According to IMF managing director Kristalina Georgieva, we are now in a “synchronised slowdown” with more than 90 per cent of the world expected to experience more sluggish growth in 2019.
Unlike the financial crisis, Australia is not defying this global trend. Australian growth slumped to 1.4 per cent in the year to June, while GDP per capita went backwards over the period. A significant part of this poor economic performance is due to “a broader global narrative of waning economic dynamism,” AICD chief economist Mark Thirlwell writes in this issue of Company Director.
Against this backdrop, we cannot afford productivity to languish. Australian directors must now prepare for a sustained period of lower revenue and profit growth, and to work harder to drive productive investment. Mark notes in his column that the rate of growth in labour productivity has been sliding since 2011–12, culminating in a 0.1 per cent decline in 2018–19. Good government policies will no doubt play a role in improving our productivity performance, but boards will also be held accountable for their performance facing a low-growth global environment.
The long-term interests of our organisations, the community and the Australian economy align. Reversing the productivity trend will require organisations to harness technology and embrace innovation. It starts in the boardroom. In this issue of Company Director, we ask if directors are prepared for the challenge. Our report, Driving Innovation: The Boardroom Gap — the first of its kind in Australia and one of the first worldwide — makes for sobering reading.
While three-quarters of the directors surveyed indicated that their organisation had an innovation vision, for almost half of respondents there was little oversight of how that plan was being realised. More than half of directors were unaware of the percentage of their organisation’s total expenditure allocated to R&D. There was also a skills gap, with only three per cent of directors saying they had science and technology expertise and 10 per cent saying they had innovation-related expertise.
International comparisons continue to suggest we are falling behind globally on innovation. Recent analysis by Harvard’s Kennedy School of Government shows that on a measure of the productive knowledge held in our economy, Australia is on par with developing economies. We also slipped two spots to 16th in the latest World Economic Forum global competitiveness rankings released in October. On innovation and ICT adoption we fare even worse, ranking 18th and 29th, respectively.
The director community must show leadership. We must lift our own technological and digital literacy, encourage and reward entrepreneurial thinking, and ensure innovation is a regular item on the board agenda.
The results of the innovation study show the AICD needs to do more to support members in this area. Across the range of AICD activities — from education to communications to advocacy — we will look to provide directors with the knowledge and resources needed to thrive in an increasingly fluid, tech-driven economy.
As an initial step, we will take a more structured approach to communicating with members on new technologies and disruptive trends. We will particularly look to draw on the expertise in our community, and in Australian business more broadly, to highlight case studies of organisations that have successfully implemented an innovation strategy. We will also review our director resources and curriculum to examine how innovation is covered and if changes should be made to highlight performance aspects of board responsibilities more prominently.
On the advocacy front, the challenge will be sustaining public debate on the importance of innovation to our shared national prosperity. The AICD will also be exploring where further research can help build our knowledge base, such as on investor expectations of boards.
Bob Hawke AC GCL famously said, “No longer content to be just the lucky country, Australia must become the clever country.” Innovation and commercialisation is a persistent weakness in our economy. The director community cannot be content with our rankings on the league tables. We must take up the challenge and spur the next era of Australian growth.