US Private Companies Prioritizing Innovation as Growth Engine

NEW YORK - - 
Leading privately held businesses are putting greater emphasis on innovation as an engine for growth, according to chief executives surveyed for PwC US's Private Company Trendsetter Barometer. Three-fourths (75%) of those businesses have made innovation a priority -- 33% of them to a great extent and 42% to some extent. Nearly half (47%) of innovation-focused private companies expect that their innovations (ranging from incremental to breakthrough) will have a significant impact on the way they do business over the next one to three years, and 39% expect a moderate impact. 

Innovation Most Important to International and Fast-Growth Companies 
Most international marketers (87%) prioritize innovation, whereas just slightly more than half (55%) of their domestic-only peers do the same. Among international marketers that focus on innovation, 44% are doing so to a great extent (versus 24% of their domestic-only counterparts). More than half (52%) of international firms that have made innovation a priority expect it will impact their business significantly, compared with 42% of domestic-only innovators. Overall, more Trendsetter companies with an emphasis on innovation sell internationally (55%) than their non-innovator peers (25%) -- the percentage of those engaged in international marketing is even higher among companies that prioritize innovation to a great extent (63%). 


US private companies that have made innovation a priority also expect to grow 63% faster than non-innovators, forecasting 8.3% revenue growth over the next 12 months versus 5.1% for non-innovators. 

Trendsetter companies emphasizing innovation to a great extent are the fastest-growing businesses, forecasting 10.1% revenue growth over the next year -- nearly twice the rate of non-innovators. They are also more likely to be planning new hiring (59%) and major new spending initiatives (51%) over the next 12 months. 

"Innovation is essential in today's challenging business environment," says Ken Esch, a partner in PwC's Private Company Services practice. "Slow economic recovery and intensified competitive pressure at home are pushing private companies to find new ways to grow and differentiate themselves -- both here and abroad. Staying ahead of the curve by coming up with new products and services, coupled with innovative ways of developing and delivering them, should help private companies broaden their reach in current markets, as well as penetrate new ones." 

Cost Containment a Secondary Goal, Topped by Growth Objectives 
While improved productivity and reduced costs are among the broad business objectives that private companies expect innovation to help them achieve (cited by 58% and 52% of respondents respectively), growth-related goals top the list. Those goals include improved earnings/profit margins (81%), increased revenues (78%), and a widened customer base in current markets (78%). The percentages in these growth-related categories are even higher among companies that say they're prioritizing innovation to a great extent: 91%, 80%, and 87% respectively. 

This emphasis on growth carries over to additional, supporting objectives, such as improving current products/services (cited by 78% of innovators overall) and developing new products/services (cited by 87% of companies that prioritize innovation to a great extent, and by 64% of innovators overall). 

Companies prioritizing innovation to a great extent also expect to engage customers in developing/improving products and services (68%), while Trendsetter innovators overall say they expect to use innovation to improve customer service/product support (69%). Considerably fewer innovators are using innovation to create new markets for products/services that are still in the conception/development stage (37%), set long-term corporate strategy (34%), or modify their business model (31%), although Trendsetter companies prioritizing innovation to a significant extent are showing greater initiative in the first two areas (55% and 40% respectively). "Private companies see innovation as a driver of growth on a variety of fronts," says Esch. 

"Increased revenue, profitability, and market share are key near-term objectives, but innovation leaders are looking beyond that. They're considering ways to propel their businesses into the future so that they stay relevant for the long term -- not just several years from now but a decade or more down the line. These leading-edge innovators are looking to develop novel products for as-yet-uncreated markets, along with entirely new ways of delivering them -- an endeavor requiring revamped business models and farsighted corporate strategy." 

Increased Spending Planned, But Innovation Funding a Key Challenge for Some Companies 
Two-thirds (66%) of innovators expect their overall level of innovation spending to increase over the next one to three years -- 18% greatly and 48% somewhat. Most other innovators (32%) anticipate that their spending will stay about the same. In this latter group, 79% say they continue to get the same innovation value as before while spending the same or less. Another 16% say they're innovating by actively soliciting input from customers or suppliers. 

