Global innovation survey

Global Innovation SurveyInnovation Leader versus Laggard StudyDecember, 2010

Contents About the study Key findings related to: I. Strategic outlook II. Capabilities III. Technology IV. Innovation function V. Spending outlook Implications for executives Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 2

As the knowledge partner of the World Innovation Forum, Capgemini hasrecently completed its innovation leader versus laggard studyAbout the study (1/2) – Background Study background Key research areasAs we started off this study on the occasion of the World Innovation Forum,the objectives were twofold: not only did we want to understand the currentstate of innovation, but we also wanted to identify what drives the success of I. STRATEGIC OUTLOOKcompanies that view themselves as successful innovators. The result is oursecond innovation leader versus laggard study. It covers five key areas thataffect a company’s innovation success:I. Amidst ongoing economic uncertainty, but with increasing indicators of II. CAPABILITIES economic recovery, survey respondents were asked about their strategic outlook with regard to innovation.II. We specifically looked at the current state of affairs concerning an organization’s capability to innovate: innovation strategy, innovation III. TECHNOLOGY management, and the involvement of external parties in the process.III. In an era of digital transformation, it is unthinkable to do research on innovation leadership without taking into account the role of technology. We asked respondents about the impact of technological innovation. IV. INNOVATION FUNCTIONIV. How is the innovation function within companies fulfilled? This global innovation survey also addresses the innovation function – as a key area for innovation leadership.V. Finally, the spending outlook for innovation completes this innovation leadership study. It unveils what drives the success of companies that V. SPENDING OUTLOOK view themselves as successful innovators. Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 3

Our methodology differentiates between innovation leaders and laggards,based on their innovation success rateAbout the study (2/2) – Methodology Study methodology Innovation success rate % of respondents, n = 375 As the knowledge partner for the World Innovation Forum, Capgemini Consulting conducted an online survey using What percentage of your innovation efforts has a positive HSM’s network of conference participants and attendees¹, material impact on the business results? plus a selection of Capgemini Consulting’s client base. The online survey, in the field from April 07 to May 07, 2010, 40,8 generated responses from 375 executives around the world, representing the full range of industries, regions, functional specialties, and seniority. In addition, 13 follow-up interviews were conducted to get a better understanding of the context 24 10,7 of the findings and to add depth to the result interpretation. 24 24,5 The methodology differentiates between innovation leaders and laggards based on a self-assessment by survey respondents of their innovation success rate. The innovation success rate is determined by the percentage of innovation efforts that has a positive material impact on the company’s 10,7 business results. We distinguish between 4 categories of innovation success based on this rate: ‘Less than 25%’, ‘25-49%’, ‘50-74%’ and ‘Over 75%’ of innovation efforts having a positive material impact on the business results. The ‘Less than 25%’ category Less than 25% 25-49% 50-74% Over 75% represents the innovation laggard group and the ‘Over 75%’ LAGGARDS LEADERS category the innovation leader group of analysis. ¹Event organizer. Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 4

Companies consider innovation a top strategic priority and primarily focus onidentifying new business opportunitiesI. Strategic outlook (1/3) Innovation is considered a top strategic priority Identifying new business opportunities is the primary area of focus % of respondents,¹ n = 375 % of respondents,¹ n = 323 Where does innovation rank among your organization’s As the global economy begins to rebound, what is your strategic priorities? organization’s primary area of focus? 76,5 52 Identifying new business opportunities to 46 take advantage of the upturn Maintaining cost control and lean 23 operations 24,5 20,5 Increasing productivity of existing assets 20 2,9 Preparing for hyper growth in a new 10 business cycle Top priority Top-three priority Top-ten priority Not a priority TOP-3 PRIORITY ¹Figures do not sum to 100% because of rounding. Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 6

Interestingly, innovation leaders are preparing themselves for hyper growth,whilst laggards are focusing on increasing productivity of existing assetsI. Strategic outlook (2/3) Leaders are preparing for hyper growth, Organizations are preparing differently for growth, whilst laggards focus on existing assets to take advantage of an economic upturn % of respondents,¹ n = 323 As the global economy begins to rebound, what is your  Laggards focus on optimizing current operations through organization’s primary area of focus? lean operations and increasing the productivity of existing assets, as a platform for growth.  Leaders, who have already created a lean organization 42 during the downturn, focus on expanding into emerging Identifying new business opportunities to take advantage of the upturn markets through: a) building up their sales force; b) 44 development of go-to-market & product launch capabilities; c) the creation of new business and 13 Maintaining cost control and lean operating models. operations  Companies that have not cut back on innovation and R&D 21 efforts during the downturn are clearly better positioned to 10 outperform their peers in the long-term. Increasing productivity of existing assets -21%  Leaders are heavily betting on an upturn. This could 31 potentially result in sustainable competitive advantages in 35 terms of early-mover advantages and the capture of Preparing for hyper growth in a new market share in new or emerging markets. +30% business cycle 5 Over 75% 50-74% 25-49% Less than 25% ¹Figures do not sum to 100% because of rounding. Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 7

