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Balanced Innovation is Key to Growth for U.S. Manufacturers

December 30, 2015, 07:48 AM
Filed Under: Manufacturing

Manufacturing executives know that “innovation” is the key to long-term success, but just how to innovate might be the biggest question. As a result, it’s not an either-or but a holistic approach that could foster more growth, as all three of the categories behind a balanced approach to innovation – product, business model and process – were overwhelmingly marked important by manufacturing executives in the 2015 Grant Thornton LLP Innovation in U.S. Manufacturing Survey.

Confidence around the ability to innovate among U.S. manufacturers is healthy, with the survey revealing that 43 percent of respondents rank their “innovation capability” as above average. When asked how important product, business model and process innovation was to grow their business, no one strategy stood alone. More than three quarters of U.S. manufacturers surveyed (84 percent) believe that product innovation is important, 82 percent believe that process innovation is a key to growing their business and 79 percent selected business model innovation as being important.

“Innovation is a lot broader than before. Today, it’s not just innovation in what you manufacture, it’s innovation in how you make it and how you take it to market,” said Jeff French, Manufacturing practice leader at Grant Thornton. “As manufacturing evolves and barriers to entry are removed, companies now need to think holistically in terms of innovation, otherwise, they’re not going to survive the new wave of manufacturing.”

Among the three categories of innovation, the survey found that a focus on product innovation has been the No. 1 action U.S. manufacturers have taken to reposition themselves in the market over the past three years. This is especially the case for midsized manufacturers in the $1 billion to $5 billion range. In that midmarket segment, 87 percent point to product innovation as a key area, compared with 79 percent of smaller manufacturers ($100 million to $1 billion) and 81 percent of large ones ($5 billion to $15 billion). Survey data also reveals that 20 percent increased the offer of customized or niche products, while another 20 percent increased collaboration with suppliers and customers to create new or improved products.

While product innovation is a key focus, business model innovation also plays a major role in the growth of American manufacturers’ businesses. While a quarter of respondents (25 percent) say their company has already made a major change to its business model, 41 percent expect to make such changes over the next three years – the top drivers of business model change in the next three years include changes in customer needs (28 percent), changes in supplier or partner capabilities (18 percent) and emergence of new technology (17 percent). Midmarket manufacturers in particular are bullish about business model innovation. Almost one-half (46 percent) of respondents say their business model will be completely revised or significantly changed in the next three years, compared to just 29 percent of large companies.

Business model innovation can also create significant delivery challenges. New key performance indicators will need to be designed that reflect the transition from a product focus to a service focus. Current processes will need to be re-engineered to enable new services. This sentiment is shared across both large and midsized companies. Among larger manufacturers, 87 percent are focused on process innovation, while 79 percent of midsized U.S. manufacturers are focused on this form of innovation.

The survey is based on answers from 381 respondents collected in July and August 2015. Respondents were C-suite and senior executives from the U.S. manufacturing sector. Participant titles included CEO, COO, CFO, CIO, chief marketing officer, chief sales officer, head of R&D, and other senior executives.

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