Innovation: Key Challenges that Firms Face

Innovation is such a buzzword these days. But what are the key challenges facing companies looking to innovate?  In order to get some answers, Innosight, an innovative consulting firm co-founded by Clayton Christensen (he’s a Harvard Business School professor and author of several books, notably ‘The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail’) surveyed 823 Strategy & Innovation subscribers online. These people spanned more than 20 industries ranging from financial services, healthcare, telecommunications and consumer goods.

Sixty percent of respondents were in senior management (with the largest category being CEO/ Managing Director). Another 53% were in strategy or general management roles, and 15% were in marketing or product development.  Twenty-three percent of respondents worked in organizations with revenues exceeding US $1 billion, while 19% worked in organizations with revenues between $50 million and $1 billion.

The survey results were published in a paper called ‘Strategic Readiness Survey’. It revealed that for most, developing ideas is not much of an obstacle (only 11.3% felt it was), but 22% felt scaling them and bringing them to market was a challenge. Another 19.5%  felt commercialising ideas was an issue.  Sixteen percent felt getting the right talent and resources was a headache. While 14.3% felt securing funding was problematic and 10.8% felt the lack of leadership support for innovation.

The paper highlighted other factors, such as which of these five – disruptive lower cost solutions, changing consumer behaviour, new technologies, commoditisation, and globalisation - would make a significant-to-medium impact on their business in the next five years.

Around 75% respondents said commoditisation will have significant-to-medium impact while 68% said globalisation would have a similar effect. But a huge 93% said that disruptive, lower cost solutions will have a significant-to-medium impact on them. This was followed by 92% who felt that new, enabling technologies will make a big difference to them. This was consistent across different size companies.

The survey stated, “Of those who do use these kinds of strategy tools, about 38% reported that they are “incredibly useful” and 56% said they are “moderately useful.” This suggests that while the process might be difficult, more robust and precise tools typically do improve outcomes. Moreover, companies that use these tools report greater confidence to respond to longer-term marketplace disruptions. Fully 50% said they were “confident” or “very confident,” compared with 37% who don’t use planning  tools.”

The reasons given by executives for not doing any scenario planning were that 41% felt they didn’t have a good process for confidently envisioning the future. Nineteen percent believe the market is too unpredictable to spend time doing scenario analysis. Fifteen percent said they “spend most of our time fighting fires and don’t have time to think about the future. While, 14% felt their leadership didn’t have long-term focus.

This lack of confidence shows up in response to the question “How confident are you that your organisation is prepared to change in response to disruptive trends?” This question was asked many times over different time-frames to see if people were more optimistic or not, with their responses. The answer was that only 42% were “very confident or ‘confident’ that they were prepared to transform within a  5-10 year time-frame.” This further reduced to 36% among respondents in big enterprises, and a low of 27% in those very same companies didn’t feel confident at all. 

This confidence gap is further heightened by the fact that 48% of large enterprises (with over $1 billion in revenues) admitted that they were “much slower” or “somewhat slower” when responding to marketplace disruptions.  In a related question, 44% stated that they were responding to newer growth opportunities “ somewhat slower” or “much slower” than their competitors.  Only 21% said they were moving somewhat in sync with the market or were “much faster” than it. The writing is on the wall though, for all companies across sectors: Innovate and get creative or get left out and go bankrupt. With only about 12% of organisations having a long-term formal growth strategy of over 5+ years, the choice couldn’t be more stark than this.

In light of this, another Innosight corporate briefing called ‘Creative Destruction Whips through Corporate America’, came up with the conclusion that if current trends continue, then about 75% of companies on the S&P 500 list today, will not be around, or will get acquired by 2030.

Written for Beyond Jugaad.