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Rimini Street EMEA State of Innovation Readiness Survey Reveals An Inconsistent Approach Among Industries

12-Jun-2018
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.

Manufacturing and Distribution Highlights
  • 70% of Distribution and 76% of Manufacturing respondents spend too much keeping the lights on for their existing IT systems 
  • Those from manufacturing are more likely (44%) than the EMEA average (37%) to have already experienced increase revenues as a result of innovation spending – those that have, also report a higher average increase (14.47%) than EMEA (13.40%) 
  • Distribution, along with petro-chemicals, oil and gas and the retail and public sectors are one of the least likely (30%) to have already experienced increased revenues from innovation spending. 
  • Increasing spending on innovation is an important strategic priority for only 65% of Distribution respondents compared to 90% of respondents in Manufacturing 
  • 95% of Distribution respondents said their industry should be spending more on innovation, but this is still behind Manufacturing where 98% said they should be spending more, which is the highest figure across all industries 
  • Distribution – again alongside Manufacturing and Public Sector – is most worried (81%) of all the industries about how it will fund innovation moving forward 
  • Of those planning on increasing innovation spending, Distribution, alongside the Public Sector also had the highest percentage of respondents (26%) who said they would turn to third party support vendors to fund innovation 
  • On average respondents from the Distribution sector personally believe their organisations should be spending 17.86% more on IT innovation - significantly above the EMEA (13.68%) and Global (15.89%) averages. Manufacturing respondents similarly say the average increase should be 14.44% - above the EMEA average 
  • 43% of those from Distribution, the highest proportion among all industries, say complex legacy infrastructures making innovation difficult is a top three blocker; a fact that is reinforced when 84% say they are dependent on IT customisations 
  • A significant number of Manufacturing respondents (66%) say keeping the lights on is a top three blocker but 80% say they are dependent on IT customisations, while (68%) - the most of any industry in EMEA - say a lack of board support is a top three blocker to innovation 
  • The most respondents from Distribution (73%) say they have not been able to convince the board that to invest in innovation is critical and that the board is more concerned with cost cutting than innovation. 73% also say the board shies away from complex IT transformation projects 
  • 43% of Distribution respondents have seen increased customer satisfaction from investment in innovation and 41% have seen faster time to market and improved productivity 
  • Manufacturing has the highest responses (51%) who have seen improved productivity and greater competitiveness. 44% anticipate improved productivity and revenues, while 41% see reduced operating costs 
  • When it comes to the top three drivers for IT investment in innovation, digital transformation is the biggest priority (57%) for Distribution respondents, while in Manufacturing the need to drive greater productivity (51%) is the biggest priority. The top priority for IT innovation investment for the Distribution sector is online commerce (49%), but in Manufacturing the clear priority is moving to the Cloud (54%), followed understandably by a significantly higher proportion than in any other industry (51%), who will be focusing on supply-chain improvements 
  • Among the top three threats to their businesses the most likely concern expressed by Manufacturing respondents (54%) is the unpredictable political and economic situation. 49% of respondents in Manufacturing say that legacy systems and developing an agile approach to application development are mong their top three biggest risks to IT, disrupting their ability to innovate. Interestingly compared to the other sectors, Manufacturing has a higher number of respondents (44%) who are worried about protectionism from Governments supporting home grown businesses as a top three threat to their business 
  • Distribution (30%), more than any other industry aside from the public sector, said existing vendor relationships hamstringing their ability to innovate is a top three threat to their organisation today. More from Distribution (41%) are worried about the impact of Brexit compared to Manufacturing (34%), when it comes to the top three biggest risks to IT disrupting the ability to innovate 

The Manufacturing industry has the third most significant spend on innovation (41.85% of the IT budget on average) after Hi-Tech and Telecoms and Life Sciences, while Distribution is slightly further back, spending 39% of IT budgets on innovation. That means both sectors spend around 60% of their budgets keeping the lights on, which is reinforced when 76% of Manufacturing and 70% of Distribution respondents agree that their organisation spends too much keeping the lights for their existing IT systems. Those from manufacturing are more likely (44%) than the EMEA average (37%) to have already experienced increased revenues as a result of innovation spending – those that have, also report a higher average increase (14.47%) than EMEA (13.40%). Distribution, along with Petro-Chemicals, Oil and Gas and the Retail and Public sectors are one of the least likely (30%) to have already experienced increased revenues from innovation spending. This suggests a disparity between these sectors in performance when it comes to implementing innovation.

In some areas traditional industries appear to be holding their own against the more technology-focused competitors, but when it comes to seeing increasing innovation spending as a strategic priority, only 65% of Distribution respondents saw it as important compared to 90% of respondents in Manufacturing. Therefore, it is not surprising that 95% of those from the Distribution sector said their industry should be spending more on innovation, but this is still behind Manufacturing where 98% said they should be spending more, which is the highest figure across all industries. Given the concerns expressed by the Distribution sector it should come as little surprise that the same sector – again alongside Manufacturing and Public Sector – is most worried (81%) of all the industries about how it will fund innovation moving forward. To address this funding challenge it comes as no surprise that the biggest number of respondents (56%) from Distribution want to extract more value from existing IT systems, emphasisin g the lack of additional budget available for innovation. 58% of respondents in Manufacturing say the same, but a slightly higher proportion (63%) suggest moving to the Cloud will enable them to fund innovation. Distribution also had the highest percentage of respondents (26%) who say they would turn to third party support vendors to fund innovation.

