The concept of innovation is often misunderstood. Cameron Cooper surveys some successful exporters who understand it is not just radical invention but a carefully planned culture that permeates the whole company.
Suzie Wright is proud of her export company’s $5 million state-of-the-art manufacturing plant at Yatala on the Gold Coast. Not just because of the scale of the investment, but for what it says about her company’s management focus.
"As owners we don’t rape and pillage the business," says Wright, CEO of Digga Australia, a leading manufacturer of construction and earthmoving attachments.
"Where a lot of businesses go wrong is, they want a return on their investment too fast. They want to take their profits out. Well, we use the profits to expand the business."
Digga is regarded as one of Australia’s more innovative exporters, a status that has not come cheaply. The Yatala plant aside, Wright and her management team have injected millions of dollars into new technology and the company has a dedicated R&D (research and development) division that "looks like a CSI lab". Such spending, Wright says, is crucial to create an innovative, world-class business that exports to more than 50 countries. International sales represent about 22 percent of the business, including annual delivery of about $3.5 million worth of gearboxes to the US.
Since its launch in 1981, Digga has grown from a one-person operation into a company with 135 staff, and the commitment to R&D has never wavered. It’s paying off: Digga’s patented Swing Control System, a safety initiative that stabilises drilling machinery during operation, has won an Australian Design Award and export growth has been rapid over the past decade.
Product development is not the only obsession. To be effective, Wright says, a culture of innovation must encompass the entire business. "You must be innovative in the way you approach your management style. You’ve got to be able to create synergy between everything that makes the business tick."
Over the years, Australian companies have exported many winning concepts—penicillin, bionic ears, and the black-box flight recorder system among them. Innovation, however, is about more than products and services. There is a growing awareness that strategies around entrepreneurship, labour management, marketing, financial planning, and customer development, build the platform for success.
Tim Harcourt, chief economist at Austrade, believes exporters by their very nature are an inventive lot who use their creative power to take on world markets. "They are naturally into design and creativity and trying new things," he says. "They are under more competitive pressure perhaps than somebody who is in a closed sector."
Harcourt says exporters must understand business lead times and treat international growth as a long-term game—"not something that you do quickly and pull out of".
Exporters have a long-term commitment, he says, and that supports a type of organisation that is into innovation because they are prepared to wait for the benefits.
A survey of Australian exporters by logistics giant DHL shows that nine in 10 businesses regard innovation as the key to survival. Harcourt adds that most economists agree that international competitiveness depends on using innovation and R&D to raise productivity. "I don’t think anyone in Australia now advocates a low labour cost approach to international competitiveness."
ANCA, a Melbourne-based designer and manufacturer of high-precision grinding tools, has had a vision from day one to be an international leader. General manager, Linsey Siede, says the company’s founders, Pat Boland and Pat McCluskey, have always equated innovation with being at the forefront of international trends.
"It’s absolutely critical if companies are to remain here in Australia, they have to be globally competitive, and if you are globally competitive it is fairly easy to export," he says. "So, to me the objective is not to export, it is to be globally competitive—you have to do that to survive."
Founded in 1974, ANCA has delivered exports worth about $500 million over the past six years and is number one in the United States, United Kingdom, and the Asia-Pacific region, for Computer Numerical Control tools and cutter grinders. Exports account for more than 98 percent of sales.
Siede, too, is an advocate of R&D expenditure, saying it is imperative if Australian manufacturers are to compete internationally. ANCA injects about 7 percent of sales revenue back into R&D, a proportion that ranks among the highest in the country based on a Melbourne University R&D scoreboard.
Reflecting on the Bayswater North company, which has more than 300 employees and offices in major cities around the world, Siede agrees that a culture of innovation is required across an organisation. "It can only happen with a team-based approach," he says. "I think the autocratic manner of management is long gone."
