Skip to Main Content
Access your saved content
Companies are finding it hard to churn out “the next big thing.” Instead of the disruptive products, services and business models of yesteryear, innovations coming to market today are typically line extensions.
Our recent survey of more than 500 executives revealed that, while one in five (18 percent) respondents rate innovation as their top strategic priority and two-thirds depend strongly on innovation for their long-term strategy success, more than half feel they have a sluggish innovation process. Despite increasing commitment, funding and organizational accountability, many companies are disappointed by the returns they are deriving from their investments.
A cautious approach to innovation is understandable, given the relatively disappointing results. At the same time, however, it is a potentially perilous strategy. Enterprises that restrict themselves to incremental innovation, on the other hand, risk unknowingly entering a vicious cycle in which they lag ever farther behind.
By putting formal systems in place to manage innovation, companies can protect themselves from such risk. Enterprises able to successfully innovate at a breakthrough level are far more likely to dominate and prosper in the new markets they create. They can also position themselves to master change.
There is an increasing realization that technology, social transformation and economic volatility will continue to shake up business models, particularly the appetite for innovation. From 2009 to 2012, the number of companies that saw their primary goal as disrupting current markets or introducing entirely new product categories dropped by one-third.
We recently sought to identify the state of innovation by surveying 519 executives at large US, UK and French organizations, with revenues greater than US$100 million. They represented a wide spectrum of sectors, with the largest samples drawn from Banking and Capital Markets, Retail, Electronics and High Tech, Health Providers, and Consumer Goods and Services.
The study found two dominant obstacles to driving higher returns from innovation:
A conservative approach that focuses on individual line extension and renovation rather than a broader portfolio of bold, big ideas.
The invention trap. By this, we mean overreliance on the invention process itself and a relative lack of the ability to bring brilliant ideas to scale supported by a robust business model, a unique customer experience and an ecosystem that further expands the market potential.
How can companies overcome the renovation and invention challenges? A key part of the answer is to introduce something new on a scale where it has sufficient impact to re-define a market while still not "betting the farm."
How? By pursuing a prudent and disciplined investment approach that specifically addresses innovation risk management.
The survey found an increased commitment to innovation. Seventy percent ranked innovation among their top five priorities, and 18 percent put it at the head of the list. A third of the sample—52 percent in the communications sector, 44 percent in manufacturing—called innovation "extremely important" as a key enabler facilitating their company's successful response to persistent change
The vast majority of executives, 93 percent, continue to regard their company’s long-term success to be dependent on its ability to innovate but, at the same time, less than one out of five (18 percent) believe their own innovation strategy is delivering a competitive advantage.
The approach currently pursued by the majority of respondents (64 percent) is not transformative in pursuit of totally new products or services but, rather, can be defined as renovation—more limited, incremental line extensions. Fewer than half believe they have an effective approach to new product development or are seeking innovation effectively.
Indeed, executives are severe critics of their own organization’s innovation performance. Only 34 percent believe their company has a well-defined innovation strategy, 46 percent say they have become more risk averse in considering new ideas and 45 percent see their company pursuing a portfolio of smaller, safer opportunities rather than seeking the next breakthrough.
On a variety of measures—initial idea generation, product development, manufacturing, testing, commercialization and launch, portfolio optimization and realizing a positive ROI from innovation—executives are less satisfied today than in 2009.
What can companies do to improve disappointing performance and overcome the obstacles to innovation?
Organizations that have a holistic, formal system in place for innovation report better outcomes and higher levels of satisfaction from their innovation investment. Furthermore, companies with formal innovation systems may be less likely to pursue line extensions at the expense of more significant breakthrough innovation and less likely to miss developing new markets due to a lack of an organizational home to nurture them.
We believe that such a formal system approach to innovation entails five, key aspects:
Run innovation as an end-to-end value chain, emphasizing speed and flexibility. Lateness to market was cited as one of the top reasons for innovation failure by 28 percent of the respondents.
Move from product to business innovation—integrating elements of product, service, technology and personalization. As many as 87 percent of the respondents indicated personalization is a major part of their company’s innovation strategy, a first step in the right direction.
Apply risk management practices specifically tailored to innovation to identify future opportunities and to properly evaluate the innovation portfolio.
Leverage the digital power of Big Data and social media to integrate the voice of the customer into the development processes and drive a high level of personalized experience.
Pursue frugal innovation both to capture middle class consumers in emerging economies and also to disrupt markets in developed economies.
Wouter Koetzier is the global managing director of Accenture’s Innovation and Product Development Consulting practice and is based in Amsterdam.
Adi Alon is a managing director in Accenture’s Innovation and Product Development Consulting practice and is based in Boston.
May 12, 2013
Skip Footer Links