iPod, shmyPod: Most consumer tech companies aren’t that innovative by Stephanie N. Mehta @FortuneMagazine December 7, 2009, 3:33 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Apple’s gadgets win adulation, but research shows the sector needs a jolt if it wants to grow By Wouter Koetzier, global managing director-Accenture’s Innovation Performance Group, and Adi Alon, North American managing director-Accenture’s Innovation Performance Group Large consumer technology companies are underperforming in the global innovation battle. The culprit: Widespread flaws in how they manage and invest in innovation. If tech companies want to grow, they need to invest in breakthrough, high-impact innovations and more systematically and rigorously manage their innovation processes. This conclusion is based on our daily interactions with clients and recent Accenture research in which we interviewed research and development decision-makers at leading consumer technology companies in North America, Europe and Asia. Collectively, the executives represent companies that generate almost two-thirds of global industry revenue. The data revealed that innovation is a top priority for companies seeking to grow. But shortcomings in managing innovation, such as not having uniformity of command, are resulting in poor returns on innovation investments. Accenture believes these poor returns can be turned into profitable, sustainable growth by systematically managing innovation end-to-end — with the same rigor and discipline as other major business processes. According to Accenture’s consumer technology research: There is a lack of innovation pipeline management with potentially too much emphasis on incremental versus long-term, large-scale innovation. One respondent indicated that incremental, as opposed to breakthrough, innovation accounts for 60 percent of his company’s pipeline. There was a wide variance among participants in how often product pipelines and portfolios were evaluated. There are far too many self-centered business unit silos. These silos impede collaboration on innovation efforts that can benefit the company. As devices, content and communication technologies converge, cross silo collaboration becomes more critical for successful, ground-breaking innovation. There is an overdependence on backward-looking innovation metrics such as the number of patents, revenue realized from new products and the percentage of revenue derived from innovation initiatives versus forward-looking indicators such as sources of ideas, pipeline velocity and project risk profiles. There are far too many ad hoc innovation processes, especially for larger breakthrough innovation efforts, making it difficult to deliver value. To achieve excellence and deliver value, innovation needs to be managed as a business discipline with supporting processes and tools; few companies approach innovation in a holistic and systemic way. So what should consumer technology companies do to generate better returns on their innovation investment? Here are a few ideas: Companies can reorient their innovation culture to start with the consumer, rather than the technology, and increase their tolerance for failure in the quest for breakthroughs. Companies must manage innovation like other disciplines—some don’t and it’s a major mistake. Innovation must be managed with rigor in an integrated way, blending marketing, customer service, sales, research, operations, performance management and risk management. Companies must design and actively manage an innovation portfolio consistent with their strategy, balancing short term incremental innovation with longer term, market moving bets. Particularly during an economic downturn, the natural tendency of “hunkering down” and investing in short term incremental innovation only compromise a company’s competitive position for years to come. The typical corporate response in a down economy is to cut costs. But companies cannot simply cut their way to prosperity. They must invest in growth through innovation—yes, even during tough times. Managing innovation well, in a uniform, well-structured fashion, is as important as an act of innovation itself. Koetzier and Alon are managing directors for Accenture’s Innovation Performance Group, which works with clients on processes for addressing business challenges. Koetzier can be reached at Wouter.firstname.lastname@example.org and Alon can be contacted at email@example.com.