Formal approach to innovation more likely to deliver competitive advantage
NEW YORK; May 13, 2013 – Despite increased business investment in innovation, only 18 percent of executives believe their company’s innovation efforts deliver a competitive advantage, according to a new Accenture (NYSE:ACN) study that also revealed a risk averse approach to product and service development.
The survey of 519 companies across more than 12 industry sectors in France, the U.K. and the U.S. shows that 51 percent of participating companies report increased funding for innovation. Ninety-three percent of surveyed executives said the long-term success of their organization’s strategy depends on their ability to innovate and 70 percent place innovation among their company’s top five priorities. Despite this commitment, the study found a decline in the satisfaction with innovation performance compared to the results of a similar Accenture study conducted in 2009.
The findings reveal that among the main reasons that innovation results fall short are too much “renovation” in place of breakthrough ideas, and too much “invention” against the challenge of commercializing at scale. Sixty-four percent of respondents said they are focused on product line extensions rather than big ideas. The proportion of executives who were likely to identify the introduction of a new product category as a primary goal for innovation fell to just 27 percent from 42 percent in the 2009 study. Further, 33 percent said their primary goal was the expansion of the product suites that support their basic offerings.
According to the Accenture report, entitled “Why ‘Low Risk’ Innovation Is Costly”, this phenomenon may be driven in part by the fact that 46 percent of the executives said their company had become more risk averse when considering new ideas. Additionally, only 46 percent of the companies had an effective, holistic approach to the development and introduction of new products or services, and 64 percent of them tend to pursue product line extensions rather than the development of totally new products or services.
“Many companies take a low-risk approach to innovation that can jeopardize results because they lack a prudent, disciplined approach for innovation risk management. It’s a situation compounded for many by an inability to rapidly scale inventions,” said Wouter Koetzier, managing director for Innovation and Product Development at Accenture. “However, the research suggests that those companies that have a formal, end-to end management system to nurture, scale and launch innovations tend to be more satisfied with their results as they achieve stronger outcomes.”
The Accenture study shows that those companies which have institutionalized formal innovation management systems, compared to those that have not, are almost twice as likely to say they were very satisfied with their initial idea generation abilities (43 percent vs. 24 percent). Thirty-eight percent vs. 22 percent are very satisfied with the return on their innovation investments.
Accenture also found that companies with a formal system in place are 75 percent more likely to define their innovation strategy as delivering a competitive advantage (21 percent vs. 12 percent), twice as likely to introduce a new business process or model (32 percent vs. 16 percent), and 35 percent more likely to say they are typically first to market with new products or services (50 percent vs. 38 percent).
However, as the chart below shows, 38 percent of respondents lacked a formal approach to innovation management. Respondents in the consumer goods & services, electronics & high tech and health provider sectors most frequently said they have a formal approach to innovation.
Percent of Companies by Sector with Formal Approach to Innovation Management
“The bottom line is that innovation can work better when a formal system exists to streamline processes, manage risks and mine the data needed to generate new products, services and business models to foster growth,” said Adi Alon, a managing director in the Accenture Innovation and Product Development practice. “Approached correctly, innovation can be executed at scale, with speed and balance between renovation and game changing initiatives; driving higher strategic and commercial value.”
Accenture, through its research identified five key elements involved in creating a formal innovation system. Those include end-to-end processes that contribute to speed and flexibility; unique, personalized customer experiences that can foster loyalty and enhance revenues; the application of risk management to help drive innovation with analytics, processes and tools; integration of the customer voice through the use of big data and social media; and frugal innovation that can reduce complexity to shorten time to market, reduce the cost of innovation, disrupt business models and serve the emerging middle class in developing countries.
Accenture is a global management consulting, technology services and outsourcing company, with approximately 261,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com.
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