The most significant innovation challenge facing legacy companies today is their lack of understanding about what business they are in.

That’s the view of AccelerateHQ co-founder and partner Paul Shetler. He argues companies that treat digital as something different to their core business is a fundamentally flawed strategy when approaching innovation and nascent technology adoption — yet this thinking still pervades most firms in Australia.

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Shetler is well known for digitally transforming organisations — particularly for his tenure as chief digital officer within the UK government overhauling old processes, and more recently leading the Turnbull government’s Digital Transformation Office. He said companies need first to understand what it means to be a digital company in the space they are operating in, and then decide among other things what technologies might help them do that.

“I think the term innovation is overused,” Shetler said.

“I think we need to think about what we actually mean when we talk about innovation. I think innovation is operating in real-time in the internet economy. Legacy companies — which most firms in Australia still are — can’t do that with processes and procedures that were developed for the Industrial Age.”

Paul Shetler

Moreover, Shetler said the funding and governance processes most companies currently have in place would lead to poor strategy and common misconceptions executives form about investing in IoT, blockchains, machine learning and the ubiquitous innovation lab.

He explained that many executives employ the latest technology as if it were a magic bullet that will solve their problems.

“I’m not convinced there is a huge business case for most companies to be using blockchains,” Shetler said.

“To become digital, to become competitive, to become nimble and fast, and all these other words, it’s not technology by itself that’s going to do that it. It is remodeling your business to run like a technology business.

“Any successful digital company is constantly evolving its products in response to how users use them. So that requires a different mindset to the way legacy businesses work.

“It is fixing your procurement. It is fixing your funding. It is fixing the governance. It is fixing your IT. It is fixing your HR. It is training new staff — that is a lot harder than putting in AI. Not to say machine learning isn’t important, it is important, but you have to do the hard work to get that right.”

According to Shetler, getting it right so technology aligns with company strategy, goals and improved user experience requires a different mindset, and adopting processes that mitigates risk when prototyping.

“When I was in a public bank back in the late 1990s they decided they wanted to build a portal for all the customers and they realised they couldn’t do that by following the normal governance and procedures,” he said.

“So they set us up in a different way. They funded us month-to-month, and said ‘if you have ideas come to the board and get it approved — or not — we will give you short-term funding so you can carry forward. If it’s working keep on doing it, if it isn’t we are going to shut it off.’”

Shetler explained that this process allowed them to develop software back in the 90s incredibly quickly and to deploy and test it to the market in a way that none of their competitors could at the time.

“This is not rocket science, it just flies in the face an existing practice. It’s a way of reducing risk, increasing delivery, reducing cost and building a better culture, and I think companies have to do that,” he said.

Shelter believes the idea of innovation lab is wrongheaded and implies that innovation is something that a company doesn’t do if it is relegated to an isolated part of the firm.

“I think they’re really bad ideas,” he said

“We saw in the British government when people started playing around with this idea, where they go into an innovation lab and do cool stuff. However, when they got back into their department and their agencies, the department and agencies were still working in the old ways, and they couldn’t do anything with what was developed in the innovation lab.”

“So we realised the only way to transform the government was to actually transform the government — it wasn’t to put in a innovate lab and pretend that the problem was localised there.

“It was to look at what are the things holding the government back from behaving like an actual digital entity. What was it regarding governance? Regarding funding? What was it regarding procurement? What was it regarding IT, HR and what staff skills were holding us back? So unless we solved those problems, we weren’t able to do digital government.”

Shetler held equally sceptical views on corporate accelerators.

“I think the idea of accelerators are counter-productive — the idea that you can outsource innovation to start-ups. Should you be dealing with start-ups? Of course. Should you be buying some start-ups? Yes, you probably should be. But not because you want to buy innovation from them but because you are already innovative and you are not trying to do everything yourself,” he said.

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