Is bland corporate leadership holding back our innovation nation?

Leaders of innovative companies aggressively invest in research and development (R&D) to create new products, services, and technologies – even if these cannibalise short-term profits. Unsurprisingly, companies that consistently innovate are more likely to survive in the long run.

Corporate Australia’s commitment to R&D, however, is disappointing. According to a recent World Economic Forum report, R&D spending by Australian companies ranked an unimpressive #37 globally.

A national innovation agenda is therefore bound to undershoot its promise if innovation is not fully embraced by the top ranks of corporate Australia.

Leadership characteristics of R&D savvy firms

Studies show that certain characteristics of corporate leaders are often associated with innovation-focused behaviours. For instance, younger CEOs with experience in marketing and/or engineering, and holding advanced STEM-related degrees, tend to invest significantly more in R&D.

CEOs also display different behaviours towards innovation at different stages of their career. For instance, CEOs in the 5-13 year tenure range are more likely to increase R&D in response to pressures from the market. CEOs closer to retirement, in turn, have been known to cut R&D. However, this tendency to reduce R&D can be counterbalanced by surrounding such CEOs with young top managers.

Indeed, CEOs lead a top management team whose compositional characteristics have been associated with certain dispositions towards innovation. Studies particularly show that more diverse top management teams tend to be more creative in decision making, elaborate more on information introduced into discussions, and are generally more receptive to change.

Some characteristics are particularly noteworthy.

Gender diversity

A long-term study showed that having female representation was helpful for implementing R&D intensive strategies. The authors argued that female executives contribute important social and informational diversity to male-dominated teams. Female executives also help balance out gender biases in managerial behaviour and inspire female managers in lower organisational ranks.

Racio-ethnic diversity

Several studies by Orlando Richard and colleagues have further shown that if an organisation breaks deeply ingrained diversity barriers, it may be well positioned to handle other types of change. This is important for firms driving R&D intensive strategy, as the ensuing growth exposes the organisation to more diverse customers. More racio-ethnically diverse teams help the firm to identify innovative and entrepreneurial ways to address the intricate needs of diverse customers.

Functional experience diversity

Varied and complementary functional experiences are also important. Research on cross-functional teams shows that the technical content of innovation is usually a result of creative synthesis of diverse expert knowledge. More diverse top management teams also engage in broader information search when making decisions, often integrating fresh knowledge from outside the firm.

Tying in a diverse top management team

Increasing diversity is not an off-the-shelf solution to foster innovation. Diversity brings about several new challenges as well. Although the benefits tend to outweigh the costs over time, diverse top management teams often experience higher levels of conflict and tend to take longer to reach consensus on important decisions.

To capture the value of diversity, CEOs and their teams have to agree that innovation is important and commit to this shared vision for the future. Developing shared vision is important for focusing the efforts of a diverse top management team. This is especially useful when pursuing complex R&D strategies such as offshoring.

However, some minority groups in corporate leadership, such as female executives, have been criticised for ranking low on “the vision thing”. The staple 54 year old Anglo-Saxon male CEO will have to break down this perception by appointing, mentoring, and nurturing the distinctive views of demographically dissimilar executives.

Cultivating diversity and shared vision is a long-term exercise. This will be challenging, given the well-documented appetite of the Australian market for short-term dividends.

Factor in that average tenure of ASX200 CEOs has dropped to about five years in 2014 -and will continue to drop with CEO turnover peaking in 2015. CEOs simply do not expect to be around for long enough to follow through on, or get the credit for, building innovation capacity. However, this wave of leadership turnover in itself represents an opportunity to enrich the executive suite with characteristics that are favourably associated with innovation.

A new face of corporate Australia?

Matching the right profile of corporate leaders to innovation strategy is complex and further needs to account for characteristics of the firm, features of the industry, corporate governance arrangements, middle management characteristics, and personality profiles of corporate leaders.

A national innovation policy is a start, but we need to expand the conversation to address the characteristics of those entrusted to lead the charge.

Stimulating fresh, diverse corporate leadership is a much-needed ingredient in the recipe for an innovative Australia.

Mariano L.M. Heyden does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.