Executive Insights: The Innovation Gap

By Patricia Van Arnum - DCAT Editorial Director

July 27, 2016

A recent analysis by Deloitte Consulting gained feedback from chief executive officers (CXOs) and chief executives-in-waiting (CXOWs), the latter including those who are next in line to the C-suite, to gain their feedback on what they feel will drive business growth, including priorities in innovation. Although innovation in products and services remains a high priority, the study found that innovation in business processes often is lacking. So what can sourcing and procurement executives learn? DCAT Value Chain Insights (VCI) takes an inside look.

The report found C-suite leaders repeatedly exhibit inconsistencies when it comes to prioritizing and investing in innovation. Executives stated that besides their own leadership, their ability to innovate more than competitors is the highest source of their business confidence. However, survey results show that business leaders are taking a particularly narrow view of innovation, which could hinder their efforts.

 

Key findings; innovation priorities lacking
Survey responses revealed that while business leaders are focusing on key areas of concern to transform their organizations through innovation, leadership, and talent, they are still not comprehensively integrating strategies across the organization. The Deloitte Business Confidence Report 2016 provided the feedback from two groups: (1) 300 US "CXOs," defined as US adults employed full-time with C-level titles at companies with 1,000 or more employees, and 2) 300 US "CXOs-in-Waiting," defined as US adults employed full-time, with a professional title of senior vice president, executive vice president, or equivalent, at companies with 1,000 or more employees, who will likely be promoted to a C-level position in the next five to ten years.

The report found C-suite leaders repeatedly exhibit inconsistencies when it comes to prioritizing and investing in innovation. Executives stated that besides their own leadership, their ability to innovate more than competitors is the highest source of their business confidence. However, survey results show that business leaders are taking a particularly narrow view of innovation, which could hinder their efforts.

The report showed that innovation in business processes and other areas outside product innovation is lacking in many companies. When leaders prioritize innovation, they almost exclusively focus on product and services (51% of CXOs and 54% of CXOWs) or customer experience (48% CXOs and 57% of CXOWs) and are missing critical opportunities to explore innovation outside of these boundaries. For example, only about one in four companies are focused on investing in other key innovation areas including staff, organizational models, and business process.

Although executives say innovation is a major priority, more than half of CXOs (53%) and 44% of CXOWs are not prioritizing investments in employee recruitment and retention needed for new and different skills their companies require to foster innovation. Subsequently, business leaders are not rewarding their employees for innovation breakthroughs as only 50 % of CXOs and CXOWs say they are awarding innovation, and only 41% of CXOs and 40% of CXOWs offer compensation and promotions to those who take risks, according to the study. However, that's still an increase from 2014, when 36% of CXOs stated they were incorporating contributions to innovation in performance reviews.

The report shows that the passive innovation strategy most C-suite executives are implementing, which is centered around making the same, traditional business investments they have made for years, is not actually leading to innovation. It allows only for incremental change and does not foster the disruption today's businesses need to avoid becoming obsolete. 

In 2014, 45% of CXOs said they were allowing time for employees to innovate and 42% were adopting new technologies. In 2016, that has increased as 51% of CXOs stated they are offering at-work training on new technologies, displaying investment, and priority improvements in innovation and technology training, but that still means nearly one in two (49%) are not offering this training to staff.

Key findings; talent management is key
Talent management is a number issue in innovation. According to the Deloitte study, C-suite leaders are very concerned that their most talented might leave before they take senior management positions available at their companies. Sixty-three percent of CXOs and 80% of CXOWs feel that one in three—or more—of their best managers will leave before joining their senior ranks.

The study found that 88% of CXOs and 93% of CXOWs believe the rapid pace at which technology and the markets are changing is creating a skills gap at their companies. Nearly half of these same executives also feel the gap is not being adequately addressed (44% of CXOs and 46% of CXOWs). However, a majority of CXOs and many CXOWs (almost half of them) are not prioritizing investments in employee recruitment and retention to address the need for new and different skills at their companies. This echoes a similar finding in "Strategy, Not Technology, Drives Digital Transformation," a recent study Deloitte completed with MIT Sloan Management Review, which found that this skills gap is even larger among less digitally mature organizations.

The study also found that 54% of CXOs and 60% of CXOWs cite that the desire to work with more advanced technologies is the top factor that will drive away their best managers to a new company. Fifty-two percent of CXOs and 57% of CXOWs highlighted the desire to work for a more innovative company as the second highest reason why top talent is likely to leave before they reach the management ranks at their current company. These themes also emerged in the Deloitte and MIT Sloan Management Review study, which found that over 72% of employees across all age groups want to work for an organization that is digitally enabled or is known as a digital leader.

Executives also say there is a significant variation of "in demand" skills needed at their companies, with a shift from technical skills towards "soft skills" that are often hard to find and even harder to cultivate. CXOs and CXOWs specifically identified the ability to quickly develop expertise (57% and 56% respectively), work across multiple roles (51% of each), and work with advanced technologies (50% and 52%, respectively) as the top skills in demand for their business.

In 2016, 72% of CXOs stated they are training current employees to develop new skills to promote innovation. As the demand for innovation has increased, so has the demand for training. In Deloitte's 2014 report, 39% of CXOs said they were providing ongoing employee training and development programs in regards to what the organization is doing to foster or drive innovation.

In the face of today's challenging business environment, nearly all executives agreed that strong leadership is required to transform challenges into opportunities for growth. For the 2016 report, Deloitte identified the following six qualifiers to define "bold leadership": sets ambitious goals; invites feedback from colleagues at all levels of seniority; innovates and looks for new ways of doing things; proposes ideas their company might consider controversial; takes risks; and builds strong teams and empowers them to succeed.

Survey results show that executives overwhelmingly agree (97% of CXOs and 98% of CXOWs) that breakthrough performance requires bold leadership. However, most companies are not cultivating bold leadership traits and nearly all leaders (9 in 10 CXOs and CXOWs) admit to not regularly demonstrating all aspects of bold leadership. 

Despite the fact that nearly all leaders say bold leadership is a "must have," when ranking their own performance as a bold leader, fewer than half of CXOs (48%) and CXOWs (47%) feel they demonstrate these qualities all or most of the time, according to the Deloitte study.

In 2014, 48% of CXOs and 41% of CXOWs said their direct reports had the skills to become part of the C-suite in the organization. Those concerns have remained largely consistent in the 2016 report, as 46% and 44% of CXOWs stated that they definitely have an adequate supply of qualified and rising leaders.

Similar to the findings of the first report, this year's survey results also show that the leadership pipeline for the C-suite is lacking. More than half of CXOs (52%) and CXOWs (61%) believe they may not have enough bold leaders in the highest ranks at their companies. The pool of future bold leaders also appears to be less than adequate, as only 44% of CXOs and 36% of CXOWs said that their rising executives successfully demonstrate bold leadership all or most of the time. When it comes to recruiting the next generation of bold leaders, 54% of CXOs and 67% of CXOWs stated they are not emphasizing bold leadership skills in recruitment.