BCG Study Finds Frustration With Innovation Growing
Executives View Innovation as Critical, but Many Feel Results Are Elusive; Many Firms Appear to Be Pulling Back on Innovation Spending as a Result
BOSTON, MA--(Marketwire - August 5, 2008) - The Boston Consulting Group's (BCG's) fifth
annual global survey and report on innovation, "Innovation 2008: Is the
Tide Turning?" illuminates deepening executive frustration with innovation
returns. It also reveals a worrying trend: an ongoing decline in the
percentage of companies that plan to raise their innovation spending.
Of the nearly 3,000 executives BCG surveyed worldwide, only 43 percent said
they were satisfied with their return on innovation spending, compared with
46 percent in 2007 and 52 percent in 2006. Simultaneously, the percentage
of executives who said their company will increase its investment in
innovation in the year ahead has fallen in each of the last three years --
to 63 percent in 2008, from 67 percent in 2007 and 72 percent in 2006.
"Companies remain staunch believers in the importance of innovation," said
BCG Senior Partner James P. Andrew, lead author of the report. "But many
are growing increasingly frustrated with their lack of payback on
innovation spending, and some firms are apparently starting to think twice.
This could have major implications for corporate competitiveness."
Andrew leads BCG's Innovation practice and co-authored last year's
best-seller, "Payback: Reaping the Rewards of Innovation" (Harvard Business
School Press), with Harold L. Sirkin, also a BCG senior partner and one of
the report's co-authors. "For most firms, the problem of disappointing
returns is fixable. But it demands a sustained and concerted effort as well
as an understanding of what to focus on, which many companies seem to lack.
It's something they desperately need to develop," said Sirkin.
The report, which was based on a global survey of executives that BCG, in
partnership with BusinessWeek, conducted earlier this year, addresses a
number of the most important topics associated with effective -- that is,
profitable -- innovation, including the establishment of meaningful
objectives and the development of "best practice" tactics and capabilities.
(For a detailed look at one of the topics covered -- metrics and
measurement -- see BCG's companion report, "Measuring Innovation 2008:
Squandered Opportunities.") Key findings of "Innovation 2008: Is the Tide
Turning?" include the following.
Weaknesses
The top four factors driving down the return on innovation spending are
lengthy development times and a risk-averse corporate culture (both cited
by 36 percent of respondents), along with difficulty selecting the right
ideas to commercialize and a lack of internal coordination (both cited by
33 percent of respondents).
Strengths
Executives believe their companies' greatest innovation strengths lie in
the areas of developing a deep understanding of customers (68 percent of
respondents) and ensuring executive-level sponsorship of projects (67
percent).
Objectives
Companies are not looking to conquer new worlds with their innovation
efforts but rather to expand their share of existing customers' spending.
Fully 89 percent of executives said they consider innovation that leads to
new products and services for existing customers to be the type of
innovation most critical to their company's future success.
Spending Plans
Entertainment and media companies have the most aggressive spending plans.
Fully 69 percent of respondents from that industry said their company would
increase spending in 2008, followed by travel, tourism, and hospitality
companies (68 percent), industrial goods and manufacturing companies (65
percent), and consumer products companies (65 percent).
Measurement
The most popular metrics for gauging the success of innovation efforts are
customer satisfaction (54 percent of companies said they use it) and the
percentage of sales from new offerings (47 percent).
Leveraging of Rapidly Developing Economies
Companies continue to take a measured approach to conducting innovation in
rapidly developing economies. Thirty-seven percent of respondents said
their company planned to increase its investment in such countries in 2008,
virtually the same percentage as in 2007. India and China remain the
primary targets of RDE investment, and product development remains the main
objective.
Innovation Success and Stock-Market Performance
Innovative companies generate superior total returns for shareholders.
Globally, innovators outperformed their peers by 530 basis points on an
annualized basis over the last three years; over the last ten years, they
outperformed them by 440 basis points. The pattern of substantial
outperformance for innovators held when viewed along regional lines. (In
recognition of this fact, Standard & Poor's created the S&P/BusinessWeek
Global Innovation Index, which tracks the investment results of 25 of the
most innovative companies in the world; the index is based on the
BCG/BusinessWeek survey of senior executives.)
"With competitive pressures rising globally, now is precisely the wrong
time for companies to be shying away from spending on innovation, if that
is indeed what we're seeing," concluded Andrew. "Instead, companies should
be redoubling their efforts. Innovation is one of the few -- perhaps the
only -- means of generating sustainable competitive advantage. Companies
need to recognize that and structure their priorities and activities
accordingly."
To receive a copy of the report or arrange an interview with one of the
authors, please contact Eric Gregoire at +1 617 850 3783 or
gregoire.eric@bcg.com.
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