IRE Electronic Newsletter

It appears that many companies are starting to feel that perhaps innovation isn’t worth such a considerable chunk of their budget after all. But the report argues that rather than cutting spending, companies must be more focused, disciplined and energetic in their innovation policies if they want to profit from the benefits that innovation can bring.

 

Innovations can often appear to be straightforward, such as a new way of packaging a product or a faster way of distributing goods. But it can also be a complicated process that is costly and time-consuming and needs lots of energy and dedication if it is to achieve the pay-off it is capable of.

 

A new report by the Boston Consulting Group (BCG), Innovation 2008: Is the Tide Turning, looks at the reasons why innovation often fails to increase companies’ profits. The report is based on a survey of nearly 3,000 global executives.  

Innovation essential for companies to thrive

 

Companies want to innovate and most of them place innovation very firmly near the top of their list of priorities. But the number of executives that are happy with the financial return on their company’s innovations is falling – 52% in 2006, 46% in 2007 and 43% in 2008. At the same time Innovation 2008 reports that the percentage of executives who say that their company will increase their innovation spending in the next year has also fallen. This represents a worrying trend and indicates that companies are becoming frustrated with the lack of concrete profits to show for their innovation spending.

 

While companies may have the potential to innovate successfully, according to Innovation 2008 they are hampered by obstacles such as the long development times needed for innovations to produce results and profits, a risk-averse culture, the difficulties and hazards of selecting the right ideas to develop, and a lack of coordination within companies.

 

Reducing spending on innovation because of disillusionment with its results would be disastrous for companies. The report argues that innovation is one of the few and perhaps the only source of long-term competitiveness and, therefore, survival. Instead of reducing expenditure, what companies need is a focused and sustained approach to innovation. To push innovation forward companies need strong vision, leadership and a concerted effort over time to produce results. They need to look at the roots of their innovation strategies and find out what went wrong if innovation efforts are not producing the returns desired.

 

The creative vision to produce great ideas is a good starting point, but the process of translating those ideas into profits through product development and marketing is much harder and that is where many innovating companies founder. The most successful companies are constantly developing innovative goods and services that give customers what they want. In its 2008 BCG Senior Executive Innovation Survey, Innovation 2008 shows Apple, Google and Toyota Motor at the top of the list of companies that are seen by executives to be the most innovative in the world. These companies’ particular strengths were breakthrough products (Apple), unique customer experiences (Google) and innovative processes (Toyota Motor).

 

The right leaders for the job

 

So what can thousands of businesses do to ensure their innovation practices emulate the top players and pay them back handsomely for their innovation efforts? Innovation 2008 suggests that much is down to strong leadership.

 

All companies which want to innovate successfully need a dedicated person responsible for all aspects of the innovation process. He or she must be able to inspire confidence in their leadership, be able to embrace risk and be willing to make the necessary organisational changes in a company to usher in innovation processes. He or she must also be able to command respect throughout the organisation. Innovation 2008 also suggests that companies need to give the job of carrying out innovations to the key people in the office if they are serious about innovating.

 

Companies must also take a long hard look at what they are hoping to achieve with their innovation strategy. If this is not clear, then the strategy isn’t focused enough. Enterprises must decide exactly which area or areas they want to target for higher profits through innovation, for example new products or improved production processes. Another crucial area is evaluating the effect that innovations are having on the company as a whole. Tracking of innovation processes is necessary to identify where innovations are having the greatest impact – for example on staffing and operational costs, higher profits, boosting product and company profile etc.

 

Improving a company’s profits through innovation is hard work and can be a long-term undertaking. Increased profits rarely happen overnight, but instead of cutting back, companies must focus their innovation efforts and plan their strategies with more precision, never taking their eye off the ultimate goal – greater profits.