At Arthur D. Little, we’ve found that in almost all industry sectors, the 25 per cent of companies that are best at innovating outperform the 25 per cent of companies in their sector that are worst, with a surprisingly wide margin. Managers estimate that by becoming really good at innovating these efforts they can increase profit margins by about 30 per cent.

Many companies fail to get the most out of their investment in innovation. From our experience, this can be attributed to a variety of common pitfalls such as:

1. Insufficient insight into what customers really want
2. Failing to make innovation, and its specific contributions, explicitly part of the vision, objectives and strategy of a company
3. Lack of balance in the innovation objectives between:
   • Product and process innovation
   • Current business and new business
   • Incremental and radical innovation
4. Weak link between business strategy and product portfolio
5. Insufficient engagement of the whole organisation in the pursuit of the innovation objectives:
   • Stimulating leadership in the innovation area
   • Clarity about the roles and contributions everybody can make
   • Recognition and reward of innovators
6. Lack of appropriate resources:
   • Not enough to really win in the high priority fields
   • Unbalanced (e.g. late involvement of commercial people; too much creativity, too little discipline, …)
7. A weak innovation process. Often, companies have a process by which to generate and capture ideas and turn them into new products, services or processes, but only once. The point is that different kinds of innovation require different processes. These processes often have two weak links:
   • The way they capture, enrich and develop ideas
   • The coverage of market roll-out
8. Missing enabling structures in the organisation (e.g. venture unit, innovation coach network, business development group, etc.)

Best-in-class companies focus on the quality of their innovation management in a way that reflects a clear understanding of the kind of value they are trying to create and the context in which their business actually operates. That context is changing rapidly as the global competitive landscape responds to issues such as energy conservation, environmental sustainability, emerging economies, demographic disparities, social trends and technology convergence. For innovative companies, these changes are too good an opportunity to waste.

Nurturing and managing innovation is an intricate process, but if you can get it right, you will secure significant competitive advantage, both now and in the future.