Head honchos look outside for innovation

A new study reveals that only a fraction of chief executives worldwide turn to internal R&D for innovation.
Written by Aaron Tan, Contributor

SINGAPORE--Only 17 percent of head honchos say research and development (R&D) drives innovation in their business, a new study has found.

Instead, companies are turning to partners and even customers, for ideas on innovation, according to findings from the Global CEO Study 2006. Conducted by IBM, the study involved interviews with 765 CEOs worldwide.

"That brought up quite a huge surprise," said Patrick Medley, Asia-Pacific markets leader, IBM global business services. Speaking at the IBM Forum here today, he added: "We were expecting to see far more innovation being driven internally, rather than from external sources."

In terms of revenue, Medley said that organizations which turn to external sources for innovation outperformed those that primarily rely on internal R&D, by 30 percent. The telecommunications and petroleum industries, much more than other sectors, also tend to look externally for innovation, he noted.

In reality, however, a gap exists between what CEOs say and what they actually established, in terms of collaboration with external parties, to drive innovation, he added.

"While 80 percent of CEOs noted the importance of collaboration in their organizations, just over 50 percent said they're [currently] collaborating to a large extent," he said.

Other than innovation in products and services, CEOs also acknowledge that changes in business models are equally crucial for success, Medley said.

In fact, 65 percent of CEOs surveyed in the study are expecting substantial changes in the way their organizations are run over the next two years.

In IBM's case, this means moving to a services-based business from its traditional hardware business during its heyday, Medley noted. More than 50 percent of Big Blue's revenues today come from IT services, he said.

During a panel discussion, business leaders shed light on the challenges they faced with innovation.

Said Bernard Lee, vice president of process and innovation at Singapore energy supplier, PowerSeraya: "A lot of good ideas fall flat very often because of execution problems…The ability to execute is very important for innovation to succeed."

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