If you think innovation matters you might like this first of a series of posts. Lots of reports and evidence out there cite the key to innovation success – So I’m going to research this area to discover if there is such an “X-factor” in transforming laggards into exceptionally innovative companies.
This post reviews and comments on the Boston Consulting Groups Innovation Survey 2012.
Two key messages from this report are that the relative importance and level of funding on innovation activities as voted for by innovation leaders, is at a 5-year high. 85% of CEOs ranked innovation in the top-three management agenda, whilst 40% said it was the top priority. My personal insight is that innovation is one of the key and top-level business processes that needs the full attention of management.
Like many facts of organizational life, companies that stand still will be left behind.
Where is innovation happening? The report breaks it down by geography and by sector. Indeed, the resurgent interest in innovation a global phenomenon; the slightly lagging “developed” economies are now seeing renewed importance in innovation compared with “developing” economies who already have innovation as a key plank of their strategy in order to compete.
I wonder if this is a sign of the short-termism problem faced by “developed” firms in satisfying the demands of shareholders? (See George Cox’s paper of the problem of shortermism)
Innovative companies are defined by their higher Total Shareholder Returns, revenue and margin growth over time. Top innovators; land a 3-year 6.3% TSR premium – consistent innovators do this repeatedly.
The most innovative sectors, in terms of number of firms operating, is the IT and Telecoms sector. Healthcare is in the doldrums: risk aversion, regulation and lack of new entity compounds have taken the toll. Industrials have really boosted performance, making up 40% of most innovative firms. Large diversified firms are also cited as good innovators, rather than the archetypal small and nibble start-ups – this is consistent with the academic literature on the topic that larger firms enjoys economies of scale, scope and learning, but must structure efforts in the right way under an innovation system.
What Drives Innovation Performance?
The general messages across industry highlight good practices that could and should be used by all to some degree. Such as,
- Cultivate a deep customer understanding – gaining the right insights and listening to the voice of the customer.
- Respond to Market Economics – knowing where and how to compete, and focussing resources on attractive markets.
- Engaged senior management – If you read EITIMs: Bring technology into the Boardroom and George Haour’s book on the Innovation Paradox, you might conclude that boards and CEOS have listened to these messages?
- Staff Projects Effectively and Cross-Functionally – The collaborative Open Innovation paradigm may explain some of this. By utilising the vast external resources external to the firm, the trade in ideas can generate superior returns.
In Automotive, additional practices drive good innovation performance, such as
- The Application of Strategic and Financial criteria to selecting projects – you might be interested to know that this is an essential part of a strategic innovation model “Identify” and “Select”, See Gregory in EITIM).
- Following a standardized review process – akin to Cooper’s StageGate methodologies. By focussing scare resources, the probability of successes is increased. This works in particular for incremental innovation.
- Involving manufacturing in the innovation process – Automotive pioneered design for manufacture: If you can’t make it, you can’t sell it… Also, prune projects wisely and judiciously – to focus on the best prospects.
Consumer and Retail firms squeezed by reduced household spending and own-brands, pick winners using the following additional sector-specifics,
- Generate a deep understanding of consumers – it’s no accident that P&G invest $400mpa on consumer research.
- Allocate innovation resources effectively – budgets must be fit for purpose, so place your bets wisely.
As expected, the IT and Telecoms sector places much stock in disrupting the market,
- Generate breakthrough ideas,
- Involve customers through the innovation process,
- Boost speed to market,
- Actively manage (generate and protect and licence) the IP portfolio.
- The Most Innovative Companies 2012: The State of the Art in Leading Industries, (2012), The Boston Consulting Group
- Overcoming Short-termism within British Business: The key to sustained economic growth, (2013), G Cox
- Haour G, 2004, “Resolving the Innovation Paradox – Enhancing Growth in Technology Companies”, Palgrave McMillan
- EITIM, European Institute for Technology and Innovation Management – Bringing Technology into the Boardroom, 2004, Palgrave McMillan