My, What Big I's You Have!

New study identifies characteristics of high-growth companies

New York  June 27, 2001  Growth companies that make innovation a priority are on a faster track than the rest. And those dedicating a higher level of commitment to innovation are growing faster yet. There's more good news: Because most of these companies' innovation programs have not yet reached maturity, the best may be yet to come. These are highlights from the latest PricewaterhouseCoopers "Trendsetter Barometer," released today.

Three-fourths of fast-growth CEOs say innovation is an organization-wide priority for their company. Most report that innovation is evident in their corporate strategy (79 percent), new product development (67 percent) and corporate values (63 percent). In addition, more than half say it is a focus of their employee training (56 percent) and human resources programs (53 percent).

"I would suggest that many aspects of innovation are cultural," said Steve Hamm, managing partner of PricewaterhouseCoopers' middle market advisory services. "It is essential that management and employees talk the talk' and walk the walk' together, and that innovation is well-recognized and rewarded at all levels."

Most often, "Trendsetter" companies encourage innovation through their new product development methodologies (55 percent), employee recognition or award programs (51 percent), alliances or partnerships with leading-edge companies (46 percent), and innovation-specific communications (34 percent).

"Innovation need not originate entirely from within an organization," noted Hamm. "Interaction with outsiders through an alliance may be an eye-opener as to the possibilities, but businesses must also have a substantial level of readiness to accept change within their organization. They must strive to be open, curious, objective and flexible."

"Trendsetter" companies where innovation is a priority have been rewarded well. Over the past five years, their revenue has grown 61 percent faster than the noncommitted. Moreover, in the face of difficult market conditions, over the next 12 months they are projecting revenue growth of 20.7 percent, versus 13.6 percent, respectively  an edge of 52 percent.

"While it is clear that innovators are winners, it should also be noted that businesses making a high commitment to innovation  where it penetrates throughout the organization  are even better performers," said Hamm. "Of the 75 percent of growth companies making innovation a priority, 36 percent have done so to a great extent, while the other 39 percent have made a lesser commitment. Those with the more-extensive commitment have grown revenues 16 percent faster over the past five years, and they expect to grow 24 percent faster over the next 12 months."

Most Innovation Programs Have Not Yet Reached Full Potential

Although committed fast-growth companies have already benefited from their focus on innovation, it appears the best is yet to come. Most CEOs citing innovation as a priority (54 percent) characterize their program as in the early stages of development. An additional 25 percent describe their innovation efforts as still coming of age. Overall, only 21 percent say their program is well-advanced. This includes 13 percent who say theirs is becoming a profitable instrument; and another eight percent saying theirs is developed enough to be described as solid and reliable.

"Clearly the biggest winners are the 36 percent of CEOs who have made the more extensive commitment to innovation," noted Hamm. One-quarter of this group says their program is well-advanced, and they are the ones generating the highest revenue growth."

Distinguishing Visible Characteristics

How can one readily identify a fast-growth company that makes innovation an organization-wide priority? They have distinguished themselves with three big I's.

  • Internet: More innovators than non-innovators are doing business directly or indirectly over the Net: 58 percent versus 42 percent, respectively. Innovators expect more than three times the contribution from this source over the next 12 months: a 12.1 percent share of corporate revenues from the Internet, versus 3.2 percent.

  • Investment: More innovators are planning increased investments in key areas of their business: information technology, 51 percent (15 points higher); new product development, 45 percent (15 points higher); and research and development, 29 percent (21 points higher).

  • International: Nearly twice as many innovators are doing business abroad: 50 percent versus 27 percent (23 points higher).

"These three outward characteristics fit the profile of innovative, fast-growth companies with a bright future," said Hamm.

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