• by Jack Loechner , Staff Writer @mp_research, May 22, 2013

Innovation is not working out the way many companies expected. Rather than offering “the next big thing,” innovations coming to market today are more typically line extensions. Instead of the disruptive products, services, and business models that were anticipated several years ago, many initiatives have become considerably more limited in scope. 

This cautious approach to innovation is a potentially perilous strategy, says a recent Accenture study by Wouter Koetzier, global Managing Director of Accenture’s Innovation and Product Development Consulting Practice, and Adi Alon, Managing Director in Accenture’s Innovation and Product Development Consulting Practice. The study identifies the state of innovation by surveying 519 executives at large U.S., U.K., and French organizations with revenues greater than $100 million. A consistent theme emerged, say the authors, revealing two dominant obstacles that respondents say stand in the way of driving higher returns from innovation.

The first challenge is the conservative approach itself, focusing on individual line extension renovation rather than developing a broader portfolio that also includes bold, big ideas. Renovation can limit innovation to small incremental improvements and fail to result in significant step changes and revenue opportunities, say the respondents. Enterprises that are able to successfully innovate at a breakthrough level can increase the likelihood that they will dominate and prosper in new markets that they create. Enterprises that restrict themselves to incremental innovation, on the other hand, risk unknowingly entering a vicious cycle in which they lag ever farther behind.

The second challenge is the “invention” trap, which Accenture explains to be overreliance on the invention process itself to produce success and relative lack of systematic, enterprise-wide processes capable of commercializing inventions into products or services at scale, bringing them to market in a sufficiently timely fashion and reaping the expected returns. 

 Survey respondents are aware of the importance of innovation, with 70% ranking innovation among their top five priorities, 18% put it at the head of the list. 52% in the communications sector and 44% in manufacturing called innovation “extremely important” as a key enabler facilitating their company’s successful response to persistent change.

Companies have also committed to investing resources and organizational capacity to drive innovation. Despite economic volatility, 51% report an increase in funding that leads to new products and services in contrast to 10% whose funding has declined. Among sectors investing in innovation, manufacturing leads with 74% reporting increased levels. Those least likely to have increased investment are retail (32%) and consumer goods (34%), where investment levels in innovation is already high.

60% of respondents now have a Chief Innovation Officer (or comparable position), in contrast to 54% in a similar survey conducted in 2009. Such a position is most prevalent within:

• Utility companies (73%)
• Electronics and high tech companies (71%)
• Manufacturers (70%)

Innovation is increasingly being measured, says the report, with 87% of respondents “formally evaluated on innovation activities” (up from 64% in 2009). 93% of the executives continue to regard their company’s long-term success to be dependent on its ability to innovate, but at the same time only 18% believe their own innovation strategy is delivering a competitive advantage. Fewer than half the present-day respondents believe they have an effective approach to new product development or are seeking innovation effectively. In particular, “commercialization and launch” and “achieving consistent innovation performance” experienced the sharpest drop in executives’ assessment of their company’s performance.

Only 34% of respondents believe their company has a well-defined innovation strategy. 46% say they have become more risk averse in considering new ideas, 45% see their company pursuing a portfolio of smaller, safer opportunities rather than seeking the next breakthrough. On a variety of measures, initial idea generation, product development, manufacturing and testing, commercialization and launch, portfolio optimization, executives are less satisfied today than in 2009. Most tellingly, confidence that expectations can be met in the future is waning.

In 2009, the objective of innovation for 30% of companies was to disrupt existent markets; in 2012 the proportion had shrunk to 26%. Correspondingly, the approach currently pursued by 64% of respondents is not transformative in pursuit of totally new products or services, but rather more limited incremental line extensions.

Respondents cited specific challenges to innovation that include:

• Predicting future trends (30%)
• Achieving cost containment (27%)
• Securing ongoing budget support (26%)
• Leveraging new technology (26%)
• Transforming new ideas into marketable goods and services (24%)

Organizations that have a formal system in place for innovation, consistently report better outcomes and higher levels of satisfaction from their innovation investment. In terms of “initial idea generation,” 43% of the companies with such systems in place report they are very satisfied in contrast to 24% with only an informal system; 32% are very satisfied in the “analysis of data to inform R&D decisions” vs. 21%; 36% are very satisfied with “product development” vs. 25%; 32% are very satisfied with “commercialization and launch” vs. 22%; 38% are very satisfied at the return of investment or profits from innovation vs. 22%.

The report concludes by suggesting that a formal system approach to innovation that entails five key aspects:

• Run Innovation as an end-to-end value chain emphasizing speed and flexibility
• Move from product to business innovation, integrating elements of product, service, technology and personalization
• Apply risk management practices specifically tailored to innovation to identify future opportunities and to properly evaluate your innovation portfolio
• Leverage the digital power of Big Data and social media to integrate the Voice of the Customer into the development processes and drive a high level of personalized experience
• Pursue frugal innovation both to capture middle class consumers in emerging economies and also to disrupt markets in developed economies 

Additional information may be found at Accenture, or from Mr. Koetzier or Mr. Alon