Most innovation efforts are put into customer-focused innovation, with leadersputting relatively more effort into business model innovation than othersI. Strategic outlook (3/3) Most innovation efforts are put into customer- …but leaders put relatively more effort into focused innovation… business model innovation than others % of resources allocated to the following,¹ n = 352 % of resources allocated to the following,¹ n = 352 How does your organization allocate its innovation How does your organization allocate its innovation efforts? efforts? 24 Customer focused innovation 24 Customer focused innovation 24 22 New product development 23 New product development 23 18 Incremental product improvement 20 Incremental product improvement -5% 23 18 Business process innovation 18 Business process innovation 18 18 Business model innovation Business model innovation +5% 14 13 Over 75% 50-74% 25-49% Less than 25% ¹Figures do not sum to 100% because of rounding. Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 8

With regard to innovation capabilities, most concern among respondentsexists around the formal innovation governance structureII. Capabilities (1/3) Executive level commitment and the idea generation process Most concern exists around the formal are the best developed capabilities innovation governance structure % of respondents, n = 310 Please rate how strongly you agree or disagree with the following  Noteworthy is the issue of formal innovation statements related to your innovation management capabilities: governance structure; the highest percentage of respondents – twenty percent We have a high degree of executive level commitment to 33 32 15 13 7 – strongly disagree that they have a formal innovation governance structure (versus 21 percent We have a formal innovation governance structure to 21 27 12 21 20 strongly agreeing to the statement). govern innovation in our organization We actively facilitate the idea generation and enablement  Follow-up interviews confirm that 16 39 24 15 6 process with appropriate culture and tools respondents are either very content with how Employees at all levels and functions in our organization are innovation is governed within their 15 30 21 25 9 organization or see ample room for involved in the process of innovation We have strong new product development capabilities to improvement. 14 36 21 19 9 drive innovation in our organization  In particular, areas of concern include: We have well understood metrics and methods to evaluate 14 27 22 26 12 - Balancing between long-term and short- innovation performance and success in our organization term innovation success. We have a clearly defined way to manage our innovation 13 28 26 21 12 - Finding alignment between corporate and portfolio and prioritize innovation efforts in our organization We have well-defined processes for promoting and business unit-level innovation. 13 26 20 29 13 harvesting innovation in our organization - Improving the funding mechanism. Employees at all levels have a clear understanding of how 7 24 28 29 12 technology changes impact our innovation efforts Strongly agree Somewhat agree Neither agree nor disagree Somewhat disagree Strongly disagree Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 10

Key opportunities for innovation laggards lie in the involvement of externalparties in the innovation process, including customersII. Capabilities (2/3) Leaders have advanced to a high level of utilizing This includes the involvement of customers, external third parties for their innovation efforts although a higher level can still be obtained here % of respondents, n = 331 % of respondents, n = 336 To what extent do you use external third parties to support How involved are your customers in your innovation your innovation efforts? efforts? 13 We do not use external parties to We do not actively engage customers in 6 6 15 13 11,5 11 support our efforts at innovation our innovation efforts 21 19 We consult customers on their changing We engage third parties on an ad-hoc needs and gather feedback on ideas 38 25 39 33 39 35,0 basis for specific innovation projects which are generated in-house 33 We use a few select partners in well- We maintain ongoing dialogue with our 44 defined relationships to support our 25 31 32 35 31,7 customers to support multiple elements 37 innovation efforts of the innovation process 32 We actively engage a broad cross 25 Our customers work closely alongside section of external partners in formal 44 24 20 14 21,8 our employees, even integrated with our 15 and informal ways to support our project teams, to support innovation innovation efforts 14 Over 75% 50-74% 25-49% Less than 25% Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 11

