Innovation Matters Because It Leads to Higher Financial Performance and Creates Competitive Advantage
Research shows that an organization’s ability to innovate is highly correlated with both its market positioning and financial performance. Organizations that possess strong innovative cultures gain sustainable, competitive advantage in their respective industries.
Our empirical research on innovation revealed that companies scoring in the top quartile of our InnovationOne Culture Index© reported higher financial performance than bottom quartile performers by as much as 22%. We also learned that the 2012 top innovators earned a 6.3% total shareholder return premium (stock price appreciation and dividends) over three years. Companies that have been on the top innovators list since 2004 delivered a 4% premium over 10 years.
Other empirical researches have found strong statistical evidence for the relationship between innovation and higher financial results. Consider the chart below.
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Firms with innovative and adaptive cultures achieve extraordinary financial results, including nearly three times the review growth, 900% higher stock price growth and 755% higher net income growth. (John P. Kotter and James L. Heskett, Corporate Culture and Performance, 1992) |
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A Boston Consulting Group survey revealed [2009] that 64% of senior executives agreed that innovation is a top strategic focus for their firms. They believed that innovation provides strategic value and is a key differentiator because it increases revenue, employee engagement and customer satisfaction. It also decreases costs, financial risk and competition. |
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Organizations that focus on innovation capabilities report higher profit margins by up to 22%. (Booz and Company Global Innovation Study, 2010) |
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Companies with a passion for innovation experience an increase in EBIT of 4% and more than 10 times higher returns from their innovation investments. (Arthur D. Little Innovation Survey, 2005) |
