Innovation Leader Versus Laggard Study

IDENTIFIER; SECTOR OR OFFERING; AKKUR AT BOLD 7/ 12 ; 1 LINE MAXIMUMGlobal Innovation SurveyInnovation Leader versus Laggard Study

About the authors Freek Duppen Freek Duppen is a managing consultant with Capgemini Consulting based in The Netherlands. He specializes in business innovation, with a focus on innovation strategy, new business and operating models, and innovation management. Dianne Inniss Dianne Inniss is a managing consultant with Capgemini Consulting based in North America. She specializes in strategy and transformation, with a focus on growth strategy, innovation and marketing strategy.

Global Innovation SurveyInnovation Leader versus Laggard StudyDecember 2010Freek DuppenDianne Inniss

Executive SummaryAs the knowledge partner of the World Innovation Forum, Innovation is considered a top strategic priority,Capgemini Consulting has recently completed its global with a primary focus on identifying new businessinnovation survey on the current state of innovation. opportunities to take advantage of an economicThe result is our second innovation leader versus laggard upturn.study. It covers five key areas that affect a company’s inno-vation success: the strategic outlook companies have with n Innovation is considered a top-three strategic priorityrespect to innovation, their capabilities to manage the by more than seventy-six percent of the respondents.innovation process, the overall impact of technology, the Moreover, making innovation a top priority pays off.innovation function itself, and how these factors influence This is evidenced by the correlation found betweencompanies’ spending plans. The study offers a unique ranking innovation as the top priority and its positiveperspective by looking at the differences in behavior of impact on the business results, as illustrated by theinnovation leaders vis-à-vis laggards across these key leader versus laggard comparison.areas. Finally, this report offers an overview of the most n Most innovation efforts are put into customer-focusedimportant implications for innovation executives – look- innovation whereas fewest resources are allocated toing to improve the material impact of their innovation business model innovation. Innovation leaders putefforts on the business results. relatively more effort into business model innovation, whereas innovation laggards allocate more efforts toIn summary, this study reveals that given the strategic incremental product improvement.priority companies allocate to innovation and their cor- n As the global economy begins to rebound, identifyingresponding spending plans, the maturity of their formal new business opportunities is the primary area of focusinnovation governance structure lags behind considerably. for 46 percent of respondents. In addition, innovationTo overcome many of the innovation bottlenecks encoun- leaders are preparing themselves for hyper growth in atered, it is time to establish an innovation function that new business cycle whilst innovation laggards are focus-is able to deal with this kind of innovation governance ing on increasing productivity of existing assets.and decision-making. Furthermore, there is an enormousunlocked potential for innovation in the involvement of Key opportunity areas with respect to innovationexternal parties in the innovation process. Innovation management are the formalization of the innova-leaders may have outpaced their peers by simply being tion governance structure and the capability tobetter at involving external parties, leveraging a much engage external parties in the innovation process.broader innovation network and increasing innovationpotential. Also, the study shows that more value, in terms n Executive level commitment and the idea generationof impact on business results, is to be expected from and enablement process are the overall best developedbusiness model innovation, than from any other form innovation management capabilities. Most concern ex-of innovation. Targeting new business opportunities in ists around the innovation governance structure amongemerging markets is much more likely to be successful respondents.when approached outside of the traditional competitive n Most respondents – 53,5 percent – indicate they havelandscape. developed relationships with third parties to support their innovation efforts on an ongoing basis.These and a wide range of other relevant findings for n The large majority of 89 percent of survey respondentsinnovation and business executives are elaborated on in has made the step to somehow involve their customersthis report. The most important findings per area can be in the innovation process.summarized as follows. n Leaders have advanced to a high level of maturity when it comes to engaging third parties. They maintain ongoing dialogue with their customers or even integrate them into their innovation project teams. On the other hand, laggards are predominantly stuck at the ad-hoc engagement of third parties for innovation and have advanced less in terms of customer involvement.2

Section TitleSection IntroEmerging technologies are expected to have a Companies are increasing their spending onsignificant impact on companies’ value chains, innovation across a wide variety of areas tohowever few companies feel highly capable of improve their capabilities and competitiveness.adapting rapidly to anticipated changes. n The large majority of our survey respondents – 63,5 per-n Technological innovation is anticipated by the majority cent – anticipate an increase in their innovation spend- of respondents to have an incremental (42 percent) up ing over the next 12 months. to fundamental (38 percent) impact on their organiza- n More than half of the respondents (56 percent) say they tions’ value chains. are planning to increase their innovation investments inn Fifty-six percent of respondents say their organization rapidly developing economies. is somewhat capable of adapting rapidly to emerging n When it comes to innovation investment areas our technological innovations. respondents are not intending to change the focus ofn Clearly, our innovation leader group is the best their efforts: new product development (59 percent) and equipped for emerging technological innovations, scor- customer focused innovation (54 percent) come out on ing thirty percent higher in the category ‘highly capable top. When making the split by success rate it appears and prepared’ than their lagging counterparts. that innovation leaders tend to invest more in customer focused and business model innovation, whereas lag-Establishing accountability for innovation through gards invest relatively more in incremental producta corporate function or dedicated executive is improvement.part of the solution towards attaining innovation n Nearly half of the respondents say they are likely toleadership. invest in M&A to improve their innovation capabilities, in particular to gain access to new markets.n When looking at the innovation function within organizations the most frequently mentioned hurdles to innovation success are urgency of pressing day-to-day business demands (54 percent of respondents) and financial constraints (41 percent).n There seems to be a clear relationship between the appointment of an accountable innovation executive and the innovation success rate, with 59 percent of innovation leaders having such an accountable executive versus only 32 percent of the next best performers.n The following types of innovation decisions are mentioned most as decisions to be made by the innovation executive or the corporate innovation function: determining the focus of innovation efforts – i.e. the innovation strategy (80 percent of respondents), and the allocation of funds and innovation portfolio management (67 percent). Executive Summary 3

