Many companies assume that innovation and growth come hand in hand — that creative, new ideas will spark more business and provide a better way to run a company. But not many understand how to turn those ideas into commercial reality. So, what distinguishes companies that achieve growth from innovation and those that don’t? One factor is implementing more disciplined governance, highlights a recent research from Accenture.
The report titled Governing Innovation: The Recipe for Portfolio Growth that surveyed over 1000 executives across 11 industries, reveals that the answer isn’t just adding more to the innovation budget, but to allow innovation to thrive in the right businesses. In order to do so, increased governance can create the right conditions for innovation to thrive in the right businesses. In other words, companies should allocate innovation investments based on their businesses’ future potential and apply governance to extract value from those investments.
While the research attempts to understand how organizations apply different types of innovation across their business portfolios, to get greater value from their innovation investments, the findings show that businesses have a long way to go in terms of governing innovation. As the report said, “Less than one in eight companies governs innovation extensively, and those that do have achieved twice the revenue growth of the vast majority of companies that govern innovation in a more haphazard way.”
A key finding was that only 12% of companies govern innovation extensively, and those companies achieved a CAGR of 5.9% on average, from 2013-2018, compared with a CAGR of 2.9% percent, on average, for the 88% of companies that govern innovation more haphazardly.
“While Indian companies are increasing their innovation investments, majority are focussed on incremental innovation, thereby limiting their ability to derive tangible value. There is also a prevalent misconception that a systematic approach or an innovation process stifles ingenuity,” said Anindya Basu, geographic unit and country senior managing director, Accenture in India.
The researchers identified 12 key governance rituals companies should practice to effectively govern innovation and classified them under four heads:
The first stage is the Inspiration stage
- Put innovation at the center of corporate strategy
- Actively communicate the innovation agenda to employees and the investor community
- Actively build a culture of innovation
The second stage is the Ideation stage
- Everyone generates ideas to improve existing offerings
- A diverse team of experts generates ideas for brand new offerings
- Identify disruptive ideas with the help of tech partners
The third is the Experimentation stage
- Experimentation investments are made as part of the budgeting lifecycle
- These investments are funded gradually
- Experiments are conducted by an innovation lab/digital factory
The final stage is Scaling
- Scale with technology partners
- Scale with talent partners
- Scale through an innovation lab/digital factory
“Our experience proves that strategic commitment, brought to life by the right governance through these rituals, can unlock tremendous value trapped within innovation investments.”
While the vast majority (84%) of executives surveyed said they direct innovation centrally — example, through a chief innovation officer or an innovation committee — the report notes that centralized direction and management might not be enough.
“The growing hunger for innovation is putting it at the core of every new business decision, but many companies lack the discipline needed to turn their innovation investments into growth,” said Paul Daugherty, Accenture’s chief technology & innovation officer.
“While many see innovation as a creative force that can’t be controlled, our research reveals that a systematic approach to managing innovation and governing it extensively can provide tangible financial impact,” he said.
Once it’s clear which type of innovation is needed — and in which businesses — organizations need to identify the right governance rituals to ensure that their innovation investments are geared toward achieving the desired growth.
One example illustrated in the report is Schneider Electric, a leading company specializing in energy management and industrial automation. The company takes a pervasive approach to innovation, applying incremental and non-incremental innovation across its entire portfolio of businesses. Doing this has enabled Schneider to generate balanced growth — increasing revenues in both its core and newer businesses in 2018 by 7-9%, respectively.
The study showed that organizations are better able to exert control over their innovation investments when they follow at least some of these rituals, the greater their revenue growth. In fact, organizations that approach innovation haphazardly today, but plan to switch to governing innovation investments extensively, expect to more than double their compound annual revenue growth at the portfolio level — from 2.9% today to 6.5% in the future, on average.