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The innovation disconnect – Ireland bucks the trend

Organisations must have a culture that nurtures innovation and creativity to thrive in an age of unpredictable, high-impact change.

Without this, they will struggle to adapt quickly to changes in customer demand, respond to technological disruption, and shift internal perspectives on how the organisation creates value.

Worldwide, we found a significant disconnect in terms of innovation. While 84 percent of CEOs said they want their employees to feel empowered to innovate without worrying about the possibility of negative consequences, only 56 percent said their organisation currently has a culture where ‘fast-failing’ innovation is celebrated.

However, CEOs in both the Republic of Ireland (78 percent) and Northern Ireland (84 percent) report a greater acceptance of ‘fast-failing’ with unsuccessful innovation initiatives.

Percentage of CEOs who report a greater acceptance of “fast failing”

Anna Scally, KPMG in Ireland’s Fintech leader, says “There’s a growing innovation culture in Ireland underpinned by a young, tech savvy and highly skilled workforce where trial and error is an established way of doing business.” Anna, who also leads KPMGs Technology and Media practice and Centre of Excellence for Innovative Start-Ups believes that “such an approach recognises that immediate success isn’t guaranteed and sometimes failure is a necessary part of building and growing robust companies.”

Fiona Grandi, US Managing Partner for Innovation & Enterprise Solutions, KPMG, believes that ‘fast-failing’ is actually about ‘learning fast’, and that it is a necessary element of the iterative innovation process. “Learning fast is about the ability to pivot,”

she says. “Rather than concluding the innovation goal was wrong, try to re-calibrate how you achieve that goal based on signals such as a shifting industry or economic indicator, the emergence of a new technology or competitor.

To understand these signals, consider drawing upon the input of your alliances, clients, customers, industry consortium and even competitors.

Also, assess third party research or derive value from proprietary data. Organisations should invest as much in understanding that ecosystem or network as their customer.”

Creating an innovation culture where employees feel empowered to try out new ideas is challenging to deliver and sustain. KPMG’s Grandi believes that CEOs play a critical role in making innovation part of the fabric of the organisation.

“Companies that innovate well have a CEO who develops and promotes an innovation strategy,” she explains. “It can’t simply be a buzzword, but rather integrated into all levels and verticals within their organisation, from the top down and bottom up. That means tying innovation goals and strategy directly into personal performance metrics for all leaders. The other critical area is having diversity in leadership – both diversity of thought and team structure – to encourage a variety of styles of innovative thinking and execution.”

There’s a growing innovation culture in Ireland underpinned by a young, tech savvy and highly skilled workforce...

Anna Scally
Head of Technology and Media
KPMG in Ireland

Agility or irrelevance

Large, established organisations, which are built to drive an advantage from scale, are finding that smaller, more agile players have a competitive edge.

As industries such as financial services has seen, disruptors are targeting key elements of the value chain, such as FinTech’s activity in the payments industry. At the same time, customer needs are changing fast and advanced technologies continue to evolve. To respond, companies need to fundamentally change how they work. This means being more customer-centric, increasing the speed of innovation, and collaborating across organisational boundaries.

CEOs in Ireland are increasingly recognising the danger of being too slow and cumbersome in a fast-moving age. Over a third (34 percent in the Republic of Ireland and 38 percent in Northern Ireland) believe that acting with agility is the new currency of business and that if they are too slow they will become irrelevant. This is up from 22 percent in the Republic and from 20 percent in Northern Ireland since last year and signals a changing mind-set.

Implementing agile approaches at an individual project level is relatively straightforward, but one-off initiatives will not have an enterprise-wide impact; this requires a more fundamental rethink of the company’s operating model. By combining advanced technologies - such as the cloud - with operating redesign, CEOs can build customer-focused, connected enterprises.

Percentage of CEOs who believe acting with agility is the new currency of business

The need for speed: M&A and agility

M&A will play a key role in organisations reacting with agility to disruption and the need for business model innovation. As companies look to quickly build digital capabilities for example, acquiring innovative digital companies becomes a key part of their M&A strategy.

