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Companies only have themselves to blame when innovation fails

colm reilly | management today | 25 August 2015 

In a world of relentless change, it goes without saying that all companies, irrespective of size or sector, need innovation to grow and thrive. And in a world of stagnating productivity, the global economy needs successful new ideas more than ever too.

But as much as half of potential innovation - taking an idea or invention and converting it into a new product or a service that a customer will pay for – is failing. And it’s not the fault of governments, often viewed as being meddlesome, or the much criticised regulators. In fact, companies themselves are to blame.

We talked to 751 companies across the world about their experience of what worked and what didn’t when bringing new products and services to market. The results were startling.

Half the senior executives we spoke to told us that their ideas had failed for entirely avoidable reasons, while almost the same number (47%) described their innovation activity as, at times, a costly failure. When these findings are applied to recent figures on innovation spending (for example, charity Nesta estimated that £127bn was spent on ‘intangible innovation’ in 2011), they suggest that organisations are wasting hundreds of billions of pounds every year.

Moreover, these executives felt the failures reflected limitations in their own organisations - such as a lack of leadership or sustained funding. Their internal processes did not adapt fast enough and there was a lack of participation in innovating from the organisation as a whole.

While performance varied across sectors and countries, disappointingly, British senior executives reported more innovation failures than their European counterparts. One of the surprising findings from our survey was that only 7% of UK organisations provide rewards or bonuses to staff to encourage innovation, compared with 26% in Sweden and Germany.

It doesn’t have to be this way. The research also identified a small group of ‘innovation leaders’ across sectors, which seem to be better than their peers at embedding a culture of innovation and then actually translating that into financial reward.

Out of all the survey respondents, 29% strongly agreed their leadership is good at nurturing and encouraging innovation. Of course that doesn’t automatically mean their company does that in reality. But in the last 12 months, 71% of these private sector ‘innovation leaders’ saw their profitability increase at rates beyond the rest of their industry.

The innovation drain

How organisations can stop wasting their best ideas

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Those that get it right, the market leaders, make a commitment to innovation on a long-term sustained basis rather than hoping for a ‘one-hit wonder’. They recognise that innovation requires a system-wide approach, involving customers, competitors and government (which, unlike the traditional view of the obstructive state, is actually crucial in fostering innovation).

To work, innovation can’t be treated in isolation, with a single department tasked to come up with bright ideas. It is something that has to be embedded in the business, from the boardroom to customer service. More organisations need to have a chief innovation officer on the board and everybody should be rewarded for innovation.

Finally, successful innovators take a longer term view. They fail more – but they learn fast. And crucially, they succeed more in the long run.

Our productivity, competitiveness and, ultimately, global export growth depend on improving the success rate of our investments in innovation. We need to find ways to enable companies to embed innovative thinking at all levels, learn quickly from failure and harness the right mix of talent to implement new ideas.

This will need strong leaders who not only encourage and nurture innovation in business, but own up when it fails - and who don’t blame the regulators.

Colm Reilly leads PA Consulting Group’s economic development work

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