What you will learn:
This article focuses on management capability as a key competency for businesses that aspire to developing innovative products and services. In a recent ABC Radio interview Greg Ellis, the ex-CEO of REA Group, provides a critique of Australian business culture, offering his thoughts regarding what he sees as Australia’s “quality growth problem”. There are lessons here for SMEs as well as Corporate businesses.
New Sam Wilko Advisory Blog by Peter Wilkinson
I’d like to return to a subject which was explored in a recent article – identifying and building capabilities in organisations. This article focuses on management capability as a key competency for businesses who aspire to developing innovative products and services.
A colleague of mine alerted me to a recent ABC Radio interview with Greg Ellis. Greg is the well-respected ex-CEO of REA Group, an ASX-listed digital advertising company specialising in real estate. In the interview Greg provides a critique of Australian business culture, offering his thoughts regarding what he sees as Australia’s “quality growth problem”. In essence, he sees a significant challenge ahead in closing the gap between what Australia’s growth in Gross Domestic Product (GDP) needs to be at – in his view – 4% to sustain the quality of life to which we have grown accustomed and our “planned” growth at 2.75% (set by the Business Council of Australia’s Action Plan for Enduring Prosperity). The only way to bridge this gap is via business innovation and Greg’s strong view is that Australian businesses need to do more in this regard.
Greg borrows from the work of Harvard Business School Professor Clayton M. Christensen who proposes that there are three central choices when seeking innovative ways to grow business:
- Chasing new business;
- Extending products – the result of which is to essentially stabilise the workforce/employment; and/or
- Driving business efficiency and effectiveness – which all things being equal results in a reduced workforce.
Given that the second and third methods don’t directly lead to growth in real employment, new business is the obvious driver of growth in GDP. Given the relative size of Australia’s economy, this would naturally lead well-advanced organisations to seek global opportunities for new business. Unfortunately though, for Australian businesses this is very much the exception rather than the norm.
So what’s stopping this from happening? In Greg’s view, one of the key limiting factors to innovation is a deep-seated conservatism in Australian business at the managerial and Board level. This view is increasingly being echoed in the business community, particularly in relation to Australian business’ lack of global orientation towards growth.
Another missing ingredient in Greg’s opinion is managerial talent, which he describes as people with the ability to manage people in carrying out the following key activities in a growth market:
- Picking a market direction;
- Select the right products and services to meet the anticipated demand; and
- Organising the business (securing investment etc) to chase and secure the identified opportunities.
In essence, this is managerial capability in leading and driving growth. Boards can make an effective contribution by backing growth-based activities with an appropriate tolerance for risk.
As a Case Study, REA’s approach in resolving their managerial talent gap was to devolve decision-making down the organisation hierarchy. Business units below the executive are given operational performance responsibility for generating and implementing new ideas.
As a final point, Greg does not see capital restriction as a key limitation to growth – the right ideas will attract capital to enable them to happen.
To sum up his argument, it’s all about managerial capability in making growth happen and Board support to enable growth to happen – an important lesson for SMEs as well as Corporate businesses.
Has this article been helpful? Please comment below or send me an email. I am always excited to hear from people making it happen!
BE (Mech), MBA