Innovation A Top Growth Priority Yet Management Shortcomings.

Three studies uncover opportunities for companies to make improvements in management of innovation process --

Innovation is a top priority for companies seeking to grow in the wake of the economic downturn, but flaws in managing innovation may hinder their progress, according to three studies released today by Accenture (NYSE:ACN).

In one study of more than 630 U.S. and U.K. executives, almost half (48 percent) of those surveyed said their companies had increased funding for innovation in the preceding six months, while one-third (33 percent) said their innovation funding remained the same.

Additionally, nearly nine out of 10 respondents (89 percent) said that innovation is as important, if not more important, than cost reduction to their company’s ability to achieve future growth.

However, the studies found several flaws in the corporate management of innovation, including:

· failure to learn from mistakes;
· widespread risk aversion;
· the need for more collaboration; and
· too much emphasis on making incremental improvements.

These are among the key findings that emerged from three studies conducted by Accenture in the first half of 2009. The U.S.-U.K. study queried executives across several industries, including automotive, banking, capital markets, consumer goods and services, electronics and high-tech, insurance, manufacturing, pharmaceutical and medical products, and retail. The second study focused on innovation in the consumer technology industry in North America, Europe and Asia. The third focused on the communications industry across the U.S. and Europe.

“Companies can’t afford to avoid risk; they must learn from their mistakes and make the bold moves required to grow their company and position it for the economic upturn,” said Mark Foster, Accenture’s group chief executive, Global Markets and Management Consulting. “Unfortunately, many companies don’t have the processes that would enable them to conduct the risk-benefit analysis required to comfortably make the decisions associated with pursuing big bets, which is why innovation oftentimes doesn’t deliver the silver bullet companies seek.”

“Managers must lead by example, collaborate across departments, communicate the business strategy down the line and inspire their teams to engineer the next category-defining product,” Foster said. “Companies that fail to do so may lose significant ground to competitors who understand the value of innovation and manage it well.”

In the most recent study, 50 percent of respondents in the U.S. and the U.K. reported that their most successful innovation has been development of a new product or service. Yet, 74 percent of the respondents said their companies pursue incremental improvements, such as line extensions, and two-thirds (66 percent) said their organizations have made short-term financial results a priority over long-term investments.

Additionally, nearly three-quarters (73 percent) of U.S. respondents and nearly one-third (30 percent) of U.K. respondents said their organizations failed to learn from their mistakes.

Among the reasons respondents from both countries cited most frequently for new product or service launch failures were their inability to meet customer needs (57 percent), being late to market (54 percent) and incorrect pricing (52 percent). They also cited the lack of a new or unique customer-perceived value proposition (50 percent), supply chain issues (44 percent) and incorrect forecasting (43 percent).

One-third of the respondents (33 percent) also cited their inability to leverage new technology as a hurdle to innovation.

Consumer technology and communications, media and high-tech studies reveal similar findings
Many of the innovation-related challenges uncovered in the cross-industry study are similar to those Accenture found when it surveyed executives in the consumer technology and communications provider industries.

For the consumer technology study, Accenture interviewed executives who work for companies that generate nearly two-thirds of the industry’s annual global revenues. Typical of the results found in all three surveys, one executive said that about 60 percent of his company’s innovation pipeline was focused on incremental rather than breakthrough innovation. The study also revealed that business units typically work in silos, lack communications across departments and pursue innovation projects that impede collaboration. It also showed that employees are unwilling to collaborate because they fear the risk of someone else taking credit for their ideas.

One executive described the situation this way: “If companies are doing something truly innovative, they are probably going against existing business practices. Opposing forces will likely counteract them. Among some consumer technology firms there is the belief that if it’s innovative, everyone will embrace it, but often just the opposite happens.”

Meanwhile, communications, media and high-tech executives in the U.S. and Europe participating in the third of the three studies said their companies want to decrease the time required to launch new products and reduce development costs. In fact, 58 percent of the respondents said their companies’ new-product development budgets are plagued by cost overruns. And, 70 percent of the respondents said that as the economic downturn evolved, the development of at least some services and products was stopped – a decision that also reflected budget cuts and a shortage of people with the expertise to generate innovations or manage new-product development . The study also found that communications, high-tech and media firms in Europe will lead the way in new-product and service launches in the coming year.


