How to drive innovation

How do directors in larger companies drive innovation? Gregory Ellis MAICD, CEO of Scout24 Group, had plenty of advice on this when addressing Company Directors’ national conference on Hamilton Island last week.

Now based in Germany, Ellis was CEO of the REA Group, the global online real estate advertising company that grew from, for more than five years.

Ellis noted that innovation beyond start-up size companies was difficult for many reasons. For instance, he did not believe Australian CEOs or C-level executives had the right skills and capabilities to drive an innovation based agenda. In addition, director liability and developments like the “two-strike” rule for listed companies had caused an over personalisation of how directors looked at their jobs, forcing them to become defensive, rather than offensive, the latter a crucial requirement for an innovation growth agenda.

He suggested that the world was set to enter a consumer-led revolution over the next 10 to 15 years, where individuals would have the ability to significantly influence economies, politics and social agenda like never before because of the internet.

He believed that dissatisfaction with hierarchical political and business agendas was rising. “The hierarchical structures of governance and managing companies are about to disappear before our very eyes,” he said.

In addition, the internet allowed so much information to be out there that no one person could keep up and decision making needed to be pushed out to the edge of the market.

He encouraged directors not to be afraid of this future, but to embrace it with a new approach to governance.

“My view of an innovation growth based agenda comes down to a market relevant strategy that can be articulated to the market, but more importantly, to your employees as a purpose (why we do what we do),” he said.

“The organisation needs to become purpose-driven and really mean it, and to be aligned on it from the chairman down. A purpose is not a mission statement. It is a fundamental belief as to why the company exists. A purpose sets every dynamic that happens in the company, from your recruitment policy to your learning and development policy to your risk-taking framework. It is not just about why. It is actually what drives the archetype inside your company. You need an operating world that is philosophically aligned to a purpose and not policy and procedure aligned.”

Ellis noted: “Innovation does not come from boards and from C-level positions. It comes from the people who are the closest to the market. At REA, we pushed responsibility and decision-making to the edge of the company to match the market speed and we were able to do that within a governance framework.”

He said the CEO also needed to be supported for innovation to be successful. “This is not about remuneration. It is about making sure he or she is set up for the environment of success.”

He observed that with so much information available online and the increasing speed at which decision-making had to happen, the board had only two options: It had to meet more regularly to discuss market movements and the options available. Or, it had to trust that management was on top of things and providing it with regular updates.

Ellis encouraged non-executive directors to become familiar with what the internet was and how it worked, noting: “It’s the ultimate disruptor.”

He added: “The ability to survive in a complex regulatory world of compliance is vital, but the development of your strategic skill is absolutely critical. You need to be very good at strategy because your job is to help the CEO work out where the market is moving and why.

“You also have to honestly assess whether you are the right person for this board and whether you are prepared for calculated risk-taking.”

Ellis also cautioned: “I am not sure whether the skills and experience of a board, generated over the past 20 years, are going to be current for the next 20 years. So as a board member, you must not lose the wonderful heritage and experience that you have, but you must apply a lens that is relevant for the modern economy that we are working in, rather than consistently applying a standard set of frameworks.”

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