Contents Leader versus Laggard perspective 05 Strategic Outlook 07 • Strategic Priority • Allocation of Efforts • Innovation Drivers • Focus Areas Capabilities 11 • Innovation Strategy • Innovation Management • Third Party Involvement • Customer Involvement Technology 17 • Impact on Value Chain • Capability to Adapt Innovation Function 19 • Innovation Executive • Decision-making • Constraints Spending Outlook 23 • Anticipated Change in Spending • Rapidly Developing Economies • Investment Areas • M&A Investments Implications for Innovation Executives 27 Appendix 284

Leader TitleSectionversus Laggard perspectiveAs we started off thisSection Intro The methodology differentiates Exhibit 1 shows how respondents areglobal innovation survey between innovation leaders and lag- distributed over these four catego- gards based on a self-assessment by ries. Twenty-four percent of respon-on the occasion of the survey respondents of their innova- dents fit the innovation laggardWorld Innovation Forum, tion success rate. The innovation profile, whereas nearly eleven per-the objectives were success rate is determined by the cent belong to the innovation leaderstwofold: not only did we percentage of innovation efforts that group. This report summarizes the has a positive material impact on the difference in behavior of innovationwant to understand the company’s business results. leaders vis-à-vis laggards across fivecurrent state of affairs key areas that affect a company’s in-regarding innovation, but We distinguish between 4 categories novation success.we also wanted to identify of innovation success based on this rate, namely: ‘Less than 25%’, ‘25-what drives the success 49%’, ‘50-74%’ and ‘Over 75%’ ofof companies that view innovation efforts having a positivethemselves as successful material impact on the company’sinnovators. The result is business results. The ‘Less than 25%’ category represents the innovationthis innovation leader laggard group and the ‘Over 75%’versus laggard study. category the innovation leader group of analysis. Exhibit 1: Success rate % of respondents, n = 375 What percentage of your innovation efforts has a positive material impact on the business results? 40.8 24 10,7 24 24.5 10.7 Less than 25% 25-49% 50-74% Over 75% LAGGARDS LEADERS Footer Right; Document Title Akkuratversus Laggard perspective Leader Bold 6.5pt; maximum 1 line 5

Strategic OutlookAmidst ongoing economic Strategic Priority Forty percent of the innovationuncertainty, but with Innovation is considered a top-three leader group (with innovation efforts strategic priority by over seventy-six having over 75% positive materialincreasing indicators of percent of the respondents (Exhibit 2). impact on the business results) haseconomic recovery, survey It is even considered the top strategic made innovation a top strategic pri-respondents were asked priority by nearly a quarter of respon- ority, versus only eighteen percent inabout their strategic out- dents. With such a strong emphasis the innovation laggard group (with on innovation as a strategic driver for innovation efforts having less thanlook with regard to inno- improving business results, it is of 25% positive material impact on thevation. Four specific ele- paramount importance to understand business results).ments are addressed in the current state of affairs regardingthis context, namely the this topic and where it is heading. Perhaps equally interesting is the fact Moreover, making innovation a top that when looking at the breakdownstrategic priority given to priority pays off. This is evidenced for innovation as a top three prior-innovation, how innovation by the correlation found between ity by innovation success rate, itefforts are allocated, the ranking innovation as the top prior- becomes clear that making innova-primary drivers for inno- ity and its positive impact the busi- tion a top-three priority in itself is ness results, as illustrated by the not enough to achieve breakthroughvation, and finally, as the leader versus laggard comparison: business results from innovationglobal economy begins to efforts. There seems to be a clearrebound, what the orga- distinction between companies thatnizations’ primary focusareas are. The most impor-tant findings – taking into Exhibit 2: Strategic Priorityaccount the leader versus % of respondents,¹ n = 375laggard perspective – are Where does innovation rank among your organization’s strategic priorities?discussed below. 76,5 52 24.5 20.5 2.9 Top priority Top-three priority Top-ten priority Not a priority TOP-3 PRIORITY ¹Figures do not sum to 100% because of rounding. Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Strategic Outlook 7

make innovation a top strategic new product development and incre- priority, and the ones that make it mental product development. the single most important strategic priority. As some interviewees notes, Along these lines it is not surprising innovation is always on the strategic that business model innovation agenda; leaders, however, mention comes last in terms of the allocation that the strategic agenda is built of innovation efforts – a focus on op- around innovation as a core element. erational excellence rather than new business, and therefore new operating Allocation of Efforts models, seems logical in an uncertain How does this prioritization of inno- environment. vation translate into the allocation of organizational resources for innova- It is however interesting to find, that tion? Most innovation efforts are cur- when making the split by innova- rently allocated to customer focused tion success rate, it becomes appar- innovation (Exhibit 3). This empha- ent that innovation leaders allocate sis on innovation focused directly on fewer resources to incremental customer needs can be explained by product improvements and use these the economic downturn as compa- resources to beef up their business nies tend to identify new ways to model innovation efforts. In this way squeeze more out of their existing they clearly distinguish themselves clientele. This is followed closely by from their lagging counter parts, Exhibit 3: Allocation of Efforts % of resources allocated to the following,¹ n = 352 How does your organization allocate its innovation efforts? 24 Customer focused innovation 24 24 22 New product development 23 23 18 Incremental product improvement 20 -5% 23 18 Business process innovation 18 18 18 Business model innovation 14 +5% 13 Over 75% 50-74% 25-49% Less than 25% ¹Figures do not sum to 100% because of rounding.8

