Can a greater focus on innovation increase South Africa’s global competitiveness?

There is much talk about job creation – yet, what are the conditions that will make this possible? How must we change our mindset to do this?

As South Africans, given our history and our subsequent struggle to find our place in the World, we often ask ourselves:

What will create wealth for the majority of South Africans? Is it simply taking from the wealthy and giving to the poor? If so, is there enough wealth to go around and will doing that retain (and create) the entrepreneurs we require for long-term prosperity?

What will create a unique economic position for South Africa? It does not seem to be mining anymore, so what is it? Surely, dominance of African business can go a long way – but is that enough?

What will prevent South Africa from becoming just another emerging market? We see our global competitiveness slipping, this year down to number 54 out of 59 countries. There are more signs of that happening, than of us becoming unique. For how long will we have a window of opportunity? Or has that window already closed?

What is inherently part of the South African DNA that can be exported successfully? Is there such a unique DNA? If so – what is it?

Can being a part of the BRIC(S) alone save us? And how can we make the best contribution to these four countries, all four many times our size in GDP. Surely being a part of the BRIC(S) will benefit us, but any relationship also relies upon reciprocity – can we deliver what they expect – beyond natural resources?

Much has been debated in these areas, and I will give you a very personal view of what that can be. I am not an economist, but I have had the privilege to work with clients in Africa and The Middle East, and I have read widely as it interests me to see what make companies successful.

What I do know is that we need to seriously address our global competitiveness. Without that, we will not be able to address issues of poverty and job creation in any sustainable manner. At this point, our competitiveness is declining, not growing, and that should be a serious concern to all of us. The traditional generators of jobs like the mining sector, is unlikely to do that in the medium term. Even if we create jobs through infrastructural projects, these are not sustainable beyond a few years.

Can South Africa, as it is today, be a global economic powerhouse?

For South Africa to become a global powerhouse, or even to sustain its current economic power in Africa, will require a significant change in mindset. Many African countries are starting to become important players now: Ghana; Angola; Mauritius; Botswana; Rwanda; Nigeria; Kenya – amongst others. This will accelerate, even though many still see South Africa as a gateway to Africa. How long will it remain that?

Yet, business-as-usual will not keep South Africa as prominent as it used to be. Our economic window is closing – I think it is closing faster than we think!

Innovation needs to be a central tenet

In my view, innovation will need to become a central focus in how we think: we do not have the benefit of sheer numbers; or of affordable labour (our hourly labour rates are several times that of most African countries); we have access to natural resources but our mining sector is stagnant, if not actually in decline; we are far away from most global markets – West Africa is as close to Southern Europe as it is to South Africa - and areas

like tourism cannot in its own right add the wealth we require. And even though some companies think differently, as an overall economy, we need to think different – many will ascribe the decline of the Japanese economy over the last ten years as it lagging in innovation, even if it had notable successes like Toyota becoming the largest global automotive manufacturer. Its iconic innovative companies like Sony, has started to lag companies like Samsung significantly.

Few South African companies have been a consistent innovator - the most significant one in South Africa has been Sasol. This has made it a sought after partner for companies abroad that want to leverage its capabilities.

For us to innovate more will require a significant change in how the government - and some companies – think, practice and behave. For one, we will have to place world-class education central to government policy, as human capital is paramount when you push the boundaries of knowledge.

The iconic marketing scholar, Prof Michael Porter of Harvard Business School, states, “Innovation is the central issue in economic prosperity”. Steve Jobs, CEO of Apple – arguably the most significant consumer products innovator in recent times, states that, “Innovation distinguishes between a leader and a follower.”

After the phase of “first-mover” South African exports, innovation is our only potential sustainable advantage

South African business achieved its first round of success stories in Africa and parts of the developing world. Its leading companies have exported themselves, with a high degree of success – companies like SABMiller, MTN, AngloGold Ashanti, Parexel, Discovery, Bidvest, Investec and Shoprite. As “first-movers”, they did what American companies did forty years ago.

Inherent in this, is an aptitude for risk, a significant factor in the global success of American companies to this day. It also explains the significant growth of an economy like China, where they are not scared to invest in “risky” continents like Africa, or to work amidst superlatives. An inherent pioneering spirit has been behind the growth of a country like the UAE: in the process attracting like-minded professionals from around the world. Cities like Dubai and Abu Dhabi have become innovation “havens” for engineers and architects.

In a Business Week survey (October 2009) of 2500 listed companies around the world – selected from 18 countries, MTN, Sasol and Bidvest were included in the World’s Top 40 Companies. Traits common to these companies are a commitment to innovation, diversified portfolios, aggressive expansion, strong leadership, and a clear vision for the future. If we can selective do this, surely we have the residual capabilities to expand this?

For South African companies to keep on growing - and for the county itself to attain a global economic presence beyond its small size without just some companies benefiting – will require a significant focus on innovation. To attain long-term sustainability will require innovation, as the position of many of the first mover South African companies are already being challenged by competitors from developed countries – and other emerging market companies - with more resources.

