• Home
  • /
  • Enterprise
  • /
  • Corporate governance divide is biggest threat to innovation

Corporate governance divide is biggest threat to innovation

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 25 Feb 2022

While the pandemic has escalated the importance of digital innovation to 'survival level', company executives are using today's governance measures to evaluate the innovation of tomorrow, hindering long-term vision and returns.

This is one of the key findings of the BCX Digital Innovation Report 2022, conducted by market research firm Frost & Sullivan, commissioned by ICT services company BCX.

The research findings, based on a survey of South African and global organisations, provides an overview of the state of innovation locally and across the globe. It outlines current trends and the status of digital innovation in SA, at both micro and macro level.

According to the report, despite significant budgets being allocated to digital strategies, only about 30% of initiatives meet expectations, with the main barriers to innovation being human-related rather than technological.

It notes that COVID-19 created the impetus for digital innovation, the likes of which has never been experienced before in modern history. The pandemic also presented South African company leaders with increased challenges, in introducing and implementing digital technology to achieve long-term business value.

One of the major challenges facing company leaders in developing markets is identifying where to best take advantage of digitalisation and invest in current innovation strategies that will have the most positive impact and generate returns within a few years, according to the report.

Misplaced priorities often results in innovation strategies becoming less of a priority, in favour of other business decisions that are expected to generate immediate returns.

Factors identified in the report as contributors to this challenge include the corporate governance divide, sluggish decision-making processes among company executives and budget constraints.

Presenting the report findings at the BCX media conference this week, Hendrik Malan, Africa CEO at Frost & Sullivan, noted from 2020, around 79% of local organisations were forced to accelerate their adoption of digital technologies over the past 18 months – but any innovative idea or digital innovation strategy introduced has had to compete with ‘business of today’ priorities.

Hendrik Malan, Africa CEO at Frost & Sullivan.
Hendrik Malan, Africa CEO at Frost & Sullivan.

This challenge led to company management committees and directors prioritising other business optimisation requirements, as a result of what the report labels “digital ignorance”.

“Corporate governance is the single biggest threat to not only digital innovation but any type of innovation within an organisation. This is because of the challenges associated with complex decision-making processes within large organisations,” said Malan.

“What inevitably happens is that someone may have this amazing and brilliant innovative idea that will start generating return on investment in about two years. Shortly after the idea is put into the system, it’s then spitted out because there is no chance that an executive or a management committee is going to approve an idea that might generate good revenue only a few years down the line, in favour of an idea that could generate good revenue and profitability right now.”

Governance structures need to be addressed to make sure the business of tomorrow is evaluated on a different set of principles, and by a different governing body, as opposed to the business of today, noted Malan.

To reach a resolution, the decision-making process needs to follow a very different evaluation cycle to determine whether the proposed innovation strategy is a worthwhile idea or not – and should not be compared to the business of today, he continued.

“The budgeting cycles of the business of today should be run completely separate to evaluating ideas of tomorrow; it’s a completely separate timeline. So there is a conflict when evaluating ideas which may bring opportunities only in a few years’ time.”

Jonas Bogoshi, BCX CEO.
Jonas Bogoshi, BCX CEO.

After suffering the worst economic downturn since World War II, the global economy is set for a synchronised recovery, led by stimulus-driven developed economies, notes the study.

The strong economic growth will underpin many investments in addressing the challenges created by COVID-19, to ensure better resilience for future benefits, with digital strategy investments being key to this.

Jonas Bogoshi, BCX CEO, pointed out that company leaders face huge conflicts when evaluating ideas and innovation proposals.

“Many company leaders don’t see the significance of investing huge funds in a digital transformation strategy that doesn’t guarantee a good return on investment.

“Companies face the challenge of putting aside a significant budget, and knowing they might have to face the reality of failing when the idea is implemented. But what we are saying is that there is nothing wrong with failing – as long as you fail fast, learn and then move on with the innovation journey,” he noted.

As organisations learn to embrace uncertainty, they continue to face existing innovation constraints, including legacy infrastructure, anti-trust push from legislators, cyber security threats, and the introduction of restrictive personal information protection laws across the globe, according to the report.