Innovation leaders particularly engage customers in the new productdevelopment processII. Capabilities (3/3) Respondents engage customers in multiple parts …but respondents with high innovation success of the company’s internal value chain… rates particularly involve customers in NPD % of respondents,¹ n = 321 In which parts of the value chain do you engage your  At first sight there does not seem to be one particular area customers? where respondents involve their customers in the 65 66 innovation process; all three suggested areas - new 57 product development, marketing & sales, service and after sales support - are mentioned by a significant percentage of respondents.  However, leaders particularly involve their customers in new product development, whereas laggards put most effort into involving customers in marketing & sales activities. We engage customers in We engage customers in We engage customers in Marketing & Sales Service and After Sales New Product Development  Possibly, involving customers in new product development Support has a higher impact on the innovation success rate than 44 40 37 involving them in marketing and sales, or service and 33 35 33 32 35 29 27 30 26 after sales support.  In other words, to realize a direct material impact on the business results from your innovation efforts, involving customers in NPD is ought to prevail above all other areas. Over 75% 50-74% 25-49% Less than 25% ¹Multiple answers possible. Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 12

There is a discrepancy between the anticipated impact of emergingtechnologies and the extent to which companies are prepared for this changeIII. Technology Emerging technologies are expected to have a …however, few companies feel highly capable of significant impact on company’s value chains… adapting rapidly to anticipated changes % of respondents, n = 324 % of respondents, n = 326 % of resources allocated to the following,¹ n = 352 What do you anticipate to be the primary impact of How capable is your organization of adapting rapidly to technological innovation on your organization’s value chain? How does your organization allocate its innovation emerging technological innovations in the short / mid-term? efforts? 24 It is unclear how technological innovation Customer focused innovation Not at all capable and 7 3 will impact our value chain unprepared 24 9 22 New product development 10 Emerging technologies will have only a 23 13 Not very capable 24 limited impact on our value chain 18 29 Incremental product improvement -5% Emerging technologies will provide 50 23 incremental productivity/service enhancements in targeted areas of our 42 Somewhat capable 56 18 value chain Business process innovation 53 18 Emerging technologies will fundamentally 40 alter the way we do business and interact 38 Highly capable and prepared 18 18 with our customers and business partners Business model innovation +5% 10 13 Over 75% 50-74% 25-49% Less than 25% Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 14

Only one-third of the companies surveyed – but nearly sixty percent of theinnovation leaders – has an accountable innovation executiveIV. Innovation function (1/2) Only one-third of the companies surveyed has an …who is responsible for the innovation strategy accountable executive for innovation… and innovation portfolio management % of respondents, n = 314 % of respondents,¹ n = 99 Does your organization have someone at the executive What types of innovation decisions are made by the level who is formally accountable for innovation? corporate innovation function / executive? 66,9 Determining the focus of innovation efforts, 80 the innovation strategy Allocation of funds and innovation portfolio 33,1 67 management Setting target and scope for innovation 59 Definition of innovation performance 58 metrics Yes No Go/no-go decisions during the innovation 56 73 process 68 68 59 Setting of innovation budgets 49 41 32 32 27 Commercialization decisions 46 M&A decisions 23 Yes No Over 75% 50-74% 25-49% Less than 25% ¹Multiple answers possible. Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 16

A wide variety of innovation constraints have been identified by our study,which need to be tackled by the innovation functionIV. Innovation function (2/2) Survey findings indicate day-to-day business Interview findings offer additional insights into demands and financial constraints as key hurdles potential innovation constraints – and solutions % of respondents,¹ n = 338 What most constrains your organization’s ability to  Interview respondents say that they are constrained by a achieve its innovation targets? lack of clear innovation portfolio targets, and inadequate monitoring of progress towards these targets. Urgency of pressing day-to-day business  They also mention too rigid operating models that hamper 54 demands their innovation efforts and success. Inflexible operations limit the ability to innovate and adjust to the new Financial constraints 41 requirements imposed on the organization. Lack of skills within the organization 24  Attaining and keeping the right talent for innovation is a challenge as well. Recruiting and keeping enough Inadequate leadership commitment 22 talented individuals who can truly make a difference proves to be hard. Lack of formal processes 20  Respondents say they are looking at the possibilities for Inadequate understanding of market the in-sourcing of talent through M&A and other ways of 18 demands working with partners to get access to the specific Inability to leverage innovative technology 16 resources and capabilities they lack themselves, or that are difficult to change within their existing operating Failure to gain buy-in at lower levels of the model. 10 organization ¹Multiple answers possible. Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 17

