UK organisations alone are flushing some £64.7 billion down the drain each year as a result of ineffective innovation spend, research by PA Consulting Group shows. The firm’s research, conducted among 750 managers across the globe, finds that it is clear that the majority of organisations are struggling with innovation. Based on the data, the management consultants identified five common ‘innovation killers’ that are stopping organisations from realising the potential of their innovation activity.
Around three in five respondents (58%) say they are unlikely to back high-potential but risky innovations, while overzealous risk management ranks among a lack of budget, people or skills and difficulty moving beyond small scale as a top reason why brilliant ideas fail. A significant minority (47%) of respondents say they are not striving to be pioneers, suggesting that almost one in two organisations today do not aspire radical new thinking. For Ian Rhodes, Chief Executive Officer of McLaren Applied Technologies, innovation means taking a bold step into the unknown. Otherwise, he says, “It is like wanting to be a skydiver but never having the confidence to jump out of the aeroplane.”
Lack of focus
Over half of respondents (53%) say they use the term ‘innovation’ to describe different things, while 42% agree innovation is something they talk about more than they do. This suggests that many organisations lack focus and a clear innovation strategy – which can lead to wasted energy and resources. As explained by Paul Jansen, Professional Engineer, Associate Vice President of Medical Device Development at Sanofi, “You need to have a legitimate idea that can be executed or implemented. If you want it to be sustainable, you need to have it fit within a strategy. How does it all fit together?”
Organisations are struggling to develop and commercialise their best ideas at pace. Asked to pick from 13 common barriers to innovation, respondents point first and foremost to scaling up ideas for large-scale use (25.3%). They also cite difficulty moving beyond small scale as a top reason why brilliant ideas fail. As Roy Kramer, Director of Nyenrode University, says, “We are challenging an international Dutch bank and not on whether it can search for yield or a new distribution model. Instead, we are asking them, ‘Are you able to innovate and able to implement the innovation? Are you able to change, are you agile?’”
The wrong ROI
Organisations need tools to model the ROI from innovation projects – but they must be careful that an accounting mindset does not kill creativity. Respondents rank difficulty in measuring ROI (25.2%) close behind scaling up ideas for large scale use in the list of 13 barriers to innovation, which suggests that many are conflicted about the best approach to identify winning ideas. As explained by Keith McNeil, Chief Executive Officer of Cambridge University Hospitals, “With innovation, where you start and where you end up are usually very different places. If you focus too much on ROI up front, you stifle creativity. It is only when people come up with ideas that look good and have promise that you should start putting rigour around the ROI.”
Reluctance to invest
When ideas fail for avoidable reasons, the cause most frequently cited by respondents is a lack of budget, people or skills (29.9%). Simply, the resources required for innovation are not made available. This is backed up by the 24.5% of respondents who said that insufficient investment is a top barrier to innovation.
“Taken together, these killers point to a deeply ingrained culture of risk aversion where cost-cutting almost always takes precedence and investment in innovation is viewed as a ‘nice to have’,” state the authors. For companies to be successful at innovation, they advise an embedded culture of innovation, reinforced by leadership that encourages and nurtures innovation, are more successful at translating their efforts into financial reward. Not surprisingly, leadership was also cited as a key driver of innovation by many of the senior executives interviewed.
The five innovation killers have been sourced from PA’s ‘Innovation as Unusual’ report.