Rimini Street EMEA State of Innovation Readiness survey reveals an inconsistent approach among industries

The Rimini Street State of Innovation Readiness Study, conducted by Vanson Bourne, has revealed troublingly inconsistent approaches to innovation among industries across the region.

Unsurprisingly, the more technology focused industries of Hi-Tech and Telecoms, and Life Sciences, reveal more positive data on innovation strategies in their sectors. More traditional sectors, such as Manufacturing, Distribution and Petro-Chemical, suggest more inconsistent approaches, because they are yet to experience the benefits and positive impact of innovation to the same extent as their peers. However, the worst performing industries are Retail and the Public Sector based on the responses from those surveyed across EMEA.

Public Sector and Retail Highlights

  • The Public Sector (26%) and Retail (27%) join Distribution and Petro-Chemicals, Oil and Gas in being the least likely sectors to have already seen increased revenues as a result of innovation spending. Of the smaller number that have, they also report lower than average increases – 11.27% and 12.55% respectively
  • In Retail the highest percentage of respondents (34%) are already seeing greater competitiveness followed by improved productivity (32%) as benefits of innovation spending, but this is the lowest figure of any of the industries surveyed
  • The most respondents (56%) believe they will see increased customer satisfaction and faster time to market in the future
  • The highest number of Public Sector respondents (58%) say they anticipate increased revenues, followed by the belief they will see a reduction in operating costs (53%)
  • The lowest number of respondents in Retail (59%) see increasing spending on innovation as an important strategic priority, with Public Sector a similar case (60%)
  • 27% of Retailers and 26% of Public Sector individuals believe their companies will only plan to spend 1 – 5% more on innovation. Personally, Retail respondents are even more negative with 34% believing their companies should only spend 1 – 5% more on innovation
  • Retail says the biggest blame lays at the feet of the board, with 51% saying a lack of board support is a top three blocker to innovation, but the same proportion (51%) also say they are spending too much keeping the lights on
  • Looking more closely at the relationship with the board, most Retail respondents say (71%) that although it may support innovation the board shies away from complex IT transformation projects
  • In the Public Sector 53% say a lack of board support is among the top three blockers of innovation and 70% say the board shies away from complex IT transformation projects. It is also no surprise that 65% also say the board is more focused on cost cutting
  • Retail and Public Sector (63%) see digital transformation as the most likely top three driver for innovation
  • The major focus for IT innovation in Retail are Mobile (46%) and online commerce (37%), followed by the Internet of Things (27%), but curiously there is little focus on technologies to improve customer satisfaction, which Retailers listed as their number one anticipated benefit from future investment

By many of the measures, these sectors are the worst performers in EMEA when it comes to the adoption and impact of innovation. Retail has the highest proportion of the IT budget (66.95%) being spent on keeping the lights on, rather than innovation on average, followed closely by the public sector where they estimate spending 65.37% of budgets on "keeping the lights on." Retail (27%) and the public sector (26%) join distribution and petro-chemicals, oil and gas in being the least likely sectors to have already seen increased revenues as a result of innovation spending. Of the smaller number that have, they also report lower than average increases – 11.27% and 12.55% respectively.

Overall, though, there should be little surprise that neither industry claims to have experienced significant benefits from investment in innovation to date. In Retail the highest percentage of respondents (34%) are experiencing greater competitiveness, followed by improved productivity (32%), but more respondents from other industries say they are already experiencing productivity gains. In the Public Sector 40% have seen improved customer satisfaction, while 37% have seen improved productivity (second worst figure after Retail) and faster time to market.

None of these figures are dramatic when compared to EMEA averages or the higher performing industries, such as Hi-Tech and Telecoms; in EMEA 44% on average have experienced improved productivity while the average for customer satisfaction is 43% and greater competitiveness is 38%. Having been less likely to have already benefitted there are more respondents anticipating benefits from innovation investment. Retailers are more positive about the anticipated benefits: 56% believe they will see increased customer satisfaction and faster time to market in the future, but this also underlines the fact that Retail has the smallest number of respondents who have already experienced benefits; perhaps confirming how much work the sector must do.

Indeed, across the board, Retail respondents are suggesting significant anticipated benefits compared to what they have already experienced. It is telling that more respondents in the Public Sector anticipate benefits, rather than have already experienced benefits. 58% of respondents say they anticipate increased revenues, which is followed by the belief they will see a reduction in operating costs (53%). Similar to Retail, Public Sector sees significant improvement against key measures such as improving productivity, reduced operating costs and increased revenues. This points to a positive picture for the future, but it shows they are currently lagging behind other industries.

Worryingly, though, Retail has the lowest number of respondents (59%) that see increasing spend on innovation as a strategic priority with Public Sector a similar case (60%). This compares to the EMEA average of 74% and 90% of Manufacturing respondents, who see it as an important priority. Given the challenges that both these industries face, there is an urgent need to ensure that the commitment to innovation increases. However, when estimating how much their organisations will spend on innovation and what the respondents personally believe their organisations should spend, the figures are not optimistic. 27% of Retailers and 26% of Public Sector individuals believe their companies will only plan to spend 1 – 5% more on innovation. Personally, Retail respondents are even more negative with 34% believing their companies should only spend 1 – 5% more on innovation. The Public Sector is slightly more hopeful with 37% saying their organisations should spend 5 – 10% more on innovation.

Examining the blockers that are preventing them from innovating, there are slight differences between Retail and the Public Sector. Retail says the biggest blame lays at the feet of the board, with 51% saying that a lack of board support is a top three blocker, but the same proportion (51%) also say they are spending too much "keeping the lights on." A significant number of respondents (46%) say being locked into existing vendor contracts is inhibiting innovation. Looking more closely at the relationship with the board, most Retail respondents say (71%) that although it may support innovation, the board shies away from complex IT transformation projects and is also more interested in cost cutting (63%).

In the Public Sector, an inability to extract more value from existing IT is most likely to be a top three challenge, according 56% of respondents. This is followed by 53%, who say there is a lack of board support. When looking into the attitudes towards the board in more detail, the largest number of Public Sector respondents (70%) say the board shies away from complex IT transformation projects, which is concerning given the vastness and multi-layered structure of Public Sector IT infrastructures. It is also no surprise that 65% also say the board is more focused on cost cutting, but an equal number believe that the board is not confident it can find the skills; given that the Public Sector is competing for talent with the private sector, if it cannot attract the right people to drive innovation initiatives, it will slow down progress.

There is an understanding of the need for significant improvement in innovation investment and a desire to modernise their sectors. Retail and Public Sector (63%) see digital transformation as the most likely top three driver for innovation by some distance and are more focused on this than any other industry in the region. The major focus for Retail appears to be on mobile (46%), online commerce (37%), followed by the Internet of Things (27%), but curiously there is little focus on technologies to improve customer satisfaction, which Retail respondents had listed as their most likely anticipated benefit from future investment. Only 20% are focused on customer facing applications, which does not tally with an industry looking to use innovation to drive customer engagement.

The Public Sector also appears to be very focused on investments in mobile (47%) but is also looking at online commerce (42%), which reinforces the key driver for the Public Sector, namely growing revenues. There is also focus on the Internet of Things (30%). Perhaps this diverse focus on disruptive technologies reflects the hugely complex and diverse set of services the Public Sector offers to citizens. However, adding layers of new technologies will add to the complexity the sector faces, so organisations will need to focus on front and back-end integration of applications if they are to be successful. However, given that 53% of Public Sector respondents say a lack of board support for innovation is a top three blocker to innovate and even more (70%) said the board shied away from complex IT transformation projects, it could be that implementing such strategies could be challenging.

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