Innovation: the key to future success - Global focus - Grant Thornton

Innovation: the key to future success?
September 2009 – Global focus

About the report
This report, produced by Grant Thornton, examines the thoughts and
attitudes of business executives globally towards innovation. A survey
conducted by the Economist Intelligence Unit (EIU) is combined with
insight from Grant Thornton specialists from around the international
organisation. This report forms part of a series of regional reports with
other regions covered being Western Europe, North America and Asia
Pacific.
Contents
00 About the report
01 Executive summary
02 The innovative environment
06 Reasoning
08 Calls to action
10 Conclusion
12 Grant Thornton International worldwide

Executive summary
With economies around the world in the grip of the worst recession
since the Second World War, the focus of many in the business
community has turned towards innovation. Things have gone badly
wrong, so what must we do differently, what must we try that
is new to help stimulate growth for sustained recovery? To put a more
positive spin on the situation, what kinds of innovation will best help
us to emerge from recession stronger than we went in, to gain market
share, or to thrive in new and exciting markets?
This report helps to answer many of these
questions, through its rigorous survey of several
hundred high level executives from the three major
trading regions of the world.
In Asia Pacific, we find that customer focus
is a tremendous source of innovative ideas and
products, with 47 per cent of respondents noting
the increased impact of customers on innovation
processes, compared with 39 per cent in North
America and 38 per cent in Western Europe.
Innovation in general is regarded as a top
corporate priority by more executives in Western
Europe (41 per cent) than in North America
(33 per cent) or in Asia Pacific (31 per cent), and its
respondents design more innovations for the global
market (60 per cent) than its counterparts in North
America (46 per cent) or Asia Pacific (47 per cent).
North America remains the best region for
innovation overall, according to all respondents,
with the United States achieving an average score
of 77 per cent as the place where it is easiest to
create innovative products, services and business
models. The region scores less well in its customer
relations; and its respondents are more likely to cut
investment in innovation until the market picks
up than those in other regions.
Innovation: Global focus 1

The innovative environ
The role of customers, along with the attitude of companies to their
customers, emerges as a defining characteristic in the survey. No longer
simply passive recipients of goods and services, customers now help to
shape the future of their own consumption. They are now the leading
source of innovations globally (41 per cent), more important than anything
inside companies, including research and development (see figure 1).
Firms in Asia Pacific are particularly attuned to
what their customers want with almost half (48 per
cent) of the best innovative ideas coming from
customers against 40 per cent in Western Europe
and 35 per cent in North America. Globally, heads
of business units followed as the best origins of
ideas followed by general employees and the inhouse
R&D team (both 33 per cent).
2 Innovation: Global focus

ment
Figure 1: Origin of the best innovation ideas
Average percentage of businesses
Customers
Heads of business units
General employees
In-house R&D team
CEO
Business partners and suppliers
Other C-level employees
Sales
Special innovation team
Outsourced R&D team
Other
41
48
35
40
35
43
35
28
33
31
33
34
33
30
34
34
27
24
28
28
26
31
21
28
22
20
22
23
17
17
13
22
16
16
17
13
7
6
8
8
5
6
6
4
Global Asia Pacific North America Western Europe
Source: Grant Thornton/EIU
Innovation: Global focus 3

Figure 2: What is your organisation’s stance on ‘open innovation’, in which companies leverage both internal and external sources of ideas?
Average percentage of businesses
Have successfully applied it and will continue
to do so
Have never heard of it
Never considered it – our own intellectual property
is too valuable to share
Explored the concept but can’t benefit from it
Explored the concept but it is too complicated
or expensive for us to adopt
Appointed internal specialists to work on open
innovation strategy
Applied it in the past without success and will
not consider again
33
34
30
35
16
15
19
14
14
11
14
17
13
11
14
14
11
13
9
10
8
8
8
8
6
8
5
4
Global Asia Pacific North America Western Europe
Source: Grant Thornton/EIU
Globally, respondents believe that open
innovation – where ideas and information are
shared with a third party – is key to future growth
with 33 per cent having applied open innovation
and will continue to do so. This figure is lowest in
North America (30 per cent) and highest in Western
Europe (35 per cent), see figure 2. Respondents in
Asia Pacific are less concerned than their peers
elsewhere with protecting their intellectual
property (11 per cent) compared to those in
Western Europe (17 per cent).
North American firms appear surprisingly
inward looking when describing their policy
towards inventing an innovation over the next
two years with just 49 per cent of respondents
citing innovation as a means to explore new
markets. This compares to 63 per cent in Western
Europe and 63 per cent in Asia Pacific, see figure 3.
Globally, the second most popular policy for
innovation is to minimise risk in a tougher market
(56 per cent). This was most common in Western
European responses (58 per cent) and least common
in both Asia Pacific and North America (both
52 per cent).
4 Innovation: Global focus