albeit still to a moderate extent. Thisdoes point in the direction that more Exhibit 4: Innovation driversvalue, in terms of impact on business % of respondents,¹ n = 336results, is to be expected from busi-ness model innovation than from any What are the primary drivers of your organization’s innovation efforts?other form of innovation. 58Innovation Drivers Evolving customer needs 18To better understand what drivesthe allocation of innovation efforts, 13respondents were asked to indicate Technological advances and changes 38the primary drivers of their organiza-tion’s innovation initiatives (Exhibit 134). Evolving customer needs is by far Executive direction/internal demands 15the most important driver for an or-ganization’s innovation efforts, with 558 percent of respondents indicating Macroeconomic/external factors 10this. Thirty-eight percent of respon-dents say technological advances 3and changes are the second most Globalization 12important driver for their innovationefforts, followed by executive direc- 3tion or internal demands. Changing supplier capabilities 3Neither macroeconomic factors Most important Second most importantnor globalization rank high in ¹Multiple answers possiblethese terms, and changing suppliercapabilities closes the ranks. Theextremely low score of changingsupplier capabilities as a driver for Focus Areas preparing for growth to take advan-innovation suggests that few orga- As the global economy begins to tage of an economic upturn, respon-nizations are yet moving towards a rebound, the vast majority of respondents mention the following: somemore open model of innovation. This dents – forty-six percent – say iden- say the optimization of their currentseems awkward as companies such tifying new business opportunities operations through lean operationsas P&G have already been demon- to take advantage of the upturn is and increasing the productivity ofstrating for some time how compa- their primary area of focus (Exhibit existing assets should function as anies can reduce innovation spending, 5). Managing cost control and lean platform for growth. Others – whoand increase the positive impact on operations, and increasing the have already created a lean and meanbusiness results at the same time, by productivity of existing assets, get organization during the downturn –opening up the innovation process to respectively twenty-three and twenty are now focusing on expansion intosuppliers (and other parties). percent of the responses. Only ten emerging markets. They mention percent of the respondents are pre- a variety of elements which shouldThere is much to gain by taking sup- paring themselves for possible hyper enable that, including; the beefingplier-driven innovation into account growth in a new business cycle. up of their sales force; developmentas a driver for innovation. It offers a of strong go-to-market and productunique opportunity for innovation Our conversations with innovation launch capabilities; and the cre-laggards to catch up without making executives shed some more light ation of new business and operatinghuge investments in developing their on these outcomes. When asked models. These companies expect toown innovation capabilities. exactly how their organizations are increase market share in the upturn. Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Strategic Outlook 9

One important factor in this whole leaders hardly focus on increasing story is whether or not companies the productivity of existing assets or have cut back on innovation and on maintaining cost control and lean R&D efforts during the downturn. operations. This means that innova- The ones that did not are clearly tion leaders are mainly concerned better positioned to outperform their with identifying new business op- peers in the longer-term. This brings portunities and preparing for hyper us to a recurring point of concern growth to take advantage of the among innovation executives, the upturn. In other words, it is clear challenge of how to find the right that innovation leaders are heavily balance between optimizing business betting on an upturn and are much results in the short-term and focus- less conservative than their lagging ing on sustainable innovation in the counterparts in their business focus. long-term. This could potentially result in sustainable competitive advantages in In addition, Exhibit 5 clearly shows terms of early-mover advantages and why the gap between innovation the capturing of market share in new leaders and laggards is likely to or emerging markets. increase even further once the economy rebounds. Thirty-five percent of the innovation leader group are preparing themselves for hyper growth in a new business cycle versus only 5 percent in the innovation laggard group. In contrast to the laggards, Exhibit 5: Focus areas % of respondents,¹ n = 323 As the global economy begins to rebound, what is your organization’s primary area of focus? Identifying new businessopportunities 42 46 to take advantage of the upturn 44 13 Maintaining cost control and lean 23 operations 21 10 Increasing productivity of -21% 20 existing assets 31 35 Preparing for hyper growth in a new business cycle 10 +30% 5 Over 75% 50-74% 25-49% Less than 25% ¹Figures do not sum to 100% because of rounding.10

CapabilitiesAnother key area that Innovation Strategy changing supplier capabilities as adefines innovation leader- When it comes to forming an innova- driver for innovation as noted earlier. tion strategy, most respondents rely Despite the relatively low influenceship is an organization’s on consumer trends, corporate strat- of these factors, there is much to gaincapability to innovate. We egy, industry trends and technology when considering the capabilitiesspecifically looked at the trends as the primary inputs into the and resources available outside ofcurrent state of affairs process. (See Exhibit 6). Macro eco- the organizational boundaries, when nomic trends, sociological shifts and determining the innovation strategy.concerning the following the M&A / partnership strategy arefour elements that play an regarded of much less importance for In addition to understanding theimportant role with regard defining innovation strategy. The low inputs into the innovation strategyto innovation capabili- importance of M&A or partnerships process, we are also interested in as an input to the strategic planning how the actual definition of such aties: innovation strategy, of innovation efforts is striking, but strategy takes place. From the follow-innovation management, in line with the low importance of up interviews it became apparentthe involvement of thirdparties in the innovationprocess, and finally, the Exhibit 6: Innovation strategyinvolvement of customers % of respondents,¹ n = 369in a company’s innovation What are the inputs to your organization’s innovation strategy,efforts. in order of importance? (1 – most important,…) 1 Consumer trends 31 16 14 12 9 8 12 2 Corporate strategy 25 18 15 16 8 13 6 3 Industry trends 17 20 19 12 15 6 6 Technology trends 15 19 17 16 14 10 5 Macroeconomic trends 5 6 14 17 20 20 17 Sociological shifts 4 11 12 11 17 23 26 M&A / Partnership strategy 3 10 9 16 16 20 28 1 2 3 4 5 6 7 ¹Multiple answers possible. Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Capabilities 11

