The State of Innovation

It's not just a buzzword—three recent surveys find innovation is still a high priority with a majority of executives across industries and across the world

by Jessie Scanlon and Reena Jana

For most business leaders, the dusk of 2007 is a time of transition and, well, uncertainty: Will the U.S. dollar continue its slide? How deeply will the problems of the home mortgage market affect the broader international economy? Do China, Google (GOOG), and the next presidential administration pose threats or opportunities?

But when it comes to "innovation," there is at least some agreement among senior executives. This year, surveys from three leading consultancies—Boston Consulting Group, McKinsey & Company, and Booz Allen Hamilton—show innovation remains a high priority for most corporate leaders around the world. There's consensus across industries that innovation is a key growth driver. Unfortunately, the surveys also reflect a broad belief that most companies don't have the leadership, systems, or tools to successfully and consistently innovate.

Implementing innovation isn't as straightforward as running a Six Sigma program, which makes it harder to do and harder to measure. The studies take a variety of approaches, often combining more than one. The McKinsey and BCG studies are essentially opinion surveys, with respondents answering questions about how innovation happens in their companies and, in the case of BCG, identifying other companies they believe are most innovative. Both surveys leave it to the respondents to define the term.

Global Innovation 1000

The Booz Allen report combines a survey of spending practices (using research and development budgets as a measure of innovation) with follow-up interviews. Both BCG and Booz Allen also depend on some data analysis, with BCG analyzing the stock growth of companies named as "most innovative" by respondents, and Booz Allen focusing on a company's return on its investment in research and development.

Booz Allen Hamilton's third annual study, The Customer Connection: The Global Innovation 1000, published in December and based on 2006 financial data, ranked 1,000 of the world's highest R&D spenders. Those companies, dubbed the "Global Innovation 1000" by the consultants, spent a combined total of $447 billion on R&D last year and saw revenues rise by 10%. However the researchers found "no statistically significant connection between the amount of money a company spent on innovation and its financial performance." It's the same conclusion they arrived at last year.

If the Booz Allen survey can be faulted, it is for seeming to equate R&D spending with innovation. Similar to attempts to measure a company's innovation skill by the number of patents it holds, a focus on R&D spending ignores corporate strategy, organizational culture, and other relevant factors that are harder to quantify, but crucial to the successful application of effective innovation.