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Privately Speaking Issue #2: Tackling Innovation on a Tight Insights on private company growth www.kpmg.com/us/privatelyspeaking Issue #2 Tackling innovation on a tight budget 2 PRIVATELY SPEAKING: INSIGHTS ON PRIVATE COMPANY GROWTH IN THIS ISSUE The Privately Speaking STAYING RELEVANT series investigates THROUGH INNOVATION the growth appetites mid new and changing competitors and consumers, 69% of and growth plans of private company CEOs are concerned about the future relevancy private companies, Aof their products and services and are therefore focused on improving them through innovation, according to the KPMG Private based on quantitative Markets Group’s survey of 226 U.S.-based private company executives. survey data, interviews with private CEOs, Our survey shows that developing new products and services, and improving existing products and services, are both playing a significant role in directing and perspectives of innovation in private companies. KPMG’s private markets “Product [and service] innovation is directly related to top line growth. If you want specialists. This issue to grow organically, you have to innovate,” says Eric Redifer, managing director in examines the important KPMG’s Strategy & Operations practice. role of innovation on But in today’s environment, innovating alone is not enough. As open source design the CEO’s agenda and tools, internet-based collaboration software, 3-D printing technology, and other the strategies leaders new tools and techniques make innovation processes faster and cheaper and significantly shorten product life cycles, organizations may also need to increase the of growth stage and speed at which they innovate. midsize companies should consider when “Companies have always driven revenue and market share by bringing new products and services to market at a high speed relative to competitors,” says driving innovation Redifer. “But today, if you don’t take advantage of product innovation quickly and in an environment of get products into the market first, you will lose in the marketplace.” constrained budgets and competing priorities. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network independent firms limited liability partnership and the U.S. a Delaware KPMG LLP, © 2015 NDPPS 369128 All rights reserved. in the U.S.A. Printed entity. (“KPMG International”), a Swiss with KPMG International Cooperative affiliated PRIVATELY SPEAKING: INSIGHTS ON PRIVATE COMPANY GROWTH 3 How concerned are you that the products/services you sell today will be as relevant three years from now? 31% Concerned Not Concerned 69% What plays the most significant role in driving or directing innovation for your company? The top 5 responses given: 1 Improving existing products or services 2 Improving year-over-year growth and profitability 3 Delivering new products or services 4 Leveraging technology to facilitate internal collaboration Leveraging technology for external purposes to improve 5 the customer experience © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. NDPPS 369128 4 PRIVATELY SPEAKING: INSIGHTS ON PRIVATE COMPANY GROWTH INNOVATING COST-EFFICIENTLY ur survey results show that budget constraints are hindering the innovative efforts of many growing companies. Research and development (R&D) to foster Oinnovation is a low priority for capital allocation, and 45% of private company CEOs say budget constraints are the greatest barrier to innovation. “Private companies often have fewer resources and therefore must be careful about making mistakes they will not have the ability to recover from. At the same time, they must be more entrepreneurial because they tend to be smaller and closer to their customers. It’s a real balancing act,” says Redifer. As they balance the bottom line with a nose for growth, increasing innovation budgets may not be an option for many private companies. So the question is: How can they do more with less? OF PRIVATE COMPANY CEOs PARTICIPATING IN THE SURVEY SAY BUDGET CONSTRAINTS ARE THE GREATEST BARRIER TO INNOVATION © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. NDPPS 369128 PRIVATELY SPEAKING: INSIGHTS ON PRIVATE COMPANY GROWTH 5 FOUR STRATEGIES TO ENHANCE INNOVATION Developing and implementing an innovation strategy is never easy, clear-cut, or risk free, especially when confronted with resource constraints. To do more with less, and help increase the odds of success, private companies should: Embrace open innovation models and Lead innovation by example, but use digital advances such as social also relinquish control to key media and crowdsourcing to collect innovative talent—bold thinkers fresh ideas and feedback. Remove COLLABORATE with a deep understanding of barriers to the customer-facing target customers. Introduce new organization so innovation is EXTERNALLY policies—like public recognition more closely targeted to CREATE AN for creativity—to surface good real-time consumer desires. INNOVATIVE ideas from employees. CULTURE Pursue a few innovation projects simultaneously, rather than going Collect the necessary CLAIM R&D all in on one single idea. Take documentation and make the TAX CREDITS prototypes and pilots to customers necessary calculations to claim to pinpoint losing innovations R&D tax credits, helping to offset FAIL—AND quickly, and then reallocate the cost of innovation projects. SUCCEED—FAST resources to winning ones. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. NDPPS 369128 6 PRIVATELY SPEAKING: INSIGHTS ON PRIVATE COMPANY GROWTH COLLABORATE EXTERNALLY rivate companies will be better able to spot trends, capture ideas, and predict future needs if they tap into the data and knowledge Pof the external world. “External collaboration really turns the tables on innovation initiatives, such as licensing Febreze brand innovation and allows small and midsize businesses to name and technology to Bissell for inclusion in a keep up with larger companies,” says Redifer. “While line of successful vacuum bags and filters.1 CEOs large companies are generally more protective of their looking to accelerate innovation should assess if their intellectual property, entrepreneurial companies don’t R&D is adequately exploiting external knowledge have the same barriers or resistance and actually need by investigating what external sources teams are to collaborate outside.” tapping into for feedback and how innovations are being shared externally with potential partners. In this age of digital connectivity, sources of information and ideas from all over the world can share valuable • Harness the power of social media. Tapping insights that inform innovation activities, without much into social media and online communities is an or any expense. Consider open innovation models, inexpensive way to develop the customer insights internet-based collaboration and research tools, and necessary to bring relevant products and services ways to connect with consumers. to market. With social monitoring tools, marketers can “listen” to real-time customer conversations • Embrace open innovation. Open innovation models and feed findings to product managers, who can help private companies innovate cost-effectively find inspiration for new features or new products. by incorporating external ideas, feedback, and Companies should also consider crowdsourcing, support throughout the internal R&D process, and the act of inviting communities to share ideas and encouraging companies to share ideas externally feedback, as an incredibly powerful and low-cost to identify new ways to innovate with others. channel for product innovation. Online clothing This open collaboration accelerates innovation by startup Lolly Wolly Doodle crowdsources customer bringing in widely distributed knowledge that may feedback from their Facebook page. If a style is a hit not be available from internal engineers, designers, on Facebook, they produce more, but not until initial and developers. Collaboration can take the form of orders come in. This method for product innovation joint ventures, licensing arrangements, or informal helped Lolly Wolly nearly double its revenues networks of customers, inventors, business partners, every year since 2009 and attract investment of and universities. P&G has built a billion-dollar $20 million.2 business with its Febreze brand through many open 1 Trademark Licensing Source: P&G, Connect & Develop, Open Innovation Stories (January 1, 2013) 2 The Startup That Conquered Facebook Sales Source: Inc. magazine, Tom Foster (June 2014 issue) © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. NDPPS 369128 PRIVATELY SPEAKING: INSIGHTS ON PRIVATE COMPANY GROWTH 7 • Leverage ideas from your stakeholders. (www.kpmg-innovationfactory.com) and Crowdsourcing, innovation
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