Brand owners heighten focus on innovation

11 May 2010

NEW YORK: Innovation will be a key priority for a majority of brand owners around the world this year as the economic recovery begins to gather pace, McKinsey has reported.

A survey by the consultancy revealed that 40% of firms have boosted their research and development budgets for 2010, compared with the 20% who adopted the same approach in 2009.

More broadly, 60% of participants to McKinsey's poll stated that innovation headed their list of corporate objectives for this year, including two-thirds of the respondents based in Europe.

This follows on from radical cost-cutting measures implemented last year, when 60% of organisations delayed spending, 49% cancelled projects and 37% halted capital investments.

However, 42% of the corporations that had reduced their outlay in this area in 2009 were concerned this could lead to a decline in their market share, margins or prices in the next three to five years.

A further 32% were worried they could fall behind their competitors technologically, and 9% predicted the contraction in their R&D activity in 2009 may come to undermine their reputation.

More positively, many manufacturers said they had exploited the opportunities provided by the financial crisis to "add a measure of discipline" to the new product development process.

For example, 35% had enhanced accountability, 34% had built more external partnerships, 26% had sought to leverage their global resources and 22% had restructured their management processes.

A plurality of the sample in each case intended to continue following these strategies in the next five years, while short-term measures like extending existing brands were less likely to retain their place.

Indeed, 67% of executives believed they would experience a competitive advantage thanks to the reforms put in place last year.

This reached 82% for high-tech and telecoms specialists.

The main goal for a majority of corporations this year will be modifying their portfolios in response to the changing needs of their customers and shifts in the trading environment.

Elsewhere, 17% of contributors were "aggressively hiring" talent from sources such as universities and their rivals, while 25% were maintaining staffing levels and 30% were focusing on retention.

Among the companies which enjoyed the most impressive expansion in organic revenues, McKinsey found 30% of this growth was attributable to products which had been developed in-house.

These "high-performing" innovators were most likely to increase their R&D spending, while 40% were making more “long-term bets” than previously, a total that fell to 27% for their more hesitant peers.

Moreover, 26% of the firms with particularly strong credentials in this field were "shifting product portfolios toward completely new products", measured against 15% of more cautious companies.

This group also placed the greatest emphasis on having a strong talent pool, retaining strong "institutional knowledge" and viewed innovation as being integral to corporate morale.

Data sourced from McKinsey; additional content by Warc staff