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Innovation 2009

Making Hard Decisions in the Downturn
April 13, 2009 by Jim Andrew, Knut Haanæs, David C. Michael, Harold L. Sirkin, and Andrew Taylor
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The results of our annual survey on corporate innovation shed light on a range of topics central to the pursuit of innovation in 2009, including the one foremost on people’s minds: the current economic crisis. What impact will it have on companies’ objectives, strategies, and tactics? What will it mean for innovation investment, a critical determinant of long-term competitiveness? How are leading companies counteracting and even taking advantage of the challenges they face?

This report discusses these and many other issues related to innovation. We also suggest actions companies can take to maximize their innovation ROI in this challenging environment. Among the report’s findings:

  • Innovation remains a strategic priority for the majority of companies, but the number that consider it a top priority is falling. Sixty-four percent of survey respondents ranked it a top-three priority, down from 72 percent in 2006 and 66 percent in 2007 and 2008.

  • Most companies expect to raise innovation spending in 2009, but they are growing increasingly cautious. Fifty-eight percent of companies plan to raise spending in the year ahead, down from 63 percent in 2008. And significantly, 14 percent of companies expect to reduce innovation spending in 2009. North American companies are particularly bearish: fully 21 percent expect to lower their spending on innovation.

  • Reflecting a growing sensitivity to costs, companies are increasingly leveraging rapidly developing economies (RDEs). Forty-five percent of respondents said their company will increase its R&D investment in RDEs in 2009, up from 37 percent in 2008.

  • Simultaneously, companies are increasing their emphasis on innovation geared toward lowering production costs.

  • Companies consider a risk-averse corporate culture and lengthy development times to be the two biggest forces holding down their return on innovation spending.

  • Customer satisfaction and overall revenue growth are the two main gauges that companies use to determine the success of their innovation efforts.

  • C-level executives are more satisfied with the return on innovation spending than the rest of the company. Sixty-three percent of C-level respondents said they were satisfied, versus 50 percent of vice presidents and managers and 47 percent of other employees.

  • CEOs are the most visible champions of innovation at most companies, yet fewer than 30 percent of respondents identified them as such, reflecting a void in leadership and a real opportunity for many companies.

  • For the third straight year, respondents ranked the “evergreens”—Apple, Google, and Toyota—the most innovative companies, with Apple the hands-down winner once again.

  • While companies should certainly take a critical look at their innovation spending in the downturn, they should not make blanket reductions or adopt too defensive a stance. Indeed, the downturn offers an excellent opportunity to make bold strategic moves that can position a company for an economic rebound and fundamentally strengthen its long-term competitive position.