The Innovation Imperative

Exports are a key to New Zealand’s economic prosperity both in the short and long terms.  But it’s not only about creating export dollars, it’s also about creating wealth dollars, and for this to occur New Zealand needs to continue moving into high value- added industries and products.  One measure of productivity is the index of GDP produced per capita and by comparison with the OECD average we are falling lower and lower below that average, while (Australia climbs higher and higher above it! – New Zealand Institute Aug 2010); and a further indicator that all is not well is that the average for ‘real value’ of exports in the OECD group is twice that of New Zealand’s (World Bank 2007).

Another reflection of our performance is found in the Global Competitiveness Index (GCI) as measured by the World Economic Forum in its annual survey. The 2010 result of 133 countries surveyed, placed us in 20th position (by comparison with other smaller economies, Switzerland was 1st, Sweden 4th, and Denmark 5th) and we have been slipping back each year, (in 2005 we were 13th).  However, more telling was our 2010 performance in one on the main pillars of the GCI – Innovation Factors, where our ranking was 27th.  The ‘number 8 wire’ mentality of New Zealanders may indicate an ability to improvise, but improvisation is not the key.  To be more globally competitive, we need to become masters of innovation at a global level.

Expanded Innovation

The research of Jay Doblin, noted designer and professor at the Institute of Design at the Illinois Institute of Technology found that innovation in companies was commonly applied to the design of the product or service, but that the big financial returns on innovation came from other areas. Through 27 years of research he constructed a map that describes 10 types of innovation clustered into four main categories – Financial Structure, Process Design, Product Design, and aspects of Delivery – and he found that the big payoffs came more from innovation at the financial and delivery ends of the range and less from the design of the actual product or service offering.

Holistic Innovation

Doblin also showed evidence that the most effective and productive innovation occurred when companies innovated across all the fields simultaneously.  In 2010 terms, this means dealing with changing business model structures and supply chain opportunities created by the Internet; changing business processes to exploit the cost/benefit of digital, real-time transaction speed; and innovating around customer connectivity and personalisation of the customer experience using social media and viral marketing.

The Auckland University’s Icehouse Business Incubator works to help start-up companies make the most of the opportunities that exist in rapidly changing technological, financial and marketing environments.  In 2008 James Madelin entered the Icehouse incubation process with an innovative idea for a photographic product.  However this idea then evolved into a series of innovations across the full range of Doblin’s fields and provides an example case of how even small start-up companies in New Zealand can develop into a globally competitive force by exploiting innovation opportunities.

Case Study: Enlight Photo and The Orbis

James started with product innovation.  He took an existing photographic product (the professional ring flash) and redesigned it to enhance function and convenience, and at the same time remove the weight of a battery power source and drop the cost from several thousands to just $199.  The Orbis is a light-weight ring flash that uses the standard camera power and light source to provide professional-standard shadow free images that are especially desirable in portrait photography

In the field of financial innovation James built his business on a new business model based on relationships with off- shore manufacturers and distribution networks. Although his business model focused on international outsourcing and global supply chain management Enlight remained a New Zealand based company built on carefully orchestrated off-shore operations.

James exploited opportunities in process innovation by leveraging B2B and B2C ordering and payment systems on the Internet.  He focused on process connectivity and transaction speed to enhance the links with customers (Internet ordering and payment methods), distribution warehouses, international manufacturers and global logistics companies.

James then embarked on delivery innovation, linking directly with his global market through internet blogs and chat rooms.  Using social media sites YouTube and FlickR, for example, he was able to create brand awareness and community loyalty by professional and hobbyist users of photographic equipment.  Enabling customers to have one-on-one conversations with the designer and producer of the product enhanced customer experience and quickly drove global sales to US$500,000 in the first year of operation.

The power of this multi-set of innovations is that he now able to build a global distribution business based on rapid new product development, viral marketing and ‘real time’ transaction speed.  He has distribution into 20 countries and a reliable supply chain of high quality/high volume producers – and all of this with a full time staff of two!

Improving NZs International Competitiveness

For New Zealand the message is clear.  It’s not just about product and service ideas.  There is a need to exploit new business models, new process designs, and new channels to market to meet the challenge of global competition and put us back amongst the better performing economies of the OECD family – and it’s not just a business concern.  The message applies equally to national and local government organisations and their management of the health, education and general infrastructural assets and institutions of our country.

If we aspire to have some sort of economic parity with our Trans-Tasman neighbour we have to do a lot better.