cultural problem with business failure” as he labels it, where we
tend to blame the Government, or Governemnt blames the entrepreneur, for failed new business ventures.
Trevor Glen of Sarugo expands on this issue by stating that:
“Some people within our own families might have been a little reluctant to support us because they are
scared of the whole idea of a startup or entrepreneurship. There is a pretty negative idea in Australia
about starting your own business. I think most people are scared of it and that is not a good thing. This
is an Australian cultural heritage that has been ingrained in us. I think it is changing but I still experience
it today, so this is something that needs to change”
However, there are efforts to change the mind set of children and their parents. Dr Alan Finkel of Better Place
Australia speaks passionately about the DEEWR funded initiative that he is championing to encourage more
school-aged children to be engaged in science, and to create attitudinal change in our children. This STELR
Project (Science and Technology Education Leveraging Relevance’) is a national secondary school science
education initiative of the Australian Academy of Technological Sciences and Engineering (ATSE). The program
is now running in over 200 Australian schools, promoting interest among school children in taking up careers in
the enabling sciences such as biology, physics, chemistry and mathematics. Children focus their attention upon
how science can be used to respond to key social issues such as better responses to global warming around the
innovative applications of renewable energies. Interestingly, as noted in Table 4, Austria has a Science In
Schools initiative with similar goals.
Financial and other supports around managing ri sk
Reflecting on the sources of support that have helped their businesses grow, entrepreneurs interviewed
identified that the following programs and services played a key role in supporting the early phases of their
ventures:
• Local government programs like the NSW government’s Tech Voucher program. Nick Wilkinson from
Keystone reports that through the Tech Voucher program, Keystone received a grant that allowed them
to engage a university to do product testing on their behalf or solve an idea or business challenge they
had. Instead of handing out cash, this program facilitates ways of solving problems in an emerging
business. When innovating or collaborating with partners outside Australia, Jaegopal Hutapea adds that
local governments in other countries play a key role in helping the entrepreneur understand local
business practices, legislation, culture and “do’s and don’ts of the local business culture”
• Federal government grants and the new range of programs from COMET and Commercialisation
Australia. A large number of our entrepreneurs reported that these programs helped them recognise if
they actually have a business (at the first stage) and to provide them with growth capital to do so
• Business angel investors and mentoring. There was a strong consensus among those interviewed that
having a vibrant angel community to support them financially and to provide mentoring around building
capabilities around leadership and innovation were an essential source of support in developing their
41
business. COMET was very positively regarded around its value in supporting payment towards
establishing access to an experienced business mentor.
• Organisations supporting innovation. Trevor Glen from the Adelaide-based startup Sarugo cited the
invaluable support received from quasi-government organisations such as Innovate SA:
“We have some great support in South Australia with Innovate SA. They are a quasi Government
department that is predominantly funded through the State Government here. They provide support to
startup companies to educate them and ensure they are receiving the advice that they need. The
training that Sarugo and Memory Box (a product spinoff from Sarugo) have received through that
program has probably made a difference between us being here and not. We learned even simple
things like cash flow management that we understood in principle but not as much in practice -- training
courses like that are really important.”
Yazz Krishna from the Brisbane-based startup Five Faces reports that the organisation iLab Incubators helped
drive the growth of his business. iLab is a company based in Queensland that aims to nurture startup technology
business through the delivery of a range of services for a 2-year period. Five Faces received a variety of support
from iLab including skills training courses, virtual office support, mentoring from a panel of business advisors and
assistance with raising capital to grow the business. The mentoring received from the panel of business advisors
was particularly important in helping the business make key decisions to facilitate growth.
Hew McDonald has gained considerable support and flow-on benefits through media awards and competitions
that have the profiled his invention of an elevating platform for mechanics. He was successful in winning a
section of the ABC New Inventors program. In addition, he was runner up in the Northern Territory Innovation
Awards, and a finalist in the awards for a national magazine. These successes gave his invention both credibility
and visibility, and he was able to leverage off these awards in follow-up contacts with companies interested in his
elevating platform. Within this mix of support was success also in winning a COMET grant.
Supporting entrepreneurs: Strategies and recommendations
Given the many challenges that entrepreneurs face when building their new ventures, it is important to develop
and implement strategies to support younger entrepreneurs and their new enterprises. The three drivers of
innovation introduced earlier —capability, collaboration, and culture—can be used by leaders and others as a
guiding framework for devising strategies to encourage and support entrepreneurship in Australia. These
strategies should revolve around providing younger entrepreneurs access to a range of resources and
information and the development of new structures of support that are culturally embedded
55
. Examples are
presented in Table 5 that reflect upon the key themes in this report around how leaders of innovation play vital
roles in building capability, collaboration and business cultures.
55
Nasser, du Preez & Herrmann, 2003
42
Table 5. Recommended strategies to promote entrepreneurship
Strategies to build capability
Strategies to promote collaboration
Strategies to build an
entrepreneurial culture
Access to pools of knowledge
regarding opportunities in particular
markets
Access to expertise to explore these
particular opportunities
Access to appropriate sources of
business development training
Ongoing support in the form of
knowledge and expertise to ensure the
growth of the business beyond initial
incubation and early survival.
