1999

Companies not getting innovation from their R&D spend - Research from PA Consulting on growth through innovation - 17 December 1999

Growth through innovation – governments encourage it, companies strive for it but who really understands what it means or how to achieve it? According to research from PA Consulting, innovation means very different things to different functions in an organisation, and companies that emphasise innovation in the marketplace are more profitable than those that emphasise product innovation. Most surprising of all, companies that spend more on R&D are not launching more innovative products than their competitors.

The research, Going for growth – realising the value of innovation, looks at the business results of innovation and at what companies need to do to achieve growth through innovation. The findings lead PA to conclude that achieving growth through innovation is not a technological issue but a management one. John Buckley, a member of PA’s management group, commented:

"There is no silver bullet to making innovation happen. You have to have all the jigsaw in place, the infrastructure, the technology, and so on. But the surprise to me was that without vision and committed leadership from the top, it’s not going to happen."

The key findings are:

What does innovation mean?
According to the survey, there are important differences of perception about what innovation means between different functions in an organisation and different industry sectors. Chief executives and marketing directors agree that the focus for innovation should be on marketing issues and the way the company relates to its customers. Technical directors believe that the role of science and technology in introducing new products will need to increase substantially. "Companies must resolve this disagreement within the leadership team if they are to focus their innovation effort most effectively", commented Buckley.

Innovation and business growth
PA compared companies’ definitions of innovation with their profit margin. It found that highly profitable companies emphasise a view of innovation that focuses on marketing much more strongly than low profitability companies and both groups expect the marketing focus to be more dominant in future. In addition, the research found a direct link between companies’ innovation and their total shareholder return*.

R &D spending is only one element of the answer to the innovation question
PA expected this research to show that companies spending more on R&D might be launching more innovative products or getting more turnover from innovation but there was no direct relationship. However, there was a correlation between spend and improving the production process. "Clearly, many companies in the survey, are focusing their research work on incremental product development rather than on breakthrough innovation– this is a risk averse, short term strategy", added Buckley.

So how should companies achieve growth through innovation?
PA identified nine qualities of innovative companies. Some of these characteristics are strategic, others relate to infrastructure requirements. However, the research revealed two qualities that mark out the most innovative companies: these are leadership and creativity.

John Buckley concluded: "It will not be long before shareholders learn to question the value they get from investment in research and development. Companies will need to demonstrate their track record in innovation and to understand how they achieve growth through innovation. This research shows that is still some way off.

"Harnessing innovation, as companies will testify, is not easy. From this research, achieving innovation is both a soft issue – because the success factors are intangibles - leadership and creativity – but also a hard issue, because getting the soft issues right is always the hardest thing."

Copies of the innovation report Going for Growth - Realising the Value of Innovation are available from PA Consulting on 01763-267132.

For more information, please contact:

John O'Neill PA Consulting Group Cambridge Technology Centre Melbourn Royston, HERTS SG8 6DP United Kingdom Tel: +44 1763 267 133 E-mail: Technology marketing manager

Notes to editors

1. A copy of the innovation survey report Going for Growth - Realising the Value of Innovation is attached. Separate charts are available from Heather Smith.
2. About the research
   For several years, the DTI has published its R&D Scoreboard, an important survey which reports investment in research and development - typically a key measure of a company's commitment to innovation. PA believes companies place too much importance on this input measure and that more benefit is gained from spotlighting the value created by innovation (output metrics). PA has carried out a major survey among UK companies to explore how companies are managing and measuring innovation.
3. Survey methodology
   The survey was carried out during May 1999. The population surveyed was the group of companies identified in the 1998 Department of Trade and Industry (DTI) R&D Scoreboard as the 500 companies in the UK that spend most on research and development. This population changes only gradually from year to year, and most of the companies in that population were the same as in the previous and following years. At the top of this list, many of the companies are international or multinational operations, many of them very large. 151 companies took part in the research, 30 per cent of the target population. The respondents were 20 per cent chief executives, 40 per cent marketing directors, and 40 per cent technical or R&D directors.
4. Definitions
   We used the word ‘innovation in the survey without imposing our own definition of its meaning. There are many valid definitions, and each company must find its own. The range of industry sectors covered is wide, and each will have its own idea of what is truly innovative as opposed to what new products or services are merely incremental extensions of existing practice.
5. PA Consulting Group is a leading management, systems and technology consultancy, with a unique commitment to the integration of these capabilities. Established almost 60 years ago, and operating worldwide from over 30 offices in some 20 countries, PA draws on the knowledge and experience of about 2,700 employees, whose skills span the initial generation of ideas and insights all the way through to detailed implementation, including:
   • Strategic management, and managing for shareholder value
   • Accelerating business growth, especially through innovation and technology
   • Improving business design and performance, including customer relationship management, enterprise-wide systems for the supply chain, and full e-business solutions
   • Mobilising human resources
   • Delivering change effectively, including projects and programmes.

PA focuses on creating benefits for clients rather than merely proposing them, and this focus is supported by an outstanding implementation track record in every major industry and for governments around the world. PA also develops leading-edge technology both for its clients and within its own portfolio of venture companies in areas ranging from software to wireless technology to life sciences.

PA distinguishes itself from its competitors through the range and quality of its people, its development and use of technology, and also its independence. PA’s work in every area from strategic management to project delivery is enhanced by its expertise in all the other areas. PA’s consultants, whatever their special skills, all share:

• A highly commercial approach to clients’ problems and opportunities
• A technologically sophisticated view of both the industry sectors we serve and the solutions we deliver
• A culture of respect, collaboration and flexibility in working with our clients to achieve their aims.

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