By Johann van Niekerk – Innovation is more than just a buzzword to build into pitches and annual reports – it is imperative in today’s business landscape.
For companies to remain competitive, productive, and profitable, we need to look beyond simply using internal innovation tactics and consider external innovation factors.
Defining innovation
One of the main reasons companies fail to innovate is because they have not adequately defined what innovation means to them. This lack of direction often leads to a narrow view that focuses solely on internal innovation strategies, overlooking the substantial impact of external innovations.
Internal innovation is centred around the development of products and processes inside a company. This can include investing in researching and developing (R&D) new products, or piloting employee initiatives like a four-day work week that helps streamline processes or reduce costs. External innovation, on the other hand, introduces products, services or technology developed outside of the company, and includes things like flexible staffing models, Generative AI (GenAI), or productivity software.
Optimising talent
South Africa’s business sector’s nominal R&D spend increased by R3.5 billion year-on-year in 2021/22 according to the data released in February 2024). The breakdown of this spend highlights areas where combining internal and external innovation can have the biggest impact. For instance, at 46.2% of all R&D expenditure that year, labour costs were by far the biggest expense.
Despite R&D spending dropping during the COVID years, the percentage allocated to labour costs remained unchanged. Innovative thinking and systems can mitigate these costs by introducing flexible hiring processes to manage workload fluctuations.
Businesses can use external innovations such as freelancers, workplace analytics programmes or talent-on-demand platforms to track their talent needs, access talent when needed and scale back when demand is low. By combining these with internal staffing innovations like flexible working hours, they can attract and retain the right mix of skills, while being agile in changing business environments.
Scalability and growth
Companies that combine internal and external innovations are also reaping scalability and growth benefits. Those that have shifted to cloud computing, for example, can better manage risks around downtime and data security, and the technology gives them an ability to scale that no internal innovation can. GenAI is a perfect example of this scalability potential. Its uptake has been significant over the past two years with the SA Generative AI Roadmap 2024 reporting that 45% of South African companies already use the technology in some way.
Businesses with a culture of external innovation are reaping productivity and financial benefits in the meantime. Of those businesses using GenAI, 66.7% said they’d seen a very positive effect on productivity, and over 70% had seen a positive or very positive effect on turnover.
To stay competitive, companies must redefine innovation to include both internal and external strategies. Embracing external innovations like GenAI, cloud technology, collaboration tools, and flexible talent platforms can enhance flexibility, adaptability, and scalability, setting companies up for success.
Johann van Niekerk is the co-founder and CEO of Outsized