How to achieve excellence in innovation management practices
As businesses of all shapes and sizes look to grow revenue, in spite of a prolonged economic slowdown, innovation can make or break a firm’s financial plans. According to a new report, firms who take a greater role in managing their innovation have an average of 56% improved EBIT from new products and services.
The professional services sector remains optimistic for the future, despite a number of growing headwinds. Industry-wide reports have found that more than 80% of firms in the market expect revenue growth in the coming year, while also stating they are determined to keep on hiring to meet growing demand.
But in a market which seems to have reached a point of over-saturation, where firms also face a rise in late payments, and continued spikes in costs, realising that growth will be more difficult than expected. One key way in which firms can set themselves apart from their peers, and set themselves up to benefit from emergent trends, is to sink funds into discovering new solutions and products – meaning now is the time for organisations to rethink their innovation strategy, be bold and lean into their innovation agendas.
To ensure that firms get the most from their research and development drives, though, they must be careful not to underestimate the importance of innovation management processes. According to a new study from strategy consultancy Arthur D. Little (ADL), there is a clear link between good innovation management practices and innovation success; a correlation which holds true across all industries, despite the huge diversity in terms of products, services, customers, and industry-specific dynamics.
A line of best fit shows that there is generally a higher rate of success for innovation at firms with more innovation management mechanisms. Examining data from companies around the world since 2018, no firm with upward of 700 management practices for innovation had endured a failed innovation campaign, while most were in the upper-medium or top quartiles for success.
The correlation was shown more clearly when ADL examined the impacts that thoroughly-managed innovation had on earnings before interest and taxes (EBIT), in contrast to less-involved management. According to ADL, top-quartile innovation management practitioners realised an average 56% more in EBIT from new products and services over the course of three years on the market, when compared to peers with bottom-quartile innovation management practice scores in the same sector.
Elsewhere, top-quartile innovators also realised an average of a 9% point difference turnover from new products and services players, while taking 36% less time to reach breakeven from their investments in business model innovation. In a tightening market, where being able to quickly pivot an offering, and monetise new trends, this could be the difference between a good year and a struggle for survival at some firms.
At the same time, firms still need to spend money to make money. While companies often look to scale back investment on new projects at times of economic distress, this can be counter intuitive – as it takes money away from their ability to adapt to new opportunities.
The key is to decide where to prioritise spending on innovation. Analysis from ADL shows that the spending profile of innovation leaders is more likely to take a chance on new technology, in order to vie for new customers, than less successful firms. Around 25% of leaders’ innovation spend goes to new technology, which could help court new markets and consumers – compared to just 13% of lesser-performers. In contrast, firms which were less successful at realising the benefits of innovation played it safe, investing 45% of their budget on existing technology, to benefit established customers – 10% more than innovation leaders.
Illustrating the potential that daring to still invest in new technology brings, a recent study found that European firms willing to take a risk on things like generative AI now could be in line to benefit by a combined $3 trillion. If firms hope to make ground on innovation leaders in the coming months, however, they will need to do more than simply re-evaluate where and how they spend their money.
ADL’s researchers identified several areas where organisations need to improve, if they are to boost their innovation success. Many firms have already adopted innovation strategy, objectives and governance principles; boosted their deployment capacities; and defined processes for resource and competence management. But fewer have weighed up how to gain greater technology intelligence to couple with market intelligence; or geared this towards idea management and their ecosystem processes – something which could immediately see their new products taken up by their own supply chain, supper-charging their launch.