that there is no shared understand- business cases, competitive analy- The survey results consistently showing of, nor a shared approach to, sis, a people case, i.e. who will that innovation leaders agree more toinnovation strategy. Interview drive this new innovation, and these statements related to the matu-respondents commented on a wide specific metrics for the emerging rity of innovation management thanrange of factors that are relevant in business areas. innovation laggards, providing clearthis context, when asked how their hints to less successful innovators fororganization defines its innovation Clearly there is no one size fits all ap- areas of improvement.strategy. In sum, we can highlight proach to defining an organization’sthe following: innovation strategy, but there are Noteworthy is the result regardingn Governance: There are a variety of some common challenges in doing it the statement of having a formal in- ways in which the innovation strat- right: novation governance structure, with egy is defined and governed within n Nearly all interview respondents the highest percentage of respon- their organizations. The highest say balancing the more short-term dents – twenty percent – strongly level leadership is nearly always oriented marketing insights and disagreeing (versus 21 percent involved. In addition, some make requirements with the longer-term strongly agreeing to the statement). use of any or all of the following to view from R&D is a daunting task. Follow-up interviews confirm that provide input into the process: in- n Secondly, innovation executives respondents are either very content novation councils, cross-functional have not yet found a panacea to- with how innovation is governed steering committees, external wards managing the budget cycles within their organization or see advisory boards, key clients and/or and funding of the innovation ample room for improvement. In external partners. portfolio. particular, areas of concern include:n Organization: We can distinguish balancing between long-term and between corporate-level and busi- Innovation Management short-term innovation success, find- ness unit-level innovation strategy. The second element that determines ing alignment between corporate and Often companies rely on a combi- a company’s capability to innovate business unit-level innovation, and nation of both, combining top- is the way it manages innovation. improving the funding mechanism. down with bottom-up innovation. We asked respondents to rate how There is also often a split made strongly they agreed or disagreed between the organization of in- with a number of statements related cremental and radical innovation, to their innovation management resulting in the latter often being capabilities. The results are shown in organized in an incubator setting. Exhibit 7. For completely new areas, innovation is sometimes sourced through Most survey respondents – 65 an acquisition strategy. percent – strong-ly or somewhatn Approach: Interaction between the agree with the statement that they corporate and business unit-level have a high degree of executive level is facilitated through frequent commitment to innovation. This is strategy meetings and dialogues. followed by the facilitation of idea Insights are provided by R&D, generation and enablement pro- marketing and technology gurus. cess (55 percent of respondents) as Innovation portfolio decisions are the second most mature capability usually taken at a corporate-level, related to innovation management. whereas the initial analyses and Finally, 50 percent of respondents selection procedures are performed agree they have strong new product at a BU-level, depending on the development capabilities to drive size of the organization. The innovation in their organization. funnel-approach for more radical innovation typically comprises12

Exhibit 7: Innovation management% of respondents, n = 310Please rate how strongly you agree or disagree with the following statementsrelated to your innovation management capabilities: We have a high degree of executive level 33 32 15 13 7 commitment to innovation We have a formal innovation governance structure to govern innovation in our 21 27 12 21 20 organization We actively facilitate the idea generation and enablement process with appropriate 16 39 24 15 6 culture and tools Employees at all levels and functions in our organization are involved in the process 15 30 21 25 9 of innovation We have strong new product development capabilities to drive innovation in our 14 36 21 19 9 organization We have well understood metrics andmethods to evaluate innovation performance 14 27 22 26 12 and success in our organization We have a clearly deﬁned way to manage our innovation portfolio and prioritize 13 28 26 21 12 innovation efforts in our organization We have well-deﬁned processes for promoting and harvesting innovation in 13 26 20 29 13 our organization Employees at all levels have a clear understanding of how technology 7 24 28 29 12 changes impact our innovation efforts Strongly agree Somewhat agree Neither agree nor disagree Somewhat disagree Strongly disagree Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Capabilities 13

