By Steve Bailey, FCCA – Director Medius Consulting

Day in, day out, we read, hear and see breakthroughs that are changing the way we live and work. Examples are wide ranging– the Apple iPhone X, the internet of things and treatments that have dramatically increased the survival rates from disease, not to mention the ubiquitous impact of big data and AI.

So, we may think that innovation is alive and well.  But is it?

Companies are still spending heavily on R&D with PwC reporting that the 1,000 largest corporate R&D spenders globally increased their R&D spend by 3.2 percent in 2017 to $702 billion (over £500 billion).  As PwC’s report states, there is still a shared belief among executives that “… innovation today is a key driver of organic growth for all companies – regardless of sector or geography.”

Is innovation getting harder or are we just getting worse at innovation?

The question posed in a recent Harvard Business Review article is whether those investments in innovation are seeing a sustainable return?  The data suggests not, with returns to companies’ R&D spending declining by 65% since the late 1980s, a decline that mirrors the worrying decline in productivity that continues to vex economists.

Is it simply that innovation has become harder as scientists, engineers and those engaged in R&D struggle to find evermore incremental ways to add value to the processes and technologies already in place?  Or is it that some companies are better at innovation than others and, if that is the case, what is it about those companies that enables them to be better than others at innovation?

A deeper dive into the data indicates that the decline in returns from R&D spend is not necessarily true of all companies.  The not so good news is that many companies are making it harder for themselves to achieve a return from the spend on R&D.  They are just not very good at innovation.

Why this isn’t just about smarts and process, and why the letter C is important

While returns from R&D spend have been declining, organisations, private and public, have expended enormous efforts in processes for managing R&D not least in change management.  The problem with these efforts is that all too often they have ignored one fundamental factor in successful change – culture.  And, yes, that’s where the letter C comes in and why that letter C is not about yet another change management programme.

This became clear at a recent meeting of 100 CEO’s organised by IBM’s Ginni Romerty.  Representing 17 different industries and some $2 trillion (£1.5 trillion) in revenues, the meeting was upbeat that technology was about to see a new wave of disruption by helping companies leverage their core expertise through more effective management of data.  Upbeat though this meeting was, Time magazine found a challenge shared among CEO’s in realising this opportunity:  “…the biggest problem they face is not technology, but rather creating a culture that can embrace and adapt to technological change”.

This isn’t surprising when you consider that innovation is principally about new futures – new products, new services and new ways of doing things.  It is about future states.  While those charged with innovation are pursuing those future states, their colleagues are focused on business as usual, the current state they have been trained and socialised to understand and work with.  Bridging these two states – current and future – is the crux of the problem recognised by those CEOs attending the IBM event.

A tale of two companies

Consider two companies in the same sector – banking and financial services – with very different histories in implementing new customer technologies: one applauded by industry peers for their new mobile customer apps and receiving continuous positive feedback from their customers for enabling a more frictionless customer experience; and one in the media for yet more platform problems, outages and customer woes.

Both companies have mature processes for managing their R&D investments and for managing the internal change necessary for adopting new customer service technologies.  What’s more, from the projects we’ve conducted for them, both have the talents in place to support effective innovation teams.  They both have the innovators.

The difference that our data showed was that the company receiving industry peer and customer plaudits had much stronger alignment between those innovation talents and the wider company.

In other words, the wider company was much more likely to be receptive to new innovations and to be able to diffuse innovation effectively as it continuously evolved business as usual.  This company is wired behaviourally to bridge that gap between current and future states.

Does that mean the other company is doomed in its attempts to innovate?  The short answer is no and, after all, it doesn’t have the choice of not innovating if it wants to compete. This company has realised that more investment in innovation and change management in themselves is not the answer.  To borrow from Einstein, just doing the same thing and expecting an improvement is, to quote from them, corporate insanity.

