Majority of C-suite views talent as the best measurement of innovation success
- Budget constraints cited as biggest barrier to activation
- Lack of internal coordination creates risk of “trapped assets”
- 44% of respondents say creating workforce with future-focused skills is the best measurement of innovation strategy effectiveness
- C-suite views artificial intelligence as the next big bet
Originally Published by EY.
Half of C-level executives say their organizations spend more than 5% of their annual budget on innovative initiatives, yet 42% of executives cite a limited budget as their biggest barrier to activation, according to a new external survey released today by Ernst & Young LLP.
The survey, which was conducted by Wakefield Research, polled 500 C-level executives in the US to gauge their sentiments around innovation, including the opportunities ahead, pain points in their innovation journeys and implications for talent.
“In our work with clients, we often see a disconnect between an organization’s investments in innovation and their ability to integrate the results of those new technologies and capabilities into their business to create value,” said Roger Park, EY Americas Advisory and Financial Services Organization (FSO) Innovation Leader. “In many cases, organizational fragmentation creates the risk of ‘trapped assets,’ where investments aren’t being used effectively across siloes to realize their full potential. Leaders may feel they need to increase budgets to drive more innovation in their organizations, but unless they are also prepared to transform their businesses to fully reap the benefits of those new ideas, it will be like pouring more water into a leaky bucket.”
Beyond internal budget constraints, external factors cited as most concerning included market volatility that can distract from an innovation agenda and fears that competitors will outpace them on bringing innovative solutions to market. Despite this pressure, 75% of respondents still believe that their organization has exceeded their expectations on innovation when looking across competitors.
Innovation objectives spur need for future-focused workforce
According to the survey, effectively leveraging data for business insights and developing new products and services are top innovation priorities. Although the strategies to realize these objectives may vary, 46% of respondents note that their companies are refining hiring practices to attract talent with diverse, future-focused skill sets.
Talent is such a critical component of the innovation process that 44% of respondents said the percentage of their workforce with future-focused skill sets is the best measurement of the effectiveness of their innovation strategy, followed by the number of innovative products and/or services (40%) offered.
Who is responsible for driving the innovation agenda?
While 90% of C-level executives report that their company’s board is involved with innovation to some degree, the senior leadership team was most highly cited as being the primary drivers of innovation within the organization (38%). More than one-quarter report having a designated innovation leader, such as a chief innovation officer, in place at their organization, and 42% say they will create such a role to foster innovation.
“There is no question that the tone from the top is a critical component of any innovation strategy,” said Michael J. Inserra, EY Americas Senior Vice Chair and Deputy Managing Partner. “Ultimately, there is tremendous value to gain from empowering all individuals within an organization to play an active role in driving innovation forward, in particular, more junior-ranking personnel who may be closer to customers or new trends. One of the major challenges with this type of flat, collaborative approach, however, is establishing a balance between empowering a broad spectrum of the workforce while adding an element of oversight, coordination and escalation.”
Freedom to fail and continuous learning are key drivers of innovation
Companies are continuing to recognize the importance of fostering a culture that will support, rather than stifle, innovation. Seventy-nine percent of C-suite executives say their organizations are tolerant of failure – often a key element of the innovation process. Millennials make up the largest portion of these responses (42%), describing their companies as very tolerant of failure, compared to boomers (13%).
Although senior leadership may believe their organizations are tolerant of failure, a recent Ernst & Young LLP survey finds that only 25% of entry-level employees believe this is the case.
To further engage employees in innovation, respondents report that their companies provide incentives for innovative accomplishments (44%), support for external workshops or trainings (43%) and offer special innovation-focused events, like hackathons (42%).
While more than one-third of companies offer mentorship programs to help foster innovation across all employee levels, these programs may not be successful in their current form. In fact, only 12% of respondents state that mentorship programs have been the most successful tactic in driving innovation at their organization.
“Becoming champions for mentorship – and having an open mind to all the forms such programs can take – will help senior leaders unlock the full potential of innovation within their organizations,” Inserra said. “An effective program will forge connections across all levels of talent, create a safe space where everyone can learn from each other, take risks, fail forward and learn fast. Reverse mentoring, which creates an opportunity for junior people to offer key insights to senior leaders, can bring significant reward to leaders who are willing to foster these relationships.”
The innovation life cycle continues: C-level sees artificial intelligence (AI) as next big bet
As companies continue to place big bets on emerging technologies, the life cycle of innovation can be seen through the high levels of adoption of technologies previously regarded as “emerging.” Eighty-one percent of respondents state that their organizations have already adopted cloud computing, and 45% have adopted Internet of Things. Nearly one-quarter of respondents, however, believe that AI will have the greatest positive impact on the future growth of their company in the next five years, followed by machine learning (23%).
“In today’s Transformative Age, senior executives are forced to make tough decisions with practical budgets and aspirational agendas in order to keep their companies ahead of the curve,” Inserra said. “As disruption continues to take hold, it will be critical for leaders to stay laser-focused on identifying, training and retaining top talent; harnessing the power of emerging technologies; and having strong leadership in place to propel their innovation agendas forward.”
As part of its own innovation drive, the EY organization announced in July 2018 that it would invest $1 billion in new technology solutions, client services, innovation and the EY ecosystem over the next two financial years. This move is part of an ongoing strategy to provide clients and talent with innovative offerings using the latest disruptive technologies.