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Rethinking Innovation in Industrial Manufacturing Are You up for the Challenge?

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Rethinking innovation in industrial manufacturing Are you up for the challenge? www.pwc.com/innovationsurvey In our work with industrial manufacturing clients, we see the critical impact of innovation up close every day. It’s one sector where innovation has a dramatic Foreword impact on not just the bottom line of individual companies, but also on the productivity of entire sectors like mining, construction or agriculture. And it has a dramatic impact on company competitiveness. The most innovative manufacturing companies managed a 38% increase in revenues over the past three years. That’s nearly four times the rate of growth of the least innovative companies in the sector. Most of our industrial manufacturing clients already recognise the importance of innovation. But they’re not always getting the benefits they could be from their investments. That’s where this paper comes in. It’s not easy to build a strong innovative culture, but the payoffs are high for those companies that succeed. Perhaps some of the biggest challenges for industrial manufacturing companies lie in finding the right talent, pursuing the right partners and getting the right metrics in place to measure innovation progress. Barry Misthal [email protected] In this report we look at these challenges and urge you to start asking yourself some key questions to sharpen the innovation focus at your company. Barry Misthal Steve Eddy Global Industrial Global Industrial Manufacturing Leader Manufacturing Advisory Leader Steve Eddy [email protected] Contents Industrial manufacturing needs innovation to spur growth 3 Starting with a solid strategy 5 Balancing the innovation portfolio 8 Focusing on culture and talent 12 Expanding collaboration 15 Measuring success 18 Where next for your business? 19 Want to find out more? 20 PwC’s Global Innovation Survey 2013: Industrial manufacturing perspectives 1 About this report 249 Executives from Rethinking innovation in industrial To find the answers we drew on insights the industrial manufacturing: are you up to the from interviews with 1,757 C-suite and manufacturing challenge?, is a companion paper to executive-level respondents across more industry respondents PwC’s thorough survey report on than 25 countries and 30 industries innovation, Breakthrough innovation who are responsible for overseeing From 20 and growth. It explores the impact that innovation within their company. Our countries innovation has on growth and examines sample included 249 executives from the how leading companies are making industrial manufacturing industry from 20 innovation work for their organisations. 20 countries. Their responses form the Breakthrough innovation and growth basis for this companion paper. explores three key questions: Rethinking innovation in industrial How are companies using manufacturing shows why industrial innovation to drive growth manufacturing executives should take 1 and what is the return on a fresh look at their innovation strategy. this investment? To lead on innovation, manufacturers need to broaden their innovation efforts How are approaches to beyond products, focus on a strong innovation changing, culture to attract and motivate talent, 2 particularly in light of a enhance collaboration and look for trend towards more meaningful ways to measure innovation disciplined innovation? success. What are the leading practices and critical success factors 3 that deliver tangible business results? 2 Rethinking innovation in industrial manufacturing Industrial manufacturing needs innovation to spur growth PwC’s Global Innovation Survey 2013: Industrial manufacturing perspectives 3 The most innovative companies overall are growing significantly faster than the least innovative In past years, the general public hasn’t often seen machinery and 38% 10% equipment makers as leading innovators. And yet, over the years, innovation in industrial manufacturing has had an enormous impact on society. Agricultural equipment has 20% most 20% least made farming vastly more efficient. innovative companies innovative companies Automation has transformed factory (11.3% year-on-year) (3.2% year-on-year) floors and made it cheaper and faster to produce everything from cars to TV’s. is dramatic. The sector’s most Why does making And now new technologies for wind innovative companies grew 38% innovation a priority have turbines and electrical grids are forming over the last three years—nearly such a major impact? the foundation for a shift to cleaner 12% per year—while the least The answer is simple: top innovators sources of energy. innovative managed just 10% growth are getting three times as many over the same period. revenues from new products or services. In our research across industries, The least innovative group of industrial we’ve found a clear correlation between Looking forward, the sector’s top manufacturing companies only innovation and success in growing innovators have somewhat more generated 7.1% of their revenues from revenues. In Breakthrough innovation modest expectations, but they’re still new products and services launched in and growth, we report that the most targeting annual growth of 6.9%, while the last year, while the top innovators innovative companies overall are the least innovative companies expect managed a revenue boost of 22.8%. growing significantly faster than the to manage just 3.6%. Over the course least innovative. The difference for of five years, that will create a major Most industrial manufacturing industrial manufacturing companies gap (see Figure 1). executives expect that they’ll need to generate the majority of their growth Figure 1: IM’s top innovators expect to significantly outperform the rest organically going forward. While global over the next five years expansion was the biggest driver of What is your company’s annual revenue? What do you forecast your annual revenue growth for many over the past decades, will be in five years’ time? our research shows that the tide is turning and innovation now tops the 145 list. Are manufacturers up to the task? 39.8% 140 To meet their growth targets and start to catch up with the top innovators, 135 we believe industrial manufacturing 130 executives will need to define or refine 26.6% a solid innovation strategy, balance 125 their innovation portfolio, make sure 19.6% 120 they can attract and keep top talent, enhance collaboration (including public/ 115 private sector initiatives) and accurately measure what they’re getting from their 110 innovation investment. 105 100 Year 1 Year 2 Year 3 Year 4 Year 5 All IM companies 20% most innovative IM 20% least innovative IM Source: PwC, Breakthrough Innovation and Growth Base: Industrial manufacturing, 249; most innovative 20% of industrial manufacturing respondents, 46; least innovative 20% of industrial manufacturing respondents, 57 4 Rethinking innovation in industrial manufacturing Starting with a solid strategy PwC’s Global Innovation Survey 2013: Industrial manufacturing perspectives 5 92% Ninety-two percent of industrial manufacturing executives say innovation is important to future revenue growth. Figure 2: Industrial manufacturing executives view innovation as vital to future success Most of our industrial How important is innovation to the success of your company now? manufacturing respondents say innovation is important to their business (see Figure 2). And more than half Not at all important believe it’s a competitive necessity for future success. That’s higher than the Unimportant average across industries. Neither important But while 92% of industrial nor unimportant manufacturing executives say innovation is important to future Quite important revenue growth, only two-thirds of executives across the sector Very important— believe their companies already have a competitive necessity a well-defined innovation strategy. 0% 10% 20% 30% 40% 50% 60% Here, too, the difference between top Now in 5 years time innovators and laggards is dramatic (see Figure 3). That’s a serious gap Source: PwC, Breakthrough Innovation and Growth Base: Industrial Manufacturing, 249 with major implications for execution. Without a clear vision, innovation efforts aren’t likely to take off. Figure 3: Innovation leaders’ edge in strategy translates into better execution too How important is innovation to the success of your company now? And your innovation roadmap should take into account some of 100% the major trends that are re-shaping 85% the marketplace. New technologies 80% 74% like additive manufacturing and the emergence of the ‘industrial internet’ 60% 49% (or ‘Internet 4.0’) may have a significant 46% impact on the direction of innovation 40% efforts. And the changing business environment is important. Companies 20% that ignore these factors are likely to find their revenues shrinking while 0% more innovative competitors take a Our company has well-defined We have successfully implemented innovation strategy our innovation strategy thus far larger slice of the pie. 6 Rethinking innovation in industrial manufacturing If your company doesn’t yet have a focused, robust innovation strategy, it’s time to define one. And even if you’re confident in your vision, it’s important to keep evaluating what’s working and what’s not. Sticking with the status quo is a sure way to fall behind the competition. We’ve identified some fundamental questions industrial manufacturing executives need to ask themselves when taking a closer look at their company’s innovation vision: Where are we now, and where Are we collaborating
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