Third Party InvolvementTo what extent do companies use ex- Exhibit 8: Third party involvementternal third parties to support their % of respondents, n = 331innovation efforts? (Exhibit 8). Mostrespondents – thirty-five percent – To what extent do you use external third parties to support your innovation efforts?engage third parties on an ad-hocbasis for specific projects. More thanhalf of the respondents (53,5 per- We do not use external parties to support our efforts at innovation 6 6 15 13 11,5cent) indicate they have developedrelationships with third parties tosupport their innovation efforts on We engage third parties on an ad-hoc 25 39 33 39 35,0an ongoing basis. basis for speciﬁc innovation projects We use a few select partners inThe majority of the innovation leader well-deﬁned relationships to support our 25 31 32 35 31,7group – forty-four percent – has innovation effortsadvanced to a high level of maturity We actively engage a broad cross sectionwhen it comes to integrating third of external partners in formal and informal 44 24 20 14 21,8parties into their innovation efforts. ways to support our innovation effortsThey indicate that they activelyengage a broad cross selection ofexternal partners in formal and Over 75% 50-74% 25-49% Less than 25%informal ways to support their in-novation efforts. The majority ofother innovators – segmented byinnovation success rate – are still at their employees, even becoming However, when taking the leader ver-the ad-hoc engagement level. This integrated with their project teams, sus laggard perspective it becomesprovides a big hint that innova- to support innovation activities. apparent that leaders particularly in-tion success is closely linked to the volve their customers in new productability to involve third parties in It becomes evident that innova- development, whereas laggards putthe innovation process to support tion leaders, reporting high rates of most effort into involving customersones efforts and increase the odds innovation success, have advanced with marketing & sales activities.of a positive impact on the business beyond the less successful innovatorsresults. Innovation leaders may have in terms of customer involvement. Apparently, involving customersoutpaced their peers by being better in new product development has aat involving external partners into There are some other noteworthy higher economic pay-off than involv-their innovation process, leveraging findings from the leader versus ing them in marketing and sales,a much broader innovation network laggard perspective with regard to or service and after sales support.and increasing overall innovation customer involvement. At first sight In other words, to realize a directpotential. there does not seem to be one par- material impact on the business ticular area in the value chain where results from your innovation efforts,Customer Involvement our respondents are keen to involve involving customers in NPD is oughtThe large majority of survey respon- their customers in the innovation to prevail above all other areas.dents (eighty-nine percent) have process; all three suggested areastaken steps somehow involve their - new product development, market-customers in the innovation process. ing & sales, service and after sales(See Exhibit 9). Fifteen percent have support - are mentioned by a signifi-even reached a high level of maturity cant percentage of respondents. (Seein this sense, indicating that their Exhibit 10).customers work closely alongside14

Exhibit 9: Customer involvement% of respondents, n = 336How involved are your customers in your innovation efforts? We do not actively engage customers 13 11 in our innovation efforts 21 19 We consult customers on their changing 38 needs and gather feedback on ideas 33 which are generated in-house 44 We maintain ongoing dialogue with 37 our customers to support multiple 32 elements of the innovation process 25 Our customers work closely alongside our employees, even integrated with our 15 project teams, to support innovation 14Exhibit 10: Customer involvement% of respondents,¹ n = 321In which parts of the value chain do you engage your customers? 65 66 57 We engage customers in We engage customers in We engage customers in Marketing & Sales Service and After Sales Support New Product Development 44 40 37 35 33 35 33 32 29 30 27 26 Over 75% 50-74% 25-49% Less than 25%¹Multiple answers possible. Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Capabilities 15

TechnologyIn an era of digital trans- Impact on Value Chain particularly, mobile devices andformation, it is unthinkable The majority of survey respondents – social media are mentioned to influ- forty-two percent – expect emerging ence interaction with customers byto do research on innova- technological innovation to provide opening new channels and enablingtion leadership without incremental productivity or service deeper relationships. On the suppliertaking into account the enhancements in targeted areas side respondents say the interactionrole of (information) tech- of their value chain (Exhibit 11). between business partners will be in- This is followed by a large group of tensified by improved data exchange,nology. Companies such as respondents representing thirty-eight for instance in supply chain manage-Apple, Google, Microsoft, percent of the total, who anticipate ment and R&D. This can even beAmazon, etc. are contin- that emerging technologies will taken one step further to the com-uously on top of the list fundamentally alter the way they plete outsourcing of R&D and (in- do business and interact with their formation) technology to suppliers.when it comes to most customers and business partners. The rationale here is that suppliersinnovative companies. Just Thirteen percent of executives sur- often are able to deliver the requiredthink of the new business veyed expect only a limited impact technologies better or more cheaplymodels and value proposi- from emerging technologies on their than the companies can themselves, value chain, and for seven percent due to an increase in complexity ortions they have introduced. it is unclear how their value chain standardization of the technologiesWe asked survey respon- will be impacted by technological in question.dents about the impact innovation.on their company’s value What does this imply? This trend Interview findings provide some requires companies to be able tochain and their capability examples of how technological in- quickly scout new technologies andto adapt to technological novation can impact companies’ potential partners, become betterinnovation. value chains. On the customer side at managing the interdependencies Exhibit 11: Impact on value chain % of respondents, n = 324 What do you anticipate to be the primary impact of technological innovation on your organization’s value chain? It is unclear how technological 7 innovation will impact our value chain Emerging technologies will have only 13 a limited impact on our value chain Emerging technologies will provide incrementalproductivity/service enhance- 42 ments in targeted areas of our value chain Emerging technologies will fundamentally alter the way we do business and interact 38 with our customers and business partners Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Technology 17

between business partners – for On the lower end, three percent feel instance the alignment of individual unprepared and not at all capable, technology roadmaps – which in its while twenty-four percent appear turn requires reliable partnerships. to believe their organization is only Also, a targeted acquisition strategy marginally capable of adapting rapid- to acquire missing capabilities and ly. On the higher end, only eighteen technologies might offer a solution to percent indicate that their company the ever increasing pace with which is highly capable and prepared for technological innovation is imposing technological innovations. change on the organization’s value chain. Clearly, our innovation leader group is the best equipped for emerging Capability to Adapt technological innovations, scoring Being able to anticipate change is thirty percent higher in the category one thing, but being capable to adapt ‘highly capable and prepared’ com- rapidly to this change is another. As pared with their lagging peers. Exhibit 12 shows, more than half of the innovators surveyed – fifty- six percent – say their organization is somewhat capable of adapting rapidly to emerging technological innovations in the short to mid-term. This fifty-six percent of respondents is evenly distributed across our innovation leader to laggard spectrum. Exhibit 12: Capability to adapt % of respondents, n = 326 How capable is your organization of adapting rapidly to emerging technological innovations in the short / mid-term? Not at all capable and unprepared 3 9 10 Not very capable 24 -19% 29 50 Somewhat capable 56 53 40 Highly capable and prepared 18 +30% 1018

