News on digital disruption, digital economy, platform economy, and digital transformation is ubiquitous in the media today, much more than ever before. There is plenty of hype and debate on how Blockchain
technologies, algorithms, Artificial Intelligence (AI), and the Internet of things (IOT) would transform industries and create new growth opportunities.

In Southeast Asia, the digital wave is dominated by technology start-ups such as Lazada, Traveloka, Tokopedia, Grab, and Gojek, where the latter two have morphed from ride-hailing companies to ‘super apps’ that offer everything from food, transport, delivery, payment, and insurance services in a single experience.  These start-ups have provided income opportunities for many individuals and businesses and have delivered value to millions of customers. They were able to come this far by fully embracing the digital and platform economy, coupled with their customers’ readiness and ecosystem infrastructure and support. They derive their competitive edge from customer data, algorithms, network of partners, brand, and–at the core–innovation. The fact that business media brand Fast Company crowned Grab as the second most innovative company in the world in 2019 is testament to this.

While much of the spotlight appears to be on the arena of start-ups and purely digital companies, many large corporates and traditional industries are also harnessing the benefits of digital operating models, where digital transformation appears to be eclipsing innovation as a corporate agenda. Many companies have created digital teams, hired Chief Digital Officers, developed digital labs, and initiated hackathons to explore new technologies, businesses, or operating models. The latest Altimeter report also showed that digital transformation is becoming more pervasive, evolving beyond IT and becoming an enterprise-wide movement. This journey, however, does not appear to be the same for all industries.

Read more in the article. 

The importance of innovation is irrefutable. The time where innovation was something novel has long passed Although innovation has clearly received global significance and attention, Asia is generally perceived to be trailing behind. This article delves into how innovation in Asia has changed, and explores some of its barriers and drivers, while highlighting specific initiatives that may benefit organizations contemplating a shift to Asia.

​In 2014, Asia was already home to 60 percent of the world’s population. The Asia we knew a decade ago has transformed and in many cases, hardly ft the image of the developing region it once was. The frst wave of change saw the emergence of Korea, Japan and Taiwan, followed closely by China and India, due to their massive scale. The latest transformation is occurring in the ten-member ASEAN countries, mostly attributed to a strong focus on innovation.

Several indicators support this rise. At a country level, Bloomberg Innovation Index ranked South Korea, Japan and Singapore in the top 10 most innovative countries in the world since 2013, while 7 countries in Asia made it into the top 25 of the Index in 2016. The Global Innovation Index 2015 also listed 4 Asian countries in the top 5 Innovation Index Climbers. Then we have Asian based companies such as ST engineering, CP Foods, AirAsia and DiGi, which have all embellished Fast Company’s, or Forbes’s Top 100 Most Innovative companies list, at one point or another.

​The shift however has not been an easy one. There were many challenges, ranging from country policies, availability of resources and cultural issues that had to be overcome to reach the stature it is today.

Unlike the developed countries where much of the changes seen are more organic in nature, the growth in Asia has been more deliberate.

At the turn of the millennium, policies of most Asian governments were to stimulate industrialization more than innovation. As a consequence, organizations were not aided nor driven to be innovative. This changed in the past decade, where many governments are seen to be more active in driving innovation in the country.

South Korea’s Institute for Advancement in Technology (KIAT) is the government’s R&D founding agency and had a budget of USD 1.17 billion in 2012. It directly supports frms in their R&D efforts, and has a planning and advisory capacity through which it channels its funding. Singapore, in 2016, just announced a budget of S$19 billion to support its R&D efforts over the next fve years, which will focus on four key areas, advanced manufacturing and engineering, health and biomedical sciences, services and digital economy and urban solutions and sustainability. In Malaysia, Agensi Inovasi Malaysia was set up as the driving force behind Malaysia’s goal of becoming an innovation economy by 2020. Its subsidiary, PlaTCOM Ventures facilitates end-to-end commercialization of products and services from the ASEAN region. A few ‘world’s frst’ have emerged from this initiative, one being the virtual autopsy program that was piloted at UK’s frst dedicated digital autopsy centre in Sheffeld at the tail end of 2013.