Culture often translates into competitive advantage

I have always believed that the inherent nature of people from a given country – some may call it their culture - determine what they do. It is not insignificant that the Italians are good with food, furniture, automotive and product design. It is part of their unique humanity, sensuality and sensitivity to their environment and the people around them. They simply seems more attuned to others around them. This is even given as a major reason why the management disciplines are less salient in Italy (as claimed by Roberto

Verganti) – as this comes naturally to many Italian businesspeople. The inherent spirit of entrepreneurship (as a nation of pioneers) have impacted the ability of the US in areas like science (in having far more Nobel Prize winners than any other nation on earth); software development; new technology companies like Amazon.com; eBay; Google; Apple; entertainment; franchising and many more. The exacting capabilities of Germans and the Swiss, in turn made them exceptional in industries that demand high skills and precision. Today, countries like the UAE and China are grabbing the imagination with their architecture and art.

These developments underpin a very important part of the DNA of South Africans: an aptitude for risk that may be higher than that of many other nations. Maybe it is the fact that whatever your race in South Africa, you are used to living on the edge - or under threat. We live our lives and run our businesses, with that as a constant presence. Furthermore, we are used to operating under high degrees of diversity and extraneous challenging factors, we seem to have an inherent ability to separate the wheat from chaff and make decisions under stressful conditions. In many ways, we are similar to Israel, whom have become a global powerhouse of innovation, that in a small country of seven million people. When you ask an Israeli why, they often state being under constant threat makes them excel: they simply have to try harder.

The learning from Italian product innovation

Reading an amazing book recently, “Design-Driven Innovation” by Roberto Verganti (as quoted above), it made me think a lot about business in general - and the South African condition in particular.

Verganti calls it the “personal culture” of an executive to ask him/ herself every morning “what he/ she wants”. Underlying this is a questioning aptitude, a particular personality - or way of looking at things, an ability to assimilate a lot of environmental factors, an ability to distil it into the factors that matter, and being able to take a degree of risk to create something different - yet significant.

Verganti talks about the fact that asking people what they need rarely enables significant innovation, as most people are not able to conceptualise things that do not yet exist. He sees innovation as creating “new meanings”, in other words, creating something that changes the way in which people see and talk about things. To do this, we need “interpreters” who liaise with diverse groups and interpret what issues mean to us. These interpreters come from a wide array of disciplines. It means a company is “open” to its environment. What other country is more capable of handling diversity than SA? What country is more able to reconcile polarities than SA?

He states that Italians, who have been very good at product design innovation in areas like furniture, household goods, fashion, lighting – and many other areas like automotive design, have always focused their education on the humanities, Verganti states it, “making culture an essential part of the personality of entrepreneurs”. One of the most important roles of leaders must be to leverage the “personal cultures” of people inside and outside of the company. It is significant, in his research, that the most successful companies are those with the widest and most diverse networks of internal, but more notably, external parties. Highly innovative companies leverage a wide and diverse group of individuals in their networks.

Verganti separates “incremental” and “radical” innovation - where he sees incremental innovation as the constant updating of existing products and services (mainly using “user-centered” research), whereas “radical innovation” is about creating entirely new ideas (inasmuch as an iPod is about an entire personal music system – in aggregating music access - it is not just another MP3 player) and the iPad and iPhone become conduits for applications written by mostly independents. When looking at “radical projects”, innovative companies leverage “radical researchers” who “envision and investigate new product meanings through a broader, in-depth exploration of the evolution of society, culture and technology”. He includes areas like the fast generation of ideas, more rather

than less ideas, in-depth exploration of the most meaningful ideas, diversity of people and input - and a challenging and questioning aptitude as important building blocks for radical innovation.

How is all of this relevant to South Africa?

Let us evaluate South Africa according to some of the tenets above.

What we are:

In three significant areas of global competitiveness in 2009, we score above our global average (45th in 2009). These are innovation (41st), benefiting from good scientific research institutions (ranked 29th) and strong collaboration between universities and the business sector in innovation (ranked 25th);

In the World Economic Forum competitiveness report of Africa in June 2009, South Africa only lags Tunisia in innovation;

Our successful companies are prepared to risk (SABMiller; MTN; Standard Bank); Our country is diverse in terms of peoples and cultures; We are used to dealing with uncertainty, a large number of “uncertainties” to be dealt

with; Humanity underlies our being (i.e. compromise, ubuntu, consultation, keeping

community interests central); Our country does well creatively (just in literature and advertising alone, South Africa

has a significant global reputation); An ability to attract “interpreters” from other countries in Africa – we often attract the

best, like actuaries and other specialists from Zimbabwe.

We already have some of the foundation elements in place to become a highly innovative nation of entrepreneurs, albeit in government, parastatals, academia, research or business.

To conclude

In my view, we have the opportunity – and residual set of capabilities, to become a generator for innovation, if not in a global context, at least within the emerging markets sphere – and specifically, within the BRIC(S) space. By leveraging these, we can become a highly successful nation that can offer the world something beyond natural resources.

To do this, will mean that we think this way – and align our government and business strategies and objectives, to take advantage of this. It will start with a clear dissection of what we are good at, within specific areas, and putting the policies and programs in place to do that.

Whilst there are many approaches to innovate, it seems as though an aptitude for it is the most significant driver of it. It also impacts company culture and a general receptivity for change, ideas and open-communication. Within such a context, it makes a company become collaborative, rather than hierarchical.