Investment in innovation has slowed….
Evolving their business is a priority for 80 per cent of mid-sized companies and yet there is an alarming lack of internal investment in innovation, with as many as 40 per cent of CFOs admitting their company has failed to bring a new product or service to market in the past three years.
These findings come from the 2016 American Express CFO Future-Proofing Survey which examines the views of 250 CFOs from Australian companies with revenues of between $2 million and $300 million. It comes at a time when the Government has announced a number of measures to fuel an entrepreneurial 21st Century economy through the National Innovation and Science Agenda.
The research found there is a concerning lack of company investment in innovation that will drive sources of future revenue. Worryingly, 70 per cent of mid-sized businesses say they intend to invest less than $100,000 in innovation in the next year. Based on a business with an annual turnover of $50 million, that’s only 0.2 per cent. Compare that to the average amount spent on research and development by the world’s top ten most innovative companies at 7 per cent which is 35 times that amount.[1]
This lack of investment in innovation is constraining the mid-market at a time when the research shows their number one focus is growth. Of the 40 per cent of businesses that had not brought a new product to market in the previous three years, more than half did not intend to do so in 2016 either.
Success contingent on a strong game plan
Part of the problem, according to the research, is the high number of mid-sized businesses that fail to have a formal business strategy or game plan (23 per cent) or only one for the short to medium term (37 per cent). Half of those with no plan anticipate zero growth for the year ahead. Of the 40 per cent that have a comprehensive, long-term game plan, they are most likely to predict double digit growth, are more likely to prioritise innovation and embark on game-changing innovation initiatives.
According to Martin Seward, American Express Vice President Global Commercial Payments, the majority of CFOs surveyed admit that for the most part, their company’s approach to innovation is ad hoc, rather than strategically planned.
“It’s no longer adequate for Australian mid-sized businesses to have a short term view. Looking at the here and now or only a couple of years ahead is jeopardising their ability to innovate. Businesses need to also consider their long-term roadmap and CFOs have an important role in charting this course for their organisations. It’s clear that those with a long-term strategy are delivering game-changing growth and effectively evolving to withstand aggressive competition in cluttered markets. They are the ones that will survive and thrive.”
Access to capital a factor in enabling mid-market innovation
The research reveals that access to funding could be a key factor stymieing mid-sized companies’ ability to innovate. While 70 per cent say they plan to source external funding to deliver their business plan, with bank loans and overdrafts the number one source, 60 per cent admitted they’d find it challenging to secure the required funds.
Martin Seward said not being able to access funds is holding many businesses back and it’s prompting more small and mid-sized companies to look outside of their bank for finance options that not only fuel innovation but also alleviate cash flow pressures and even provide rewards for business spend.
Other findings of interest
Indicators of future success present among long-term Game Planners:
- More aggressive growth targets and greater confidence in hitting them
- Less fear of failure
- Innovation viewed as a company priority
- Have a framework in place to fund innovation
The white paper Game Plan for Growth is available for a free download here.
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