Innovatia

Examples of pandemic-driven pivots included: • cabinet makers producing plastic protection shields • tech companies providing “ibots” to assist call centres in managing higher volumes • motels becoming quarantine centres • real estate agents conducting online auctions • distillers producing hand sanitisers • pharmacies using mobile terminals to take prescriptions to customers’ homes. While overall innovation fell during the pandem- ic, the index highlights the ingenuity businesses have shown in adapting to a post-virus world. Necessity is clearly the mother of invention: some of the sectors hit hardest by the pandemic, such as Recreational and Personal Services, Ac- commodation and Cafes and Restaurants, were among the most innovative. The research sug- gests small businesses innovate more than they realise, with a break point of energy and dyna- mism occurring at around ten years of operation. Innovation can be “radical” (the development of a transformative new business, product and/or process) or “incremental” (an improvement to an existing product, service or process), with the lat- ter being much more extensive among SMEs and more likely to go unreported. While innovation can have a strong, positive impact on business performance, the most innovative firms tend to be at opposite ends of the spectrum. In high-performing firms, innovation is often ac- companied by capital investment that diffuses it throughout the organisation and drives further growth. Large businesses typically innovate to drive growth and revenues, while SMEs are more likely to be motivated by differentiating their busi- ness, widening their customer base, managing

change and responding to key trends. The research also revealed certain culture-build- ing benefits of innovation. Innovation is strongest in firms with strong leaders. Other key factors driv- ing a culture of innovation include embracing new technology, execution, customer focus and vision. SMEs with a strong culture of innovation tend to foster a high level of stakeholder involvement. Also at the heart of a thriving innovation culture are imperatives such as knowing their markets and customers, undertaking constant process re- views, learning from failure, and stoking passion and drive. Relatively few businesses, though, have well-de- veloped processes or structures in place to prior- itise the approval and funding of innovation pro- jects. Funding is also critical; SMEs are most likely to self-fund their innovation activities, whereas newer businesses generally source their funds from gov- ernment grants, crowdfunding or family and friends. Finally, most SMEs have an immature approach to innovation measurement – a requirement to sus- tain high levels of systematic innovation. Dean Pearson is the Head of Behavioural and In- dustry Economics at NAB. He has over 25 years of experience in analysing the economy both in Aus- tralia and globally.

“What goes up comes down (and sometimes vice versa) - if that isn’t the primary lesson of business, what is ?”

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INNOVATIA

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