Innovation success can be measured, here are the metrics

New PwC survey finds innovation-minded companies have a more positive outlook on future business growth and hiring.

Innovation has been this past year's "it" topic, promoted as the path to new markets and profitability in a fiercely competitive and unevenly growing global economy.

The ultimate innovative culture: Bell Labs, circa 1948. Photo: AT&T

It's no surprise, then, that a new survey released by PwC finds that three-fourths (75%) of 226 CEOs and CFOs of private businesses report they have made innovation a priority -- 33% of them to a " great extent" and 42% to "some extent." Everyone wants innovation these days, and nearly half (47%) of innovation-focused private companies expect significant results from their innovations (ranging from incremental to breakthrough) over the next one to three years.

Innovation can be measured, say survey respondents. A total of 44% of companies in the survey link innovation to the success metrics of their business; the percentage is higher (63%) among innovation-minded companies.

Top metrics include customer satisfaction (cited by 79% of innovators), market expansion (72%), earnings/profit margins (69%), growth in revenue from new products/services (68%), and overall revenue growth (64%).

Companies prioritizing innovation to a great extent pay less attention to reduced operational costs as a key metric (36%) than do less-innovation-minded companies (57%). Somewhat surprisingly, employee recruitment/retention as a metric trails behind at 32% for innovators overall, despite half of those companies saying they expect innovation to help them attract and retain top talent.

Ken Esch, a partner in PwC's Private Company Services practice, points out that innovation success should not be measured by spending:

"We find that many companies are quick to correlate spending more with doing more. However, we believe that the emphasis should be on how you put your innovation dollars to work, not on the amount you spend. To extract the greatest value from its innovation investment, a company will need to strike the right balance between incremental and breakthrough innovations. How quickly the business wants to grow will dictate how much breakthrough innovation is required."

Nevertheless, two-thirds (66%) of innovators expect their overall level of innovation spending to increase over the next one to three years

Innovation-minded companies tend to be more positive than their less-inclined counterparts, the survey also finds. Companies that have made innovation a priority expect to grow 63% faster than non-innovators, forecasting 8% revenue growth over the next 12 months, versus 5% for non-innovators.

Trendsetter companies emphasizing innovation to a great extent are the fastest-growing businesses, forecasting 10% revenue growth over the next year -- nearly twice the rate of  non-innovators. Innovation-minded companies are also more likely to be planning new hiring (59%) and major new spending initiatives (51%) over the next 12 months.

What are the barriers to innovation? One-quarter (25%) of innovation-minded companies cite insufficient access to capital as a key challenge to pursuing innovation over the next one to three years. Talent shortages/inadequate skill sets are also issues for 26%, as well as lack of disciplined in-house processes for driving and executing innovation (25%). For the one-quarter of companies that identify themselves as non-innovators, insufficient capital is the leading barrier to innovation (36%), trailed by talent shortages (22%) and lack of disciplined in-house processes for driving and executing innovation (18%).

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