Innovation FunctionHow is the innovation Innovation Executive Nevertheless it seems both logicalfunction within compa- Exhibit 13 shows that only one-third and sensible, as with most other of respondents say their organiza- vital business functions, to have anies fulfilled? This global tion has an executive who is formally dedicated and accountable executiveinnovation survey also accountable for innovation, versus in charge of it. This is further evi-addresses the innovation almost sixty-seven percent without denced by the leader versus laggardfunction – as an emerg- such a formalized role. This seems comparison: when making the split very unusual in light of the impor- by innovation success rate it becomesing functional area within tance and therefore strategic priority clear that nearly 60 percent of in-organizations – as a key given to innovation as found earlier. novation leaders have an accountablearea for innovation leader- This can be partly explained by the executive versus only 27 percent inship. Do companies have fact that often the CEO is the driving the laggard peer group. Even the dif- force, and in that role, serves as the ference with the next best perform-an accountable innova- accountable executive for innovation. ing peer group – 50-75% successtion executive, what types Survey respondents indicated the rate – is striking. Although this alsoof innovation decisions following executives to be in charge suggests that relatively high successare made by the corpo- of innovation: (in order of times rates can be attained without such an mentioned, n=90) executive, it is clear that in order torate innovation function n Chief Innovation Officer become a true innovation leader thisand which constraints do n Chief Executive Officer might just make the difference.respondents experience n Vice President Innovationthat inhibit their organiza-tion from achieving busi-ness innovation targets? Exhibit 13: Innovation executive % of respondents, n = 314 Does your organization have someone at the executive level who is formally accountable for innovation? 66.9 33.1 Yes No 73 68 68 59 41 32 32 27 Yes No Over 75% 50-74% 25-49% Less than 25% Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Innovation Function 19

Decision-making get the most value from innovation requirements imposed on the orga-What types of innovation decisions efforts? How to make sure that the nization from ongoing innovation.are made by the corporate innovation organization is investing money in Respondents say they need morefunction or executive? (Exhibit 14). the right initiatives? How to assess flexibility to scale up their innova-Determining the focus of innovation and prioritize innovation efforts on tion capacity where it is needed.efforts – the innovation strategy – is an ongoing basis during the innova- The impact on the organization ofmentioned most often as a decision tion process? These are the kinds new business and operating modelstaken by the corporate innovation of questions innovation executives is difficult to manage due to lack offunction or executive (by eighty struggle with. time, knowledge and capabilities inpercent of the respondents). The this area.allocation of funds and innovation They also mention too rigid operat-portfolio management as the second ing models that hamper their innova- Finally, respondents say they havemost often cited innovation decision tion efforts and success. Inflexible a challenge with respect to attain-(67 percent of the respondents). operations are limiting the ability ing and keeping the right talent for to innovate and adjust to the new innovation. Bringing in and keepingInterestingly, as noted earlier, defin-ing the innovation strategy and anappropriate funding mechanism for Exhibit 14: Decision-makingthe innovation portfolio pose seri-ous challenges for many companies. % of respondents,¹ n = 99Since these are exactly the kind of What types of innovation decisions are made by the corporate innovationdecisions made by a formally ac- function / executive?countable innovation function or ex-ecutive, these survey results suggest Determining the focus of innovationthat establishing such executive lead- efforts, the innovation strategy 80ership is part of the solution towardsattaining innovation leadership. Allocation of funds and 67 innovation portfolio managementConstraintsThe most frequently mentioned hur- Setting target and scope for innovationdles to innovation success by survey 59respondents are urgency of press-ing day-to-day business demands Deﬁnition of innovation– 54 percent of respondents – and performance metrics 58financial constraints - 41 percent.(See Exhibit 15). Follow-up interview Go/no-go decisions duringresults offer additional insights into the innovation process 56what constrains organizations toachieve their innovation targets. Setting of innovation budget 49Interview respondents say that inaddition to the constraints displayed Commercialization decisionsin Exhibit 15, they also experience 46the lack of clear innovation portfoliotargets, and inadequate monitoring M&A decisionsof progress towards these them, as a 23barrier to achieving their innovationtargets. How to manage the portfolio ¹Multiple answers possible.of innovation projects in order to20

enough talented individuals whocan truly make a difference is hard. Exhibit 15: ConstraintsInnovation personnel need to show % of respondents,¹ n = 338entrepreneurship and be able to What most constrains your organization’s ability to achieve itsdrive change, while also having innovation targets?specific content knowledge relevantto the business. Additional compli-cating factors are the lack of financial Urgency of pressing day-to-day 54resources for training of key staff and business demandsthe need to stay flexible in terms ofheadcount. Financial constraints 41The findings also offer some sugges-tions on how to overcome these con- Lack of skills within the organization 24straints. With regard to improvinginnovation portfolio management,the setting of clear innovation targets Inadequate leadership commitment 22and key performance indicatorsseems obvious. Furthermore, moni-toring against these KPI’s and install- Lack of formal processes 20ing a decision-making mechanismwhich allows for the actual stoppingof innovation projects, when appro- Inadequate understanding of 18 market demandspriate, makes all the difference. Inability to leverageThe hurdles with respect to inflex- innovative technology 16ible operating models and lackof talent for innovation could be Failure to gain buy-in at loweraddressed through various forms of levels of the organization 10partnerships. Respondents say theyare looking at the possibilities for the ¹Multiple answers possible.in-sourcing of talent and entrepre-neurship through M&A and otherways of working with partners toget access to the specific resourcesand capabilities they are lackingthemselves, or that are difficult tochange within their existing operat-ing model. Innovation Function 21