They have recognised that they need to address three key sets of questions:

  • What do we mean by innovation? Is the way we think about innovation today what we really aspire to?   What are the tangible behaviours we need to promote to realise our aspirations for innovation?
  • Do we have the talents we need among our innovators? Can they provide the behavioural platform to drive the innovation we need?  If they can, what is getting in their way?
  • Where are the specific gaps between our innovation teams and the rest of the company? What do those gaps mean in terms of the behaviours we need to encourage for diffusion of innovation to be more effective?

Addressing the cultural barriers to innovation is about focusing on behaviours

Just as culture can seem intangible, so change can seem intractable.   The insight for the second of our two companies is that these dual challenges can be addressed by focusing on behaviours – what their people do and are less likely to do to support a return on their investment in innovation.

With a clearer and tangible definition of what innovation means for them, that company is now focusing on the behaviours they need to sustain among their innovators, on enabling those innovators to better understand the behaviours they need to influence in the wider company, and on how to promote behaviours across the wider company to open it up to more effective adoption of innovation.

The second of our two companies now has a route map that’s driving progress from a better understanding at board level about why innovation went wrong in the past and what the company needs to focus on to get a better return from innovation going forward, to streamlining the approval processes that their innovators work with, to where in the company the beachheads are for them to start to get the traction they need when they roll out new innovative products, services and ways of working.

The change agenda …

Is innovation getting harder?  It would seem that it is for many organisations.  Our experience suggests that many organisations are making it harder for themselves by either ignoring the importance of culture or because they lack the insight they need on whether their culture is enabling or disabling their efforts to innovate.

That’s why we believe that effective innovation needs the letter C and why the letter C is for culture.

Medius is an independent regulatory consultancy operating in the financial services market.

 

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By Jason Piper, ACCA’s Senior Manager, Tax and Business Law – Professional Insights

At the European Commission’s 2011 Conference on the future of company law in Europe, Michel Barnier (whatever happened to him?) warned of the dangers of sterile academic discussion of legal forms while entrepreneurs simply go out and do things, and in the six years since he made those comments the pace of change in technology and business models has illustrated that more starkly than perhaps anyone could have imagined.

From about 2014 I started to tease colleagues in audit and corporate reporting by asking them how they were going to respond when someone put together a non-incorporated business structure, crowd-funded entirely in cryptocurrencies. Such a structure would sit outside every known framework of transparency, accountability and regulation.

In 2016, we all stopped laughing when the Ethereum based decentralised autonomous organisation (DAO) hit the headlines – first for doing just what I’d predicted, and crowdfunding a non-incorporated business venture in cryptocurrency, and then for doing the bit I’d feared, which was demonstrating why it’s not a good idea to throw away several hundred years’ of social development in favour of an untested software model.

It seems likely that the DAO has tempered enthusiasm for blockchain based “incorporation” models in the short term at least. The blockchain’s USP, disintermediation, only works if it’s the intermediary that you don’t trust. However, the roles of actors such as courts and auditors is precisely to bridge the trust gap that started to open up as soon as trade moved beyond entirely local face to face transactions with the fellow villagers you’d grown up with.

Warren Buffett is famous for saying you should never invest in anything you don’t understand, and one thing the DAO incident did do was ram that message home loud and clear. Without the recognised corporate institutions of memorandum and articles, backed up by the authority of the courts in case of dispute, the DAO was an exercise in faith in the software for the investors, combined with trust in every other investor. Ultimately all that really amounted to was a hope that things would turn out fine, and $50m of opportunity cost for those investors caught out by the “undocumented features” of the code dashed that hope.

However, just because the DAO didn’t do what most of the investors had hoped for doesn’t mean we can write off the concept of software-based business forms. Nicholas Cugnot racked up a fair bit of expense after running into trouble (quite literally) in the development of the steam wagon until he cracked the bit about needing some brakes to stop it as well as a way of making it go.

One thing the DAO’s architects did get right is that the legal form of a business, just like the model it uses to make money, is no more than a bunch of agreements about transactions. In principle, the key feature of the blockchain (irrefutable evidence of agreements) is perfectly suited to recording and enabling the underlying agreements about how trading decisions are to be taken just as it is to evidencing the trades themselves.

