People are innovation’s active ingredient, the catalyst that turns novelty into real benefits for economies and communities. Benefits like jobs, wealth, productivity and life-changing progress – not just better ways of earning a living, but better ways of having a life.

The role of people in innovation is a fact that remains hidden in plain sight. It is axiomatic – everyone says it and believes it, but few understand anything at all about the human factors in innovation.

For starters, most equate innovation with science and research and advanced technologies. Or else the world of innovation for many is populated only by the lone inventor, the gifted nerd or the creative genius entrepreneur.

But in its tradition of probing beyond the obvious, the Australian Business Foundation questioned these conventional views of innovation, and sought to understand the real dynamics and the hidden human dimensions of innovation.

Hence, we brought together and published this book, Inside the Innovation Matrix: Finding the Hidden Human Dimensions. A collection of 14 expert papers by 26 authors, it is a collaborative effort offering a kaleidoscope of insights from eminent business people, international scholars and leading researchers that take us inside the often invisible matrix of human interactions that are vital to successful innovation in both enterprises and nations.

The focus of the book is the pivotal role of people as innovation carriers – their networks, collaborations, knowledge flows, interactions and tacit knowledge – and how innovation itself is a potent competitive force that drives productivity.

The Inside the Innovation Matrix book is different because instead of reporting on just a single line of research, it takes soundings of a variety of thinkers in business and in the academic community to illuminate the workings of innovation as a social process and not a technical process.

This more nuanced view of innovation is key to understanding how the human factors activate the social and economic benefits we seek from being innovative – more about problem-solving and learning than scientific discovery, more about the customer than the producer, and more about transformation than technology.

AVOID THE SEDUCTION OF THE EASY ANSWER

It is obvious that successful innovation depends on people, but the easy answers of how this chemistry works and the ‘ten steps to innovation’ primer for managers are invariably wrong. People factors in innovation don’t refer just to the creativity of individuals, to the need for more scientists and engineers, to building an innovation culture, or even to the interaction between technology and human beings.

The fresh insights from the Australian Business Foundation’s soundings from expert contributors are found in the book’s title Inside the Innovation Matrix. This matrix is the sticky spider web of human interactions from which innovation springs, that give it origin and form, says our book’s editor. While this matrix is often hidden or underestimated, its key elements are knowledge-sharing, networks and collaboration.

Let me illuminate three of the more potent pieces of intelligence from the rich human eco-system of innovation unveiled by our authors.

INNOVATION CAPABILITIES OWE MORE TO THE FLOWS OF KNOWLEDGE, THAN TO THE STOCKS OF KNOWLEDGE

Our starting point is of course a broad definition of innovation. Graham Hubbard quotes Roy Green’s 2007 paper for CEDA where he defines innovation as:

 doing new things or doing things in a new way: drawing on knowledge and creativity to add value in  products and processes.

Not only is this an expansive view of innovation – new things or ways of working; knowledge and creativity; add value; products and processes – it is a dynamic view.

Even so, more often than not, we fixate on the creation of knowledge, not on its transfer, sharing, expansion and use; that is, we often focus on stocks not flows of knowledge.

The prehistory of Radiata (the Australian integrated chip start-up) and Cisco by Mark Matthews and Bob Frater illustrates that tacit knowledge, accumulated experience and learning by doing result in a highly valuable intangible asset that boosts the innovation odds. They stress that people who innovate together capitalise on their tacit knowledge and informal know-how and on past strategic investments to “navigate the white-water risks” of innovation more successfully than their competitors.

In Radiata’s case, Matthews and Frater chart the technical challenge of designing the integrated chip where the design team benefited from capabilities higher than the industry norm because of their connections to collective past learning. It was the key to their design of error-free chips with a minimum of re-working loops, which in turn gave them time to market and cost advantages.

Radiata exploited the intangible assets already developed in Australia’s scientific and research community in radio-astronomy and in electronics companies, together with CSIRO and the close linkages to companies developing critical instrumentation technologies, to R&D and to research training including personnel in the USA. Theirs is a story of the co-evolution linking radio astronomy, telecommunications and microchip design, and a symbiotic relationship between researchers and industry, not a linear commercialisation path.

To quote Matthew and Frater:

This complex chain of precursor activities was focused on the dual objectives of improving radio-telescope performance and developing the industrial capacity to provide the technologies necessary to do this. The strategy was long term and was not explicitly aimed at achieving specific commercial outcomes so much as pursuing a process of learning-by-doing in chip design that would generate a wide range of options for future exploitation.

In colloquial terms, Radiata’s innovation succeeded by standing on the shoulders of giants.

They formed a community of practice with a clear intangible asset value in the form of intellectual capital and human capital, but one that relied on long term and sustained investments in strategic capacity-building and continuity of interpersonal innovation networks.

Deloitte in one of its two papers, by Gerhard Vorster and Jenny Wilson, called these communities of practice “tribes” that cut across service lines and hierarchies.

