An Indication for Innovation

New study shows value of continued business innovation

New York  July 18, 2001  Can large technology businesses harness innovation to sustain and build upon the unique attributes that have carried them to the top? Eight in 10 industry leaders say yes. They have placed a priority on innovation throughout their organization, and have achieved greater competitive advantage and higher revenue growth than the uncommitted. But within this rosy scenario, the really big winners are those that have gone a step further, to link innovation to the success metrics of their business. This group is expecting 12-month revenue growth to be one-third higher than other innovators that have not yet made such a connection. These are highlights from PricewaterhouseCoopers' latest Technology Barometer, released today.

Eighty-one percent of top technology industry executives say innovation has been made an organization-wide priority in their business. This corporate commitment has yielded outsized dividends in two major categories: competitive advantage and faster growth.

In the category of competitive advantagel, 54 percent of those making innovation a priority rate their business' level of innovation as superior to that of their one or two strongest competitors  17 percent much better, and 37 percent somewhat better.

When it comes to faster growth, over the next 12 months, these businesses expect to grow revenues 25 percent faster than peers that have not embraced innovation.

Today's continuous, rapid advances in technology make innovation critical not only for individual businesses, but also for our entire economy, said George Bailey, an innovation expert at PricewaterhouseCoopers. Fresh ideas lead to new and better products and services that are worth a premium to customers. Moreover, innovation is freeing workers to do their jobs more efficiently, creating additional value for their employers.

Innovation has taken deep root among the large technology businesses where it has been made an organization-wide priority. Seventy-nine percent of top executives say it is the focus of corporate strategy; 77 percent, new product development; 66 percent, corporate values; 59 percent, employee training; and 55 percent, human resources policies and procedures.

These executives note that a broad range of corporate programs or initiatives to foster innovation permeate their business: new product development methodologies (cited by 61 percent); recognition and award programs (58 percent); alliances and partnerships with leading-edge companies (54 percent); human capital processes (40 percent); and acquisitions (39 percent).

Leaders of these large technology businesses are fanning the flame of innovation throughout their operations, said Bailey. And, perhaps best of all, few of these innovation programs are seen as mature in their development. There is still much to be gained from innovation.

The majority of top executives (61 percent) see their organization's innovation program as in its early stages of development. And another 21 percent describe their innovation efforts as still coming of age. Only 18 percent say their program has reached its adulthood or maturity.

More Innovation is the Best Move

Those companies most aggressive in spreading the gospel of innovation within their business have already reaped disproportionate benefits, added Bailey. Of the 81 percent that have made innovation an organization-wide priority, 35 percent have done so to a great extent, and another 46 percent to a lesser degree. Those with the deeper involvement have grown 22 percent faster over the past five years than the less-involved. And those with the greater commitment also expect to grow 58 percent faster over the next 12 months.

Moreover, 67 percent of those involved more deeply in innovation said that their level of innovation is superior to their one or two strongest competitors. Only 12 percent say a competitor is better, and just 21 percent cite parity.

Innovation's Internal Impact

Seventy-two percent of top executives in companies embracing innovation say it has changed the way their business is done or impacted financial performance; only 28 percent reported little or no change. An even greater number from those more-highly involved in innovation cited a similar impact (87 percent).

Overall, the greatest change resulting from innovation was found in new product and service development (cited by 83 percent); revenue (80 percent); earnings or profit margins (77 percent); and efficiency of own organization (72 percent).

More than half also noted change in six additional impact areas: business processes (cited by 67 percent); number of customers (67 percent); required employee skill sets (65 percent); delivery of products or services (62 percent); customer service (58 percent); and prioritizing of investments (55 percent).

Linkage of Innovation to Success Metrics

Half (50 percent) of innovators have made an effort to link innovation to the success metrics of their business. Those making such a linkage are concentrating on four success factors: overall revenue growth (73 percent); earnings/profit margins (72 percent); growth in revenue from new products/services (72 percent); and customer satisfaction (57 percent.

Top executives linking innovation to success metrics for their business are expecting 12-month revenue growth that's a whopping 33 percent above those who have not yet made such a connection, noted Bailey. With these impressive numbers, we can anticipate that more large technology businesses will be attempting this linkage in the future.

PricewaterhouseCoopers' "Technology Barometer" is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.