The Innovation Imperative

In the future, the ability to innovate will be the only thing separating successful companies from unsuccessful ones, contends Tom Kelley, general manager of product development at IDEO, one of the world's leading product development firms. In the 1940s, design and marketing cycles, which include idea formation, invention, innovation and imitation, stretched from 30 to 40 years. Today, product cycle times rarely last 30 to 40 weeks. Half of the U.S. economy's current growth comes from companies that didn't even exist a decade ago, according to a survey conducted by The Economist magazine. "Innovate or die" has become less a motto than a business reality.

Many employers have accepted this new reality, which they expect will intensify in the future. For example, when executives were asked about the "most critical elements in executing strategy and succeeding in the new economy," 19% emphasized innovation and 18% stressed new products and services, according to a 2000 global survey conducted by Towers Perrin and the Economist Intelligence Unit. These numbers rose to 27% and 25%, respectively, when respondents were asked to look ahead to 2003. "Fast-growth" companies seem to put particular emphasis on innovation, according to a 2001 PricewaterhouseCoopers survey of such firms. Fully 75% of CEOs in fast-growth firms said they've made innovation a companywide priority. Among these CEOs, 79% said it's evident in their corporate strategy, 67% in their new product development and 63% in their corporate values.

Innovation may not, however, be a high enough priority for the HR function of many companies. The PricewaterhouseCoopers survey finds that, even among fast-growth firms, only a little more than half (56%) of respondents said innovation is a central component of their employee training and 53% said it's a focus of their HR programs. Meanwhile, preliminary findings from a 2001 Human Resource Institute survey of HR professionals in large firms show that "stimulating innovation and creativity" is ranked as the 13th most important issue (out of 120) impacting people management around the world. The issue rises to the ninth most important spot when respondents are asked to look ahead ten years.

Yet, a focus on innovation seems to pay off in the "here and now." Over the past five years, companies that have made innovation a priority have seen their revenue increase 61% faster than companies that haven't made it a priority, according to the PricewaterhouseCoopers survey. Companies committed to innovation are expected to experience 52% greater revenue growth than other companies over the next 12 months, despite the economic slowdown.

In fact, now may be the most crucial time for companies to focus on innovation. While many respond to economic downturns by cutting budgets for research, product development and new technology, others continue to invest in creativity-related areas. Whirlpool, for example, despite having to close a number of operations and reduce its workforce by 10%, has instituted a program that rewards employees who suggest new ideas with coupons that can be redeemed for gifts from a company catalog. Engineers and designers are currently working to create new appliances, such as in-home air purifiers and a "z Box," which can hold packages and lock, so that people who are not at home can safely receive packages while they're away. "We're grinding through the day-to-day uncertainty of this downturn, but we're also trying to create a future generation of products that will lead us out of it," says Whirlpool's CEO, Jeff Cohen

Intel Corp. is also investing in the future. Even as the demand for Intel products has declined in the slowdown, the company has increased spending on research and development to $4.2 billion in 2001, compared with $3.8 billion in 2000. Intel plans to cut about 5,000 jobs and has temporarily ceased giving every employee a home computer. But it decided not to force employees to take time off, as it was considering, "because we want people here, working on new ideas," says Intel's CFO, Andy Bryant. "Just because the economy slows down doesn't mean the pace of technology slows – and it is new products that lead you out of a downturn."

Some experts even see the downturn as an opportunity. "It's very hard to gain market position in a boom because everybody is adding capacity and spending, but in a downturn, companies have more chance to distinguish themselves," says Adrian Slywotzky, a Mercer Management Consulting vice-president. Organizations that solve a problem or create products and services to fill customers' current needs may gain a decisive advantage over their rivals. Fostering innovation during slowdowns can also inspire loyalty from talented workers, IDEO's Tom Kelley adds.




For more on the PricewaterhouseCoopers survey, please see
http://www.barometersurveys.com/pr/tb010627.html.

For more on the Towers Perrin study, please see
http://www.towers.com/towers_publications/publications/Monitor/mon0010.htm.

For other perspectives on business innovation, see
http://www.cbi.cgey.com/.