Communities of diverse and passionate individuals whose cumulative capabilities sustain innovations that are truly breakthrough in thinking and application…… The Innovation Acceleration Team is a good example.

Deloitte in its second contribution by Mehrdad Baghai, Giam Swiegers and Rebecca Watson describe another example. These are Intensive Learning Campaigns, which are successive short-lived small teams that cross specialisations for action learning from prospective clients and swift sales as a result.

Marceau, Turpin and Woolley in their advocacy of better career paths for scientists, engineers and technologists also make the point of the value of tacit knowledge as an intangible asset for organisations. In an environment of distributed global value chains characterised by increased outsourcing, they argue for a minimum level of localised and in-house science and technology expertise and capacity so that enterprises can be discerning and literate business customers and suppliers.

In short, the first piece of intelligence about the human dimensions of innovation is that knowledge is cumulative and gains in value by sharing and useage.

NETWORKS ARE THE OXYGEN OF INNOVATION

Alistair Nolan of the OECD made this comment to an Australian Business Foundation audience several years ago, and Inside the Innovation Matrix proves it is still true in a number of intriguing ways. Let me share these highlights with you.

Mapping innovation networks

John Steen, Sam Macaulay and Tim Kastelle of UQ Business School share their scholarship on social network analysis as a powerful tool to understand, measure and manage innovation networks. They make the case that there has been a shift from the old-fashioned concept of ‘innovation as discovery’ to innovation as ‘connecting for value’, ie. not individual discovery or invention in the R&D lab or the garage, but the innovation that comes from new connections throughout the value chain. This shifts our focus from individuals to networks.

Newer models of the innovation process make no assumptions about value being inherent in any particular process, idea or technology. Value is created through rearranging and recombining knowledge, people, processes and technologies. This problem-solving and improvisational activity is most clearly seen in project businesses and complex product systems such as wind turbines (e.g. Vestas Wind Systems), construction (e.g. Laing O’Rourke) and management consulting (e.g. Deloitte). It can also be seen in new Australian ventures such as Beeline. While tractors and global-positioning systems are established technologies, combining these to create planting and harvesting efficiencies in large-scale agribusiness is yet another example of innovation by recombination and connection.

Steen et al paint the picture of innovation emerging from recombinations of previously disconnected ideas, with fluid interactions and knowledge transfers. Traditional supply side measures of innovation, like R&D expenditure, numbers of research staff and patents don’t capture this innovation.  Steen et al offer social network analysis as a way of visualising, understanding and measuring network dynamics – all based on “six degrees of separation”.

Their evidence-based intelligence suggests some networks support innovation better than others, and it revolves around analysing the number, depth, distance and flow of connections.

It turns out that “friends of friends” matter – the more friends you have and the more diverse sets of friends they have, the greater the innovative performance and competitive advantage. (Forgive the paraphrasing).

CULTIVATING GLOBAL PEOPLE POWER

Another facet of the innovative power of networking is Australia’s Diaspora, the overseas innovation class, explored by Anand Kulkarni and George Bougias. Global people power is the next wave of growth, where human capital is today’s most sought-after production factor and where production is increasingly a global, not national, endeavour.

There are two key factors at play – the movement of highly educated and skilled people globally and the movement of productive activities in close proximity to suitable skilled people.

Kulkarni and Bougias argue that Australia is well-placed to capitalise on this phenomenon of global knowledge flows, both as a largely migrant country and with a sizeable diaspora of its own citizens around the world.

Capitalising on Australia’s diaspora means cultivating people networks that are also potentially global innovation networks. The task is to draw explicitly on the connections and networks of Australians abroad to forge long-term trade, investment and innovation linkages. Illustrations are provided from the different approaches of India, China and Scotland.

THE GEOGRAPHY OF INNOVATION

Marcus Spiller’s enticingly titled paper, “Innovation: Your Place or Mine”, adds a further dimension to innovation networking – geography. And in yet another twist, Spiller details the role of advanced business services or knowledge-intensive service activities as agents of innovation.

Advanced business services are those enterprises providing a largely customised problem solving service to other businesses, where the solutions in question require application of significant intellectual effort or capital. Examples include management consultants, specialised legal services, financial brokers and venture capital services, marketing, advertising and PR consultants, engineering, IT and technical advisors, design services and human resource advisory services. They are critical agents in the creation and diffusion of ideas and problem-solving in modern economies.

To achieve their potential as innovation agents with other businesses, these advanced business services are dependent on trust-based relationships, which in turn, rely on face to face contact, personal referrals and recommendations and mastery of local business cultures and mores. So, being physically close to your business customer is key. Spiller points to the strong spatial concentration of advanced business services in Sydney and Melbourne and as the innovation catalyst effect of these “thinking services” erodes with distance, he suggests this geographic imbalance poses a danger to the innovative capabilities of the rest of the country.

