Fast-Growth
Companies Make Innovation a Way of Life
But
Some May Be More Innovative Than They're Getting (Tax) Credit
For
PricewaterhouseCoopers'
"Trendsetter Barometer" interviewed CEOs of 355 privately
held product and service companies identified in the media as
the fastest growing U.S. businesses over the last five years.
The surveyed companies range in size from approximately $5 million
to $150 million in revenue/sales.
CEOs from two-thirds of America's fastest-growing private companies
report that innovation is an organization-wide priority, and almost
all say it has had a significant, positive impact on their business.
Further, the overwhelming majority rate their business better
at innovation than their one or two strongest competitors. But,
in this scenario, could something be amiss? One in four of those
citing innovation as a priority say they do not have an R&D
budget. And, because of their definition of R&D, some may
be overlooking the federal tax credit for research and experimentation,
according to PricewaterhouseCoopers.
Building a Culture of Innovation
Sixty-eight percent of fast-growth CEOs say their company has
made innovation an organization-wide priority. Among these businesses,
innovation's reach is extensive, including:
|
Corporate
strategy.......................................................................85%
|
| New
product/service development..................................................78% |
| Corporate
value............................................................................73% |
| Employee
training........................................................................64% |
| Human
resources (hiring, performance reviews, compensation)........54% |
| Public
relations, advertising and communications...........................43% |
| Recognition
or award programs.....................................................41% |
| E-commerce/
Website.................................................................34% |
Eight in ten
fast growth CEOs (81 percent) go so far as to rate their company
more innovative than their one or two strongest competitors. Over
the past five years these more-innovative companies have increased
revenues by an average of 346 percent, versus only 138 percent
for all others surveyed. And, looking ahead over the next 12 months,
they expect growth of 22.0 percent, versus 13.3 percent for all
others, or 65 percent faster.
"Already
superior on innovation to their major competitors, Trendsetter
CEOs continue to extend and deepen its influence throughout their
organization," said Jay Mattie, PricewaterhouseCoopers' U.S.
Private Company Services Assurance Services Leader. "The
deep footprint of innovation in corporate strategy suggests that
further impact can be expected elsewhere in the company."
Eighty-four
percent of CEOs making innovation a priority report it has changed
the way they do business or affected their company's financial
performance in a number of important areas:
Revenues.....................................................................................88%
Earnings/profit
margins..................................................................79%
Development
of products/services...................................................78%
Efficiency
of own organization........................................................78%
Number of
customers....................................................................76%
Customer service..........................................................................69%
Delivery of
products/services..........................................................65%
Change in
business processes......................................................64%
Change in
employee skill sets required...........................................64%
Prioritizing
investments.................................................................44%
Change in
suppliers/supply chain...................................................22%
Market capitalization.....................................................................12%
"Emphasis
on innovation has brought positive benefits to an impressive array
of financial, marketing, and operational areas," noted Mattie.
Measuring Success
Nearly half of all "Trendsetter" companies (48 percent)
have made an effort to link innovation to success metrics of their
businesses. This linkage is higher among service companies, 55
percent, versus 38 percent for product sector businesses; and,
to a lesser extent, among technology companies, 50 percent, versus
46 percent for non-techs.
For these companies, the success of their innovation programs
is measured by its impact on:
Overall revenue
growth..................................................................78%
Customer satisfaction...................................................................76%
Growth in
revenue from new products/ services...............................74%
Increased
productivity...................................................................71%
Earnings/
profit margins................................................................68%
Recruitment
and retention.............................................................34%
Market capitalization....................................................................17%
"Companies
are using multiple measures to track success," noted Mattie.
"This practice enables cross-analysis as well as period-to-period
comparatives."
Connecting
Innovation and Experimentation
But
is there a disconnect lurking somewhere between innovation and
R&D? Among CEOs citing innovation as a priority, 24 percent
report not having an R&D budget.
"Unfortunately, these responses may reflect a belief that
only the lab coat, cutting-edge, high tech clean room environment
is considered R&D," says Kendall Fox, leader of PricewaterhouseCoopers'
national Research and Experimentation Tax Services practice. "Some
businesses may be conducting R&D without calling it that.
And, some may be more innovative than they are getting credit
for-tax credit, that is. The IRS has loosened the eligibility
requirements for product and process improvements that qualify
for the federal Research and Experimentation (R&E) tax credit.
Opportunities abound!"
PricewaterhouseCoopers' "Trendsetter Barometer" is developed
and compiled with assistance from the opinion and economic research
firm of BSI Global Research, Inc. If you have a question about
this "Trendsetter Barometer" survey, please contact
Pete Collins, survey director and publisher, at 646-471-4496 or
e-mail to: pete.collins@us.pwc.com
For more information about Barometer surveys, including recent
economic trend data and topical issues, please visit our web site:
www.barometersurveys.com
PricewaterhouseCoopers
(www.pwc.com) provides industry-focused
assurance, tax and advisory services for public and private clients.
More than 120,000 people in 139 countries connect their thinking,
experience and solutions to build public trust and enhance value
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and advisory professionals who focus on the unique needs of private
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are committed to delivering cost-effective, practical solutions
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