​The openness of the governments to collaborate towards spurring innovation within the country is apparent. Coupled with the immature ecosystems that allowed for flexibility, this gave way to innovative approaches in driving innovation in Asia.

The Asian middle class swelled from 525 million in 2009; and is targeted to reach 3.2 billion by 2030, constituting 66% of the global middle class population and 59% of middle class consumption. In the past, Asian markets were not so mature and distinctly separated or even isolated, however with the extreme growth in middle class spending, markets have drastically grown and customer behavior has changed. With similar alternatives being offered left, right and center, companies are forced to listen more to the specific Asian customer needs, which have influenced market maturity and innovativeness.

Global companies have also shared how their innovation process have been infuenced by this shifts, where, in Asia, 47% of respondents to a study strongly agreed that customers have a much greater impact on their innovation process than in the past, compared with 39% in North America and 38% in western Europe. This “Asiafcation” of demand, as it is called, has become a clear driver for innovation for Asia.

​Acting upon this, and realizing the need to be closer to their key customer profle, several large companies have set up innovation centers in Asia. Motorola had 1200 R&D engineers in Malaysia who do “ground-zero” design and development work in 2014; Dyson has an innovation centre in Singapore; Pfzer and numerous other MNCs such as Siemens, Unilever, GE, HP, Honeywell and Google, opened R&D/Innovation Centres in China; Philips now has an Innovation Centre in India with 2000 engineers; Xiaomi is also opening up a new R&D Centre in India. This has helped them better understand the nuances of the Asian customers, ultimately assisting the innovation process for these end users.

Asia is now the top recipient region for foreign direct investments, accounting for 40% of the global fow. PWC Strategy & Global Innovation Study in 2015 showed Asia as the top destination for corporate R&D spending, overtaking Europe and North America, which were ahead in 2008. This is contributed mostly by China who is now the world’s second R&D spender behind the US and spends as much as Germany, France and Italy combined. This however, has not always been the case. The lack of capital availability coupled with limited number of talent were factors that had proven to be signifcant barriers to innovation in Asia. The abounding improvements in capital market maturity, improved regulations and systematic risk management frameworks have since helped the region to change.

Corresponding with this change was the shift of the Asian consumer attitude that demanded more, which fueled the Asian innovator’s appetite for risk capital. Currently, not only is there a good amount of Asian capital present, there is also an increased amount of capital fowing from Asia to other regions. The advent of alternate funding options like crowd funding or co-ownership has also been embraced very well in Asia, quelling the desire of the start-ups.

For the incumbents, there is an emerging trend of innovation departments or subsidiaries being set up which scan the horizon for disruptive innovations. In some cases, they themselves collaborate and back start-ups to create the next disruption for their industry. This is particularly evident Alpha Catalyst Consulting within the fnance industry. Taiwan’s Financial Services Commission (FSC) recently launched a Fintech incubator fund, which raised USD 6 million and is targeting a total of USD 30 million. In the South East Asia corner, companies like DBS and Maybank are leading players in exploring Fintech.

The second lacking resource was talent. The previous outfow and unavailability of talent meant that Asian companies often could not achieve their full potential. This has been combated with extravagant schemes of “brain reclamation”. In 2016, China’s government doubled its budget to 4.4 billion Yuan in its bid to attract more academics and professionals to help nurture innovation back home. Similar patterns are also seen in India, Singapore and Malaysia. This has proved to be valuable, as the talents would have gained valuable experiences abroad whilst still understanding the local mindset and culture to obtain optimum results.

In creating a vibrant ecosystem for innovation, countries inadvertently created exciting venues for talents to gravitate towards. In Singapore, true to the label of ‘the melting pot of Asia’, P&G’s new innovation center houses talent from 18 nationalities. The availability of highspeed communication network has also allowed many companies to outsource work globally and not be restricted to talents physically located in the same geographical location. 

