Australia\u2019s innovation is stalling, at least according to Harvard Business Review in a report comparing the digital direction and progress of 50 separate countries.\nThe study features a Digital Evolution Index (DEI) \u2013 created by the Fletcher School at Tufts University \u2013 identifying how countries stack up in terms of readiness for a digital economy, with consideration for supply- and demand-side factors, innovations and institutions.\nBased on the performance of Australia from 2008 to 2013, we were firmly labelled as a \u2018stall out\u2019 nation, a category for countries that have achieved a high level of evolution in the past, but are losing momentum and risk falling behind. The index clearly shows Australia as \u2018slowly receding'.\nInnovation laggards\nThe report was widely discussed at an event hosted by Pegasystems last month to determine how best to drive success in the digital economy.\nMark Uncles, deputy dean (education) at the University of New South Wales' Business School, said the research was misleading about the state of many forwarding-thinking companies in Australia and in truth, it's a "mixed bag."\n\u201cI don\u2019t think it\u2019s a lack of imagination or lack of awareness. It\u2019s not as if Australian consumers are not tech-savvy or Australians have their head in the sand and they\u2019re unaware of what\u2019s happening in the rest of the world," Uncles said.\n\u201cWhen we drill down, my sense is that the skillset in Australia is varied. So we have pockets of expertise, with examples of where things are cutting edge, but then there are these other areas where the capabilities haven\u2019t been developed.\u201d\nUncles cited the skills shortage in data analysis as a good example of where our capabilities have seemingly not kept pace with the rest of the world.\nEducation\nTo help fill these gaps and create a more innovative next generation, digital literacy must be taught from a young age, said Uncles. He added that Australia needs to help young people 'step by step' through the education process.\nThere\u2019s no shortage of passion from university students either, according to Steven Burdon, professor of strategic management and technology at the University of Technology in Sydney (UTS). In fact, universities are \u201cscrambling to keep up\u201d with the imminent digital tsunami.\n\u201cI haven\u2019t seen a change like this for 32 years. The subjects we teach, how we teach \u2013 everything \u2013 has to change,\u201d he said. According to Professor Burdon, 27 per cent of students currently enrolled in the UTS Business Technology Masters claim they want to found a startup business.\n\u201cWe have new buildings, hubs and incubators. We\u2019re getting vendors and industry groups to help out; we have project groups and mentoring systems to support this, but we\u2019re still scrambling to catch up with it.\n\u201cWe now use adjunct teachers - industry people as speakers - and we\u2019re beginning to design subjects in collaboration with companies. Telstra helps us on our software changing industry, and I\u2019m working with HP to redesign two of our subjects. Mostly, companies are happy to help.\u201d\nDigital should be a part of education syllabuses, not just at school and universities, but also in the workplace, Karen Scott Davie, digital consultant and member of the CIO Executive Council advisory board, told CIO.\n\u201cYes, we can train young people to do these things, but training people in the workplace should be a part of research and development. We invest in developing products but we need to develop people.\n\u201cIf you give people the skills you can work with them on the product ideas and creation.\u201d\nStuck in the mud\nWhile the education sector must mould future innovators, today\u2019s businesses still need to up the ante if they hope to keep up with our foreign peers.\nGavin Heaton, digital consultant and founder of the lt;igt;Disruptor\u2019s Handbooklt;\/igt; believes there is a great inertia around innovation affecting several large-scale business.\n\u201cObviously there are great examples like Telstra and the Commonwealth Bank who are leading the way but there are hundreds of other large-scale businesses in Australia that are not really dealing with that change. When that filters down to mid-tier, suddenly there\u2019s a whole lot more to be done,\u201d Heaton told CIO.\n\u201c[Australian enterprises] didn't have the technology in place but they\u2019re starting to get there now - but then even if they have the technology they don\u2019t have the right people, skills and processes to back that up. It's not really about the silver bullet, it\u2019s organisation-wide.\u201d\nWhether it\u2019s a product or process, the drive to innovate has been stymied so far by a lack of competitive intensity driving change, said Uncles, with most organisations settling for what\u2019s necessary as opposed to going above and beyond.\n\u201cIt has a lot has to do with the structure of industry in Australia and perhaps that shows that we\u2019re still living in the old world. But that old world doesn't exist anymore,\u201d said Uncles.\nRisk, time and agility\nThe issue remains that the Australian business community is fairly risk averse and as such, breaking into new ground is often shied away from.\nFergus Watts, digital consultant and CEO of Bastion Group, told CIO that if the issue of risk aversion were to melt away, companies may still lack the time and the drive to innovate.\n\u201cAll I keep hearing about is how time poor everyone is. It seems to be a badge of honour these days not to have any time. If you\u2019re so time poor and slightly risk averse, then you won\u2019t do the relevant research into an investment or into a new way of working.\u201d\nAnother reason for lack of commitment to innovation, said Watts, is the heightened churn rate of modern workers.\n\u201cThe fact that we only stay in jobs three to four years now could affect our ability to take risk, put ourselves on the line and set the company up for long-term prosperity. Because really, do you care? You're gone three years later anyway.