So, what’s the future for business forms, and in particular company law? Whatever the mechanisms used to implement the goals, investors are going to be concerned about transparency, accountability and (to put it bluntly) getting at the return on their investment.

For now, more efficient administration of the existing tried and trusted forms is going to offer the best ROI for governments. But in the long run, whether deliberately or out of well-intentioned ignorance, entrepreneurs and investors are going to develop more and more “non-standard” ways of doing business that exploit the features of new technology and the broader societal changes that brings with it; patterns of production and consumption alike are changing fast in significant markets.

Policymakers need to look ahead and be ready to recognise the new forms, if for no better reason than to be able to tax them. That may involve looking more fundamentally at the relationship between individuals, business and the state, but if those things are changing fast then blundering on with outdated tools will do no-one any long-term favours.

By John Kavanagh, UK Public Affairs Manager

On Thursday 12 October ACCA welcomed the Exchequer Secretary to the Treasury, Andrew Jones MP to the Adelphi for an international trade and investment discussion co-hosted with the Enterprise Forum. The event was well attended with representatives of 15 embassies and high commissions in attendance including from China, Japan, France, Sweden, Serbia and Russia alongside leading UK and international business representatives and ACCA members.

Helen Brand championed ACCA’s global role and reinforced the three T’s of Trade, Talent and Technology which was subsequently repeated by the Minister! After welcoming attendees and sharing ACCA member insights on the transformative role of technology in global business practice. Helen passed over to Mr Jones who spoke on the government’s determination to remain a top destination for overseas investors, with an open, liberal economy and business-friendly regulation that welcomes businesses looking to both invest in the UK and export from the UK.

In his remarks the Minister covered the important role of infrastructure in generating foreign direct investment and said that the government will aim to create a stable regulatory environment within which these flows will continue to grow in the years ahead, cementing and growing on the UK’s position as the third best country for foreign direct investment (FDI) behind the economic powerhouses of the US and China.

During the discussion, points were made by attendees around the need to bridge skills gaps and digital skills in particular. The Minister spoke also about the role of government policy intervention in encouraging new routes of education and training such as through the opening up of apprenticeship routes through the apprenticeship levy. He also referenced the government’s £400m investment in the digital infrastructure investment fund as an example of targeted government investment seeking to address digital connectivity gaps in the UK.

Comments were also made around visas for non-UK nationals working in the UK post-Brexit and the need for business to be able to access the talent needed to thrive in a post-Brexit operating environment as well as the role of the industrial strategy in encouraging investment and promoting trade.

The Public Affairs and Policy Team have a number of political events lined up for the end of 2017 and beyond including a reception in Parliament with the All-Party Parliamentary Group for International Trade and Investment (date tbc).

For any further questions or comments please contact John Kavanagh UK Public Affairs Manager at john.kavanagh@accaglobal.com

 

John Kavanagh, UK Public Affairs Manager

As the 2017 Conservative Party Conference in Manchester drew to a close, ACCA members, senior stakeholders and leading political commentators huddled together at the Greater Manchester Chamber of Commerce to display a unity of purpose notably absent from the Cabinet front bench.

On Tuesday 3 October ACCA hosted a panel discussion looking at the role of the devolution agenda in helping to support businesses to export and grow as the UK departs the European Union in the years ahead.

Attendees heard from Baroness Lucy Neville-Rolfe, Conservative Peer and former Minister at the Department for Business; Andrew Carter, Chief Executive, Centre for Cities; Clive Memmott, Chief Executive, Greater Manchester Chamber of Commerce and Ruby Peacock, Deputy Head of Public Affairs, Federation of Small Businesses. The discussion was chaired by Richard Aitken-Davies, a past-President of ACCA and leading local Conservative Party activist.

Clive Memmott opened by giving the view of the Manchester Chamber on the issues faced by businesses looking to expand internationally both in Manchester but also in the north of England as a whole. Combined, the labour market of the main northern cities totals over 9 million people and the absence of good connectivity between these places is a firm barrier to the rebalancing agenda.