LEARNING NETWORKS

Don’t want to be just a one hit wonder with a lucky break? Want to be the type of enterprise that can systematically exploit and create innovation opportunities? Then Professor John Bessant, Professor and Chair of Innovation Management at Imperial College London, introduces us to another form of network designed to build the dynamic capabilities needed to turn knowledge into innovation for the long haul.

John Bessant’s paper summarises a wealth of international academic scholarship about the concept of ‘learning networks’.

John Bessant cites research on learning networks that shared and cooperative inter-firm learning greatly assists enterprises to organise and manage the acquisition and absorption of new knowledge and to transform it into competitive capabilities. The value of action or experimental learning comes from the participation of others in the process of challenge and support. It also marshals the benefits of ‘comrades in adversity’, of working together to tackle complex and open-ended problems.

Bessant cites various examples of effective learning networks, such as Toyota’s active supplier association, Marsh & Shaw’s study for the Australian Business Foundation on collaborative learning experiences in the Australian wine industry, and supply chain learning networks in the Dutch and UK food industries, the construction sector and in the aerospace industry.

COLLABORATION AND ADAPTABILITY DRIVE THE INNOVATION PLAY-OFF

But, innovation is not just about the intrinsic value of learning, or comparing the size of your innovation networks. All innovation needs a pay-off.

Graham Hubbard’s paper reveals the innovation lessons of a 25 year study of 11 top-performing Australian enterprises. Their story is low on breakthrough innovations (like the blockbuster drug or new frontier high tech gadget), but high on incremental product and service innovation, on transforming processes and on borrowing great ideas from overseas.

Witness Brambles’ development of its Cleanaway rubbish wheelie bins and the CHEP pallet system – both ideas borrowed from overseas. Or the process improvement in Westfield’s redevelopment of shopping centres, as opposed to building new centres, where they involve all building specialists upfront in the planning phase for cross-fertilisation of ideas and to anticipate and solve problems early before actual work begins.

Woolworths demonstrates incremental product and service innovation by adding products and services that exist elsewhere to their business offerings – petrol retailing, banking services, liquor chains. Another example is the expansion of Dick Smith Electronics into superstore format. And the evolution of Macquarie Bank’s infrastructure investment trusts into a wide range of infrastructure products such as airports, toll roads, tunnels, ferries and utilities.

A wide range of value-adding innovation is occurring in Australian high-performing companies, but because it is not necessarily disruptive, high technology innovation, it is underestimated. Graham Hubbard’s study points to two values and behaviours that are key to innovation processes in these high achiever companies. Both are human dimensions. They are collaboration and adaptability. This is the third key piece of intelligence to highlight from the Australian Business Foundation’s book.

Hubbard’s study found that embracing both change and speed, and focusing outwards on customers and other stakeholders, with an international focus and with antennae out for ideas and information are critical to securing an innovation pay-off.

Similarly, while Deloitte willingly embraced the ambiguity and uncertainty of giving its people the permission and the tools to innovate, it also imposes the discipline of managing their innovations to be a primary value driver in the business. Deloitte aims to be a market maker, not a market follower, through practical business model innovation. They cite as examples of success a new anti-money laundering compliance tool, an online financial reporting system that pre-empts a new international financial reporting standard, and a collaboration engineered between Qantas and Harvard University for an in-flight training system.

Finally, the innovation matrix also throws up a wealth of advice and evidence on managing innovation for practical bottom line outcomes – secrets of project management and innovation portfolio management from both experienced practitioners and eminent researchers; hints from Becker and Hyland for ”unlearning” so that innovation can flourish freed from the emotional impact that causes change to be resisted; and last but not least, Verity Byth and Ross Honeywill’s insights about recognising and managing both the people who are natural change agents and those who are natural stabilisers in sustaining innovation and its outcomes.

Oliver Freeman gets the last word and reminds us of the importance of the wildcards, the unpredictable but foreseeable scenarios and the radical thinking that must be embraced if we are to pursue innovation as transformative change.

STARTING A CONVERSATION

Well, that concludes the Australian Business Foundation’s guided tour inside the innovation matrix, seeking evidence of human habitation. By commissioning this suite of expert papers, the Australian Business Foundation has started a conversation about the complex and sometimes chaotic role that human interaction plays in generating new economic value from innovation.

We hope we have provided fresh angles and new understandings to the debate. Now more than ever, faced by a global economic crisis, innovation is the means of attacking the recession before it attacks us.

Australia needs to invest in the kind of innovation that transforms the capabilities of businesses and boosts the enduring productivity performance of the nation. The hallmark of such innovation-led prosperity resides in people and organisations that are dynamic, knowledgeable, outward-looking and connected.

That is the key message not only of the Inside the Innovation Matrix book, but of the vibrant community of interest that exists in the Australian Business Foundation itself. We invite you to keep this conversation going with us.