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Australian-first study reveals boardroom gap on innovation

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Gap on innovation show Directors are often too focused on short-term results and traditional risks, rather than the potential disruption facing their organisations, according to a study released by the Australian Institute of Company Directors (AICD), in partnership with the University of Sydney Business School.

The Australian-first study – Driving innovation: the boardroom gap – took an in-depth look into director practice across all sectors, revealing a sobering picture of Australian boardrooms struggling to prioritise innovation, and lagging their international counterparts.

AICD CEO and Managing Director, Angus Armour, said this study comes at an important time with Australia experiencing low productivity growth.

“The study tells us that innovation is often missing from Australian boardroom agendas. It reveals that traditional risks are the focus rather than the risks – and opportunities – associated with innovation and disruption,” Armour said.

The research found that while Australian directors recognised the strategic importance of innovation, more needed to be done to prioritise its delivery.

Of those surveyed, 75 per cent indicated their organisation had an innovation vision or innovation featured prominently within their strategic plan. However, for almost half of respondents, momentum was lost over time with little oversight of how that plan was being realised.

The results show that 57 per cent of directors were not aware of the percentage of their organisation’s total expenditure allocated to R&D and innovation activities.

Directors identified the three greatest barriers to innovation as: human talent shortages; limited financial resources; and the market’s focus on short-term financial performance. They also see Australia’s regulatory environment as contributing to a risk-averse corporate culture.

“We need to strike the right balance between regulatory and compliance obligations, and growth and innovation as core goals essential to our national prosperity,” Armour said.

The study also revealed that Australian boardrooms have low innovation and digital literacy levels, emphasising the importance of up-skilling directors and refreshing board composition.

Notably, only 3 per cent of directors said they hold science and technology expertise, only 3 per cent indicated they had international experience, and 10 per cent said they bring innovation related expertise to the boardroom.

Armour said that this result makes it clear that that more needs to be done to broaden the skills that directors bring to a board.

“This can be done through education and upskilling, and by widening the talent pool of incoming directors,” he said.

The report outlined five key recommendations to ensure innovation is prioritised by boards. They need to lift directors’ technology and digital literacy, set clear expectations of management regarding calculated risk-taking to drive innovation, develop a shared language with management and clear narrative for investors/members on innovation, ensure innovation features regularly on boardroom agendas, and establish a budget and executive incentives for long-term innovation.

“It is encouraging to see that directors are acknowledging the importance of innovation, but directors need to make sure that innovation is more than just an irregular item on board agendas,” Armour said.

The study comprised an AICD member survey, interviews with directors and chairs, and a global literature review. Lead researcher was Dr. Massimo Garbuio from the University of Sydney Business School.

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