Andrew Carter elaborated on this point by making the case that connectivity and the ability to move people between, but more importantly within cities where the highest concentration of businesses and jobs are, was the best way of achieving business innovation, growth and ultimately international trade expansion.

Baroness Lucy focussed remarks on her time as a government Minister and shared views on what can be done by government at the policy level to support exports and expansion and the need to encourage businesses to be more active in the communities in which they operate. Andrew offered an alternative view of this by making the case that the best thing that government can do is to provide good market intelligence and then get out of the way, businesses will take the decisions that will enable them to grow based on good intelligence and that is where efforts should be focused.

Baroness Lucy also touched on the challenges presented to small businesses by late payments and this was a recurring theme throughout the discussion. To this end, Ruby Peacock of the FSB eloquently made the case that while the appointment of the new Small Business Commissioner is a welcome step towards addressing this issue, he must be given the necessary powers and, most importantly, resources to deal with the potentially millions of late payments complaints likely to come his way from the UK’s 5.5 million SME’s.

During questions, a lively debate ensued with questions focussed on credit and financing, infrastructure and the role of the industrial strategy. There was also a lively debate between panellists on the importance of geographical location versus productivity of business types.

The fringe meeting was a great example of ACCA’s developing stakeholder engagement programme and we will be following up with participants this week. Elsewhere at the Conservative Party conference we co-hosted an evening reception with over 400 attendees at which the Chancellor of the Exchequer Rt Hon Philip Hammond MP covered the government’s plans for the Brexit negotiations and the threat of high levels of borrowing and debt on our consumer economy.

We’re also now sharing and building on a wealth of intelligence gathered from a huge number of fringe meetings, roundtables, dinners and interactions at the Labour and Conservative Party conferences.

Following a busy conference season for ACCA we are in a strong position to advance policy issues affecting both our members and the wider accountancy profession in 2018 and beyond. Watch this space and the next version of Policy Matters due in November for further updates!

Conference season 2017 begins

accapr —  27 September 2017 — Leave a comment

Anthony Walters, Head of Public Affairs, ACCA

It’s Sunday, it’s late September and I’m stood suited and booted on a crowded train heading to Brighton. It can only mean one thing. Party conference season is upon us.

ACCA banner in hand, it’s an apt time to reflect on why we’re here at the Labour Party Conference. ACCA is apolitical with no allegiance to any political party. This is important. Independence and impartially allows us to contribute an objective and evidence-driven voice to debates on matters affecting the profession.

So why bother with party conferences? Well, there are two sides to Party Conferences. The first is the political grandstanding  (as obvious as that sounds). The opportunity for politicians to rally the troops. Then there is the fringe side where organisations of all types and interests present research, debate the big issues and put forward policy suggestions to audiences of both politicians and non-political influencers.

From a public affairs point of view, this latter side of conference is where the action happens. It’s where connections and partnerships are made with a view to influencing political decision-making.

ACCA has long had a presence at the Party Conferences. We very much operate in the fringe and influencing space. Over the years we’ve built strong relations with governing parties and their opposition. This has underpinned our ability to engage with policymakers long after conference season. In fact, if attending conference is about opening doors it’s the follow-on engagement that achieves the results. As an example, success could be ensuring the concerns of our members are heard by the government (Making Tax Digital is a recent example of this), or getting ACCA research in front of policymakers.

As far as our public affairs work goes party conferences are an important milestone in our government engagement calendar. It’s where we lay the foundations for our targeted campaigning activity for the weeks and months ahead.

But, conference is not just about getting in front of politicians, it also provides an opportunity to form collaborations with other organisations and fellow professional bodies to tackle issues that are of mutual interest.

Last, and most importantly, being at conference and participating in debates is an opportunity to promote the work of ACCA members. In an uncertain time, ACCA members hold the professional skills which will be essential in helping business and the public sector both tackle the challenges and seize the opportunities the lay ahead. This was very much the message that our CEO, Helen Brand OBE, set out when she spoke at a business forum alongside shadow International Trade Secretary Barry Gardiner MP on Sunday evening.

Next weekend we’ll be in Manchester for the Conservative conference. Watch this space for more updates!