Get out Your Yardstick

Tying innovation to metrics could be key to greater success, PwC finds

New York  July 10, 2001  Linking innovation to success metrics could be the key to greater revenue growth over the next year, according to a new study from überconsultancy PricewaterhouseCoopers.

In PwC's latest "Trendsetter Barometer," released today, the consultancy reports that growth companies that have made innovation an enterprise-wide priority claim they are better at it than their strongest competitors, and their focus on innovation has produced improved business methods or financial performance.

But the greatest beneficiaries are those that have linked innovation to success metrics for their business, and over the next 12 months this group is expecting revenue growth 26 percent above other companies that have also made innovation a priority.

Three-fourths of what the report terms "fast-growth CEOs" told PwC their companies make innovation an organization-wide priority. Among these, 73 percent rated their own business as better at innovation than their one or two strongest competitors (42 percent said much better, and 31 percent, somewhat better). Just 22 percent suggested they were about equal to their strongest competitors, and only 5 percent felt outmatched.

"New and better ideas move businesses to the front of the pack," said Steve Hamm, managing partner of middle market advisory services for PwC. "While it is clear that innovators are tough competitors, those making a high commitment to innovation are even tougher."

Hamm said that among the 75 percent of growth companies making innovation a priority, 36 percent have done so extensively, while the other 39 percent have made a lesser commitment. Eighty-four percent of those making the greater commitment said they are better at innovation than their strongest competitors (58 percent said much better, and 26 percent, somewhat better." Just 14 percent cited parity, and only 2 percent viewed a competitor as better.

Innovation's Legacy

Three-fourths (76 percent) of fast-growth CEOs who have made innovation a priority reported this commitment has improved the way they do business or their company's financial performance (36 percent said it has had an important impact; 40 percent saw a moderate impact). Breakthrough ideas, said Hamm, "enable workers to be more efficient in their jobs and allow businesses to charge a premium for their products or services."

CEOs giving a priority to innovation cited improvements in efficiency of their organization (77 percent), earnings or profit margins (77 percent), revenue growth (71 percent), development of new products or services (68 percent), customer service (68 percent), business processes (66 percent), number of customers (60 percent), employee skill sets (58 percent) and delivery of products or services (55 percent).

"Again, those who have embraced innovation in a big way have reaped the greatest benefit," said Hamm. For this group, 83 percent said their emphasis on innovation has improved the way they do business or their company's financial performance, with 51 percent saying it has had an important impact, and 32 percent a moderate one.

Linkage of Innovation to Success Metrics

Among the innovators, 41 percent have made an effort to link innovation to the success metrics of their business. Those making such a linkage concentrate on four success factors:

  • Earnings or profit margins (cited by 76 percent)

  • Overall revenue growth (66 percent)

  • Growth in revenue from new products or services (60 percent)

  • Customer satisfaction (60 percent)

"CEOs linking innovation to success metrics for their business are expecting 12-month revenue growth that's an eye-popping 26 percent above the others that have made innovation an enterprise-wide priority," said Hamm.

Potential Barriers to Innovation

CEOs involved in innovation cite two potential barriers that could limit its contribution to their business: scarcity of intellectual workforce and trained workers (cited by 44 percent) and internal cultural issues (43 percent).

"Ongoing advances in technology and business methods make innovation an essential element in individual companies and our economy as a whole," said Hamm. "To tap into innovation, businesses must have ready access to creative people and foster a corporate culture that brings the best out of everyone."