​These features have created a rosier and conducive ecosystem for companies to relocate to Asia. Far from being the risky option for growth, Asia has secured its place as a location of choice for fast growing and dynamic companies.

The cultural differences that have defned Asia for so long might be the biggest challenge yet. Nevertheless, the embedded hierarchical approach and strong topdown culture does have strengths and weaknesses. Whilst regularly viewed as counter to innovation, if coupled with the right tool for engagement, these traits may serve to expedite innovation initiatives throughout the organization. The kind of tools that are used to facilitate engagement of employees are generally technology platforms. As the recent Google research suggests, Asia is the most connected place on earth!

A study of the Asian community in 2014 showed that the most outstanding need for innovation to happen in an organization is the leadership support and trust whilst the largest challenge faced by employees to innovate is the lack of trust and empowerment. Technology based collaboration tools appear to empower employees and are able to connect every single individual in the organization. Having a clear direction from the top can transform the talent pool into a powerhouse of ideas and solutions. However, knowing how to maximize on the Asian culture could instead spur the organization’s growth.

​Innovation is clearly essential for organizations to thrive and Asian organizations, while late to the table, have defnitely proven to be a strong force. Whilst tremendous progress has been made on the innovation landscape in Asia, plenty of challenges still remain, and new ones are bound to arise.

For many companies, Asia has proven to be capable to rise to the occasion. Governments are putting in the effort. Talent is stepping up. It is now up to the individual companies to strategize how to be part of this Innovation Rise.

Meanwhile, a recent article in Forbes talks about how digital technology is bringing search and information costs crashing down. Quoting Ronald Coase’s paper on ‘The Nature of the Firm’ (1937), it argues that the purpose of a firm is to minimize transaction costs, especially search and information costs. Therefore, combined with the ability to easily scale up operations, reach a much larger market segment and work with greater transparency, trust and empowermen, the digital economy has the potential to transform business landscapes and make new business feasible and lucrative.
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As we delve deeper into the who’s who of the players in the digital economy, we realise that many of the oft-quoted companies in the digital space began life as start-ups. Hardly ever, or never, do we hear of this genre of companies emerging from a resource-rich or high market cap, publicly listed company. The levels of investment and valuation that these companies are receiving have outpaced many of their competitors and industry incumbents. But should the digital advantage be solely the domain of the start-ups and unicorns? And what are the implications of this for large corporations and institutions?  While not being ones to espouse that large organisations should behave like start-ups, we consider how they can benefit from inculcating the dynamism and agility of the start-ups to spur innovation and re-invigorate themselves through embedding digital elements and paradigms in their strategy.

The digital economy: Evolution or revolution?
Former CEO of Barclays, Antony Jenkins, recently discussed how a series of Uber-style disruptions could impact the banking industry: “The incumbents risk becoming merely capital providing utilities that operate in a highly regulated, less profitable environment and is a situation unlikely to be tolerated by shareholders.” He was elaborating that the new wave of tech-savvy start-ups that can do things better, faster and cheaper than the big banks will disrupt traditional businesses like lending, payments and wealth management. He warned of the impending pressure incumbent banks face to implement new technologies at the same pace as their new set of rivals. Similar thoughts have also surfaced in many articles about the ‘Uberisation’ of the economy and the ‘Uberisation’ of everything, where very few sectors or industries appear safe from disruption. Asian organisations appear to be well poised to adopt a digital approach to engaging their employees, considering that Asia has the largest population of Internet users in the world. The Digital Evolution Index published in the Harvard Business Review categorises Singapore, Hong Kong and South Korea as ‘Stand Out’ countries as they have displayed high levels of digital development in the past and are pegged to continue on an upward trajectory. Following the ‘Stand Out’ countries are the ‘Break Out’ countries, which have the potential to develop strong digital economies. Asian countries in this category include Malaysia, Thailand, Vietnam and China.
As the digital tsunami is embraced in the personal space, organisations, however, seem to lag behind in creating a similar ecosystem. While a few organisations may have the Internet of Things in place, the Internet of Talents is clearly absent from many. Silos—divisional or functional— are as strong as ever. Hierarchy and power distance still prevail and real-time performance tracking remains obscure. Considering the rapid change in market dynamics, organisations need to constantly ensure that their businesses are agile enough to proactively innovate on all fronts. Gone are the days when the strategy team or top management had all the answers. The digitally empowered organisation of today leverages the collective intelligence within the entire company to identify key areas of focus and seeks out fresh solutions to the challenges faced. But are our companies not leveraging the masses of talent they have at their disposal? Socially styled tools, which systematically harness insights and ideas from within the four walls, should be provided to digital-ready employees to contribute and be heard. Innovation management software, such as those offered by Hype and Spigit, function to simultaneously democratise decision making and increase transparency, both of which ultimately impact cultural issues such as hierarchy and silos within the organisation. More importantly, digital platforms become crucial to enhance employee engagement, attract talent and ultimately, increase employee retention.

