New A.T. Kearney Study Maps a Decade of Shrinking IT Innovation

01/22/2010

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A new study by global management consulting firm A.T. Kearney, "Delivering Technology Innovations," finds that while industry leaders overwhelmingly acknowledge the value of IT as an important strategic differentiator, investment in IT innovation misses target levels more than 75 percent of the time.

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Moreover, although innovation accounted for 30 percent of the average IT budget in 1999, it has fallen to less than half of that –- 14 percent -– in the subsequent ten years.

"The central role IT innovation can play in a company's overall performance and health is well-understood by corporate decision-makers," said Christian Hagen, a principal at A.T. Kearney and one of the lead authors of the study.

"And the healthier the company, the better the understanding. When we spoke with executives of companies who were seeing 3 percent to 5 percent annual sales growth, 68 percent said that IT innovation made a positive contribution. But when we looked at companies with greater than 10% annual growth, the number of those who had benefited from IT innovation reached nearly 90 percent," Hagen said.

The study found that IT innovations were adding value in virtually every aspect of a business, from sales and marketing through R&D and product development, manufacturing and supply chain, and even mergers and acquisitions.

Yet a successful IT program does not come easily, and the study identifies the greatest IT growth barriers as complexity, inconsistent data, and excessive time spent on daily activities. Further, it finds that the lack of effective enterprise integration and a limited incubator environment are the two most important reasons why IT innovation projects fail.

"What we discovered, though, was that IT innovation doesn't need to fail, and it doesn't need to be hugely expensive either," said Bob Haas, leader of A.T. Kearney's Strategic Information Technology Practice. "In fact, it is often the standard or mature technologies used in innovative, business-aligned approaches that create the greatest impact."

But in order to leverage IT successfully, innovation has to be thoughtfully planned. Studying those companies that had the best results with IT innovation revealed six common themes, or as Haas puts it, the "Six Mandates for IT Innovation:"

1. Ensure executive commitment to develop world-class IT delivery and innovation capabilities

2. Establish targets and execute dedicated and consistent investments in innovation

3. Create integrated IT leadership and business partnerships

4. Leverage technologies to integrate products and services with traditional back-office IT

5. Collaborate outside as well as within the organization (i.e., with customers and suppliers in addition to employees) to deliver IT innovation

6. Make sound business decisions on emerging technologies

"A game-changing IT program is within reach of any company that wants to devote the talent, time, and commitment to develop a culture of innovation," Haas said. "Most companies understand how important IT innovation is, but many aren't doing anything about it or are not following best practices. Our study indicates that the ones that do will add value to their business and differentiate themselves from their competition."

Study Methodology for Delivering Technology Innovation

"Delivering Technology Innovation," A.T. Kearney’s IT Innovation and Effectiveness Study, surveyed board members and senior-level executives from American and European companies with $500 million or more in revenue. Companies were primarily from five industries: automotive, communications and high-tech, consumer products and retail, financial institutions, and process industries. All executives who participated in the survey were directly involved in their companies’ IT investment decisions; they were queried about their companies’ IT innovation priorities, strategies, and investment direction.

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