Meeting the Challenge in the Midwest

ExcEllEncE in innovation:

A report on the 2011 Innovation Quotient (IQ) Survey

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exeCutive suMMary
innovation, which can range from incremental to radical, is essential to the future success of U.S. companies especially for their ability to meet customer expectations while responding to competitive challenges. However, the bar for whats considered innovative continues to rise. With todays sophisticated consumers, ideas that may have been considered innovative at one time are now merely commonplace. Usually the word innovation conjures up visions of wildly appealing new products and clever technologies, but innovation can also refer to well-timed business shifts and subtle operational system gains. In our first-ever Innovation Quotient (IQ) survey, Plante Moran and NewNorth Center have partnered to decipher how companies in our region are performing across the range of practices that might be considered innovation. We constructed our survey to determine how the highest performing organizations are using innovation as a means to increase revenue. The survey also calibrates our own ways of thinking to provide a yardstick for future progress. In these days marked by economic uncertainty and stock market roller-coasters, all positive business signs are welcome. Upon viewing the answers from the more than 500 people who completed the (IQ) survey, we were encouraged to find positive trends in innovation. More than half of the companies identified as top innovators reported that their top three products and services have been on the market fewer than five years. More than 75 percent of their total revenue came from these products and services. While the survey demonstrates some positive results, it also reveals how far we have to go to turn innovation into increased revenue growth and jobs. Many survey respondents said that leaders in their organizations endorsed innovation, but our report shows that many of these same organizations lack the requisite processes that will turn ideas into products. With the right organizational processes, programs, and support, companies can accelerate their efforts and make innovation a deliberate outcome rather than leaving it to chance. Interestingly enough, traditional measures of innovation like patents correlate to new ideas, but not always new revenue.

identifying the innovative organization: five Key observations

More than 500 executives across a variety of industries submitted their data for the survey. 36 percent were from manufacturing 11 percent were from financial institutions 50 percent worked for organizations with annual revenues of less than $10 million 19 percent worked for organizations with annual revenues more than $100 million The majority of our respondents were from Michigan (51%), Ohio (26%), and Illinois (16%) The survey asked a range of questions to get a handle on the future of innovation in the Midwest. What is the value of innovation? What drives innovation in organizations? Who are the catalysts for innovation? What are the processes for innovation and commercialization? What resources are set aside for innovation? Does your culture promote and reward innovation? The survey findings demonstrate that businesses that are serious about driving revenue growth from innovation must: 1. Have leaders who drive innovation as a corporate strategy 2. Rely on indicators other than patents as a measure of true innovation 3. Develop robust processes to evaluate, test, and commercialize new ideas 4. Set specific goals and budgets as part of the strategic plan 5. Reward individuals and teams for ideas that turn into successful revenue streams ObSeRvATION ONe: The executive Team Drives Innovation as Part of Corporate Strategy The strongest indicator that our region is focused in the right direction is the percentage of respondents who identify the executive team as the primary driver for innovation. Seventy-two percent of those surveyed believe that leadership sees innovation as an integral part of corporate strategy, and 54 percent identified the executive team as the catalyst for innovation in their organizations. The results demonstrate that these companies recognize the value innovation holds for their ultimate success in the marketplace, particularly as competition grows.
3

innovation as Part of CorPorate strategy

83% 68%

75% 59%

72%

<$10M

>$100M

Mftg

Fi

overall

ObSeRvATION TWO: Patents One of Many Indicators Patents are not as strong an indicator of success in generating commercially viable new products and services as they have been in the past. More than 60 percent of our survey respondents had zero patents. Seventeen percent said that they do not pursue patents. Some might argue that in todays global economy the transparency that the Internet provides reduces the protection of a patent since legal imitations are far more common. ObSeRvATION THRee: Formal Development and Commercialization Processes Needed Unfortunately, the survey results reveal that despite the stated focus on innovation, only 9 percent of respondents see their new products and services as breakthroughs compared to the 57 percent who see them as new but within the same industry and market. Why are these companies not innovating at a greater rate if the executive teams say innovation is an integral part of corporate strategy? The answer may lie in process. Do companies have the right tactics, processes, and resources to put their words into action?

innovation as breaKthrough

11%

8% >$100M

8% Mftg

9% 0% Fi overall

<$10M

When asked about product/service development and commercialization, only 27 percent say they have a formal process for development and only 20 percent had a formal process for commercialization. The results reveal that strategy alone, without the support of executable processes, will not guarantee innovation success. Innovation requires a steady stream of good ideas, successful product and service development, and effective commercialization. Without the collaboration of these three components, revenue producing innovation will be limited.

budgets for innovation

38% 22%

32% 24%

27%

<$10M

>$100M

Mftg

Fi

overall

58% 41% 33% 25% 12% 12% <$10M >$100M Mftg

27% 16% Fi

27% 20% overall

ObSeRvATION FIve: Rewards are Essential Furthermore, a company must provide fitting rewards to support the successful conversion of ideas into commercially viable products and services and to ensure the reinvestment of funds, resources, and leadership mindshare. Only 35 percent of the respondents answered that they have designed their reward system to help motivate innovation performance.

Development Process Commercialization Process

rewards innovation

ObSeRvATION FOUR: budgeting for Innovation Translates Into Accountability in addition to formal innovation-oriented processes, companies should allocate funds to support innovation. Only 27 percent of respondents set aside budgets to support their strategic innovation plans. When a company reserves and protects a budget, greater accountability exists to utilize those innovation funds effectively. With a dedicated budget for innovation, companies can take the risks required to develop and prove out new ideas.