Spending OutlookHaving looked at the Anticipated Change in Spending Rapidly Developing Economiescurrent state of affairs Sixty-three percent of respondents When we asked respondents about indicate they anticipate increased their innovation investment plans inregarding the strategic innovation spending over the next rapidly developing economies, fifty-outlook, capabilities, tech- 12 months. (Exhibit 16). More than six percent of respondents indicatenology and the innovation forty-one percent expect an increase plans to increase innovation invest-function of our survey in spending of up to 10%, whereas ments in rapidly developing econo- twenty-one percent expect to be mies versus forty-four percent notrespondents, the spend- spending even more than an ad- planning to do so. (See Exhibit 17).ing outlook for innova- ditional 10% on innovation in the China and India are considered thetion is the final chapter to coming year. most attractive economies to investcomplete this innovation in, for innovation purposes, with Only 3,6 percent of the executives respectively 37 and 30 percent ofleadership study. Again, surveyed expect their organization survey participants indicating thesethe leader versus laggard to decrease spending on innovation as areas of focus.perspective will help to in the coming period. Clearly, a posi-unveil what drives the suc- tive economic outlook leads organi- Furthermore, it becomes clear from zations to increase their spending the leader versus laggard compari-cess of companies that on innovation in order to prepare for son that innovation laggards are lessview themselves as suc- new business opportunities in the willing to invest in RDE’s in general,cessful innovators, in this economic upswing. with 36 percent of laggards sayingspecific area. It addresses they are not planning to increasethe anticipated changein innovation spending, Exhibit 16: Anticipated change in spendingplanned investments inrapidly developing econo- % of respondents, n = 307mies, innovation focus How do you anticipate that your organization will change its innovation spending over the next 12 months?areas and finally spendingplans with regard to M&A. 63,5 41.4 32.9 22.1 3.3 0.3 Increase Increase No change Decrease Decrease signiﬁcantly (0-10%) (0-10%) signiﬁcantly (>10%) (>-10%) SPENDING INCREASE Spending Outlook 23

investments in RDE’s, versus only19 percent in the most successful Exhibit 17: Rapidly developing economiesinnovators’ group. Leaders focus in % of respondents,¹ n = 340particular on China (24 percent ofthe leader group) as a rapidly devel- In which rapidly developing economies is your organization planning to increase its innovation investments?oping economy target for innovationinvestment. Also, it should be notedthat the laggard group lags behind 44 37when it comes to investment plans in 30 24Southeast Asia, with only 8 percent 18 15of laggards versus 15 percent of lead-ers planning to increase innovationinvestments there. Eastern Southeast Latin India China Not Europe Asia America planning to increaseInvestment Areas investmentsWhen it comes to innovation invest- in RDE’sment our group of respondents isnot intending to change the focus oftheir innovation efforts. New product 36development and customer focusedinnovation come out on top with 24fifty-nine and fifty-four percent of re- 18 19 19 16 15 15spondents respectively (Exhibit 18). 11 12Although they have swapped places, 8 8this is in line with earlier findingsthat most innovation efforts are allo- +7% +5% -17%cated to these two forms of innova- ¹Multiple answers possible.tion, implying that respondents arenot intending to change the focus oftheir innovation efforts. innovation capabilities, our survey investing in M&A to gain access to shows that 30,4 percent are not likely new markets. The most successfulAnother consistent finding is that to utilize M&A for this purpose and innovators (top quartile) anticipatebusiness model innovation ranks 20,9 percent do not know if their using M&A mainly to get access tolast on the innovator’s agenda when organization is considering M&A new technologies (27.5 percent ofit comes to the extent to which activity to this end. (See Exhibit 19). innovation leaders).companies are willing to invest inthis area, both now and in the near This leads us to the finding thatfuture. What is also consistent is that nearly half of the respondents areinnovation leaders tend to invest less likely to invest in M&A to improvein incremental product improvement their innovation capabilities. Most ofand more in business model innova- this investment will aim at acquiringtion than others. This also implies access to new markets (32,7 percent)that the gap in this area between the followed by gaining access to newleaders and laggards will continue to technologies (26,8 percent) and togrow moving forward. a lesser extent to gain access to talented people (19,3 percent).M&A InvestmentsLooking at the field of mergers and Innovators with a success rate higheracquisitions as a means to improve than 50% are particularly keen on24

Exhibit 18: Investment areas% of respondents,¹ n = 307In which innovation areas is your organization most likely to invest? 24 New product development 59 22 26 Customer focused innovation 54 +4% 22 18 Business process innovation 47 21 15 Incremental product improvement 43 -7% 22 18 Business model innovation 31 +4% 14 Over 75% 50-74% 25-49% Less than 25%¹Multiple answers possible. Exhibit 19: M&A investments % of respondents,¹ n = 306 Is your organization likely to invest in M&A to improve its innovation capabilities? 32,7 30,4 26,8 19 31 19 25 20,9 19,3 22 22 18 14 32 13 17 18 18 10 22 25 27.5 15 22.5 10 Yes, to gain Yes, to gain Yes, to gain access No Don’t know access to new access to new to talented people markets technologies Over 75% 50-74% 25-49% Less than 25% ¹Multiple answers possible; Figures do not sum to 100% because of rounding; Respondents who answered ‘Other’ are not shown. Footer Right; Document Title Akkurat Bold 6.5pt; maximum 1 line Spending Outlook 25