Innovating innovation
Should organisations wait to be ‘Uberised’ before they start looking for new sources of growth and value creation, or should they be starting now? Further delays could mean a loss of opportunities and first-mover advantage. We believe that organisations don’t have to abandon everything that they are currently doing. Instead, they need to explore how they could harvest the current digital paradigm to find better ways to innovate—in short, innovate innovation itself. Organisations need to rethink why they are innovating, who is responsible and accountable for innovation, where and how should they innovate, and how the innovation budget should be allocated and managed.

Why is the organization innovating?
It is a given that an organisation needs to innovate to ensure sustainable growth, profitability and high performance. How it achieves this depends on the organisation’s overall goal, operating paradigm and long-term vision. The rationale for innovating can range from maintaining market position, entering a new market, gaining access to unique resources or materials, meeting regulatory requirements, acquiring talent, and enhancing brand value to simply meeting the expectations of diverse stakeholders.

Who is responsible and accountable for innovation?
Innovation can’t be left to a few within the company. In the past, innovation was assumed to be the role of R&D, engineering or marketing. Recent years have witnessed the rise of the Chief Innovation Officer and the setting up of innovation units. This is seen in Singaporean and Malaysian banks such as DBS Bank and Maybank, respectively, as a means of dealing with the threat of Fintech start-ups and the rise of competition from current tech giants such as Alibaba’s Alipay, Tencent’s WeBank and Apple Pay. While organisations benefit from having champions who have the presence and power to help to drive and integrate its innovation strategy, innovation process and innovation culture—they alone cannot be responsible for driving the entire revitalisation. One of the core objectives of these champions is to get as many employees as possible to contribute to innovation. In our HR InnovAsian Report 2014, a study of innovation practices within Asia, we reveal that only 10 percent of respondents from IT and Finance and Accounting, and 20 percent of respondents from HR, strongly agree that they are involved in innovation within their organisation. Meanwhile a lack of leadership and clear direction on where to innovate are seen as the biggest barriers to innovation. We believe that many employees do want to be involved in helping their companies innovate. However, the challenge lies in getting everyone involved in the innovation process in a cost effective and productive manner. This is where organisations can tap the digital readiness of employees by providing them with a digital innovation platform to capture competitive threats and innovation opportunities from across all levels, functions and divisions. Silos and hierarchies can be broken down and innovative performance can be tracked and rewarded. Analytics can be applied to predict which area the organization should be focusing on. Meanwhile, gamification elements can be applied to engage users of the digital platform. Employees are typically already familiar with these tools as they are conversant with the various social media platforms.

Where should the organisation innovate?
In many organisations the typical focus of innovation efforts are in the creation of new services, products or technology. We believe that the rise of the digital economy opens up new areas for innovation, ranging from innovation in leadership and management, HR, IT, procurement, legal, and even finance.

