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Section 1: Innovation in European businesses

Innovation in business

Innovation was once seen as an investment for the future and was constantly competing with pressures to allocate funds to deliver short term performance. In the 2008 McKinsey Report: ‘Innovation and Leadership’ only 27% of senior executives said that innovation was fully integrated in the strategic planning process but more than 70% said innovation will be one of the top three drivers of growth for companies for the next three to five years.

12 years on, did this happen?

The answer is emphatically yes. Innovation today is at the centre of most European business’ strategies. 94% of leading European businesses say Innovation is either very important or important and clearly defined in terms of what it means to their business.

The primary aim for most businesses’ innovation is the development of new products and services (75%), closely followed by the aim to improve the customer experience (68%) with 45% of businesses focusing on reducing costs. Unsurprisingly, technology is the primary area of investment for change in 49% of businesses, with people and processes primary for 23 and 22% respectively.

Experimentation is at the heart of innovation. Exploration of a broad range of opportunities needs to be done in order to find game-changing ideas. It is encouraging to see, that on average, businesses in Europe explore 52% of new ideas and 33% of these ideas are implemented.

What difference is innovation making?

The data shows us that innovation drives business growth, gives companies a competitive edge, helps in attracting and retaining talented people, creates business agility and improves businesses processes.

The role of innovation in business:

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The impact of technology in driving innovation:

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Spanish and UK businesses saw the highest return of innovation in both delivering growth and competitive advantage. German companies were most successful in applying innovation to attract and retain employees.

Cultural shift:

An innovation culture is all about being curious; creating an environment where an employee is unafraid and actively encouraged to question the status quo and experiment with new ideas, seeing beyond business or regulatory requirements.

The McKinsey study reported that only 23% of employees believe their organisations encourage them to learn from failure.

The RSM International survey showed:

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There is still room for improvement (and the current crisis will probably accelerate this as companies look for new ideas) but it has come a long way.

Innovation is part of everyone’s role in 63% of German businesses (highest of group), with 54% of Italian businesses seeing failure as an opportunity to learn (highest) and 53% of Portuguese businesses saying innovation is a core part of the review process (highest).

Barriers:

Unsurprisingly, successful businesses cited budget constraints, challenges in retraining and a shortage of skilled talent as the core internal barriers to further success (outside what is common sense to business practice such as day to day priorities and not all ideas being worth pursuing).

Poor access to funding was identified as the most significant external barrier to innovation and across Europe blame lay at local governments’ feet with 65% of businesses saying their country is not investing the right level of money into skills to power innovation.

Shortage of talent was a bigger issue for businesses in Spain and the UK (42%) than other markets, more businesses in Italy (60%) cited budget constraints as the issue, and businesses in Portugal (66%) and Greece (58%) felt the biggest challenge came in technology retraining.

What was also common amongst all markets was a cultural barrier; an opposition to innovation from people both at senior levels and below:

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In the current climate of change, we would expect to see this reluctance to innovate lessening as businesses adapt to the new world, with both leaders and employees recognising the crucial transformational power of innovation.

Who is driving it?

One final observation can be made on how businesses pursue innovation. 62% of businesses in the survey said they were using third parties to help them realise their innovation potential and 43% say they rely on a small group of specialists within their organisation to help them innovate. The latter is a model that is holding firms back, as we will show later in the report.

A hypothesis on change following the current crisis: In the current environment there is a laser focus on short term cash flow. When fighting to survive, a business is less likely to be thinking about medium and longer term innovation investments and more likely to be thinking about making payroll next week. The crisis has of course brought about a massive shift in priorities.

How will businesses respond? It seems likely that complete rethinking of business models will be required instead of incremental changes to revenues and costs delivered through short and medium term innovations.