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  Leaders recognize innovation is critical, but many feel benefits are elusive; risk-averse culture and lack of speed seen as biggest obstacles.
Consulting-Times E-zine

BCG: Global execs increasingly frustrated with innovation

The Boston Consulting Group's fourth annual global survey and report on innovation illuminates deepening executive frustration with innovation returns. It also shows continued recognition that innovation is an imperative for performance and growth.

Of the nearly 2,500 executives BCG surveyed worldwide, only 46% said they were satisfied with returns on innovation spending, compared with 52% in 2006. Two-thirds (66%) said they considered innovation a top-three priority, versus 72% the prior year, and 67% said they plan to increase innovation spending, versus 72% the year before.

"Most companies consider innovation important, often critical, to their business. Yet they're increasingly frustrated," said BCG Senior Partner James P. Andrew, the lead author of Innovation 2007. "They feel they should be getting more from their innovation efforts: more and better new products and services; stronger internal processes; improved customer experiences and more effective business models. Yet, in many cases, these benefits remain elusive."

Andrew leads BCG's Innovation practice and co-authored the recent best-seller, Payback: Reaping the Rewards of Innovation (Harvard Business School Press, January 2007) with Harold L. Sirkin, one of the report's co-authors. "Based on the 2007 survey," Andrew continued, "companies seem to believe it's getting harder to innovate. That's not the case. Innovation has always been hard. Creating an innovative company takes a lot of work – often rewiring the DNA of the organization. It's worth the effort; successful innovation is the surest way to build asset value and shareholder return."

Innovation 2007 is a report on and analysis of findings of a survey, completed earlier this year, of nearly 2,500 executives worldwide. Insights from the survey are expanded upon in a companion report, Measuring Innovation 2007. The survey was conducted in conjunction with BusinessWeek, which published a ranking of the most innovative companies.

Following are selected findings and insights from the report:

Nothing Helps a Company Like Successful Innovation

* Leading global innovators – the companies survey respondents said are most innovative – outperform their peers by nearly 400 basis points per year in terms of stock price.

Executives Care More About Innovations for Existing Customers Than Breakthroughs to New Markets

* Nearly all executives (92%) said the kind of innovation they think is most important is "new offerings for existing customers," followed by "offerings that allow expansion to new customers" (85%).

The Biggest Obstacles to Innovation: Risk-Averse Culture and Failure to Focus on Speed

* When asked what's preventing better innovation returns, executives most often cited "risk-averse corporate culture" (38%) and "overly lengthy development times" (36%).

* Most executives (54%) said their companies did a poor job moving from idea generation to initial sales quickly enough. This view was particularly true among industrial and manufacturing executives (65%), energy companies (64%), and consumer products makers (61%).

Frustration May be Linked to Not Having the Right Innovation Metrics – Ones That Could Prompt Better Innovation Performance

* Among the measures companies use to gauge innovation effectiveness, the least popular, i.e., least used, ones could be the metrics that would drive better performance: time to market (used by only 18%) and return on innovation investment (used by only 22%). The most popular metrics are customer satisfaction (57%) and overall revenue growth (51%).

Tech, Telecommunications and Travel Companies Are the Most Satisfied with Innovation Returns

* More than half (51%) of technology, telecommunications, and travel/hospitality executives were satisfied with their companies' innovation efforts; the least satisfied were financial services executives (41%) and retailers (43%).

Asian and European Companies Are Most Likely to Increase Innovation Spending

* 76% of Asian companies and 74% of European companies anticipate innovation spending increases. Only 64% of North American companies said they'll spend more on innovation.

In Terms of Industries, Automakers Will Spend the Most

* 76% of automotive companies said they'll increase spending, followed by entertainment and media (73%); energy (71%), and healthcare (including biotech and pharmaceuticals) and manufacturing (70%).

Companies Are Ratcheting Up Innovation Investments in China, India and Other Rapidly Developing Economies (RDEs)

* 38% of executives said their companies are increasing innovation spending in RDEs – mainly for the purpose of product development.

The Most Innovative Companies, According to Global Executives

* For the third year in a row, executives said Apple is the world's most innovative company. It's followed by Google, Toyota, General Electric, Microsoft, and Procter & Gamble.

"The most innovative organizations excel not just at idea generation – although they're strong there – but also in the capabilities necessary to transform those ideas into profits," added Andrew. "In our experience, the vast majority of companies have an abundance of ideas. But only a handful are capable of consistently generating profit from those ideas. Companies that can do that are the true innovators."
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