Research Methodology

Study of U.S. and U.K. executives
Accenture commissioned an online survey in May 2009 of more than 630 vice presidents, directors and managers at large U.S. and U.K. companies across a broad range of industries, including automotive, banking, capital markets, consumer goods and services, electronics and high-tech, insurance, manufacturing, pharmaceutical and medical products, and retail. The purpose of the study was to gain further insights about management perceptions of innovation processes.

Study of consumer technology company executives

Accenture conducted in-depth, one-on-one interviews with executives at the director level and above from 28 of the world’s largest consumer technology companies worldwide to better understand the status of innovation across this industry sector. To qualify for inclusion in the study, respondents had to be a final decision-maker, highly involved in or part of a team that works on new product and service launches; part of the company that develops and sells technology to the consumer market; or in the corporate division involved with computer PC development, mobile handset development, or consumer electronics development, such as audio, video and gaming.

Study of communications, media and high-tech company executives
Accenture commissioned an online survey of 277 communications, media and high-tech executives in France, Germany, the U.K. and the U.S. to identify the challenges these industries face related to new product innovation. Nearly two-thirds of those who responded (63 percent) work in telecommunications, 26 percent work in the high-tech sector, and 11 percent work in the media industry. The online survey explored the correlation between companies that meet or exceed their new-product launch plans and those committed to open innovation. The findings are contained in a February 2009 report.

Innovation Behaviorial Challenges

In most companies, the nurturing of innovation, especially disruptive innovations that leads to major changes in the marketplace and within the business is more often a weakness of organizational culture vs a strength.

Some of the behaviors that I have experienced or observed in leading companies (Citicorp, Xerox, Nortel Networks, Bell Canada) that I have grown up in have consulted to has some of these key behaviorial challenges.

Indifference

Innovation is one of the top mantras of CEO and senior executives. However, when one digs into the depth of innovation capabilities more often one finds that more company's pay lip service to innovation, than really have substantive programs. It would be politically incorrect not to embrace innovation—but they do little beyond that.

A few questions to probe into your organization:
1.) Does your organization have a unifed clear definition of innovation (one sentence) and everyone knows it?
2.)Does your organization have an innovation governance process and sustainability model?
3.) Does your culture have innovation as a core value, and it is systemically measured?

Unfortunately leadership at the top of the house have typically achieved these positions because of their consistency in achieving operational results, meeting sales objectives, improving products and services to keep up with competitors, supporting existing customers and acquiring new ones, managing mergers and acquisitions, achieving the required financial results quarter after quarter, etc.

Unfortunately as executives rise up in the organization, they transition from being a manager to being a leader.

Management is about business results and processes. Leadership is about people.

The key quality you need in good leadership is passion—the urgency to explore, tackle with tenacity and solve the complex problems that allorganizations face.

To do so, you need to be surrounded by talented people, and you need to find a way to transfer your passion to them, so they will buy into your vision, perform at the high and empowering levels, and come up with innovative ideas to solve the challenges of achieving the vision. Developing a culture of barrier busters creates incredible energy excitement and empowering dynamics.

Typically managers are very very good at executing tactical, incremental strategies to help achieve operating excellence. However, their skills are typically not looking in all directions all one once, they are typically highly focused vs curious and exploratory. They like to set a course and focus on the course, and often missed complex disruptive signals. Unfortunately high performing leaders are often not typically resilient or innovative leaders.

Operating managers who do not actively encourage new ideas and innovations in their organizations do so because of indifference. They will typically listen politely to your new idea, provide some encouragement, and offer good advice. If they are being honest, they will tell you they barely have the time, energy, and budget to help much beyond a pat on the back now and then.

In other cultures they nod like it is a good idea, smile and take no action, or work to deflate the value of your ideas. At Xerox, they call this "grin f..king" - and it is part of the cultural folklore that has impacted their ability to harness their innovations successfully. Many of Xerox's inventions were the first innovations - but their own cultures could not embrace and bring these capabilities to market successfully.

Unfortunately often reliability managers that like to keep the ship on course often reactive very negatitive to new ideas, especially if the idea comes from someone outside their own organization.

Some of them also exhibit characteristics that many of us would associate with being a bully.

Organizational Silo Isolation

Isolating people in organizational silos is one of the biggest obstacles to innovation. Companies that are serious about innovation do everything possible to break down silos and encourage communication and collaboration across the organization and beyond.

Fostering innovation is very hard, especially if the innovation is disruptive in nature.

A spirit of innovation and collaboration does not come naturally to an organization.

For such a spirit to take hold, it must become an integral part of the company's culture. None of this is easy, but it is what a company must do if it truly wants to create a healthy culture in which innovation can successfully flourish.