Limits to Growth
21 November 05
Remember when Quality was Job 1 at
Ford? Now it’s going to be innovation. At the end of October, Ford
Motor Company underlined the importance of corporate innovation by
adopting it as the major theme for the company’s products and culture.
Ford CEO Bill Ford
“Innovation will be
the compass that guides this company going forward.”
Ford CEO Bill Ford in Ford’s new ad
campaign
Ford follows in the footsteps of companies like GE, which is also
emphasizing innovation, and trying to improve its innovative
capabilities.
Ford and GE are two
examples of a trend that has been
noted in virtually all recent surveys on the topic: large companies are
looking towards innovation to provide needed internal growth.
In fact, survey after survey highlights
the same two messages:
- Growth is back… Generating profitable
growth has moved to the forefront of concern for most
big companies. Most executives surveyed see innovation, as
embodied in new products, services and technologies, as a vital path
to achieving this growth.
- … but growth capabilities need improvement.
Executives consistently express dis-satisfaction with their
company’s ability to generate organic growth via innovation.
1. Growth is back …
In 2004, IBM Business
Consulting Services interviewed 456 CEOs of global companies. Eighty
percent of these CEOs declared that their primary objective had shifted
from cost-cutting to revenue growth. As one participant noted:
“Cost cutting was
the trend of the past two years. Now it is growing the top line and
keeping the bottom line in check.”
Survey respondent, IBM Global CEO Study
2004
In 2005, the Boston
Consulting Group (BCG) reported the
results of its Senior Management Survey on Innovation and Growth. Of
the 940 executives who participated in the survey, 90 percent said that
generating organic growth through innovation had become essential for
success in their industry. More than 90 percent of the respondents were
planning on increasing innovation investment from 2004 levels.
In 2002, Bain & Company
surveyed more than 200 business executives and found that 80 percent of
the respondents ranked “becoming more innovative” as one of their top
three priorities for achieving company success.
91 percent described increasing their company’s capacity for innovation
as “critical to creating future competitive advantage and earning
profits.”
Very similar results were also found
in surveys conducted by both Booz Allen Hamilton and the Council on
Competitiveness.
2. …. but
capabilities need improvement.
The same executives who
believe innovation is absolutely essential for their company’s success
seem to have equally strong reservations about their abilities to
achieve it. Two-thirds of the
respondents in the Bain & Company study were dis-satisfied with the
quality and frequency of innovations at their companies. Similar
results were found in the other studies as well.
The BCG study provided
some reasons for this dis-satisfaction. They found that most company
executives were more concerned with failures of execution rather
than with issues in ideation. As one BCG survey participant
noted:
“We have great ideas, but we don’t have
the right people or capacity either to go to market, or to sustain an
investment over the lifecycle.”
BCG survey respondent
For many companies,
problems in execution relate primarily to constraints on time and
resources. In the Council on Competitiveness’ 2005 National Innovation
Survey, for example, over 60 percent of respondents highlighted
competing internal priorities as the major challenge to effective
innovation.
Council on Competitiveness, 2005 National
Innovation Survey
Top four challenges to innovation
Most companies don’t
compete directly on innovation, so innovative activities are often given
a lower priority in daily work than are other initiatives. Innovative
activities often have internally focused milestones, so missing them has
less immediate impact than does missing a customer delivery milestone,
for example.
Almost all executives see
innovation as an increasingly important component for their long-term
growth and prosperity. At the same time, innovative activities provide
less help for them in their day-to-day operations and imperatives.
When the Council on Competitiveness asked about 200 senior executives at
large American companies to rank the importance of innovation and new
products in their ability to gain new sales, the area ranked fifth out
of six.
Council
on Competitiveness, 2005 National Innovation Survey
Competing on innovation ranks fifth of
six factors
As a result, innovation
initiatives get crowded out by more urgent matters relating to
day-to-day operating performance.
There’s no shortage of
desire for improved innovation performance. But succeeding in
innovation requires taking resources away from activities that have more
immediate and certain payoffs.
More Information:
- IBM’s work was reported out in its “Global
CEO Study 2004.”
- The Boston Consulting Group’s report is called
“Innovation
2005”.
- The Council on Competitiveness’ “National
Innovation Survey 2005” was released on 31 Oct 05.
- Bain & Company’s survey results were reported
in The Harvard Business Review in October 2002 in an article
entitled “Open
Market Innovation.”
