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Leadership / Digital Transformation

ROI on Innovation Spending Declines 27%

Return on Investment (RoI) for spending on innovation has declined an alarming 27 percent over the past five years, according to new research published by global management consultancy Accenture today.

Worse, more than half (57 percent) of businesses making significant investments in innovation have underperformed against industry peers when it comes to growth or market value, the company found.

The research, built on Accenture analysis of Bloomberg data, comes as the top 1,000 companies globally (by market capitalisation) grew R&D spending six percent between 2012 and 2017. Their spending – up from $361 billion to $456 billion – came as the cost of a range of disruptive technologies falls sharply.

Businesses have spent a massive $3.2 trillion on “innovation-related activities” over the past five years (covering R&D, technology M&A and corporate venture capital) meanwhile, Accenture said. But not everyone’s getting the results they need.

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Successful Innovation: Seven Attributes

Citing Bosch and Nike as two companies that have driven great results through innovation spending, the report’s authors said they had identified seven key characteristics exhibited by the companies making the most of their innovation spend:

 

 

 

 

 

 

Successful innovation is typically underpinned by seven characteristics, Accenture said.

  • Hyper Relevant – sense and address the changing needs of customers
  • Network Powered – harness the power of their partners
  • Talent Rich – create flexible, augmented and adaptive workforces
  • Data Driven – generate, share and apply data to deliver new innovations
  • Technology Propelled – master leading-edge tech
  • Inclusive – incorporate broader range of stakeholders
  • Asset Smart – adopt an intelligent asset and operations management plan

Lest any readers think these points are so much consultancy waffle conjured out of thin air, Accenture said that to derive the drivers of releasing trapped value, it conducted
a literature review of more than 170 sources and identified a set of 49 innovation practices, based on the literature and Accenture’s experience with clients.

“These innovation practices formed the basis of our trapped value survey analysis, which was sent to executives at 840 of the world’s largest multinationals.”

Bish, Bash, Bosch

Bosch Group, the 132-year-old German industrial giant, has made the Internet
of Things into a primary focus for its future. Accenture highlighted the company as one that has seen high ROI on its innovation investments.

In February 2018, the company’s CEO unveiled an IoT innovation lab in Berlin. But Bosch began investing in the IoT in 2008, with an acquisition that became
Bosch Software Innovations.

“That subsidiary has designed, developed, and carried out 250 international IoT projects, and those projects and subsequent initiatives were – and continue to be – measured against strict benchmarks for the return on investment. In 2017, Bosch sold 38 million web-enabled products. The Bosch IoT Suite connects 6.2 million sensors, devices, and machines with users and company applications.”

Bosch saw its revenues grow by 12 percent, and EBITA by nearly 30 percent (CAGR) between 2012 and 2017.

Innovation at Nike

Accenture also flags up Nike as a successful innovator, not least for its increasingly networked-powered supply chains.

“It has been working with global manufacturer Flex since 2015 to automate its shoe manufacturing processes. By using advanced robotics and digitization, Nike can now produce a complete pair of uppers in just 30 seconds, with 30 percent fewer steps and up to 50 percent less labor.”

“Nike has also developed its ability to be hyper relevant
and serve customers more effectively by sensing and addressing their changing needs. The company has invested in a new internal structure as part of its Consumer Direct
Offense strategy, creating an integrated design-to-delivery organization that
consolidates Categories, Design, Product & Merchandising.”

Arabel Bailey, Managing Director UKI and Innovation Lead for Accenture, said: “Fortune favours the bold when it comes to investing in innovation. The companies reaping the biggest rewards show a “go big or go home” mentality by investing in truly disruptive innovation projects. They don’t just tinker around the edges.”

She added: “The fact that return on investment overall is dropping is a worrying trend. One of the reasons for this could be that many organisations still see innovation as a peripheral activity separate to the core business; an “ad-hoc creative process” rather than a set of practices that will fundamentally change their way of doing business. It’s like going jogging once a month and then expecting to be able to run a marathon.”

“We have developed a more formalised approach to helping companies make more of their investment. It means thinking hard about your company, your market, your customer, your workforce, and placing your innovation bets on the things that can help to address your biggest business challenges.

 
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CBR Staff Writer

CBR Online legacy content.