Figure 3: What best describes your company’s policy towards investing in innovation over the next two years?
Average percentage of businesses
Developing new products/services, or redesign
existing ones, so we can find new markets for them
Investing more on developing new innovations to
minimise our risk in a tougher market
Investing in technology to better develop
products/services
Engaging in co-creation with stakeholders
Planning to merge with or acquire another
company to make use of its innovations
Hiring staff dedicated to new product and
service development
Cutting back our spending on developing new
innovations until the market picks up
Outsourcing our innovation programmes
56
60
49
63
54
52
52
58
48
53
44
49
23
25
20
23
17
20
19
13
16
16
14
17
13
10
18
10
8
13
7
5
Global Asia Pacific North America Western Europe
Source: Grant Thornton/EIU
“Companies may want to re-visit their globalisation strategies as
a result of higher transportation costs (ie oil prices). Understanding
and predicting these trends will be critical to future investment
decisions.”
Jim Menzies
Grant Thornton, Canada
Innovation: Global focus 5

Based on in-depth interviews with our specialists around the world, we
have gathered additional evidence for the trends we have detected in
corporate innovation.
In the Asia Pacific region, customers are highly
valued for their input into innovation processes, as
companies strive to find products with mass appeal.
Countries such as Japan, with a long history of
incremental technical innovation, are able to react
quickly to new developments and bring new
products to market.
An open approach to innovation is popular in
the region, with joint ventures and partnerships
thriving in the current economic climate. But there
remain concerns over the protection of intellectual
property and legal enforcement of rights. Western
companies are encouraged to locate research and
development operations in Asia Pacific, to benefit
from low costs and to improve intellectual property
protection.
In some parts of the Asia Pacific region, political
instability can threaten the progress of innovation,
as firms are unable to predict the way that laws and
regulations will be administered in future.
In Western Europe, there is a rising level of
risk-aversion during the economic recession, with
firms and governments (such as France) aiming to
draw back investment from emerging economies
into the region. Support for domestic companies
that are developing innovative new technology is
increasing, however.
“Eventually, a competitor will innovate and
become the new bellwether. Staying ahead of
the competition is the best reason of all to
innovate.”
Harris Smith
Grant Thornton, United States
6 Innovation: Global focus

“In Sweden, everyone is permitted to play a role in developing new
ideas, from blue collar staff through to management. Sweden has a
population of nine million, a highly educated workforce, good
infrastructure and a high percentage of internet use.”
Pär Ekengren
Grant Thornton, Sweden
In the Northern European region of
Scandinavia, innovation – particularly in high
technology – is valued and well supported by
government. Countries such as Sweden were quick
to embrace the IT revolution and now offer many
products designed for the global market. Western
Europe as a whole is generally outward looking and
keen to offer products and services to the global
market.
The long-standing tradition of competition
between companies in North America will ensure
that any sense of inertia or complacency will be
short-lived, as innovative rivals emerge. Government
support has returned in some crucial sectors, such
as clean tech and pharmaceuticals after a period of
faltering support during the Bush administration.
Nevertheless, the balance between investing in
innovation and retrenching until better times return
has to be finely judged, as many firms struggle to
survive. North American firms are unusually riskaverse
in current conditions.
In Canada, generous government support has
failed to create an innovative culture, since natural
resources have led to a conservative approach to
business. The threat of climate change and energy
issues may spur future innovation.
Innovation: Global focus 7

