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Innovation 2010

A Return to Prominence—and the Emergence of a New World Order
April 16, 2010 by Jim Andrew, Joe Manget, David C. Michael, Andrew Taylor, and Hadi Zablit
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The Boston Consulting Group, working in partnership with Bloomberg BusinessWeek, recently completed its seventh annual global survey of senior executives on their innovation practices. This report summarizes that survey’s results. It covers the full suite of interrelated activities involved in turning ideas into financial returns, going well beyond ideation and new-product development to include such issues as portfolio and life-cycle management, organizational alignment, and demands on leaders. It discusses what works and what doesn’t and the actions companies are taking to make innovation happen. Finally, the report offers pragmatic advice for individuals who want to make a difference in their organizations.

Our survey revealed that, after a moderate retrenchment in 2009, companies have recommitted to pursuing innovation in 2010. They have pushed it back to the top of their priority lists and plan to boost their innovation spending—despite the stagnant economy. Indeed, many companies consider innovation a key weapon in their efforts to seize the benefits of a tentatively emerging economic recovery. The report also postulates that a new world order in innovation is taking hold, one in which rapidly developing economies (RDEs), led by China, India, and Brazil, will increasingly assume more prominent positions, while the United States and other mature economies continue to play major roles but gradually become less dominant.  

This report examines these and a host of other innovation-related topics, including which types of innovation companies consider most critical to their success, what companies consider to be the biggest obstacles to raising their return on innovation spending, and how innovation is regarded within organizations. The report also suggests actions that companies and their leaders can take to maximize the return on their innovation efforts in this still very challenging economic and business environment.

After a pause in 2009 that reflected companies’ growing concerns about the economy, innovation is once again a top priority for most companies.

  • A large majority of companies consider innovation a top strategic priority for 2010. Seventy-two percent of respondents said that their company considers it a top-three priority, versus 64 percent in 2009. This percentage matches the highest reading seen in the seven years we have been conducting the survey.

  • Fully 84 percent of respondents said their company considers innovation an important or extremely important lever in its ability to reap the benefits of an economic recovery.

Companies’ willingness to spend on innovation, and their satisfaction with the return on innovation spending, are inching higher.

  • The majority of companies expect to raise innovation spending in 2010. Sixty-one percent of respondents (versus 58 percent in 2009) said their company plans to boost spending; 26 percent said their company plans to raise it significantly (that is, by more than 10 percent). Only 8 percent of respondents said their company plans to reduce innovation spending, versus 14 percent who said so in 2009.

  • Companies’ satisfaction with their return on innovation spending continues to edge higher—but remains relatively low. Fifty-five percent of respondents said their company is satisfied, versus 43 percent in 2008 and 52 percent in 2009.

  • The majority of senior executives (that is, C-level executives and vice presidents) and decision makers (that is, directors and managers) are satisfied with the return on innovation spending. In sharp contrast, little more than a third of other employees—36 percent of respondents—are satisfied. 

Caution remains in the air, however, and companies are adjusting their strategies and tactics.

  • Reflecting lingering caution about the economy, companies continue to ramp up their emphasis on innovation geared toward minor improvements to existing products and services (as opposed to, for example, innovation targeting the launch of new products). Eighty percent of survey respondents said their company considers this type of innovation important or extremely important, versus 55 percent in 2008 and 65 percent in 2009.

  • Businesses are tempering their innovation investments in RDEs. Forty-one percent of respondents said their company plans to raise its R&D investment in RDEs in 2010, down from 45 percent in 2009. Simultaneously, companies are broadening the types of innovation functions they are targeting with those investments. In particular, they are aggressively expanding their emphasis on product development and idea generation.

Executives consider a risk-averse corporate culture, lengthy product-development times, and inadequate measurement practices to be key areas of weakness.

  • Executives identify a risk-averse corporate culture and lengthy product-development times as the two biggest factors holding down the return on their innovation spending.

  • The majority of companies are dissatisfied with their innovation-measurement practices. Only 41 percent of respondents said that their company is measuring effectively. Customer satisfaction and overall revenue growth are the two main gauges that companies use to determine the success of their innovation efforts.

The organizations that top our list of the most innovative companies remain unchallenged—but a longer-term change seems to be under way.

  • For the fourth straight year, respondents ranked Apple and Google the two most innovative companies, with Apple once again the hands-down winner. Apple has held the top spot in our survey since 2005.

  • There is much to suggest that a new world order is emerging, with RDEs, led by China, India, and Brazil, gradually assuming more prominent positions, while the United States and the other mature economies continue to play major roles but gradually become less dominant.

  • Less than half of survey respondents believe that U.S. companies will remain the most innovative over the next five years.