Limited View of Innovation Suggests Companies Are Not Building a Sustained Capability Across the Organization and May Not Get the Return on Investment They Need
Stamford, CT, October 29, 2008 – Companies are adept at generating innovative ideas, but far less effective at turning those ideas into reality, according to a recent survey by Towers Perrin. Given the importance of innovation in driving growth in a competitive global economy, the findings suggest that the next battleground for companies will be around innovation sustainability – building a “machine” to institutionalize and formalize innovation processes and outcomes in a more structured way.
The survey findings confirm that companies remain committed to innovating; the vast majority of respondents plan to maintain or increase their investment in innovation right now, economic concerns notwithstanding. But the survey also showed that most companies view innovation in a somewhat limited way – as synonymous with creating new products and services. As a result, they may be overly invested in the creation phase and significantly short-changing the implementation phase.
The survey, “The ‘Art’ of Successful Innovation,” polled more than 1,200 executives from a range of functional areas at midsize and large organizations in the United States, Canada, Brazil and Mexico. It examined companies’ views on, and commitment to, the three phases of innovation: creation, selection (which ideas to pursue) and implementation (which to build and commercialize).
Broadly, the survey confirmed that innovation is alive and well – up to a point. The respondents agree that their organizations are good at generating ideas. They believe they are reasonably competent at selecting from among a set of ideas and prioritizing those ideas for action and investment. But they also agree that their organizations fall down significantly in the third and most important phase: implementation. For instance, the percentage of survey respondents (44%) who felt their company was not good at moving quickly from idea to implementation outpaced slightly the percentage (42%) who felt their companies did this well.
“The finding that organizations rate themselves relatively poorly when it comes to implementation is a serious concern because taking action – commercializing an idea – is what innovation is all about,” said Jim Foreman, managing director of the firm’s Human Capital Group. “Our experience suggests this breakdown occurs because of a tendency to put a lot of time, energy and resources into the external ‘invention’ side of innovation, often to the exclusion of an internal focus that helps create a sustained institutional capability. But without that capability, it’s much harder to move an idea out of the proverbial laboratory and into the marketplace, regardless of the nature of the product or service.”
Among the major barriers the survey uncovered was aversion to risk, limited or no ability to measure the ROI of innovation and internal processes and structures. Fully 59% of the respondents felt their top management was overly focused on the risks of new ideas, while 52% said their organizations did not have metrics in place to regularly evaluate their performance at innovation. And just under half (48%) agreed that organizational processes and structures were a barrier to creativity at their company.
“In today’s environment, innovation can and should take shape anywhere and everywhere in the business model,” Foreman continued, “from the way people work, to the way an organization makes money, to its structure and operations. Failing to build a capability that takes all of these elements into account is part of the reason many good ideas ultimately languish or miss their moment.”
The survey findings highlighted three key factors that build innovation sustainability:
- first, an understanding that innovation has both external (market-facing) and internal (process and structure) components that must work in tandem and require different organizational competencies
- second, leadership commitment to the internal side of innovation and to building and sustaining a “machine”
- third, a recognition that different groups in the organization enter and exit the innovation process at different points in time and in different ways. Alignment between what’s required in each phase and related organization capabilities and resources is essential to turn ideas into reality.
The “create” phase draws most heavily on individual efforts, and success here depends on the right kind of culture. Most respondents agree that their organizations do foster an open, diverse culture that supports this phase effectively. For instance, almost three-quarters (74%) believe their company has established a climate where people can challenge traditional ways of doing things.
In the “select” phase, individual initiative gives way to team or group efforts, with more management involvement in prioritizing ideas for investment. Scores dropped somewhat for perceived success here. For instance, just under two-thirds (61%) believe leaders from different units collaborate effectively to support cross-organizational activities, while only 57% agreed employees freely share resources to help implement ideas.
Finally, in the “implement” phase, the onus moves to the organization itself and its capabilities in terms of design, production, marketing, sales and delivery. Scores for perceived success here were the lowest, with just 41% of respondents agreeing their organization provides sufficient resources to evaluate innovative ventures and merely 30% saying their organization had established metrics to evaluate their performance around innovation.
“While the survey showed a clear commitment to innovation creation at organizations,” said Foreman, “true success demands that organizations demonstrate equal commitment to executing at all phases of the innovation continuum. If an idea doesn’t translate commercially, it’s just creativity without clear purpose, and few companies can afford that luxury today.”
“Right now, we see a noticeable disconnect between organizations’ desire to innovate and their ability to do so effectively. What makes this particularly worrisome is that the vast majority of the respondents also see innovation as something they build internally, rather than ‘buy’ through acquisition, merger or other approach. This puts greater pressure on them to create the machine that sustains innovation and effectively fuels their growth over the longer-term.”
About the study
The Towers Perrin innovation study, “The Art of Successful Innovation,” was conducted online earlier this year. More than 1,200 executives responded from a diverse array of functions, including HR, finance, operations, line management and marketing. Sixty-six percent of the respondents were from U.S. organizations, 24% from Canadian organizations and the remainder from Latin American organizations. Industries most heavily represented included financial services, manufacturing and health care. Forty-seven percent of the respondents work for a company with more than $1 billion in annual revenues.
About Towers Perrin
Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, insurance and reinsurance intermediary services, and actuarial consulting. Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia and New Zealand. More information is available at www.towersperrin.com .Tags: outlook, report, Valen Analytics