ImplicationsSection Title for Innovation ExecutivesSection Intro mean for innovation executives? If youWhat does all this 3. Business model innovation will be the next bigtake away only three findings from this innovation leader differentiator for companies aspiring to innova-versus laggard study, we recommend you take away the tion leadership.following implications: Innovation leaders are slowly but steadily breaking away1. It is time to match the importance of innovation from the pack by allocating increasingly more resources with the degree of formal governance allocated to business model innovation. And there is a good to it. reason for that. Our findings suggest that more value, in terms of impact on business results, is to be expected Given the strategic priority companies allocate to in- from business model innovation than from any other novation and their corresponding spending plans, it form of innovation. Targeting new business opportuni- is highly remarkable that only a few companies have ties in emerging markets – whether these are geographi- organized innovation in the mature fashion it deserves. cal or digital – is much more likely to be successful Many of the innovation bottlenecks regarding internal when approached outside of the traditional competitive alignment, prioritization, funding, balancing long- and landscape by means of new, game-changing models for short-term objectives and the definition of an innova- value creation. tion strategy can be solved by establishing a formally accountable innovation function. Our innovation leader However, new ways of doing business often require versus laggard comparison shows that in-novation lead- changes to the way a company currently operates. ers have advanced beyond other innovators by having Therefore one prerequisite for successful business model an accountable innova-tion executive or other form of innovation is the ability to follow up with adequate formal innovation governance structure that deals with changes to the existing operating model, in order to this kind of decision-making. deliver the value as designed by the new business model(s). Companies should be very concerned with2. The ability to work effectively with external developing the capability to transform their operating partners will determine who will be the new models when required. innovation leaders and laggards. If one thing became clear in this innovation leadership study, it is the enormous underutilized potential for innovation hidden in the involvement of external parties into the innovation process. Although not a new phenomenon, very few companies have yet mastered the skill of working together effectively with external partners to improve their innovation results. This can take many forms: from the involvement of suppliers, customers and other third parties in the innovation process, up to the acquisition of missing capabilities or resources – such as technology and talent. Innovation leaders may have outpaced their peers by simply being better at integrating external parties into their innovation process, leveraging the broader innovation potential as a result. The good news is that there is much to gain for innovation laggards. Improving capabilities in this area offers a unique opportunity to catch up without making huge investments in developing a company’s internal innovation capabilities, but focusing on what it does best. Footer Right; Document Title Akkurat Bold Innovation Executives Implications for 6.5pt; maximum 1 line 27

AppendixSurvey Methodology For Further ContactAs the knowledge partner for the World Innovation For additional information regarding this study orForum, Capgemini Consulting conducted an online Capgemini Consulting’s thinking on innovation, pleasesurvey using HSM’s network of conference participants contact one of the following innovation experts:and attendees, plus a selection of Capgemini Consulting’sclient base. EuropeThe online survey, in the field from April 07 to May 07, Freek Duppen2010, generated responses from 375 executives around the Managing Consultantworld, representing the full range of industries, regions, +31 6 2900 7957functional specialties, and seniority. In addition, 13 Capgemini Consulting – The Netherlandsfollow-up interviews were conducted to get an even better freek.duppen@capgemini.comunderstanding of the context of the survey findings and toadd depth to the survey result interpretation. The AmericasThe methodology differentiates between innovation lead- Dianne Innissers and laggards based on a self-assessment by survey Managing Consultantrespondents of their innovation success rate. The innova- +1 404 806 4986tion success rate is determined by the percentage of in- Capgemini Consulting – North Americanovation efforts that has a positive material impact on the dianne.inniss@capgemini.comcompany’s business results.We distinguish between 4 categories of innovation successbased on this rate, namely: ‘Less than 25%’, ‘25-49%’, ‘50-74%’ and ‘Over 75%’ of innovation efforts having a posi-tive material impact on the company’s business results.The ‘Less than 25%’ category represents the innovationlaggard group and the ‘Over 75%’ category the innovationleader group of analysis.AcknowledgementsWe would like to thank the 375 innovation executivesfrom around the world who responded to CapgeminiConsulting’s Global Innovation Survey 2010. We wouldlike to express our gratitude for their participation in thissurvey – you have played an important part in supportingthis research.We would specifically like to acknowledge the innovationexecutives who generously shared their time and insightswith us in the follow-up interviews.Finally, we would like to thank Koen Klokgieters, ElineVermeulen, Rachida Bouzidi and the entire BusinessInnovation team for their support and contribution tothe development of this survey. Also, we would like toacknowledge Roy Lenders and Michael Schulte for theirexecutive support.28

About Capgemini®® Capgemini, one of the world’s Capgemini Consulting is the Global foremost providers of consulting, Strategy and Transformation Consulting technology and outsourcing services, brand of the Capgemini Group, specializing enables its clients to transform and in advising and supporting organizations perform through technologies. in transforming their business, from Capgemini provides its clients with the development of innovative strategy insights and capabilities that boost their through to execution, with a consistent freedom to achieve superior results focus on sustainable results. Capgemini through a unique way of working, the Consulting proposes to leading companies Collaborative Business ExperienceTM. and governments a fresh approach which The Group relies on its global delivery uses innovative methods, technology model called Rightshore®, which aims to and the talents of over 4,000 consultants get the right balance of the best talent worldwide. from multiple locations, working as one team to create and deliver the optimum For more information: solution for clients. Present in more than www.capgemini.com/consulting/ 35 countries, Capgemini reported 2009 global revenues of EUR 8.4 billion and employs over 100,000 people worldwide. IN/02-036.10 © shutterstock.comCapgemini Consulting is the strategy and transformation consulting brand of Capgemini GroupRightshore® is a registered trademark belonging to Capgemini.Copyright © 2010 Capgemini. All rights reserved.

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Innovation Leader Versus Laggard Study

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