‘Innovation has been steadily climbing on to the agenda of CEOs in recent years, replacing the big fight for geographic footprint,” according to Ann O’Connell, consulting partner for PwC Ireland.

According to a new report from the accounting and consulting firm, which surveyed over 1,700 top-level executives worldwide, companies globally expect a $250 billion boost in revenue over the next five years as a result of innovative approaches.

"Five years ago, expansion into China was seen as the most powerful source of growth for just about every business. Organisations are still keen to expand their reach but are increasingly concerned about how they improve what they do, and are looking to innovation as a way to maximise their value. Innovation has become mainstream, with organisations looking to embed it into their DNA," says O'Connell.

While innovation was once thought to be the province of technology and consumer goods companies in developed economies, it has now become a key driver of growth for companies regardless of sector or geography.

The top tier of innovators identified in the study come from a diverse range of sectors, from healthcare to automotive to financial services, and from India to the Netherlands and Brazil.

Companies were ranked based on criteria such as the proportion of their revenue derived from products and services launched in the last year, the proportion of their revenue spent on innovation, their level of collaboration with external partners as well as how important the interviewee said innovation was to their company. Thus a scale of their level of innovation was measured.

Firms are fundamentally changing the way they innovate, the study found. Innovation has moved beyond products and services and now regularly encompasses business models, operating systems and customer experience. Additionally, collaboration with both internal and external partners has become vital to innovation efforts.

Among the other findings of the report, two-thirds of the most innovative companies say innovation is a competitive necessity compared with 19 per cent among the least innovative, and nearly 80 per cent of the most innovative firms say they have a well-defined innovation strategy compared with 47 per cent of the least innovative. The most innovative companies are almost twice as likely to be targeting breakthrough and radical innovations and were also far more likely to be using social media to collaborate externally (67 per cent as against 39 per cent for the least innovative).

Mainstream activity
One of the more interesting findings of the report is that the most innovative companies are less likely to manage innovation efforts informally (21 per cent vs 32 per cent), suggesting that innovation is now being increasingly viewed as a mainstream activity that needs to be carefully resourced, managed and measured. Nearly 80 per cent of top innovators said they had well-defined innovation strategies, compared with less than half of the least innovative companies.

O’ Connell adds that there is now a growing application of business analytics to predict the outcome of innovation initiatives. “People are looking to correlate innovation efforts and financial performance,” she says.

The respondents highlighted an important shift in the relative focus on operations and innovation. Globally, almost two in three CEOs see innovation and operational effectiveness as equally important to the success of their company. Business leaders in Latin America agree with this the most (71 per cent), in contrast to their peers in the Middle East who are more divided (50 per cent).

PwC’s research also shows that there has been a shift in how CEOs view their role in driving innovation. Today’s CEOs recognise that they need to be directly involved in driving innovation within their business, with 37 per cent reporting their role as “leader” in this area, and 34 per cent as “visionary”. This contrasts sharply with the situation three years ago when a similar survey showed only 12 per cent of CEOs were leading the charge on innovation strategy.

“Back then, sharpening operational effectiveness was the overriding objective as companies sought to survive the sudden loss of revenue caused by the financial crisis. Now, three-quarters of CEOs regard innovation as at least equally important as operational effectiveness,” O’Connell notes.

“Put simply, CEOs have overwhelmingly recognised that today, companies that don’t innovate will fail. It’s no longer a choice. What remains to be seen is whether their organisations are ready to deliver on their aspirations.”