Investment in adopting new technologies to enable/support a host of other innovation goals (cited by 49% of Trendsetter innovators) may be a key factor that's allowing private companies to do more with less. Overall, innovation spending is expected to rise by an average of 19.4% among companies that are planning increased investment in that area. Trendsetter companies prioritizing innovation to a great extent plan to spend slightly more than other private company innovators, with 75% of them forecasting an average increase of 23.3%. 

"We find that many companies are quick to correlate spending more with doing more," says Esch. "However, we believe that the emphasis should be on how you put your innovation dollars to work, not on the amount you spend. To extract the greatest value from its innovation investment, a company will need to strike the right balance between incremental and breakthrough innovations. How quickly the business wants to grow will dictate how much breakthrough innovation is required." 

One-quarter (25%) of Trendsetter innovators cite insufficient access to capital as a key challenge to pursuing innovation over the next one to three years, this in addition to talent shortages/inadequate skill sets (26%) and lack of disciplined in-house processes for driving and executing innovation (25%). For the one-quarter of Trendsetter companies that identify themselves as non-innovators, insufficient capital is the leading barrier to innovation (36%), trailed by talent shortages (22%) and lack of disciplined in-house processes for driving and executing innovation (18%). 

"A company with limited financing may want to consider co-developing innovation via alliances and joint ventures, including with supply-chain partners," notes Esch, "since that would allow the company to capitalize on opportunities while managing costs and risks." 

Disciplined Approach a Must 
Although lack of disciplined in-house processes for driving and executing innovation is cited as a top barrier to innovation by one-quarter (25%) of innovator companies, only a minority (41%) of Trendsetter innovators report having a coordinated cross-departmental strategy for innovation (however, that number jumps to 59% within the subset of companies prioritizing innovation to a great extent, then dips to 26% among companies prioritizing innovation somewhat). Departments that Trendsetter companies are engaging in an integrated approach to innovation include marketing (cited by 86% of Trendsetter innovators), business development (73%), finance (70%), information technology (68%), and sales (67%). 

"The importance of defining an operational strategy and establishing a set of coordinated processes for innovation can't be overstated," stresses Esch. "While every company will have its own tailored approach for executing innovation, a successful program will depend in large part on having the right departments involved, with clear direction and support from leadership." 

Measuring and Rewarding Innovation 
Measuring progress is a crucial component of a successful innovation strategy. Among Trendsetter innovators, 44% link innovation to the success metrics of their business; the percentage is higher (63%) among private companies that prioritize innovation to a great extent. Top metrics include customer satisfaction (cited by 79% of Trendsetter innovators), market expansion (72%), earnings/profit margins (69%), growth in revenue from new products/services (68%), and overall revenue growth (64%). Companies prioritizing innovation to a great extent pay less attention to reduced operational costs as a key metric (36%) than do other private company innovators (57%). Somewhat surprisingly, employee recruitment/retention as a metric trails behind at 32% for Trendsetter innovators overall, despite half of those companies saying they expect innovation to help them attract and retain top talent. 

"By embracing, measuring, and rewarding innovative efforts, private company leaders help to foster a culture of innovation," says Esch. "It's important, however, that they not only reward quantifiable benefits in the near term, but also tie innovation efforts to long-term corporate strategy. Right now, most Trendsetter companies aren't doing that. They are well-positioned to do so, however, generally having greater flexibility than their public counterparts when it comes to waiting for a return on innovation investment." 

Global CXO Global Strategies Outlook for 2012

Over the past decade, the art of doing business has changed. Companies are re-shaping strategies to innovate and compete globally. New methodologies, new opportunities, new markets, new technologies, and new practices are being brought into play with an eye on boosting profits and curbing costs.



Forbes Insights, in association with Wipro, conducted an exclusive survey of more than 300 CEOs and other C-level executives at global enterprises ($500M-plus in annual revenue). The key findings of this survey include:


• Strategic innovation is more important than ever to driving growth. This commitment to innovation will impact how companies approach environmentally friendly, or green, business practices, as well as how they manage their expansion into global emerging markets. For example, in some cases, companies are using so-called reverse-innovation, taking innovative products and services from their emerging market efforts (such as in China) and commercializing them elsewhere in the world.


