It’s no surprise as the competition over customers grows, product and service innovation becomes even more critical to any company looking for new sources of value and growth.
But how do companies harness innovation to deliver real financial results?
Conventional wisdom says innovation is a creative pursuit-all you need is a development organization with the talent and time to come up with new ideas.
The PRTM Global Product Innovation Benchmark (GPIB) study tells a different story.
The survey makes it clear that innovation can be managed-and that it pays.
Companies that manage innovation well experience revenue and earnings growth of up to three times that of their competitors.
The GPIB survey also reveals a remarkable finding about development productivity. Companies that experience the greatest revenue growth launch up to 45 percent more products for the same development budget than their lower-growth competitors.
In order to improve their companies’ innovation capabilities, senior management teams should: focus on developing innovative technology-based platforms that help support their companies’ strategic goals, organize for speed across their organizations, and leverage their organizations to drive innovation output.
Innovative companies know how to make products and services with technologies that uniquely meet their customers’ needs.
According to the survey, top performers go well beyond that.
They develop innovative technology-based platforms, each of which serves as a foundation for creating many different products and services. The particular technology platforms that companies choose to develop support their basis of differentiation, whether that differentiation is based on total cost, superior performance, or ability to scale.
A platform strategy offers several important advantages.
It can speed up the time needed to deploy innovation throughout product lines and to launch products and services to market - while also helping to keep R&D spending down.
Service companies can use platforms to great advantage.
Take Internet company Maktoob, for example. Founded in 1998, the Amman-based company used its portal and Internet search infrastructure as a platform for a variety of services, including an auction service, an interactive TV joint venture with matrimonial Web site MBC, and an online sports community. Maktoob currently serves as the leading Internet portal in the Arab world, and was acquired in 2009 by Yahoo!
Getting products and services to market quickly is critical to growth-especially when these products involve rapidly changing technologies.
In the ultra-competitive consumer electronics sector, where average sales prices often decline at 30 percent per year and margins are razor-thin, even a slight delay can mean the difference between making or losing money.
Our survey results bear this out.
The companies, fastest to market, experience substantially greater revenue and profit growth than their competitors.
This makes perfect sense: Speed drives market share, reduces waste, and improves sales price and volumes-and those volumes drive better product costs and margins.
The same holds true for services: Bringing new services to market faster than the competition drives revenue and profit.
Wireless handset providers such as Motorola and Nokia operate on extremely quick cycle times, producing significant numbers of new products each year to remain competitive.
If their semiconductor suppliers fail to deliver chipsets on time, the handset providers may miss make-or-break retail windows, such as the year-end holiday season-which would mean being in the market with old products while the competition offers newer models of the same products.
To determine if speed is an area to focus on, companies should consider a few key questions: Do we need to develop a clear, competitive strategy across the enterprise to be first, fast, or predictable?
Are our competitors launching products and services that force us to reduce our prices or to rapidly develop new offerings?
Is it taking too long for our offerings to reach promised sales volumes and to start generating real returns?
Let’s take a look at Mobily, Saudi Arabia’s leading telecommunications provider, and one of the fastest growing in the world.
Founded in 2005, this innovative company has consistently delivered news services to market faster than the competition, and has regularly been first to market with innovative offerings such as 3G-based video calling and MMS services.
Mobily’s service platforms have allowed the company to reach profitability in less than five years.
While platforms and speed strategies will go a long way toward improving an organization’s innovation capability, high-growth companies also make it a point to continuously leverage their partnerships teaming up with other companies is a proven way to access new sources of innovative ideas while reducing development costs.
Alliances also can be used to export ideas or to “spin out” product ideas that may no longer be attractive to an organization; it’s a way to extract value from what would otherwise be a sunk investment.
To get a sense of the potential of innovation partnerships in the Middle East, consider the Saudi Ghazal 1, the region’s first locally built automobile. Designed at the King Saud University in Riyadh specifically for the desert Gulf climate, the Ghazal 1 has benefitted from partnerships with Mercedes, Motorola, and Magna Canada, among others.
The Middle East is also making extensive use of public-private partnerships.
Abu Dhabi’s Mubadala Development Company, a state-owned sovereign wealth fund, is working with the Cleveland Clinic and other major health clinics in the US and Europe to create a world-class health care system at home.
Mubadala is looking to provide better medical treatment for Abu Dhabi nationals, but hopes that some of these innovations will eventually be able to be exported.
Similarly, Mubadala’s Masdar Initiative is partnering with MIT to build the Masdar Institute of Science and Technology, the first graduate institution dedicated to the research of alternative energy, environmental technologies, and sustainability.
For the foreseeable future, product and service innovation will continue to be a top priority for companies looking for new sources of value and growth.
While there isn’t any one guaranteed way to make innovation pay, platforms, speed, and a fully leveraged R&D partnerships are critical to any successful product innovation strategy.
As the race to find the next great product or service accelerates, it’s good to know there are some things you don’t need to leave up to chance.
