Corporate innovation and business strategies perilously out of sync

14 June 2017 6 min. read

A new research has found that business strategy and innovation strategy are often not aligned, creating risks of lost revenue, market position and waste. Growing sales figures remain key to innovation according to the study, as companies continue to focus on innovation as a means to stay relevant in various rapidly changing markets, from automated vehicles to robotic process automation.

Competitive pressure continues to push businesses toward innovation, despite many instances of such advancement being inherently risky at a time when “pure tech” organisations, whose capital, and skills, can be hard to beat, are entering into various business domains.

In a new joint report from PwC and subsidiary Strategy&, titled ‘Reinventing innovation: Five findings to guide strategy through execution’, the consulting firm explores trends in innovation from 1,200 companies across the globe. The aim of the study, which aimed to identify how far businesses are rising to innovation challenges, found that in general, companies continue to find it difficult to align business strategy with innovation strategy, creating a key area of risk in a field already plagued by expensive pitfalls.

Innovation leaders are growth leaders

According to PwC, around 20% of respondents see themselves as ‘innovation leaders’, attributing to themselves >15% growth over the coming five years from their respective efforts – meanwhile 13% of all other companies, not identifying themselves as innovation leaders, expect the same level of growth.

A recent report from BCG named Apple, Google and Tesla as the globe's most innovative companies, with Microsoft and Amazon closing the top five. The analysis further found that casting a wide net for new ideas, leveraging data, innovation excellence and collaboration with external parties is what sets strong innovators apart from the rest of the pack.

Becoming an innovation leader remains difficult according to researchers – with a direct financial relationship found to be tenuous at best. Simply put, throwing money at the issue is not necessarily going to lead to successful innovation. The finding is in line with previous research from Strategy&, which found that R&D spending does not necessarily correlate with innovation power. 

Innovation’s impact

When it comes to the outcome of innovation, the research points to a selection of financial metrics being key. Predictably perhaps, 69% of businesses surveyed said sales growth is the ultimate measure of success, well above customer satisfaction (43%), number of new ideas in the pipeline (40%), and market share (36%). The areas of least concern when it came to evaluating the impact of innovation were the time to market (24%) and the net value of innovation portfolio (28%).

The study notes however, that while companies are keen to boost revenues with innovation – 54% are unable to actually align their business strategy with their innovation strategy, creating a situation in which many are “flying blind as they place bets on innovation.”

Collaborative operating models

The report highlights a wide range of effort may be required to create a company friendly to innovation. Open innovation and collaboration with partners, design thinking and co-creation with customers, partners and suppliers are all deemed by respondents as important to innovation, at 61%, 59% and 55% of organisations citing their importance respectively. Traditional R&D, internal incubators and investing into startups via corporate venture capital (a $128 billion market) are used by relatively few organisations in contrast, at 34%, 27% and 21% of organisations respectively.

People-power innovation starts with employees

The analysis further notes that respondents believe that employees are a key channel for innovation, as cited by 60% of respondents. Technology partners are cited by 50% of respondents as a key element in the innovation process, while 44% cite channel and business model partners as important.

Interestingly entrepreneurs and startups are not considered key channels for innovation, at 16% of respondents, while academic and research too are not identified by respondents as key channels for innovation.

Tech companies set the pace for breakthrough innovation

The study also sought to identify in how far respondents are focused on ‘incremental’ or ‘breakthrough’ technological advance. Different segments, the research noted, take relatively different approaches. Tech companies are primarily focused on breakthroughs, at 58%, followed by pharma and life sciences, at 51%. Other segments focused on breakthrough include communications and automotive, at 45% and 43% of respondents respectively.

Commenting on the result of the report, Volker Staack, co-author and the Global Innovation Leader of PwC’s Strategy&, said, “It’s critical for executives and business leaders to meet innovation challenges head on, but often times they are unsure of how or where to begin. This report identifies the pain points for executives across all industries to help find solutions to drive innovation that will align with business strategy and result in bottom-line success.”

Related: Research & Development spending of top firms hits $680 billion.