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  This year 72% of companies will increase spending on innovation, according to new research from The Boston Consulting Group, despite the fact that nearly half of the companies remain dissatisfied with their return on innovation spending.
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BCG: Most companies to increase spending on innovation

Seventy-two percent of companies worldwide will increase spending on innovation in 2006, and 41 percent will increase spending significantly, according to a recent survey of senior management conducted by The Boston Consulting Group (BCG). The study's full set of findings, based on responses from more than 1,000 senior executives from 63 countries and all major industries, is summarized in two new reports, Innovation 2006 and a companion piece on metrics, Measuring Innovation 2006.

The survey also revealed that, despite widespread plans to raise spending, nearly one out of two companies is unhappy with its return on innovation spending.

“These findings highlight the paradox we see all the time in practice. Innovation is such an important priority for companies, and although they continue to spend ever-increasing amounts on it, half of all companies remain unsatisfied with the returns they generate,” said Jim Andrew, a senior vice president at BCG and worldwide leader of its Innovation and Commercialization topic area. “This is a critical issue because the costs are even greater than most companies realize. The costs include not only the money invested, but also the opportunity cost of not generating the growth and returns from innovation that are possible and that companies need to meet the demands of the stock market.”

Other highlights from this BCG research include the following:

Innovation Is a Rising Strategic Priority for the Majority of Businesses

— Consistent with the rise in spending, executives are placing ever greater strategic emphasis on innovation. Innovation is the number one strategic priority at 40 percent of companies (versus only 19 percent in 2005) and a top-three priority at more than 70 percent. More than 90 percent of executives say that organic growth through innovation is necessary for success in their industry; nearly three out of four feel that breakthrough innovations are required.

Companies Spend the Greatest Portion of Their Innovation Dollars on Improvements to Existing Offerings

— While executives say that developing new products or services for existing customers is the most important goal of innovation, companies actually spend most heavily on making incremental improvements to existing offerings.

Executives Consider Globalization Both a Major Opportunity and a Major Challenge

— Many companies are accelerating innovation investments in China, India, and other rapidly developing economies (RDEs). Most companies are doing so at a measured pace, however. So far, relatively few have made an aggressive commitment. The primary reasons companies are investing in these countries are to achieve cost savings and gain better access to the local markets.

— There are few signs yet of a major shift of higher-value-added jobs those that pay the highest salaries and are of greatest concern to government policymakers-to RDEs.

Apple Computer Is Considered the Most Innovative Company

— For the second straight year, and by a wide margin, executives ranked Apple the most innovative company. Google and 3M were ranked second and third, respectively.

Measuring Innovation Is a Significant Challenge for Many Businesses

— Innovation is widely undermeasured, and few firms are confident that their measurement efforts are sufficiently accurate or thorough. Indeed, the majority of companies (63 percent) use only a handful of metrics-five or fewer-to monitor and assess their innovation performance.

— The metrics that executives consider most important are time to market, new-product sales, and return on investment.

“Innovation is harder to measure than cost reductions, I'll give you that,” Andrew said. “But a large number of companies don't even measure it at all. And that means that innovation, a key priority for almost every organization, can't be managed by many firms. This situation isn't necessary. There are well-established practices that work. Not measuring is like driving without having your headlights on in the dark: you can't see where you're going or even if you're still on the right road.”
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