With the remaking of the business world now in progress as AI’s possibilities continue to unfold, now is the time for out-of-the-box thinking to be driving company initiatives. Innovation has always been a top priority, but brands and businesses need it today more than ever. But new research from business and tech consulting firm NTT DATA reveals a widespread failure to think big at a time when the possibilities have never been so limitless.
Virtually all (96 percent) of 1,000 North American business executives surveyed believe innovation—the development of new processes, products or services that increase business value over existing offerings—will be a primary source of achieving growth over the next two years. However, according to findings from the firm’s 2023 Innovation Index: How North American Organizations are Achieving Growth, Value and High Performance, only 21 percent definitively met their innovation goals this year.
The report explores the primary drivers of innovation, and where organizations focus their resources to support innovation.
“A failure to achieve innovation goals leaves organizations at a disadvantage,” said Tanvir Khan, chief digital and strategy officer at NTT DATA Services, in a news release. “When faced with big tech leaps like generative AI, most organizations are ill-prepared to handle or implement this or other technologies into existing infrastructure to reap the full benefits. What I think is most critical is the speed of adoption of these new technologies. Waiting is not an option. If you wait, you’ll be playing catch-up.”
Five significant challenges hinder innovation initiatives:
Innovation depends on data to power technologies like predictive analytics and generative AI, but only 22 percent of organizations trust their own data. Nearly half (46 percent) of organizations don’t use data to gain insights or make decisions because a whopping 72 percent don’t consider their data a strategic asset.
Organizations need top-shelf talent and skills to innovate, but the number one challenge for both innovation and data capabilities is lack of employee skills: 88 percent say lack of employee skills holds back innovation efforts. And 43 percent (a three-fold increase from 16 percent in 2021) say lack of employees with needed data analysis skills is their biggest challenge for using their data. Furthermore, organizations are not investing enough to build data capabilities for their workforce:
- 44 percent are reskilling existing resources
- 42 percent are enhancing the extended workforce through contractors and service providers
- 33 percent are recruiting new employees
“It’s not a winning strategy to rely on the marketplace to change the skills in your workforce,” said Kim Curley, vice president of people & organization consulting at NTT DATA Services, in the release. “All of us—from the highest level of leader to the folks early in their careers—need to be learning constantly. Investing in-house is a no-brainer.”
Technology Modernization Challenge
Technology is the backbone of innovation initiatives, but 86 percent of executives say their technology is outdated. Outdated IT infrastructure is a barrier to:
- Effectively using data (35 percent)
- Delivering high-quality customer experiences (32 percent)
- Providing exceptional employee experiences (31 percent)
Customer Experience (CX) Challenge
Customer experience drives business growth, but when we asked what hinders their CX efforts, executives listed in order:
- Inefficient processes (40 percent)
- Lack of resources to deliver products and services on time (37 percent)
- Rapidly changing customer demands (34 percent)
- Outdated IT (32 percent)
Organizations are not performing in innovation and speed to market either, both critical elements for CX: 54 percent said they were average or below average in product and service innovation, and 63 percent said the same for speed to market.
Leadership and Culture Challenges
Leadership, accountability and cross-functional collaboration can go a long way in driving a culture of innovation, but:
- 78 percent of executives say poor organizational culture holds back their innovation efforts.
- 58 percent rate the level of their organization readiness in culture as “weak” or “mixed” as it relates to fostering innovation.
- 40 percent report that their culture is not conducive to fostering enriching employee experiences and retaining talent.
Meet the Innovators
The study also identified a select group of organizations as being more advanced and mature in innovation systems and infrastructure, leadership, culture and digital customer experience. These “Innovators” (11 percent of survey respondents) are exceeding expectations from innovation investments compared to the rest of the market. Interestingly, the Innovators believe that using new technology to create a new market or disrupt an existing market will achieve the biggest impact for their organizations.
This is a different, more aggressive view from the majority of executives who believe innovation that builds on past successes (gradual, incremental, and significant innovation) will produce the best ROI for their organizations in the coming two years. The higher-risk bets that Innovators take pay off with higher revenue growth, profit and innovation ROI compared with the rest of the organizations:
- Innovators are more profitable: 54 percent more Innovators achieved net profit margins of 10 percent or greater than the rest of the market.
- Innovators grow faster: 38 percent more Innovators achieved growth rates of 10 percent or greater than the rest of the market.
- Innovators exceed ROI expectations: 64 percent more of the Innovators group exceeded senior leadership expectations on investment returns for innovation over the rest of the market.
The report provides more insights on what the Innovators are doing differently to achieve business impact, as well as how organizations are approaching and investing in innovation to increase profit and grow faster.
1,000 North American executives across a wide range of industries and company sizes were surveyed for this report.