Consumer electronics companies losing innovation

NEW YORK, USA: Innovation is a top priority for companies seeking to grow in the wake of the economic downturn, but flaws in managing innovation may hinder their progress, according to three studies released today by Accenture.

In one study of more than 630 US and UK executives, almost half (48 percent) of those surveyed said their companies had increased funding for innovation in the preceding six months, while one-third (33 percent) said their innovation funding remained the same.

Additionally, nearly nine out of 10 respondents (89 percent) said that innovation is as important, if not more important, than cost reduction to their company’s ability to achieve future growth.

However, the studies found several flaws in the corporate management of innovation, including:

* failure to learn from mistakes;
* widespread risk aversion;
* need for more collaboration; and
* too much emphasis on making incremental improvements.

These are among the key findings that emerged from three studies conducted by Accenture in the first half of 2009. The US-UK study queried executives across several industries, including automotive, banking, capital markets, consumer goods and services, electronics and high-tech, insurance, manufacturing, pharmaceutical and medical products, and retail. The second study focused on innovation in the consumer technology industry in North America, Europe and Asia. The third focused on the communications industry across the US and Europe.

“Companies can’t afford to avoid risk; they must learn from their mistakes and make the bold moves required to grow their company and position it for the economic upturn,” said Mark Foster, Accenture’s group chief executive, Global Markets and Management Consulting. “Unfortunately, many companies don’t have the processes that would enable them to conduct the risk-benefit analysis required to comfortably make the decisions associated with pursuing big bets, which is why innovation oftentimes doesn’t deliver the silver bullet companies seek.”

“Managers must lead by example, collaborate across departments, communicate the business strategy down the line and inspire their teams to engineer the next category-defining product,” Foster said. “Companies that fail to do so may lose significant ground to competitors who understand the value of innovation and manage it well.”

In the most recent study, 50 percent of respondents in the US and the UK reported that their most successful innovation has been development of a new product or service. Yet, 74 percent of the respondents said their companies pursue incremental improvements, such as line extensions, and two-thirds (66 percent) said their organizations have made short-term financial results a priority over long-term investments.

Additionally, nearly three-quarters (73 percent) of US respondents and nearly one-third (30 percent) of U.K. respondents said their organizations failed to learn from their mistakes.

Among the reasons respondents from both countries cited most frequently for new product or service launch failures were their inability to meet customer needs (57 percent), being late to market (54 percent) and incorrect pricing (52 percent). They also cited the lack of a new or unique customer-perceived value proposition (50 percent), supply chain issues (44 percent) and incorrect forecasting (43 percent).

One-third of the respondents (33 percent) also cited their inability to leverage new technology as a hurdle to innovation.

Consumer technology and communications, media and high-tech studies reveal similar findings
Many of the innovation-related challenges uncovered in the cross-industry study are similar to those Accenture found when it surveyed executives in the consumer technology and communications provider industries.

For the consumer technology study, Accenture interviewed executives who work for companies that generate nearly two-thirds of the industry’s annual global revenues. Typical of the results found in all three surveys, one executive said that about 60 percent of his company’s innovation pipeline was focused on incremental rather than breakthrough innovation.

The study also revealed that business units typically work in silos, lack communications across departments and pursue innovation projects that impede collaboration. It also showed that employees are unwilling to collaborate because they fear the risk of someone else taking credit for their ideas.

One executive described the situation this way: “If companies are doing something truly innovative, they are probably going against existing business practices. Opposing forces will likely counteract them. Among some consumer technology firms there is the belief that if it’s innovative, everyone will embrace it, but often just the opposite happens.”

Meanwhile, communications, media and high-tech executives in the US and Europe participating in the third of the three studies said their companies want to decrease the time required to launch new products and reduce development costs.

In fact, 58 percent of the respondents said their companies’ new-product development budgets are plagued by cost overruns. And, 70 percent of the respondents said that as the economic downturn evolved, the development of at least some services and products was stopped -– a decision that also reflected budget cuts and a shortage of people with the expertise to generate innovations or manage new-product development.

The study also found that communications, high-tech and media firms in Europe will lead the way in new-product and service launches in the coming year.

The research found that:
* 50 percent of consumer electronics executives surveyed have spent less on innovation during the ongoing economic downturn—whereas several industries increased or maintained levels of innovation spending.

* There is too much incremental versus long-term, large-scale innovation. One respondent surveyed indicated that incremental, as opposed to breakthrough, innovation accounts for 60 percent of his company's pipeline.

* There are far too many self-centered business unit silos. These silos impede collaboration on innovation efforts that can benefit the broader company. Employees don't compromise their success for the sake of another business unit.

* There is an overdependence on backward-looking innovation metrics such as the number of patents, revenue realized from new products and the percentage of revenue derived from innovation initiatives.

* There is overemphasis on the next "silver bullet" product, as opposed to a balanced, holistic view of the product portfolio.

* There are far too many ad hoc innovation processes, especially for larger breakthrough innovation efforts, making it difficult to deliver value. Firms also have difficulty identifying and obtaining creative talent to supplement engineering talent, thwarting the goal of ensuring innovation is approached from diverse perspectives.