The large majority of respondents anticipates an increase in their innovationspending, particularly in NPD and customer focused innovationV. Spending outlook (1/2) The large majority of respondents is planning an Leaders plan to invest more in customer focused- increase in innovation spending and business model innovation than others% of respondents, n = 307 % of respondents,¹ n = 307 % of resources allocated to the following,¹ n = 352 How do you anticipate that your organization will change In which innovation areas is your organization most likely its innovation spending over the next 12 months? to invest? your organization allocate its innovation How does efforts? 63,5 24 New product development 59 24 41,4 Customer focused innovation 22 24 32,9 26 Customer focused 22 54 +4% innovation New product development 22 22,1 23 18 Business process 18 47 Incremental product improvement innovation -5% 21 23 15 18 3,3 Incremental product Business process innovation 43 -7% 0,3 improvement 18 22 Increase Increase (0- No change Decrease (0-- Decrease 1818 significantly 10%) 10%) significantly (>- Business model innovation Business model innovation 31 +4% +5% (>10%) 10%) 13 14 SPENDING INCREASE Over 75% 50-74% 25-49% Less than 25% ¹Multiple answers possible. Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 19

More than half of the companies surveyed are planning to increase innovationinvestments in rapidly developing economies (RDEs)V. Spending outlook (2/2) China and India are considered the most attractive Innovation leaders are more tended towards economies to invest in for innovation purposes increasing investments in RDEs than laggards% of respondents,¹ n = 340 % of resources allocated to the following,¹ n = 352 In which rapidly developing economies is your organization  Innovation laggards are less willing to invest in RDEs in planning to increase its innovation investments? general, with 36 percent of laggards saying they are not How does your organization allocate its innovation 44 planning to increase investments in RDEs, versus only 19 efforts? 37 percent in the most successful group of innovators. 30 24 15 18 24  Leaders focus in particular on China (24 percent of the Customer focused innovation leader group) for innovation investments. Laggards also 24 fall behind when it comes to investment plans in Eastern Southeast Latin America India China Not planning22 Southeast Asia, with only 8 percent of laggards versus 15 Europe AsiaNew product development to increase percent of leaders planning to increase innovation investments 23 investments there. in RDEs 18  Nearly half of the respondents are likely to invest in Incremental product improvement -5% mergers & acquisitions to improve their innovation 36 23 capabilities, in particular to gain access to new markets 18 (32,7 percent). Business process innovation 24 19 19  Other most common reasons for M&A include gaining 16 18 18 15 15 access to new technologies (26,8 percent) and to a lesser 11 12 8 8 18 extent gaining access to talented people (19,3 percent). Business model innovation +5% +7% +5% 13 -17%¹Multiple answers possible. Over 75% 50-74% 25-49% Less than 25% Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 20

What does all this mean for innovation executives?Implications for executives1. It is time to match the importance of 2. The ability to work effectively with 3. Business model innovation will be innovation with the degree of formal external partners will determine the next big differentiator for governance allocated to it. who will be the new innovation companies aspiring to innovation leaders and laggards. leadership. Given the strategic priority companies  If one thing became clear in this  Innovation leaders are slowly but allocate to innovation and their innovation leadership study, it is the steadily breaking away from the pack corresponding spending plans, it is enormous underutilized potential for by allocating increasingly more highly remarkable that only a few innovation generated by the resources to business model companies have organized innovation involvement of external parties into the innovation. in the mature fashion it deserves. innovation process.  Our findings suggest that more value, Many of the innovation bottlenecks  This can take many forms: from the in terms of impact on business results, regarding internal alignment, involvement of suppliers, customers is to be expected from business model prioritization, funding, balancing long- and other third parties in the innovation innovation than from any other form of and short-term objectives and the process, to the acquisition of missing innovation. definition of an innovation strategy can capabilities or resources – such as  New ways of doing business often be solved by establishing a formally technology and talent. require changes to current operations. accountable innovation function.  Innovation leaders may have outpaced One prerequisite for successful Leaders have advanced beyond other their peers by simply being better at business model innovation is the ability innovators by having an accountable integrating external parties into their to follow up with adequate changes to innovation executive or other form of innovation process, leveraging the the existing operating model, in order innovation governance structure that broader innovation potential as a to deliver the value as designed by the deals with this kind of decision-making. result. new business model(s). Global Innovation Survey Copyright © 2010 Capgemini. All rights reserved. 22

For additional information regarding this study, please contact: Freek Duppen Senior Consultant – Business Innovation Mob: +316 2900 7957 freek.duppen@capgemini.com Dianne Inniss Managing Consultant – Strategy & Transformation Mob: +1 404 806 4986 dianne.inniss@capgemini.comwww.capgemini.com/consultingCapgemini Consulting is the strategy and transformation consulting brand of Capgemini Group Copyright © 2009 Capgemini. All rights reserved.

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Global innovation survey

by Koen Klokgieters on Jan 23, 2011

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