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Shooting for the stars with R&D

Pop quiz: which sector earned more in New Zealand last year – dairy or digital?

In June, NZ Tech released a report called From Tech Sector to Digital Nation which found that in 2015 digital contributed about $16b, or 9% of the nation’s productive output. That’s nearly double the contribution of what we usually think of as our powerhouse sector – dairy.

Dairy is still our leading exporter, but is well and truly outstripped by digital as an employer; two-to-one.

So what, you might ask? Dairy is going through a cyclical downturn, and a few more people are making money from apps. What does this mean for everyone else?

To me, it’s an indication that New Zealand’s economy is making the necessary transformation from an economy underpinned by primary produce, to a more well-rounded one that is increasingly more likely to employ someone as a software developer than as a sharemilker.

This is a good thing, because while the primary sector remains our export leader, the speed of disruptive change is increasing at an exponential rate, and our economy needs to be not just ready for the change, but receptive and responsive to the opportunities that change brings.

Incremental innovation, making changes at the margins, needs to be replaced with disruptive innovation.

Simon Brown speaking at the Canterbury Tech Summit on 18 September.

This is akin to the difference between creating a new flavour of ice cream, and creating an ice cream that delivers a complete, individualised compliment of nutrients based on biometric scanning … a customer centric and personalised experience delivered at the point of sale.

This is born out in a recent PwC report on R&D spend in 1000 of the world’s top R&D spenders and innovators.

It found that R&D spend on disruptive innovation will increase by 40 percent in 10 years, while incremental innovation will drop by about half.

Of course, more investment in disruptive innovation means more likelihood of whole industries being disrupted. Interestingly, the PwC report found that only a quarter of those surveyed feel they have mastered the elements they will need for innovation success over the next 10 years.

That means the rest are at risk of being disrupted by companies that have mastered these skills.

R&D is obviously critical to pre-empting or overcoming disruption, and as a key source of new and improved products. Callaghan Innovation actively supports and encourages more New Zealand businesses to increase their investment and focus on doing more R&D.

But the amount of R&D any individual company does is actually less important than how well they are working on getting innovation and strategy aligned.

It’s critically important to do R&D, but just throwing lots of money into it won’t guarantee success. Alignment of business strategy, innovation strategy and prioritisation of the right capabilities is key.

There are local examples of companies who have set their whole strategic purpose on disruptive innovation and are reaping the rewards.

In fields as diverse as accounting and space travel, companies like Xero and Rocket Lab are placing their R&D at the heart of their way of working, rather than seeing it as a side-road to future incremental growth.

Rocket Lab recently secured regulatory approval to launch rockets from its Mahia Peninsula site, and in 2017 will begin disrupting the business of putting objects into space, delivering payloads at a fraction of the cost of state-run space programmes, putting satellites within the grasp of much smaller companies.

Xero has continued to disrupt its own industry, recently introducing a Facebook chatbot which can manage basic accounting questions and create business leads between its users and accounting firms, helping both be more efficient and focus on their core businesses.

For our part, Callaghan Innovation is evolving to pre-empt the needs of New Zealand businesses seeking to take the plunge into disruptive innovation.

We’re re-engineering our range of innovation programmes and services to focus on imparting these skills.

It is also why Callaghan Innovation works to attract staff with both commercial and industry sector expertise, so they can help companies secure better alignment of business strategy, innovation strategy and R&D outcomes.

This story originally ran on Callghan Innovation’s blog.
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