The State of Innovation

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Tools and Processes

The two groups of executives did align on one question, however: how to boost innovation performance, starting with making innovation a core part of the leadership agenda, modeling behavior that encourages innovation, and—echoing the Booz Allen study—improving tools and processes for managing innovation risk and making better decisions.

The Boston Consulting Group's survey (BusinessWeek.com, 5/4/07), carried out in partnership with BusinessWeek, tapped nearly 2,500 senior executives from 58 countries and all major industries, asking questions ranging from "which are the world's most innovative companies" to "how does your company pursue innovation."

Although BCG found the number of executives who named innovation as their No. 1 priority was down 9% from the previous year, 66% still counted it among their top three priorities. The McKinsey study supported the top-three finding by a slightly higher percentage and also confirmed BCG's results that a risk-averse corporate culture is one of the three biggest stumbling blocks. Another similar finding: The discrepancy between CEOs and other executives as to the success of innovation initiatives. The CEOs proved far more positive.

Raising Innovation Spending

The BCG study contains significant data on current and future innovation spending, which it also breaks down by region and industry. Two-thirds of respondents said their companies would increase year-over-year spending in 2007, with one in three expecting the increase to be more than 10%. Notably, the biggest spending increases—76% and 74%—were among Asian and European companies. When broken down by industry, automotive topped the chart with 76% of respondents saying they planned to raise innovation spending next year. Entertainment and media (73%) and energy (71%) took second and third.

The companies represented in the survey employ a range of metrics to measure their innovation success including customer satisfaction, overall revenue growth, and the percentage of total company sales from new products or services. No matter how they measured it, though, the majority of respondents expressed dissatisfaction with the return on their innovation investment, a frustration that varied little across industries.

Lest executives lose faith in the value of innovation, the BCG report compares the total shareholder returns of the world's most innovative companies (as voted by survey respondents) with those of their industry peers over a five-year period and finds that global innovators bested their peers by 400 basis points per year.

Clearly, while the term "innovation" may seem in danger of becoming empty jargon, the practice remains a high priority with the majority of executives. More importantly, the financial data show it's not just a buzzword. And as consultancies such as Booz Allen Hamilton, McKinsey, and BCG continue to publish research studies on corporate innovation—which they surely will, given they have a stake in its promotion—the analysis and evaluation of innovation tools and processes will help. And with each year's crop of data from a variety of reputable sources, it will also be easier for consultants and corporations to see patterns and draw conclusions on emerging best practices and appropriate metrics for innovation.

Jessie Scanlon is the senior writer for Innovation & Design on BusinessWeek.com. Jana is the Innovation Dept. editor for BusinessWeek.