The ROI Of Innovation - InformationWeek
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8/2/2007
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Rob Preston
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The ROI Of Innovation

Most executives view innovation as one of their top three priorities, but they're increasingly frustrated with their returns on such investments. That's the big takeaway from a new Boston Consulting Group survey of nearly 2,500 execs worldwide.

Most executives view innovation as one of their top three priorities, but they're increasingly frustrated with their returns on such investments. That's the big takeaway from a new Boston Consulting Group survey of nearly 2,500 execs worldwide.Despite the fact that 66% of respondents consider innovation a top-three priority and 67% say they plan to increase innovation spending, "they feel they should be getting more from their innovation efforts: more and better new products and services; stronger internal processes; improved customer experiences; and more effective business models," says BCG senior partner James P. Andrew, the lead author of the study. "Yet in many cases, these benefits remain elusive."

In other words: Most executives pay lip service to innovation, but few take the time to really manage and measure it. BCG posits that executive frustration is linked to not having the proper innovation metrics. The metrics that would drive better performance -- time to market and return on innovation investment -- are used by only 18% and 22% of respondents. The most popular metrics -- customer satisfaction (57%) and overall revenue growth (51%) -- are more after the fact.

Among the other high points of the BCG study: • Nearly all the execs surveyed (92%) are more concerned with innovations for existing customers than with breaking through in new markets. • The biggest obstacles to innovation? Risk-averse, foot-dragging cultures. • The industries most satisfied with their innovations are technology, telecom, and travel. Least satisfied: financial services and retail. • Most aggressive with their innovation dollars are the automotive industry (76% said they'll increase such spending), entertainment and media (73%), energy (71%), and health care and manufacturing (70%). • For the third year in a row, executives named Apple as the world's most innovative company, followed by Google, Toyota, General Electric, Microsoft, and Procter & Gamble.

"Companies seem to believe it's getting harder to innovate," Andrew says. "That's not the case. Innovation has always been hard. Creating an innovative company takes a lot of work -- often rewiring the DNA of the organization. It's worth the effort. Successful innovation is the surest way to build asset value and shareholder return."

On an InformationWeek Webcast today titled "Innovation Know-How: The Skills For Innovating Outside Of Your Comfort Zone," renowned business adviser Ram Charan, who will keynote the upcoming IW 500 Conference in Tucson, Ariz., led a panel of three CIOs who reinforced the importance of cultivating a culture of innovation at their IT organizations.

The CIOs -- Leigh Davis of electric utility Southern Co., Ben Holder of textile manufacturer Unifi, and Jerry Johnson of Pacific Northwest National Laboratory -- emphasized several key points during the 45-minute discussion: • Technology innovation must be a partnership between IT and marketing, sales, product development, and other business stakeholders. To think that meaningful tech innovation can thrive within pockets of an IT organization is naïve. • Tech innovation is often funded from different departments rather than from a line item in the IT budget. • It must be an ongoing part of the organizational culture, not something conducted in one-off chunks. • It must be given incentives, prioritized (think the Balanced Scorecard approach), and actively managed. Tech innovation rarely just arrives organically. • Be prepared to fail. If your organization has no stomach for making mistakes, even costly ones, it has no ability to innovate.

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