South African businesses not reaping benefits of innovation strategies

04 December 2017 7 min. read
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Despite finding innovation an important priority, South African businesses are failing to generate sufficient value from their innovation strategies, according to a new report. Execution and a lack of collaboration are the main stumbling blocks.

The South African economy is currently in a phase of transformation. A fall in oil and gold prices, among a number of other factors, has caused a slowing of economic growth in the country in recent years. The challenges are further accentuated by the fact that the entire Sub-Saharan Africa (SSA) region is currently experiencing similar issues. 

On the other hand, the financial sector of the country appears to be taking the right approach to the situation: one of optimism. Some promising trends have emerged this year. In the first half of this year, the retail sector of the economy, which had previously fallen by 2.9% in revenues, has grown by 5% already.

South Africa Innovation Index Scores

In addition, the GDP of the country has already registered growth of 2.5% this year. According to a survey conducted by Big Four professional services firm PwC, top business executives in the country have expressed confidence that the slump was merely temporary, and that a number of factors in the South African economy indicate substantial growth in years to come. 

However, this growth will not occur independently. Studies have shown that the economy requires GDP growth of at least 6% annually to recover from its current deficit. In light of the rapidly evolving global market, both in the technological domain and otherwise, being innovative is an absolute necessity for the survival of South African firms. The PwC survey highlighted that CEOs in Africa recognise this need, with 19% of those surveyed saying that their primary area of investment in coming years will be innovation.

However, strategy consultancy Accenture has pointed out that while the intention is commendable, the execution still requires work. Each year, Accenture invites entries from firms across South Africa, which it comprehensively reviews based on a number of criteria to determine their “innovation strengths and weaknesses.” Based on these assessments, the firm releases the Accenture innovation Index, which provides a broad picture of the state of innovation in the economy as a whole.

Overall, South Africa’s economy clocked 52 points on the innovation index this year, which represents marginal growth from its score of 50 points last year. Moreover, the progress appears to have slowed down, having grown 4 points in 2015, from 46 to 50. However, in order to avoid generalisation, the report divides firms in the country into two categories: ‘innovation leaders,’ i.e. firms that have scored 65 and above on the index, accounting for 27% of the firms assessed; and the rest of the market that lies below this mark, accounting for the remaining 73%.

Constituents of the Index in 2017

The innovation value chain 

In order to thoroughly assess the innovation capabilities of the firm, the consulting firm divides the process of innovation into various stages of a value chain. These include: Innovation Strategy, Ideation, Absorption, Execution, and Benefits and Impact. Only if a firm successfully manages all these stages can it be truly innovative. 

Most firms performed well in the first stage of innovation strategy. Overall the economy scored 83 points on the index in this category. In essence, most firms in the country have placed innovation on their agenda and developed mechanisms to foster a creative culture. Between the two categories, the ‘innovation leaders’ scored 93 points while the rest of the firms scored 80. The highest scores went to the firms where innovative culture had seeped through to the extent that innovation was an integral part of an employees daily work.

The ideation stage refers to the phase in which companies turn innovation strategies into concrete concepts. The overall score for this stage in the index was 44 points. ‘Innovation leaders’ scored an impressive 67 points at this stage, while the rest of the market scored 36. The difference lies in efforts on the part of the firm to collaborate both internally and externally to develop innovation strategies. 

The third stage, i.e. absorption, involves the alignment of the entire firm around the most important values of innovation. While the ‘innovation leaders’ scored 77 points at this stage, the rest of the market scored 44, taking the average for the whole economy down to 53 points. An example of successful absorption is that 80% of ‘innovation leaders’ take a year or less to develop a prototyped innovation strategy into a commercialised practice.

Strategy Ideation Absorption execution & benefits

After absorption comes the stage of execution. Overall, South Africa scored 59 points in this category, with the ‘innovation leaders’ substantially outperforming the rest of the economy, at 82 points and 50 points respectively. As a result, the deficit between the two is even more pronounced when it comes to the fifth stage of measuring the benefits and impact that the innovation has. ‘innovation leaders’ scored 67 points in terms of impact, while the rest of the firms predictably scored low at 25 points. The overall index score was 37 points. 

Commenting on the index, William Mzimba, Chief Executive of Accenture in South Africa said, “In a rapidly digitising business environment where new players are disrupting traditional revenue streams across all industry sectors, it is now more important than ever for companies to be stepping up their innovation game.Digital innovation is reshaping industries by disrupting traditional business and operating models. But it is also having a profound impact on society, presenting both challenges and opportunities for businesses and policy-makers on the African continent. Innovation champions know this and their approach is seeing them achieve almost double the innovation ROI of the rest of the market.

Mzimba has been particularly vocal in his efforts to drive innovation recently, writing that South Africa needs to wake up, work together, and innovate.