Mentoring with the support of other
successful business people to ensure
that young entrepreneurs learn by
experience and develop sound
business principles
The development of strategic alliances to
ensure the sustainability of young enterprises
Access to markets through a network of
marketing brokers
Creating mechanisms to link entrepreneurs to
people and resources that facilitate business
growth
Organising regular networking events for
young entrepreneurs to meet and connect
with senior business leaders
Creating virtual communities of support for
entrepreneurs to share experiences, advice,
contacts, and knowledge, particularly for
those in remote areas
Access to simple capital formation in
order to startup a new venture
Positive social recognition by society
at large for this new form of
entrepreneurial success
Appropriate trade, investment, and
tax policies to promote the ongoing
sustainability of entrepreneurs as the
new source of wealth and job creation
in the economy
Regulatory frameworks and
legislation which enable business
success rather than stifle
entrepreneurial creativity
As the strategies listed in this Table suggest, business leaders, Government and service providers all have a role
in supporting new entrepreneurs and entrepreneurial activity. For instance, Government plays a key role in
creating an entrepreneurial culture by providing the necessary regulatory environment to enable rather than
inhibit business success.
In recognition of this fact, the Australian Government has recently launched a set of programs specifically
catering to the needs of small business:
• Small Business Online: A program aimed at equipping small businesses with the skill and know-how
to improve their web facilities and e-commerce capabilities. Support provided during the two-year life of
the initiative will include training seminars on e-business, advice on establishing an online presence and
the development of other e-business resources.
• Small Business Support Line: As part of the 2009-10 Budget, the Government announced funding of
$10 million over two years to establish a unique free support line and referral service dedicated to small
business. The service commenced in September 2009, and offers initial advice to small business
owners and takes a whole of Government approach to assist them improve their sustainability and
foster better business management practices through the global recession.
• Small Business Tax Break: For eligible assets acquired between 13 December 2008 and 31
December 2009, and installed by 31 December 2010, small businesses are able to claim a bonus tax
deduction of 50 per cent of their cost. This Small Business Tax Break represents an increase from the
previous rate of 30 per cent and provides greater incentive for investment in new capital items, such as
computer hardware and business vehicles, and capital improvements to existing machinery and
equipment.
43
In addition, given the many risks encountered by entrepreneurs in their startup ventures, an important question of
interest is what sources of support can help new entrepreneurs effectively manage risk? We put this question to
the entrepreneurs we interviewed and they came up with the following recommendations:
• Educate the Angel community to communicate better about the types of investments and risks that they
will make. By doing this it was believed that entrepreneurs can find out more quickly and easily if they
will get funding or not
• Educate startup companies to make sure they are aware of what to do to get funding and to manage
risks through more workshops, better web sites and more promotion through service providers
• Government programs like the COMET program have helped many entrepreneurs manage the financial
risks in their early stages. Hugo Le Messurier of LeMessurier Solutions has acted as a COMET
business adviser in South Australia. He has brought to this role experience as an entrepreneurial leader
a proven track record in successfully managing startup companies. He believes that COMET funding
has allowed those in startups to access business leaders in entrepreneurship and innovation that they
could not otherwise have afforded. He supports the matched-funding models like those of COMET as
“you must have some skin in the game”
• More Government programs that model USA examples of dedicated initiatives that accept higher risk,
such as its Small Business Innovation Research (SBIR) funding managed by the National Institute of
Standards and Technology (NIST). Dr Alan Finkel of Better Place Australia gave this example, where
SBIR Programs do not fund projects that have already established a proof-of-concept
• Continued mentoring support from business leaders who have a proven track record of business
success and who have done it all before. Their role is seen as critical around alerting innovation leaders
to the knowledge and skills sets required to be successful in managing risk. This is particularly important
for startups and the Government should support more mentoring programs. A number of those
interviewed suggested that programs like this must continue and more funding should be allocated to
startups. The Government must also be more consistent in the services and programs they provide. For
instance, many individuals were bemused about the way COMET is being replaced with
Commercialisation Australia and the lack of program support during the change-over
• Ensure that the Government understands the risks faced by small business so that they can be in a
better position to assist startups in managing these risks
• Service providers have a key role to inform and provide forums for those in startup companies to learn
about the better management of risks.
The development of an industry charter
An idea put forth at the Enterprise Innovation Summit was the possible development of an industry charter on
Innovation and Leadership with a view to fostering more innovation in Australian enterprises. In talking to
entrepreneurs about this idea, the general consensus was that an industry charter for innovation would not be a
useful approach to lift innovation in Australia. Rather some believed that a charter might take the focus away
from where innovation occurs on the ground. Others experienced with charters had not seen them operate
successfully at the enterprise level.
Individuals would rather see the investment put into better worked exemplars, cases studies and more shared
learning resources that reflect the needs of those working in leadership roles who are looking at better ways to
promote innovative thinking, cultures and capabilities in their businesses. They would especially like to see time
and energy put into local initiatives that successfully bring entrepreneurs together, citing the value provided
already by their local networking groups like First Tuesday Clubs, Founders Forums, and similarly named local
44
initiatives. Such forums aim to meet the needs of those still working “at the ground floor of innovation” in getting
their innovation to market.
The small number of those who thought it could potentially be useful to provide a charter had the following ideas
about what an industry charter on innovation might look like:
• The aim of the charter would be to have Australia as the leader in innovative cultures and employee
ownership. Thus one objective would be to create a small business culture in Australia, second-to-none,
internationally
• A charter could enunciate what is meant by innovation. The charter could be organised around a key set
of principles and key themes that would be further described in the document. It could describe
Government and other sources to enable innovation linked to the stage in the innovation cycle
• The objectives of the charter should be to foster innovation and to give a framework for people to
engage in innovation by better assessing the existing potential for innovation in their business
• The charter could support some “bid ideas” around better supporting the leaders of innovation
• The charter could reflect upon the best ideas for models in Singapore, USA, France, Ireland and other
countries that are providing investment in the ideas of entrepreneurs in order to successfully get them to
market.
45
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