Once regarded as having one of the most innovative cultures, South Africa is now falling behind. Local organisations need to radically overhaul their attitudes towards innovation and, if they can’t get it right internally, they should outsource it. This will not only guarantee success but can also help operationalise innovation post development, says Sergio Barbosa.
South Africa has long been recognised for our innovative culture, finding unique ways to address our many societal and business challenges. However, the latest Global Innovation Index shows that while our innovation outputs have lifted very slightly over the last two years, we are still only ranked at 61 out of 132 economies, behind Mauritius at 45. What’s more, we are investing less in innovation, with our innovation input ranking slipping from 49 in 2020 to 69 in 2022.
“South Africa is definitely not as innovative as it once was. We are dealing with the acute effects of some severely inhibiting factors. These include a growing brain drain; a lack of investment in education by the government; and restrictive fiscal policies for companies, who are encouraged to import innovation rather than invest in it locally.
“We have noticed even our financial services sector is quickly losing its sparkle. Vision 2025 needs a lot more impetus if we are to remain competitive in the global financial services market from an innovation perspective,” comments Sergio Barbosa, CIO of enterprise software development house, Global Kinetic, and CEO of its open banking platform, FutureBank.
A key place to begin addressing the innovation issue is for the private sector to take the initiative to invest more.
Barbosa points out that there are many methodologies to determine how much to invest and where to apportion the focus.
One of the more referenced strategies is the McKinsey 70/20/10 rule where 70% of the effort is focused at the business’ core operations, 20% at what the company refers to as ‘adjacent step outs’, and the remaining 10% should be apportioned to breakthrough innovation.
Another way is to identify a company’s growth gap—where a business would identify the gap between current and future opportunities and their current capability, investing in initiatives that will close that gap and enable them to address future growth opportunities.
“In general, the larger the impact you want to make to your revenue projections, the more you should spend on innovation. I don’t see large local companies being calculated about their innovation spend at all.
“It feels more like a tick box on an executive summary than a thought through strategic initiative. As a result, companies dive into an innovation initiative without proper discovery and fail to realise the value of true innovation,” Barbosa shares.
No time to be timid
Once the budget has been settled, Barbosa says companies should empower their innovation entities by removing the usual constraints of the operational departments. What’s more, he says a timid approach should be avoided at all costs.
“Too often innovation happens in an area where success won’t deliver a big enough impact. A cautious approach sees businesses innovating in small pockets, solving small problems. They should be targeting important areas that will have the biggest impact on revenue and profitability. What’s more, the innovation should be structured and run outside, and even in competition with the business as usual teams. These skunk works innovation divisions should have a strong culture of learning and be restricted only by the budget,” he states.
Take it outside
Barbosa is adamant that innovation almost never happens inside the constraints of the business as usual (BAU) environment. He says the most successful innovations have happened through a model where it was contracted out, either as a skunk works effort such as described previously, or even through an acquisition.
Another viable and highly successful way to innovate is to contract the innovation project out to a trusted third party.
“Innovation partners act as the skunk works team for hire. They come with their own tooling and processes designed specifically for innovative product building, and are unconstrained by a company’s BAU. Taking a managed team approach allows the contractors to move from discovery to a market ready product. If empowered properly they can then continue the innovation process right through to product maturity and finally BAU, where the company can once again absorb the successful innovation back into their world,” he explains.
Using tax incentives to help fund innovation
In what Barbosa describes as an incredibly positive move, the Minister of Finance announced an extension to the R&D tax incentive for another 10 years. The relaxation of the requirements for R&D for internal processes has been particularly welcomed.
“This could be a game changer, because successful innovation in companies starts by optimising something internally as a result of behavioural data from customers, in an outside-in approach. Previously, R&D tax incentives were allocated only to bringing new products or innovations into the market—a notoriously difficult thing to do let alone succeed at,” he explains.
Looking ahead, Barbosa says South Africa may be going through a bit of an innovation slump, but should not be written off.
“We have so much to learn from other regions. Whether it’s the collaborative approach and risk-taking culture of Silicon Valley, the culture of rapid prototyping at grassroots level in Shenzhen, or how Stockholm prioritises education, equality, diversity, and sustainability. But global companies still welcome our South African teams into new projects. Our pragmatic approach to problem solving and our tenacity in the face of adversity are characteristics that we should all leverage to drive innovation at home and abroad. With solid funding and a shift in how we approach innovation, we will quickly be back on top,” he says.
Sergio Barbosa is the CIO of enterprise software development house, Global Kinetic, and CEO of its open banking platform, FutureBank.