42% 34%

36%

35%

35%

<$10M

>$100M

Mftg

Fi

overall

toP innovators
Improvement is apparent when delving further into the same critical areas for a subset of the respondents: those who represent innovations best in class. For this analysis, Top Innovators were defined as the top 25 percent of respondents who generated an average of 77 percent of total revenue from products and services that are fewer than five years old.

86% 61% 72% 54% 18% 29% 27% 9% 26% 20% 39% 27% 46% 35%

innovators claimed to have a formal commercialization processes (26% v. 20%). Combining formal and informal processes, the percentages of top innovators with processes for development and commercialization go up to 69 percent and 56 percent respectively. The lack of formality may result from the size of the Top Innovators 68 percent of them work for companies with revenues of less than $10 million and the survey results clearly demonstrated that the larger companies (greater than $100 million) were more likely to have formalized processes (58 percent v. 12 percent for development and 41 percent v. 12 percent for commercialization). In short, processes for development and commercialization are key to actually bringing innovative ideas into the marketplace. Finally, the Top Innovators set aside specific funds to support innovation and establish a rewards system to recognize those individuals who are able to deliver upon the innovation goals. This validates the need for financial support and incentives to sustain proactive innovation.

learning froM the iQ survey

The IQ survey highlights that executives in the Midwest already recognize the critical need to innovate yet have not fully embraced the necessary financial resources and business systems to truly imbed innovation into their corporate culture. With a more concerted effort to formalize the development and commercialization processes of products and services, setting aside a specific budget, and providing for proper incentives, true breakthroughs should become more repeatable (cultural) and have significant impact (financial). based on the survey results we would like to see business leaders execute the following initiatives in the next 12 months as a way to help increase the success rate of turning ideas into profits. Create a methodology for your company to vet new ideas and make sure they are commercially viable and have the support to get them to market Access the talent in your organization and ensure that you are staffed with the skills necessary to create and support the conversion of new ideas into new opportunities

Develop- commerexecutive corporate breakment cialization Strategy throughs team Process Process

budget

Rewards

top innovators all respondents

The Top Innovators outperform to some degree the overall respondents in each of the key categories. Top Innovators rely on their executive teams to set innovation as part of the corporate strategy and to promote it throughout the organization. eighteen percent of this best in class group sees a greater percentage of their products and services as a breakthrough compared to only 9 percent of overall respondents. Although almost the same number of Top Innovators and overall respondents report having formal development processes (29% v. 27%), a higher percentage of Top

 In addition to the manufacturing, marketing, and operations talent, ensure there are adequate program management resources available Focus company resources on transforming the best ideas. Dont decrease the chances by diluting the available talent and budget necessary to make new ideas successful in the market Create a budget and return on investment objectives to evaluate and prioritize the potential ideas Create an incentive program which recognizes the value of ideas and their successful commercialization

Plante Moran and the NewNorth Center will review the status of innovation each year, tracking the progress of our region and identifying the changing drivers and trends that each participant experiences. We will gather this data and translate it back to each respondent with the hope that true innovation will become a more recognizable component of a companys dayto-day operating practices and overall success. The economic future of our region depends on the continual success of our businesses; we believe that the diligent pursuit of formalized innovation can help launch a new era of competiveness for our region and beyond.

guidelines for establishing a budget 1. Set goals 2. Identify the types and volume of activities that lead to your desired goals 3. Determine the cost of the time and expense to perform the activities guidelines for setting uP rewards 1. Identify the activities where you are willing to provide incremental compensation 2. establish a value hierarchy of the activities to the organization 3. Develop a motivational monetary scale that relates the value of the activity to the bottom line 4. Create an annual budget based on innovation goals and estimates of frequency of events requiring monetary compensation guidelines for develoPing ProCesses 1. Proactively identify, then address any barriers to innovation that may exist in your organization 2. Define a disciplined creative process that takes into account your business and industry, your organizations systems and culture, as well as undiscovered potential 3. imbed processes that allow for both radical and incremental change

Thanks To our co-sponsors

NewNorth Center and Plante Moran partnered with numerous co-sponsors in three states to secure survey responses, including the chicagoland chamber of commerce, cornerstone chamber of Commerce, Detroit Regional Chamber, european American Chamber of commerce, Grand Rapids area chamber of commerce, Holland Area Chamber of Commerce, Illinois Manufacturers Association, Lansing Regional Chamber, Lakeshore Advantage, Ohio Manufacturers Association, The Right Place, PolymerOhio, Inc., Southwest Michigan First, TechSolve, and the Traverse City Area Chamber of Commerce. We thank our co-sponsors for their participation.

about newnorth Center

NewNorth Center is a nonprofit, hybrid education and business institution. The Center specializes in immersive skills training, research, executive education, workshops, seminars, and an annual Design in business Summit. The Centers portfolio features design-centric, post-graduate business programs formulated expressly to bring increased value to local, regional, and national companies and organizations. For more information, visit www.newnorthcenter.org.

about Plante Moran

Plante Moran is among the nations largest accounting, tax, and consulting firms. Plante Moran provides a full line of services to organizations in the following industries Manufacturing & Distribution, Financial Institutions, Service, Health Care, Private equity, Public Sector, and Real estate and Construction. Plante Moran has a staff of more than 1,600 professionals in 21 offices throughout Michigan, Ohio, and Illinois with international offices in Shanghai, China; Monterrey, Mexico; and Mumbai, India. Plante Moran has been recognized by a number of organizations, including FORTUNe magazine, as one of the countrys best places to work.

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