Leadership and management
The digital economy is not about technology alone, but relies on trust and empowerment between the service provider and its customers. Airbnb works because of the trust that exists between the property owner and the person staying in the property. In an organisation too, management needs to build the necessary tools and communication channels to develop trust and empower employees. Leadership support and trust are collectively deemed the most important element for employees to be innovative in the workplace. At Logica, a U.K.- based IT and management consultancy company, CEO Andy Green launched a company-wide initiative assigning one person from each department (finance, HR, and so on) to be an ‘innovation catalyst’, documenting new ideas discussed at meetings and following up on them.

Human resources
HR plays a critical role in making innovation happen and driving company growth. According to a report released by the World Economic Forum, “Talent, not capital, will be the key factor linking innovation, competitiveness and growth in the 21st century.” It is easy t understand why HR is instrumental in helping to unleash innovation in an organisation. Talent runs an organisation—it is essentially the gears and brains of the organisation. In the InnovAsian study mentioned earlier, 550 human capital practitioners in three countries (Singapore, Malaysia and Indonesia) disclosed that the areas they found needed the most urgent innovation are employer branding, performance management and career progression/ succession planning. HR thus needs to move away from focusing on an administrative role to transitioning to a more strategic role of driving innovation within the organisation.

Supply chain and procurement
Supply chain and procurement can be involved in exploring new suppliers that can significantly expand the capability of the organisation’s technologies or reach, or help source new value chain partners and ways to develop new solutions. Procurement should not be focused purely on procedures or streamlining processes. With the advent of open innovation and crowdsourcing, procurement should play a leading role in ensuring that processes are in place to manage these external collaborations.
Thomson Reuters, for instance, wanted to improve its Web of Knowledge online tool through customer-driven product insights. For this, it turned to Innocentive, a company that crowdsources innovation solutions, to create an open call for ideas, followed by a challenge to develop the winning solution. The challenge garnered over 900 participants with almost 200 submissions. The winning solution, which involved improvements in data visualisation and an elegant app, was tested, scaled and implemented quickly without a heavy demand on in-house resources. The breadth of this project would not have been possible had Reuters undertaken the traditional process of procuring solutions.

Legal
While the legal department plays an important role in protecting the organisation’s internal intellectual property (IP), it should also look into devising guidelines that would make it feasible and easy to collaborate with external parties. Ogilvy & Mather, one of the largest international advertising, marketing and public relations agencies in the world, set up innovation units in Singapore and Beijing in 2014. Known as K1ND (OneKind), each innovation unit works more with external parties, co-invests with its clients on product development, and shares IPs that have been created. Hence, legal needs to find ways to make such collaboration easier, faster and more efficient.

Finance
The finance department allocates budgets for innovation projects to take-off, or to be prototyped. Traditionally, employees view finance, the purse strings of the organisation, as more of a hindrance to innovation. Often times, finance’s focus on compliance, risk reduction, and maximising shorter term returns seems to limit an organisation’s ability to explore and innovate.
Professional global accounting bodies have begun to outline and educate on a range of accounting approaches that incorporate a wider range of financial measures that are pertinent to innovation by way of measuring and recognizing intangibles. Integrated Reporting (IR), for example, aims to improve the quality of information that companies provide to investors, making it more holistic and meaningful. With IR, there is an incorporation of intangibles and various kinds of capital (intellectual capital, human capital, etc.), in addition to just traditional financial capital (such as profits), in the company accounts.
An expansion of the responsibility of the finance department would help the company manage and take on risks in innovation. This would see it set aside funds for prototyping and innovation experiments, as well as outline reasonable criteria for an exploratory, innovative project to obtain progressive funding. It would also aid staff leading innovation projects to build a clearer and more convincing case for boards/investors, with an impartial but not risk-averse view in providing risk projections and accounting of the various forms of return on investment in innovation, and not just direct traditional financial metrics.

