Companies achieve positive return on investments in innovation
Dutch companies focusing on innovation perform significantly better than other companies. Their expectations regarding total sales and EBIT for 2014 are far more positive than those of other businesses. This is mostly due to the fact that every euro they invest in innovation comes back to them in terms of new products or services sold. The annual Strategy Trends 2014 survey, held by management consulting firm Berenschot by surveying 341 entrepreneurs, board members and senior managers, shows that innovation pays.
Participants in the survey, held for the eighth consecutive year, overwhelmingly conclude that investing in renewal almost always increases profits. Therefore, no less than 40% of Dutch companies want to use innovation to distinguish themselves from their competitors in 2014. Roel van Lanen, senior management consultant with Berenschot: “Considering the return on investments in innovation, that makes a lot of sense. But being first with the best possible product puts a lot of pressure on a company. A manager needs to attract the best inventors and have the guts to experiment. An endless stream of good ideas is what's needed – those are relatively cheap, while failed projects are expensive.”
Because of shrinking profit margins, many companies have less and less money available for innovation. One often used method to counteract this negative trend is by cooperation. 88% of respondents indicate they will be working with others in 2014. Companies choosing to cooperate generally prefer less-binding forms of cooperation, such as networking or closing alliances. Another way to increase opportunities to innovate is by finding new sources of funding. 53% of companies are looking for additional financing – two thirds of them are not going to a bank.
Looking ahead at the rest of 2014, 42% of companies expect growth in turnover and 49% expect growing profits, compared to 2013. Mostly, this growth needs to come from conquering new markets. “Companies say they want to build long-lasting customer relationships. Yet they pay more attention to new customers than to their current customers. To achieve their ambitions for growth, current customers are at least as important,” says Wieke Ambrosius, strategy consultant at Berenschot. Growth in employment is expected to lag behind: the number of companies expecting to add jobs in 2014 is equal to the number of companies expecting to decrease the number of jobs.
Cost reductions remain high on the CEO’s agenda. Yet there are major differences between industries. While the financial sector and energy and utility companies mostly focus on reducing cost, professional service firms and wholesalers look more towards increasing profitability.