Innovation Strategy and Board Oversight: A missing capability to drive productivity

Cameron Begley, Greg Harper*, 26 October 2025

The productivity drive is gathering pace under the Albanese government, the conversation should and indeed must turn quickly to how to drive increased productivity. And while a range of concepts will be explored in the coming months and years, we thought we might posit that for current productivity levels to improve, change must take place in organisational practices, as well as asset utilisation and in culture.

There are no silver bullets here. We are sure that productivity won’t move in the absence of directed change, so how to catalyse that change?

The problem and the Issues

In governance frameworks across business, NFPs and government, and based on our research, observations and experience, we contend that innovation is a missing catalyst in the drive for productivity. To the extent that this is the case, the issue becomes, how to instil a culture of innovation-catalysed change into the boardrooms and operations of Australian organisations.

The boardroom is where culture and ambition should be set with the management team directed to implement change through innovation.

Organisation-wide culture is a critical condition for success, given the risks, obstacles and missteps that lay on any journey of change. Boards need to develop a risk appetite, articulated and implemented through senior leadership. Risk avoidance, or worse still, denial, are ill-suited to the need for productivity improvement or meeting the challenges and opportunities arising from changing business and political landscapes.

We didn’t think a new model or management theory is needed here! So, we dug through the “ghosts of models past” and found a suitably haunting and entirely relevant framework around which to gather our thoughts on how the boardroom can proactively frame the cultural and broader organisational shifts needed to increase organisational productivity.

We turned to Porter’s Value Chain Model¹, mixed with some of our thinking around innovation models and thoughts arising from the recent AICD Australian Governance Summit and submissions made to the government’s Strategic Examination of Research and Development.

Porter’s Value Chain Model and Change through Innovation

The organisational support (or secondary) activities of Organisational Infrastructure, Human Resource Management, Technology Development and Procurement present the key interfacial elements for the Board to consider when working with management in a program of innovation and change. These four elements offer lenses through which to view innovation internalities and externalities. These are:

Innovation Externalities:

• Markets – opportunities emerge and the competitive landscape changes.

• Technologies – new research outputs and improved practices emerge from 3^rd parties.

• Government policies and regulations – markets demand or constrain change.

• Finance – lack of capital constrains change initiatives.

Innovation Internalities:

1. Culture – including risk appetite, patience, operational / customer focus, absorptive capacity, etc.

2. Governance – checks and balances, clarity of roles and responsibilities, regulatory environment etc.

3. Strategy – to capture opportunities in the external environment as well as optimise internal resources.

4. Technologies – that are available to the organisation to adapt and adopt, as well as the skills to translate and deploy them to market.

Organisational Infrastructure relates to the physical assets at hand, but this might also include intangible assets such as intellectual property (e.g. patents, confidential know-how, trade-secret, trademarks, etc.) and organisational partnerships that could be seen as extending access to the physical and intangible assets of other firms.

Human Resource Management (HRM) encapsulates the organisations’ capabilities and capacity to undertake change, either from amongst its ranks or the absorptive capacity to introduce new approaches from external parties. The multiplicity of skills, and the timing of access to those skills varies across any change journey and it is critical to understand which skills are needed when. Further, HRM also influences the culture of risk taking and risk tolerance and the metrics by which the performance of employees are measured and celebrated.

Technology Development we suggest, is both internal and external capabilities, where staff consider opportunity funnels and stage gates that enable inward and outward-bound innovation. The circumstances and individual technologies may change but with improved organisational performance in mind, the process can be standardised. For example, changing the underlying business model of the firm can be fundamental innovative and risky. Clay Christensen has written extensively on these concepts, and they are worth revisiting for project portfolio mix and the discipline of not adopting some ill-fitting technologies.

Procurement is not just an enabling function in accessing 3^rd party innovations but also an opportunity to reset organisational culture around risk and external partnering. Risk and reward assessments shared between partners can be revelatory discussions in the context of the drive for knowledge exchange and share advantage. We believe space needs to be actively carved out for such discussions

The Board’s role in leading productivity improvements through innovation

The Board should accept its role in setting the organisation up for success with a focus on strategy, culture and systems. Each is a critical enabler for the adoption of innovation and preparedness for change, and they can be approached using the “four sights” construct:

Insight in bringing diverse Board experiences to the organisational change agenda, and the ability to lead the organisation through technological, market and human uncertainties, with clearly articulated strategic objectives for management to implement.

Foresight to look where to target efforts for the greatest productivity improvements and to identify external trends and drivers that could impact on strategy implementation. Critically, to articulate the assumptions and conditions for success derived from investments made to optimise alignment to changing circumstances.

Oversight to ensure there are appropriate monitoring systems in place for both management and Board to assess alignment to current plan, progress against objectives, and continued fine adjustment to dynamic external circumstances. Management needs resources to enable organisational change initiatives, but it rarely needs micromanagement from the Board.

