South African companies face tremendous challenges to compete on the global market, while simultaneously addressing local socioeconomic inequalities and nurturing nationwide prosperity, amid global geopolitical and economic uncertainty.

Limited investment, a risk-averse culture and the low availability of talent on the local market present the most significant challenges to companies' ambitions to drive transformational initiatives through innovation in order to leapfrog their competition, the 'Digital Innovation Index Report 2023' states.

Most of the 42 organisations that contributed to the report believe that an ability to innovate within their organisations is a matter of strategic advantage, said the report, which was produced by systems integrator BCX and strategy consultancy EY-Parthenon.

"The South African economy faces fluctuating investor sentiment and currency performance, with brief periods of optimism followed by recurring concerns. For organisations, this may be felt as a restrictive investment environment in their respective industries.

"Further, political uncertainties ahead of the 2024 elections, weak local economic growth, and a fragile fiscal position contribute to the pressure on the South African rand and overall market within which organisations operate, further constraining any potential investments into growth and innovation," the report states.

However, while several organisations highlight how loadshedding constrains their ability to operate and innovate, organisations rated as excellent digital innovators by the index describe using loadshedding as a parameter around which to organise innovation. This opens new possibilities and can lead to efficiency gains.

“Digital innovation occurs at the convergence of business, data and technology. The emergence of transformative technologies, such as machine learning, augmented reality and cloud computing, is reshaping the market, creating both challenges and opportunities for businesses,” says EY-Parthenon strategy and innovation Africa head Heather Orton.

Emerging technologies, supply chain network transformations and infrastructure networks present opportunities for organisations to innovate and gain efficiency across their value chain. The need to adapt to this rapidly evolving context requires that organisations be able to innovate, the report advised.

"The companies rated as excellent digital innovators in the report, which include mining, agriculture, retail, finance and telecommunications companies in South Africa, have formally disseminated their innovation strategy across the entire business, with the aim of embedding the practice of innovation widely.

"Other companies maintain their innovation strategy within focused innovation teams. A number of respondents choose to drive innovation as part of their wider group strategy, suggesting that they might be early in their innovation journey," the report notes.

While most organisations surveyed believe that their digital and technological capabilities in South Africa cover sufficient breadth and depth to support innovation and the creation of new digital products and services, many organisations face shortages of innovation talent.

A few of the excellent-rated organisations have adopted a structured, organisation-wide approach to hiring, retaining and upskilling employees. Other companies offer dedicated support and resources to innovation teams.

Meanwhile, many of the respondents operationalise innovation through external partnerships, and rated it as the top enabler of innovation, the report highlights.

"Working with external partners allows them to follow innovation approaches to address strategic business challenges with innovation, from ideation through solution design, testing and scaling, free from the constraints of traditional business processes and mindsets.

"Such a process also accommodates the iterative nature of innovation, with cycles of testing, failing and learning in order to improve a solution," the report shows.

However, despite their ambition, a large number of participant organisations have not yet systematically adopted innovation. They do not have employees dedicated to innovation, and also do not adopt processes tailored to innovation.

This may reflect the talent shortages found on the local market, the report noted.

"Organisations are consistently confronted with dynamic forces of change at the global, national, or sectoral levels. It is imperative to understand these forces and determine whether to harness them for growth and benefits or to prepare for defensive measures.

"These forces for change can act as catalysts for innovation or create environments that either facilitate or hinder the growth, innovation and operation of businesses," BCX and EY-Parthenon say.

In the face of challenges and opportunities, organisations must show adaptability to remain competitive. Organisations seek to navigate external challenges while working within internal systems to survive and thrive.

The five categories of digital innovation are strategy, investment, operating model and process, skills and capabilities, and culture and commitment.

"Through innovation within this multi-dimensional context, organisations can increase their resilience in the market. Innovation requires that organisations embrace change and foster a culture that takes measured risks while accommodating failures.

"South African organisations do so by leveraging external partnerships," the report states.

INNOVATION RISK MANAGEMENT
Through innovation, businesses formulate solutions to their challenges in an iterative manner. New solutions that are fit-for-purpose and that are likely to be adopted by the target users can only be developed through repeat cycles of ideation, testing, failing and learning.

Naturally, this process requires undertaking risk in exploring uncharted territories to find new solutions. It also requires that business teams accommodate failure and improvement through repeated testing, the report notes.

"This appears to be the biggest challenge faced by our respondents. Despite their ambitions to innovate and challenge the status quo, many organisations are built for confidence or certainty, and work within environments of legacy systems and processes that are not designed to accept failure.

"Only a small number of organisations in the excellent category have adapted their culture to take measured risks, navigate uncertainty and innovate. They embed an innovative culture of creative problem solving through iterative testing across the business," the report points out.

In contrast, given the cultural challenges involved, many organisations in South Africa are only able to practice innovation within dedicated innovation teams.

However, organisations that embrace risk and view failure as a learning experience are more likely to push boundaries, experiment with new approaches, and break new ground in tackling business challenges. Organisations that shy away from risk altogether may miss out on valuable opportunities for growth and innovation.

"By recognising the importance of managing risk and creating a supportive environment that encourages calculated risk-taking and learning from failure, organisations can fuel their innovation efforts. The ability to strike a balance between embracing risk while effectively managing it becomes paramount in driving successful innovation initiatives," the report states.

The findings reveal a diversity of approaches taken by South African organisations to pursue innovation. Importantly, nurturing a culture that bears agility and is open to innovation, as well as a healthy risk appetite are significant enablers of innovation, the authors say.