Fewer than one in eight companies govern innovation extensively, and those that do have achieved twice the revenue growth of the vast majority of companies that govern innovation in a more haphazard way, according to a new report from Accenture (NYSE: ACN).
The report, titled Governing Innovation: The Recipe for Portfolio Growth, is based on a global survey of executives at nearly 1,100 companies, a financial analysis of those companies, and in-depth interviews with innovation experts in business and academia. The goal of the research was to determine how organizations apply different types of innovation across their business portfolios, identify how they allocate innovation investments, and help executives understand how to govern more strategically across their business portfolios to get greater value from their innovation investments.
A key finding: Only 12% of companies govern innovation extensively, and those companies achieved a compound annual growth rate (CAGR) of 5.9%, on average, from 2013-2018, compared with a CAGR of 2.9%, on average, for the 88% of companies that govern innovation more haphazardly.
While the vast majority (84%) of executives surveyed said they direct innovation centrally — e.g., through a chief innovation officer or an innovation committee — the report notes that centralized direction and management might not be enough.
“The growing hunger for innovation is putting it at the core of every new business decision, but many companies lack the discipline needed to turn their innovation investments into growth,” said Paul Daugherty, Accenture’s chief technology & innovation officer. “While many see innovation as a creative force that can’t be controlled, our research reveals that a systematic approach to managing innovation and governing it extensively can provide tangible financial impact.”
Once it’s clear which type of innovation is needed — and in which businesses — organizations need to identify the right governance rituals to ensure that their innovation investments are geared toward achieving the desired growth.
One example illustrated in the report is Schneider Electric, a leading company specializing in energy management and industrial automation. The company takes a pervasive approach to innovation, applying incremental and non-incremental innovation across its entire portfolio of businesses. Doing this has enabled Schneider to generate balanced growth — increasing revenues in both its core and newer businesses in 2018 by 7% and 9%, respectively.
Accenture discovered that organizations are better able to exert control over their innovation investments when they follow at least some of the 12 rituals — and that the more rituals they follow, the greater their revenue growth. In fact, organizations that approach innovation haphazardly today, but plan to switch to governing innovation investments extensively, expect to more than double their compound annual revenue growth at the portfolio level — from 2.9% today to 6.5% in the future, on average.
“Innovation governance rituals are the bread and butter for insatiable portfolio growth,” said Dr. Vedrana Savic, a managing director with Accenture Research. “While some people fear that governance will stifle innovation, the reality is that having a systematic approach to managing innovation is the key to achieving greater financial performance. This new and active form of governance is ultimately about being a more strategic innovation investor at the portfolio level.”