Calls to act
ion
Companies around the world may wish to consider the following
points:
• pay more attention to what your customers say and their ideas for
innovations
• consider expanding your open innovation projects and working
with more third parties
• look outwards, explore new markets, rather than drawing back
into your domestic market
• capitalise on the great shifts of the age, the move away from
carbon-based energy and the emergence of China and India as
major trading nations with huge consumer markets.
“In the French automotive, aerospace and cosmetics industries,
there is no profit without innovation, so conditions are ideal. But in
the country as a whole, research and development isn’t sufficiently
recognised. Researchers at Universities are poorly paid and many
leave to work in the UK, Canada or US.”
Frédéric Zeitoun
Grant Thornton, France
8 Innovation: Global focus

“You have to be able to see
that there is a future for your
investment. Governments
need to show they are willing
to support you.”
Desmond Yuen
Grant Thornton, Hong Kong
Innovation: Global focus 9

Conclusion
10 Innovation: Global focus

As with any major disruption, especially one such as the global credit
crunch and continued economic uncertainty, affecting billions of
consumers and millions of businesses, predicting likely outcomes is
fraught with danger. Economies that were small and struggling just a
few years ago may return to their troubled earlier state, or they may
emerge from the recession with an extraordinary new vitality. Well
established mature economies may suffer just a minor inconvenient
period of lower growth before returning to rude health, or they may
fail to recover for decades.
What this report demonstrates is the extent to
which globalisation has changed corporate
priorities. Whereas companies operating in the
1980s and 1990s may have viewed the Far East as a
source of cheap labour and manufacturing resource,
today it is a vast and growing market for their own
products and services, a place where alliances and
partnerships of equals have replaced client and
supplier relationships.
Innovation is no longer a practice confined to
the laboratories of North America and Western
Europe, but a word rich in meaning for the supply
chain professionals of Shanghai, the IT directors of
Stockholm and the product designers of Seattle.
The interwoven strands of open innovation,
outward-looking attitudes, collaborative working
practices and the desire to cater to new,
international markets have created a tapestry
of mutual reliance.
We hope this report will help you to appreciate
these new realities and to incorporate the best
innovative practices into your business life.
“Products have an extremely short life cycle, so
incremental innovation is always critical.”
Hiroyuki Hamamura
Grant Thornton, Japan
Innovation: Global focus 11

Grant Thornton International
firms worldwide
This list represents the countries and territories
where Grant Thornton International member and
correspondent* firms currently have operations.
July 2009.
*for a detailed explanation of the differences between
correspondent and member firms please visit www.gti.org
Antilles*
Argentina
Armenia
Australia
Austria
Bahamas
Bahrain
Belgium
Bermuda*
Bolivia
Botswana
Brazil
Bulgaria
Cambodia
Canada
Cayman Islands
Channel Islands
Chile
China
Colombia
Costa Rica
Croatia
Cyprus
Czech Republic
Denmark
Dominican Republic
Egypt
El Salvador
Finland
France
Gabon*
Germany
Ghana*
Gibraltar
Greece
Guam
Guatemala
Guyana*
Honduras
Hong Kong
Hungary
Iceland
India
Indonesia
Iran*
Ireland
Isle of Man
Israel
Italy
Jamaica
Japan
Jordan
Kenya
Korea
Kosovo
Kuwait
Latvia*
Lebanon
Liechtenstein*
Luxembourg
Macedonia
Malaysia
Malta
Mauritius
Mexico
Morocco
Mozambique
Namibia
Netherlands
New Zealand
Nicaragua
Nigeria*
Norway
Oman
Pakistan
Panama
Philippines
Poland
Portugal
Puerto Rico
Qatar
Romania*
Russia
Saudi Arabia
Serbia*
Singapore
Slovak Republic
Slovenia
South Africa
Spain
Sri Lanka*
Sweden
Switzerland
Taiwan
Thailand
Tunisia
Turkey
Turks and Caicos*
Uganda
Ukraine
United Arab Emirates
United Kingdom
United States
Uruguay
Venezuela
Vietnam
Yemen
Zambia
12 Innovation: Global focus

Further reading
Innovation Island: Is the UK open for business? – April 2009
Available to download from: www.grant-thornton.co.uk/innovation
Innovation Engine: Extracting value from ideas – June 2009
Available to download from: www.grant-thornton.co.uk/innovation
Natural Born Innovators: What connects UK entrepreneurs with
success? – July 2009
Available to download from: www.grant-thornton.co.uk/innovation
Also in this series
Available to download from: www.gti.org/publications
Asia Pacific North America Western Europe

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