High-Growth Companies Buck Trend of Declining Returns on Innovation: Accenture

Only one in four large Indian companies is able to tap into the full potential of technology-enabled innovations, with most others missing out on an opportunity for both strong growth in profits and market capitalization, according to a new research report from Accenture.

At the same time, the report identifies several practices of high-growth companies that have enabled them to derive significant value from innovations where others have failed.

The report, “How to Unlock the Value of Your Innovation Investments,” surveyed C-level executives at 840 large companies across 14 industries and eight countries, including 106 large companies in India. The research found that approximately one in four (25 percent) of Indian organizations surveyed are generating significant value from their innovation investments — and identified the innovation approach of these high-growth companies and what other companies can learn from them.

The research found that companies’ return on innovation investments declined 27 percent over the past five years and notes that the gap between what technology makes possible and the ability of companies to realize that value is only going to grow. This creates a steady supply of “trapped value” — i.e., the value that businesses could be releasing or sharing if they could change faster and more fundamentally in ways that would enable them to capitalize on technology-enabled innovations.

The good news is that the declining costs of advanced technology are presenting new opportunities for companies that have been increasing their innovation investments. Globally, incumbents and start-ups spent a combined US$3.2 trillion on innovation-related activities over the past five years, and this trend is expected to continue — almost one-half (50 percent) of those Accenture surveyed in India expect to increase their investments in innovation by more than 50 percent over the next five years.

Challenges to Innovation Investment Strategy

Of the 75 percent of Indian respondents who reported increasing their innovation investments by at least 25 percent in the past five years, more than one-third (38 percent) underperformed their industry peers in growing profits or market capitalization. Accenture analysis shows that much of this is due to spending predominantly on incremental innovation, which is how nearly three-fourths of non-high-growth Indian companies directed their spend, rather than on disruptive innovation.

“Our research highlights that Indian companies apply innovation more comprehensively compared to their global counterparts. In fact, almost 90 percent of Indian companies have plans to increase their innovation spending by more than 25 percent over the next five years. However, 70 percent of Indian companies are focusing their investments on incremental innovation, which limits their ability to derive tangible value from their investments,” said Anindya Basu, geographic unit and country senior managing director, Accenture in India. “High-growth companies are not only investing aggressively, but also taking a distinct, disruptive approach to innovation to reinvent their businesses.”

Unlocking Trapped Value

Lessons from high-growth companies show a distinct approach to innovation that helps them turn innovation investment into real value. C-suite executives at high-growth companies advocate an innovation approach that is:

• Change-Oriented: Having the courage to apply innovation with greater intensity to reinvent existing ways of working, and thus achieve deep organizational change.
• Outcome-Led: Fostering innovation efforts across the business and having the discipline to tie them rigorously to financial performance.
• Disruption-Minded: Committing to invest more aggressively, over time, in truly disruptive innovation initiatives that have the potential to create entirely new markets.

Additionally, the research identified several key characteristics that further differentiate high-growth companies from other companies. These include being:

• Hyper-Relevant: Sixty-three percent of Indian companies collaborate with customers during the innovation process.
• Talent-Rich: Fifty three percent of Indian companies develop a “liquid” workforce — one that is flexible, supported by technology and adaptive.
• Network-Powered: Sixty-one percent of Indian companies use digital technologies to provide products-as-a-service.