Information technology
IT now forms the basic infrastructure for the lines of communication within any organisation in the same way a country designs and lengthens the reach and efficiency of its roads and highways. A powerful function, IT can facilitate innovation in many ways. The role that IT can take on includes development, acquisition and deployment of platforms to make innovation happen better within and outside the organisation, by enabling more productive and focused internal and/or external collaboration. This would include providing mobility solutions and platforms that work across various types of devices such as smartphones and laptops, by recognising that talent is increasingly in disparate locations. On-the-go 24/7 cloud-based services can also be now employed to manage risks and costs, while ensuring adequate reliability in piloting new digital innovation tools or services. In addition, IT plays a crucial role in harnessing its rapid pace, yet scalable, nature to engage the tech community in developing new solutions as well as spearheading manageable, lower risk pilot projects for prototyping.

How should the organisation innovate?
The familiar approach for large organisations to innovate is to build proprietary capabilities within the organisation. However, with the advent of platforms and tools, innovation can be opened to the outside world to allow a fresh injection of ideas, from a varied cohort. Open innovation and collaborative innovation are new practices that can be adopted by organisations. The key is to prepare the structure (procurement policies, legal frameworks, etc.) and mindset of the people, to be able to assimilate such innovation, and then launch it quickly. Of late, the banking sector has adopted this in a big way. Barclays has begun sponsoring start-ups and working with blockchain technology— the technology that underpins Bitcoin— to try and improve payments services to customers. Closer to home, Singtel, through its wholly-owned subsidiary, Innov8, has set aside an initial fund of S$200 million to focus on investments in technologies and solutions that could potentially lead to quantum changes in network capabilities, next generation devices, digital content services and enablers to enhance the customer experience. Innov8 works closely with innovators, developers, government agencies, R&D labs, and capital providers to bring these technologies and solutions to the various markets where the Singtel Group operates. Across the causeway in Malaysia, Maybank Group embarked, just last year, on a search for 20 start-ups from the ASEAN region. The successful start-ups will undergo a three-month on-boarding and pilot testing phase within the Group that is intended to validate the feasibility of adoption and implementation of their ideas. The destination, not the journey. We are not so sure if disruptive technology allows businesses the luxury of enjoying the journey rather than the destination, to quote Ralph Waldo Emerson. It’s probably more of a ‘fasten your seat belts’ moment. The digital economy continues to grow rapidly in tandem with the economic landscape in which businesses operate; and in many cases, it is indeed shaping the economic landscape. Many organisations run the risk of being disrupted and losing their competitive edge should they maintain existing traditional methods of conducting business. This challenge should thus be seen as an opportunity to explore new areas of growth. Adopting the digital paradigm and the ‘Uberisation’ concept will enable organisations to expand their engagement with all stakeholders, empowering them to tap into a vast number of ideas that are relevant to both, business growth and sustainability.

Suraya Sulaiman is Executive Director of Innovation Culture and Capability at Alpha Catalyst Consulting.
Azim Pawanchik is Managing Director of Alpha Catalyst Consulting.

Economists believe that 60 to 80 percent of economic growth comes from innovation and new knowledge. In fact, studies show that innovation is a key driver of organic growth for all businesses regardless of sector or geography.
Yet, very few boards specifically put innovation on their meeting agenda. At best, the topic is a small part of a broader strategy discussion which, more often than not, ends up being geographic expansions, mergers and acquisitions, and even risk management.

Alpha Catalyst Consulting’s HR InnovAsian® Report 2014 (in partnership with Jobstreet.com) examines the specific challenges faced by the HR community in innovation: from recruiting to developing, engaging, rewarding, and retaining talent.
The InnovAsian® Report 2014 uncovers the state of and practices in innovation from a HR perspective, particularly relating to the war for top talent. It looks to identify current innovative approaches in HR, and the challenges faced by HR professionals in innovating. Using the report’s findings, organisations will be able to better refine their strategies for success, particularly HR’s role in supporting the corporate innovation agenda

Purchase the physical book at Kinokuniya Singapore or Kinokuniya Malaysia.

In the recent World Economic Forum’s (WEF) annual Global Competitiveness Index Report (2012-2013), Malaysia’s ranking slipped again, this time down 4 notches, to No.25. This sent shock waves to various stakeholders, from government agencies, to political parties, businesses, NGOs and even to the general public. Each party pointing to the drop as an indication that Malaysia is losing out.