Overall, we found that 36 percent of respondents in the Republic of Ireland have a high M&A appetite for the next three years, with 40 percent of respondents in Northern Ireland expressing a similar view. According to Mark Collins, Head of Deal Advisory with KPMG in Ireland, the positive sentiment apparent in the 2019 KPMG Outlook continues to prevail. “Despite various macro headwinds, M&A executives believe that, for the time being, it continues to be a seller’s market due to strong valuations and access to funding. Depending on the strength of capital markets and sustainability of corporate earnings, this balance may shift towards buyers and a carefully designed approach to M&A is vital to the strategic foundations of business.”

When asked about the main drivers of M&A activity, reducing costs through economies of scale and synergies was the main motivator in both jurisdictions. While ‘traditional’ M&A is often intended to build scale and drive cost synergies, digital M&A seeks to transform the business model by adding new technologies or services into the company’s business model portfolio and this aspect was in the top 5 M&A drivers in both the Republic of Ireland and Northern Ireland.

Percentage of CEOs with a high M&A appetite over the next three years

...M&A is vital to the strategic foundations of business.

Mark Collins
Head of Deal Advisory
KPMG in Ireland

Connected enterprise: CEOs take the lead

For many organisations, agility is very difficult to achieve because of a fragmented IT infrastructure and a lack of alignment between front, middle and back office functions.

The constraints of legacy IT, and the lack of collaboration across organisational silos, make it impossible for organisations to be nimble and responsive to changes in their environment.

CEOs are taking personal responsibility for greater cross-functional alignment. Almost four-fifths (79 percent) said that they were responsible for overseeing this alignment in a way that their predecessors were not.

Miriam Hernandez-Kakol, Global Head of Customer and Operations Practice, KPMG, believes that the CEOs personal intervention is key to realising a customer-centric organisation. “Shifting the enterprise to focus on the customer will fail if you end up with a collection of uncoordinated efforts taking place within different silos,” she says. “You need alignment across the organisation – a connected enterprise approach – to meet customer expectations, improve business performance and achieve profitable growth.”

Cloud-based solutions will be key to addressing fragmented digital infrastructures, made up of a range of bespoke, computing infrastructure. The cloud offers scaled capabilities and advanced technologies that can transform how work used to be conducted via legacy IT. CEOs are embracing these technologies wholeheartedly. A significant majority - in both the Republic (82 percent) and Northern Ireland (96% percent) - said that they were more confident today about increasing their organisation’s use of cloud technologies than at any point in the last 3 years.

This reinforces the CEOs increasingly prominent role in technology strategy. In this year’s research, 84 percent of CEOs worldwide said that they are personally leading the technology strategy of their organisation. However, this figure is somewhat lower in the Republic of Ireland (62 percent) and Northern Ireland (66 percent).

Percentage of CEOs who say that they are personally leading their organisations tech strategy

C-suite reboot

C-level roles have already changed significantly over recent years as CEOs respond to new demands.

The established CEO direct reports - such as the CFO and CMO - have been joined by new C-suite capabilities, from Chief Analytics Officers to Chief Digital Officers. However, while CEOs have added firepower to their leadership teams, they are not stopping there. “In order to be resilient, a company has to have the right leadership and one with the right mindset,” said Henadi Al-Saleh, Chairperson, Agility, a Kuwait-based international logistics company. “Building the right culture and organisational structure are crucial.”

A majority of CEOs (68 percent in the Republic of Ireland and 60 percent in Northern Ireland) - are actively transforming their leadership team to build resilience. Hugh Crehan, Head of FS at KPMG in Ireland says “It would be unusual to meet a CEO unconcerned about how they will equip their teams for the future and rather than adopt a wait and see attitude, they are actively looking to skill up now. This can be seen as both a proactive and defensive approach to an incredibly rapid pace of change.”

To tackle today’s connected and complex enterprise issues, CEOs need leaders who can to collaborate across the organisation, rather than being limited to narrow areas of responsibility and expertise. They also seek different skill sets and profiles, such as experience in digital transformation or digital business model innovation.

To drive this C-suite reboot, CEOs need to define their cross-enterprise priorities, from business model innovation to operating model redesign. With a clear picture of their priorities, they can assess if the current crop of functional leaders have the right profiles and capabilities to deliver. This will also mean re-assessing how they measure the performance of C-suite reports and defining effective career development for the next generation of C-suite talent.

It would be unusual to meet a CEO unconcerned about how they will equip their teams for the future...

Hugh Crehan
Head of FS Markets
KPMG in Ireland