Modernising Innovation
There has been a line of argument, pushed by the Australian Business Foundation think-tank among others, that Australia has a historically poor record of commercialising its research. John Steen, a lecturer in strategic management at the University of Queensland Business School, has no doubt that Australia has a very "old view" of innovation and says it is vital that businesses move forward. "The language of innovation equates to invention, with the inventor being an isolated character," he says. "What we tend to forget in transforming invention into innovation is that there has to be a business model built around the innovation."
Steen says a recent preoccupation in Australia with all things hi-tech or biotech has confused what is required to be an innovative international exporter: great science, experienced management, and a robust business model.
He cites three examples of clever Australian exporters: Plantic, a producer of biodegradable trays for chocolate boxes; Predrill Stresses International, which provides deep-drilling solutions for international mining companies; and Optalert, a drowsiness detection technology for airforce pilots and truck and train drivers.
A common denominator with these businesses, Steen says, is that the products evolved from dedicated research over a long period.
"Sometimes these things look like they are instantaneous magic innovations but if you look at them carefully you’ll see they’ve been built up after decades of research, and the business model is built around that."
Steen adds that while companies fear the cost of R&D, the price of taking the easy route is usually much higher. "Innovation is risky and managing innovation is hard, but the risk of not innovating is huge because we are in an internationally open economy and if we don’t make progress we’ll be caught with yesterday’s products and services."
The lure of cost-cutting has convinced many companies to outsource or go offshore to find cheaper production options. While ANCA understands the motivation, it believes innovation and offshoring should go hand-in-hand.
"We’re looking for smart ways to do it rather than just outsourcing or offshoring to reduce costs," says Siede.
ANCA has set up a plant in an industrial estate in Rayong province, Thailand, as part of a strategy to improve its overall o
perations, not just to cut costs. It has moved its high-labour, low-skill area of assembly to Rayong while upskilling its Bayswater employees to fill talent gaps.
Siede says the upshot is that Australian and Thai staff are happy with their jobs and productivity has more than doubled in the past two to three years. China is also part of the equation. ANCA opted to open a Shanghai office about three years ago. It is now the number one supplier of grinding machine components to China.
For its efforts, ANCA won three export awards last year, including the 2006 Victorian Exporter of the Year title and the gong for innovation excellence.
Siede says businesses must focus on the use of technology and innovation to help product development and customers. "Without the customers you’ve got no business, and if you haven’t got a product that is cost competitive then you’ve really got nothing."
Flexibility is also crucial. ANCA has broadened the target market for its high-precision grinders to cover sectors such as general manufacturing, defence, pharmaceutical, medical, and woodworking.
Siede says the move came in response to the September 11 terrorist attacks in the US after which "our business really fell in a hole" because it relied too much on automotive, aerospace, and aeronautical business. "If another September 11, god help us, does happen, then our business is well placed."
On the back of its resources boom, Western Australia is an example of how businesses can bring new solutions to old concepts. Peter Viney, deputy director general of the Department of Industry and Resources, Office of Science, Technology and Innovation, notes that state exports exceed $50 billion and exports per capita are approaching $30,000, well above other states.
He says creative SMEs are connecting with government and big business to improve their operations and target export opportunities. In particular, Viney says smaller businesses are benefiting from dealing with the big miners such as Rio Tinto, Woodside, and BHP Billiton, which have huge operations in the west.
"They definitely see innovation as a key driver of their competitive advantage. If they get that wrong, they’ll be in big trouble. They have to get it right, and they understand that and invest enormously."
Viney says the role for SMEs in the resources export business is clearly acknowledged by the big corporations. "Part of their strategy is clearly to engage with the SME community that can support their operations and sustain their competitive position—not just this year, not just next year, but in 10 years’ time."
At Digga, Suzie Wright is also a benefactor of construction and mining growth.
While business is driven by an innovative culture and market booms, she says Digga gets the basics right too. That means engaging with and training staff, ensuring internal systems are efficient, and focusing on the customer.
"We’re trying to take a different approach and I think it’s something that our country lacks enormously—service," Wright says. "Instead of trying to go down the route of having the cheapest possible product on the market, we’ve got an innovative and very competitively priced product, and I don’t think anybody else can provide the sort of service that we do for our customers."
