Last month, I wrote about the need for business to strike a balance between regulatory and compliance obligations and taking appropriate risks for growth and innovation. Without this balance, we risk undermining the growth agenda Australia needs for our national prosperity and the wellbeing of Australians.
For 28 years, we have enjoyed uninterrupted economic growth in Australia. Unfortunately, growth is slowing. The most recent data suggests annual GDP growth at just 1.8 per cent in the first quarter of this year, while consensus forecasts put growth for 2019 at just over two per cent (2.2 per cent according to the Bloomberg June 2019 survey). Cyclical forces are partly responsible for the slow growth. However, another part of the challenge, as we strive for sustainably higher GDP growth, is our current low rate of productivity growth.
Annual growth in labour productivity is now well below the long-run trend rate, and the Productivity Commission estimates that if we continue with a business-as-usual approach over the medium term, our growth rate is likely to fall further.
Directors need to play their part in spurring growth
In the AICD’s most recent Director Sentiment Index (DSI) in April, low productivity growth was cited as one of the top five economic challenges facing Australian business. The Productivity Commission attributes our productivity weakness in part to a marked slowdown in the rate of investment in the economy, but also points to a sharp decline in investment into research and development.
The DSI highlighted a greater focus on fostering innovation as one of the top two measures directors see as critical to boosting national productivity (after less focus on short-termism). Faster adoption of technology was also in the top five. To lift productivity, and to remain competitive, Australia must proactively innovate and embrace advancements in technology in every sector of the economy.
Directors have a critical role to play in reversing the trends of low innovation and inadequate technological investment. From exploring the transformation of value chains and the impact of automation on their business and the economy more broadly, to considering the ethical implications of artificial intelligence, the scope and scale of innovation-related decisions faced by directors continue to grow.
Australian boards will need to assess the diversity of their membership — the skills, experience and digital literacy around the table — and be prepared to drive greater investment in innovative transformations and research and development if they are to respond effectively to this challenge.
We must learn from the past. In some sectors, we have been slow to adopt new technologies, and opportunities to innovate have been missed. By embracing innovation across the economy, we will generate growth opportunities across our value chains, create skilled workers, and promote healthier national and regional economies.
Directors have a critical role to play in reversing the trends of low innovation and inadequate technological investment.
AICD’s innovation research
The AICD is seeking to drive this change by gaining a better understanding of directors’ perspectives on innovation and the importance and prioritisation of innovation in Australian boardrooms. We are undertaking a research project designed to explore the boardroom attributes, mindsets, cultures, activities and investments that foster and drive innovation in Australian organisations, as well as factors that may be inhibiting boards from embracing innovative business practices.
This project involves surveying a cross-section of members and we thank those who are contributing their views. We will report on our findings later in the year and share with you the key attributes and drivers that can be assigned to innovative organisations in Australia as well as practical strategies boards can adopt to benefit from the opportunities that innovation creates.
Lastly, we release the results of our Forward Governance Agenda this month. After significant member consultation, we are delighted to share the results and an overview of the actions that will result from this work. This is a critical project for the AICD and we look forward to continued collaboration with members as we focus on the changes needed to support a trusted, respected and capable director community.