There are negative perceptions about the willingness to invest in innovation as distribution respondents are most likely (41%) to report that their organisation will only spend 5-10% more on IT innovation, whereas they personally (38%) believe they should be spending 10-20% more. Those from manufacturing are most likely to say something similar – 39% report that their organisation will only spend 5-10%, whereas 43% personally believe that they should spend 10-20%.

When examining why Distribution appears to have a less positive experience of innovation, 54% say spending too much “keeping the lights on” is among their top three blockers to innovate, while tellingly 43% - the highest proportion among all industries - say complex legacy infrastructures is making innovation difficult; a fact that is reinforced when 84% say they are dependent on IT customisations. A significant number of Manufacturing respondents (66%) say keeping the lights on is a top three issue blocking their organisation’s ability to innovate and 80% say they are dependent on IT customisations, while 68% - the most of any industry in EMEA - say a lack of board support is also a top three blocker. So, a picture appears to be emerging where the Distribution sector is perhaps seeing depressed results from innovation, because of the burden of legacy IT, while Manufacturing is also struggling with this issue, but is being hampered more by its senior leadership teams.

However, there are also concerns in Distribution about the role of the board. Distribution (73%) has the most respondents who say they have not been able to convince the board that to invest in innovation is critical and that the board is more concerned with cost cutting than innovation (73%). Perhaps, most telling is that the same number of respondents say that the board should see their role as more strategic to delivering innovation initiatives, suggesting those responsible for innovation lack credibility. In Manufacturing, this is also the biggest concern (76%), but 73% also say the board shies away from complex IT transformation projects illustrating a twin issue of credibility and risk aversion plaguing the Manufacturing sector.

And yet both industries see the urgency of embracing innovation, as they have already experienced significant benefits, though Manufacturing has performed better than Distribution. Among the top benefits 43% in the latter industry have experienced increased customer satisfaction from investment in innovation and 41% have seen faster time to market and improved productivity. In Manufacturing the highest number of respondents (51%) have seen improved productivity and greater competitiveness. However, the most positive signal for the Distribution sector is the anticipated benefits respondents expect to achieve; suggesting they will be able to catch up with their counterparts in Manufacturing. 54% anticipate improved productivity and revenues, while 51% see reduced operating costs. In Manufacturing 49% expect to see an increase in customer satisfaction and 46% anticipate a faster time to market thanks to innovation investment, but a smaller percentage (44%) anticipate increases in productivity in the future. Perhaps this suggests the Manufacturing industry is predominantly confident it has already achieved significant improvements in productivity and needs to turn its attention elsewhere.

Respondents in these industries say there are slight differences in the drivers for innovation in the next 12 months. Distribution follows the EMEA consensus, saying digital transformation is most likely to be a top three priority (57%), but it agrees with Manufacturing that fending off competition is the next biggest issue – Distribution (46%) and Manufacturing (49%). A slightly bigger concern for Manufacturing is a need to drive greater productivity (51%), which shows respondents are worried about the slip in anticipated improvements to productivity expected from innovation investment. Where the industries intend to invest in new technologies differs even more: the top priority for Distribution is online commerce (49%), followed by mobile (46%), but in Manufacturing the biggest focus is moving to the Cloud (54%), followed by supply-chain improvements (51%) – understandably a higher priority than for any other industry.

Clearly both industries are also very aware of the looming threats to their businesses. When considering the top three biggest threats to their organisation today, Distribution is most concerned about digitally-savvy competitors (57%), but the top concern expressed by the Manufacturing respondents (54%) is the unpredictable political and economic situation. Interestingly a higher proportion of Manufacturing respondents than in any other industry (44%) are worried about protectionism from governments supporting home grown businesses and more people from Distribution (30%) than any other industry aside from the public sector said existing vendor relationships were hamstringing their ability to innovate. When it comes to the biggest risks to IT impeding their ability to innovate, both industries are most likely to place in their top three – Distribution (62%) and Manufacturing (63%) – cybersecurity threats. However, the next most likely top three concern for Distribution (46%) is the move to the Cloud, compared to 49% of respondents in Manufacturing who are worried about legacy systems and developing an agile approach to application development. Interestingly, more from Distribution (41%) are worried about the impact of Brexit compared to Manufacturing (34%).

There are challenges ahead for both industries when it comes investing in and increasing the positive effects of innovation on their businesses. Neither could be called an outright stellar performer, with Distribution perhaps the slightly more conservative, because the majority of its responses do not really exceed EMEA averages. How these industries go about funding innovation is crucially important, but it is also critical that they get their strategies right, as well as the support structures and mechanisms to operationalise innovation. The priorities for Distribution to drive innovation are professional development (57%) to educate staff, as well as investing in areas of IT that will support innovation (54%) - perhaps a further recognition that they need to extract more from existing IT infrastructures. Manufacturing has a much higher percentage (63%) who say the focus is on investing in areas of IT to support innovation, but professional development is still the second highest priority (51%), along with seeking support from external partners. Although this shows good intent, it could be said both industries are shying away from more holistic commitment, because neither industry strongly sees change management as the way to embed innovation in their organisations – Distribution (38%) and Manufacturing 46%). Indeed only 27% of Distribution respondents say they will look to use external partners to support innovation, which perhaps suggests a lack of willingness to share the burden for innovation with partners and leverage outside expertise. Given the pressures to move quickly and the rapidly evolving opportunities with new technologies, the Distribution sector must surely look to prioritise on partnering with external organisations to offload some of the challenges around existing IT infrastructures, so that companies can focus on more comprehensive strategies.

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