About a third of New Zealand companies are embracing innovation, with another third heading in the right direction - but the other third are in danger of being left behind, according to innovation specialist Andy Symons.
The PwC partner and innovation leader says New Zealand's business landscape is roughly evenly divided into three.
"First there are the companies that get it; they are refocusing on the customer and how they can allocate their resources differently so their company is differentiated.
"Then there are the companies that are detecting the shift and are getting ready to take that first step; working out what that first step is. Finally we have companies that think innovation and disruption are fads which will probably pass.
Symons believes it's imperative for New Zealand companies to embrace change and innovation: "Inventiveness is in our DNA but, over the last 50 years, the new things we try and do have largely been focused on operational efficiency, cost savings and shareholder returns.
"Innovation needs to strike much deeper than that, especially as the era of the start-up has seen new companies created by people who think and behave differently.
"These are companies that solve customer problems; they see opportunities, use emerging technologies, look at customer data to understand how they behave and then create elegant solutions to specific customer problems which ultimately result in a commercial benefit."
Of the third group of companies, those that might choose to focus on business as usual rather than address what they felt was a fad, Symons says: "I understand them wanting to get the fundamentals right but external influences like globalisation, technology and changing consumer behaviours are changing those basics. Getting the basics right is becoming harder because the bar is continually being raised - and very quickly."
But while innovation is a buzzword most companies want to embrace, the reality is many find it difficult to do.
Transformation, especially in large businesses, can be difficult with the sheer volume of everyday business urgencies and rigid corporate structures that are hard to undo.
Companies - big and small - can also be constrained by cultural blockages. Often used to doing things themselves and in their own way (what Symons calls the "DIY mentality"), they try to change but are held back by the limitations of their own thinking.
Innovation, says Symons, often begins by creating space within an organisation to develop new behaviours and creative approaches to problems, "starting with a commitment from the top, with the board and the executives".
Companies often approached innovation in three different ways:
• By establishing an innovation hub or team who have the room and time to develop innovation and are not sidelined by the daily urgencies of "business as usual".
• Some partnered with new and different organisations, like start-ups
• Others started up a second brand, often with little or no connection to the parent brand so the new company paved the way for the innovative thinking and behaviour needed by the group as a whole.
Symons says partnering with start-ups has become a key part of what he calls an "innovation ecosystem" for many companies - a symbiotic relationship between different companies who need each other to flourish.
"Organisations can and should be looking to work with start-ups because of the amount of innovation, new ideas and new ways of thinking they bring with them. The incumbent organisations need to know how to develop new behaviours - while the start-ups need scale; they do not have a large customer base with whom they can carry out their proposition."
But there are traps, warns Symons. Large organisations often think partnering with a start-up is enough. The reality is they need to adopt some of the start-up's characteristics to be a good and effective business partner.
PwC's latest New Zealand FinTech report found financial services companies are relying too heavily on start-ups for innovation - with almost 85 per cent of such New Zealand companies saying they were entering into partnerships with FinTech, compared to 45 per cent globally.
"The risk there is that established firms treat a FinTech partnership as a chance to outsource innovation to a start-up, rather than signalling a much wider transformation of their operations," says Symons.
Today's corporates have to bring together the best of both worlds if they are to survive - the existing expertise within the business; and the innovation, creativity and digitally-enabled business models of start-ups.
"They also need to ensure that their new way of thinking and new approaches can be commmercialised," he says. "I have seen organisations make fundamental changes to innovate but fail to convert that process into real, commercial impact."
He has also seen "a lot of innovation happening out there which is not necessarily 100 per cent digital-focused. Digital is a hugely important innovation frontier, enabling all sorts of change and benefits."