\u201d\nThe current rate of innovation also calls for project delivery to become far more agile. Speaking at the event last month, Don Schuerman, CTO of Pegasystems, said the budgeting process and ROI requirements of many large businesses need to adapt, or run the risk of wasting time and money.\n\u201cLarge organisations can\u2019t run agile projects because their budgeting process requires a waterfall model. The world is moving so fast that any projection of ROI you build for a two-year waterfall project is going to be completely invalid by the time you get the project done,\u201d Schuerman said.\n\u201cThe systems inside these companies are built to prevent the type of agile development that\u2019s exactly what the disruptive competitors are doing.\u201d\nCulture\nTo tackle the many digital trials before us, all sources agree an overhaul of corporate culture will be a crucial defence. But to ensure success, Heaton recommends baby steps.\n\u201cCulture will eat your innovation as quickly as it can \u2026 our focus is really on the small things you can do, following the example of the startup culture,\u201d he said.\n\u201cIf you can find a way of starting change somewhere small, like the edge of a group, and then building it out in a lean and agile way, then you\u2019re able to find footholds within the organisation where you can accelerate this.\u201d\nA key point raised by Heaton and Scott Davie is the need not only to create an innovative culture, but also to share ideas. According to Heaton, there\u2019s a shift away from what he calls an \u2018intrapreneurial\u2019 role with an inward focus, to a more market- and customer-driven, external focus.\n\u201cThere\u2019s a certain amount of internal entrepreneurship required, but also you\u2019re doing a lot more customer-facing and market-facing work with the innovation that you do, so you\u2019re also selling outside your business,\u201d he said.\n\u201cPeople need to realise that next year, technology will employ more people than mining,\u201d added Scott Davie.\n\u201cWe need to be far more aggressive about export revenue, so if you've got technology that you've created in-house, don't just hide it internally.\n"Consider how we can use it to export or generate revenue for exporting, because there's so many people engaged in Australia and so much digital intelligence that we can use that to our advantage if we're clever about it.\u201d\nAt last month's event, Robert Tas, CMO for Pegasystems, spoke about the need to instill more of an experimental, risk-taking culture in Australian businesses where not everything is done by the manual, individuals can shift between roles and departments, and be taught that it\u2019s \u201cokay to fail\u201d.\n\u201cThe companies that want to be customer-centric, brand-centric and innovation-centric will start to make the right changes, but boy it\u2019s hard,\u201d said Tas.\n\u201cIt\u2019s not just a pretty PowerPoint you send out, it\u2019s actually changing process, changing organisational values, and compensation models, and that\u2019s hard. But I think we\u2019re on that journey and yes the digital natives have a little advantage - but the big companies have got to figure it out fast.\u201d\nEnabling innovation\nCIOs are expected to be enablers of innovation by helping to create new products or processes quickly and consistently, while ensuring a commercial return wrapped around each. This is made easier by developing a strong business dynamic with marketing and finance, in addition to always keeping one eye on the latest products and services.\n\u201cThe CIO can contribute different ideas, whether it be their own original ideas or pointing to a whole lot of different product ideas out there in the marketplace, keeping aware of some of the things that are coming out of that tech startup space,\u201d said Scott Davie.\nCIOs can keep up-to-date by sourcing information and publications about what\u2019s going on in particular tech startup spaces. Scott Davie recommends maintaining some startup contacts, which can provide a direct route to the latest products in development.\n\u201cIf the business deals with aviation, for example, there are whole businesses that are looking at aviation management, including the way we process aviation information, and they\u2019re doing it on a low budget and with quite streamlined processes,\u201d she explained.\n\u201cIt might be a matter of partnering with a particular group or buying their products; helping them grow and supporting them by investing 10 per cent to help them develop a product that\u2019s going to deliver within the aviation industry.\u201d\nEmbracing our own\nSupport for startups wouldn\u2019t simply help maintain your company\u2019s position when it comes to the latest innovations, it would also help to encourage entrepreneurs to set up shop in Australia, rather than take their ideas elsewhere during cuts to government funding.\n\u201cIf you're a young person founding a tech startup here, you\u2019re not getting your funding in Australia, so you\u2019re going over to America or to Asia, that\u2019s where you\u2019ll get your cash,\u201d said Watts.\nWatts believes the inability to fund tech startups properly in Australia is negatively affecting businesses ability to be early adopters of new and innovative technologies.\n\u201cBusiness startups can sell their products for less, they\u2019re willing to partner with other organisations and they\u2019re willing to grow and evolve with the market and that makes it easier for businesses to go pick those things up.\n\u201cBut all that\u2019s happening somewhere else, not here. So it\u2019s no surprise we\u2019re lagging.\u201d\nWhile acknowledging our greater challenges, Scott Davie still believes Australia is doing well for its size and global status, and that we will be able to draw on our strengths, moving forward.\n\u201cOur digital economy is growing - we're in the top 20 in the world, and that\u2019s fantastic for our size, with 22 million people here versus 300 million in the US.\n\u201cOur biggest strength in Australia is our development - our great program developers which are poached from all over the world. We get a lot done in Australia thanks to them. Our local developer community is huge and it\u2019s growing,\u201d Scott Davie said.