Why Low-Risk Innovation Is Costly

Why Low-Risk Innovation Is Costly

Companies are finding it hard to churn out “the next big thing”. Instead of the disruptive products, services and business models of yesteryears, innovations coming to market today are typically line extensions.

An Accenture survey of more than 500 executives has found that while one in five (18 percent) respondents rate innovation as their top strategic priority and two-thirds depend strongly on innovation for their long-term strategy success, and more than half feel they have a sluggish innovation process. Companies are seeking to innovate but are increasingly less satisfied with the results. The respondents also have an answer to why this is happening. They are aware that a cautious approach and reduced investment by companies to generate renovation or, at best, incremental innovation is a potentially perilous strategy. By putting formal systems in place to manage innovation, companies can protect themselves from such risks. Enterprises able to successfully innovate at a breakthrough level are far more likely to dominate and prosper in the new markets they create. They can also position themselves to master change.

Last updated: May 17, 2013 10:26 pm

Companies see innovation without results

By Paul Taylor

The vast bulk of corporate innovation initiatives are failing to deliver the results that senior executives expected. Despite increased investment in innovation, only 18 per cent of executives believe their company’s innovation efforts deliver a competitive advantage, according to a survey conducted by Accenture and published this week.The survey, based on responses from just over half the 519 companies spread across more than 12 industry sectors in France, the UK and the US, suggests that companies are struggling to turn investments designed to spur innovation into meaningful results, in part because they do not take enough risks.

Among executives within the high tech sector, only 13 per cent of executives believe their respective companies’ innovation initiatives deliver a competitive advantage, although technology companies appear to be much more committed to innovation compared to executives from the 11 other industries.

Overall, just over half the respondents said they had increased funding for innovation, and 93 per cent said the long-term success of their organisation’s strategy depends on their ability to innovate. Seventy per cent placed innovation among their company’s top five priorities.

But despite this commitment, the report called “Why ‘Low Risk’ Innovation Is Costly”, found a decline in the satisfaction with innovation performance compared to the results of a similar Accenture study conducted in 2009.

Among the main reasons that innovation results fall short, companies appear focused on relatively low-risk activities like extending product lines rather than pursuing new products and other breakthroughs.

In fact, 64 per cent of respondents said they are focused on product-line extensions rather than big ideas, and the proportion of executives likely to identify the introduction of a new product category as a primary goal for innovation fell to just 27 per cent from 42 per cent in the 2009 study.

Thirty-three per cent said their primary goal was the expansion of the product suites that support their basic offerings and 46 per cent of the executives said their company had become more risk averse when considering new ideas.

“Many companies take a low-risk approach to innovation that can jeopardise results because they lack a prudent, disciplined approach for innovation risk management,” said Wouter Koetzier, managing director for Innovation and Product Development at Accenture. “It’s a situation compounded for many by an inability to rapidly scale inventions.”

However, Mr Koetzier said the research also suggests that those companies that have a formal, end-to end management system designed to nurture, scale and launch innovations tend to be more satisfied with their results because they achieve stronger outcomes.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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