• C-level executives see innovation as a way to differentiate their businesses, particularly following the 2008-09 recession. Fully two thirds of the executives said they believe that innovation is more critical than ever because of the economic downturn of 2008-09.
• Speed-to-market is necessary for successful innovation. More than 80% of survey respondents agreed that getting a product or service swiftly out to market is a critical business innovation tactic.
• Cost remains the biggest hurdle to fostering innovation. It topped the list of innovation barriers cited by C-level executives, followed by issues related to the regulatory environment, and finding and retaining top talent.


• Paying attention to best practices is the most effective way to foster innovation. Other innovation tactics promoted by executives included technology, data-based decision making, and customer collaboration.
• Executives see a very clear business case for using “green” business practices. The most important factors they cited include reducing costs, improving operational efficiency, and meeting customer demand for more environmentally friendly products.
• Embracing green business practices as part of a corporate innovation strategy is essential to their success.


Overall, nearly three quarters of C-level executives indicated their companies had incorporated environmental elements into their innovation strategies.
• Green IT is a priority for more than three quarters of companies. Their strategies in this area include reducing data center footprints, greater use of server virtualization, and greater use of cloud computing.


• Executives see investment and expansion into emerging markets as crucial to their strategies today and in the near future. More than half believe China holds the greatest opportunity, followed by India, Southeast Asia, and Eastern Europe.


• Expansion into emerging markets is being driven by lower costs and a higher rate of growth, according to executives surveyed. Potential barriers to strategic success in these areas include poor distribution channels, unstable political environments, and a shortage of skilled talent.


Do you agree with these findings? Let me know at wgstevens2@gmail.com  


reprint from Forbes Insight and Wipro. William G. Stevens is a contributing member of the Forbes Advisory Committee 

Are You Creating A Culture of Innovation?

Great companies make innovation happen. The basic element is culture. The worlds best structures will under perform without a culture that supports people trying new things. 


How can we engender a culture that supports innovation you ask? Here are a few of the insights the Kellogg Innovation Network has learned:

1. Nurture a sense of purpose - take a contrary approach to business; innovate around your core product; practice flexibility in the face of obsolescence
2. Operate as an ethical alternative - focus on a purpose of significant social merit like supporting recycling, saving the planet, support cleaner air etc.
3. Celebrate smart failures - understand why there was failure and build on it to succeed and avoid similar outcomes.
4. Create MAOE - create meaningful, actionable objectives & enable people to act - inspiring challenges can fuel an innovative culture. Meaningful objectives can inspire people to create solutions.
5. Emphasize the team - culture is not an individual it is a team, group, division, company, Top innovators require teams to challenge and take the idea to market.
6. Walk the talk - you have all heard that before, and you will continue to hear this. Hypocrisy is one of the most powerful ways to generate a culture that becomes dysfunctional. If leaders to not find time to encourage new ideas, then others will not follow.

Does your company create a culture of innovation and how any of these six areas does your company follow? 

thanks to Robert Wolcott @ Kellogg Innovation Network and Jorn Bang Andersen from the Nordic Innovation Centre

Failure as a Necessary Component of Innovation and Breakthroughs

In most organizations failure is implicitly, sometimes explicitly, understood to be career limiting.

Regardless of the rhetoric, and I have heard loads of it over the years of working with senior executives. They will say things like: "it OK to fail around here"; "we value failure as evidence of pushing the envelope"; "no success without failure" and so on. The truth is failure is not acceptable in most organizations.

Now if we distinguish between carelessness and failure we may have an opening for a new freedom to invent, create, discover, and take responsible risks - and in the process make major advances, even breakthroughs.

Carelessness I distinguish as not paying sufficient attention in performing in task that has a proven and established process or methodology to ensure the desired outcome. This thoughtlessness in executing a step or missing a step means that the desired outcome is not produced. And, in all likelihood what is produced has unwanted consequences.

Failure on the other hand is the consequence of trying to produce an outcome where there is no clear path or process. Where there is no precedent for a successful outcome. 

In every set of accountabilities there should be a component that requires invention, experimentation, and discover so as to produce a new level of performance. People cannot be free to be fully expressed in this area of their accountabilities if failure is taboo. Innovation and creativity will be stifled.

Posted by Peter Roche