The fact that we have always hungered for innovation is evident from the history of human kind. This hunger for progress also explains why innovation is the driving force behind economic growth. As innovation transforms the way we live, work and do business, what can we learn from organisations that are harnessing its power most effectively?
Foundations of a new world order
Organisations must continually innovate if they want to drive rapid and profitable revenue growth. Nearly half (43%) of executives surveyed by PwC for our Breakthrough innovation and growth report said that innovation was a ‘competitive necessity’ for their organisation. What’s more, the vast majority (93%) indicated that organic growth through innovation would be the biggest contributor to their organisation’s revenue growth over the next five years.
Due to the huge disruption that digital technology is bringing to every sector, innovation has to some extent become synonymous with digital transformation. PwC’s report, Industry 4.0: Building the digital enterprise, reveals that industrial and manufacturing companies are digitising every aspect of their businesses, from their product development and purchasing processes through to the way in which they serve their customers. They are investing around 5% of their annual revenues to achieve this, spending US$907bn every year through to 2020. But successful innovation isn’t just about digital technology. As Industry 4.0 explains, it also depends on an organisation’s ‘Digital IQ’ – how its people, processes and business model respond to opportunities in this era of rapid transformation.
But what does it take to be truly innovative? Well, innovative organisations tend to have a strong learning culture in place. They give their people the time and space to think differently. They also incentivise their people based on the outcomes they achieve, rather than the work they do, so that they have the freedom to take a fresh approach to old challenges. Finally, they put in place processes to enable their people to take their ideas to market.
As far as innovative cultures go, it’s hard to beat Silicon Valley right now. What distinguishes Silicon Valley firms from other companies is their ability to integrate their innovation strategies with their business strategies. These firms identify their customers’ actual needs, figure out how to meet those needs and then get the necessary product or service to market as fast as possible.
Unleashing the power of innovation within the organisation is ultimately the role of the CEO. Recognising this, CEOs are now taking personal responsibility for directing and inspiring innovation. They’re creating leaders at every level and in every pocket of the organisation to make sure that innovation is not just viewed as the preserve of the chief information officer or research and development. Our Fast Takes on Talent Innovation series explains that the most successful companies are those that create an environment ‘where the ideas and innovations come from everyone’.
Leadership and culture are particularly important given that innovation is becoming more radical. Our survey cited above, found that the way in which companies innovate is being transformed as CEOs look for solutions that offer entirely new sources of revenue, rather than just better products. An example might be a soap powder manufacturer that decides to open up a chain of launderettes or an engine maker that moves from selling engines to charging users for running them.
Cultural challenges can be an obstacle to CEOs, but what else is stopping them from being more innovative? According to our research, nearly half (43%) of CEOs are being held back by a lack of financial resources while 30% are struggling to find the right talent.
Competition for talent helps to explain why innovation has become a truly global activity. Our most recent Global Innovation 1000 research discovered that the overwhelming majority (94%) of the world’s largest innovators carry out part of their research and development programmes abroad. Innovation spending has boomed in China and India since 2008 and more R&D is now conducted in Asia than in North America or Europe. The research also found that businesses with a more global R&D footprint outperformed their less globalised competitors on a variety of financial measures.
Previous Global Innovation 1000 studies have long confirmed that when it comes to innovation, it’s not how much you spend, but how you spend it that matters. Now it’s also case that where you spend can help to determine your success. Innovation could effectively lead to a transformative shake-up of the world order, as we know it – and it might happen sooner than we think.
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