Hindsight and repeated evaluation are important to learn from previous investments and efforts and ensure that innovation strategy and associated corporate systems remain fit for purpose.

Risk Appetite

Governance of organisational risk is a key function of the organisation’s Board, and each Director carries a fiduciary responsibility under the Australian Corporations Act. Nonetheless organisations whether for profit or not, need to accept some risk to create the opportunities and benefits that stakeholders expect. This was behind the historical concept of the limited liability company, and it remains true for innovation activities within them.

Generally, it is the organisation’s executives who direct activities within that organisation and apply resources to implement the strategy. The Board sets the risk appetite, so the decision-makers can know risk and informed about their delegation to commit resources to actions that are inherently risky but are necessary to capture opportunities – like research and development of new innovative products. Risk-reward trade-offs are fundamental to dynamic organisations and particularly when productivity improvements are sought.

Quantification and adjustment of risk tolerance in innovation, must be confronted through strategic and operational plans, risk matrices and monitoring systems. Parameters might include limits on potential financial losses or defined reputational boundaries (within the Board, among key customers, or key investors, or across the broader community). Given the inherent uncertainties of innovation activities, the Board will need to accept that some of its other strategic priorities may need to be compromised in the short term, as other innovation priorities play out, with strong potential for the medium to long term. Not all innovation initiatives will succeed, and that is the nature of the challenge and of the opportunities.

The Board should work with senior executives and key staff to negotiate transparent and understandable statements of risk appetite and risk tolerance, so they can get on with the job of innovation. The Board sub-committee tasked with internal audit and risk management on behalf of the Board (e.g. the Audit and Risk Committee or similar name) is often the first to observe a financial variance or a missed Operating Plan objective, or a request for more, unbudgeted resources to secure assets for example.

The members of this Committee, notwithstanding an inherent orientation toward risk minimisation, need to understand and be comfortable with the practical boundaries of risk tolerance so as not to practice risk avoidance. This conundrum is another reason to secure diverse perspectives on the Board.

The Board as the governing body, needs to reach a collective and supportive decision about the emergent risks. Here are some de-identified examples of the challenges faced by boards in innovative organisations, and drawn from our collective experience:

• The Board is asked to invest in long-term research and development projects (for example through Australian R&D entities and collaborative programs), where the innovative outcomes are not predictable, as is the expected quanta and timelines for any follow-on investments. We believe Australian firms need to become more comfortable this this uncertainty.

• Australian boards historically do not encompass the (neuro or experiential) diversity needed to assess R&D risks and rewards, and particularly through having board members with experience in the processes and trajectories of innovation investment and management. We believe Australian boards can be more inclusive of diversity through director selection, and or increased use of advisors with different experiences.

• The progress of even the most successful innovation projects has been historically hard to quantify in real time, and subsequently the quarterly cadence of Audit and Risk Committees can be chronologically misaligned. For example, a decision to stop a project mid-stream can create disproportionately higher comfort than might a strategic decision to continue to a defined, but contemporaneously unquantifiable endpoint. There is good evidence that Australian firms systematically under-invest in risky opportunities that might generate valuable innovations.

Woven through the board oversight and organisational implementation of change driven by innovation, are the skillsets associated with technology transfer (TT), and here we are using TT in its broadest sense to include early idea identification and the securing of R&D services on commercially reasonable terms through translation and scale-up to taking products to market. We believe these skills need to be present at board, management and operational levels and if they are not employed, then the organisation needs access to them externally as advisors. Both capability and capacity are needed, or at the very least an awareness that can catalyse cultural and operational change.

Rather than discussing broader change theories, which are critical to the success of any organisational change effort, an organisation’s TT effort embodies a specific range of skills associated with bringing innovation to organisations seeking combinations of internal optimisation, new market entry or rationalised risk profile. However, these skills appear to be rare in most organisations, as those are focussed (understandably) on operational excellence and the ongoing (day-to-day) business to meet immediate to midterm financial (and other organisational) metrics.

This brings us back to the role of Porter Value Chain Model in assessing, quantifying and qualifying the requisite TT skills. While culture and systems should be the dominant themes, boards, in collaboration with senior executives and management, need to ensure that the corporate elements of the model are in place to enable innovation to drive productivity gains so desperately needed across our economy.

*Authors

Cameron Begley is Managing Director of Spiegare Pty Ltd, a technology transfer advisory group. He is also co-founder and chair of AgTechCentric Pty Ltd, co-founder of BioBridge Additives Pty Ltd and hosts the Tech Transfer Talk podcast.

Dr Greg Harper is Director of Crondar Pty Ltd, a scientific advisory company. He is a Fellow of the AICD, and of the Australian Institute of Food Science and Technology and an honorary Principal Fellow of the University of Melbourne.

References

¹Porter, M. E. The Competitive Advantage: Creating and Sustaining Superior Performance. NY: Free Press, 1985. (Republished with a new introduction, 1998.)