June 15, 2017
The number of dollars you spend on innovation is irrelevant—it’s how you spend them that counts.
Nearly every business leader today recognizes the need to innovate and stay competitive, but simply prioritizing innovation is not guaranteed to drive growth. In the 2017 PwC CEO Survey of about 1,400 chief executives, innovation was the number one area CEOs wanted to strengthen in order to seize new opportunities—and companies are budgeting, hiring, and managing accordingly to do just that.
However, the size of your innovation budget is not related to your ability to enact progressive change—it’s how effectively you spend it. In a dozen years of conducting the PwC Global Innovation 1000 Study, we’ve never found a statistical relationship between the dollars a company spends on R&D and its financial performance.
Innovation has risen from a priority area to a near imperative for business leaders. They see the accelerating pace of technological change upending every industry, and cheaper computer power is driving fast-paced, new innovations in the essential eight emerging technologies.
Today’s companies should invest in and use their innovation dollars wisely to drive growth and stay ahead of continual marketplace disruption. But too many companies innovate for the sake of innovation–making blind bets on impressive new, emerging technologies soon after they enter the marketplace. The fact is that the sheer volume of emerging tech is contributing to much of the noise and distraction that can make it difficult for executives to objectively evaluate whether the latest tech could, in fact, boost their bottom line. Seemingly innovative ideas and projects that are poor fits with a company’s marketplace goals, supply chains, or talent pools are flooding the market and muddying the waters of business strategies.
Which is why careful self-education is vital when making decisions about how emerging tech fits into your individual company’s goals and processes. Random acts of innovation rarely pay off. For innovation to deliver results, it must be clearly aligned with a company’s business strategy. According to PwC’s Innovation Benchmark Report, which surveyed executives in more than 1,200 companies, the 61% of executives who say their companies are investing 15 percent or more of their revenue in innovation also say strategic alignment is their biggest challenge.
To do a better job of aligning your targeted innovations with your specific company’s strategy, bring leaders from the business side into the creative process—what we call the innovation sandbox—at the start, during the ideation phase. This demands that your internal team better collaborates with employees from across the firm, appreciates different perspectives, and emerges from their specialized silos, connecting with one another throughout the entire innovation process–from brainstorming to execution.
The sandbox strategy entails a “fail fast” mentality that is unafraid to rapidly produce basic prototypes and then correct course when the proposed innovation doesn’t support the business objective. Potential innovators should be given significant freedom to try and re-try new approaches, but when one pilot project repeatedly does not bear fruit or support the business strategy, it may be time to change direction and/or enlist different perspectives. In Jeff Bezos’ 2017 letter to Amazon’s shareholders, he draws a distinction between “Day 1 companies” and “Day 2 companies.” To stay a Day 1 company, Bezos says, you need to make decisions quickly and correct poor choices.
There will also be times when it’s not the innovation strategy that needs correction, but rather the business strategy. Don’t let your company’s pursuit of growth stall because you’re too wedded to a potentially outdated business strategy that seems set in stone—it isn’t, and repeated innovation failures may be a sign that it’s time to rethink it.
Sue Siegel, CEO of GE Ventures, was quoted in PwC’s Innovation Benchmark Report, saying, “We need to focus on business model recreation and re-imagining. We all know that various emergent technologies are very powerful. But what we have to figure out is, what is the sustainable business model that we could [use] to actually drive growth?”
Ultimately, innovation spending has to drive business value and financial performance. But for that to happen in any consistent way, innovators should understand and help define future business models that can support the innovations they create.
To realize the success you are pursuing, kick off any new project with an initial and immediate eye to strategic alignment—and if it doesn’t work, keep course-correcting to ensure your company’s innovation efforts reflect a carefully considered, timely business strategy.