Amid new and changing competitors and consumers, 69% of private company CEOs are concerned about the future relevancy of their products and services and are therefore focused on improving them through innovation, according to the KPMG Private Markets Group’s survey of 226 U.S.-based private company executives.
Our survey shows that developing new products and services, and improving existing products and services, are both playing a significant role in directing innovation in private companies.
“Product (and service) innovation is directly related to top line growth. If you want to grow organically, you have to innovate,” says Eric Redifer, managing director in KPMG’s Strategy & Operations practice. Our survey shows that developing new products and services, and improving existing products and services, are both playing a significant role in directing innovation in private companies.
But in today’s environment, innovating alone is not enough. As open source design tools, internet-based collaboration software, 3D printing technology, and other new tools and techniques make innovation processes faster and cheaper and significantly shorten product life cycles, organizations may also need to increase the speed at which they innovate.
“Companies have always driven revenue and market share by bringing new products and services to market at a high speed relative to competitors,” says Redifer. “But today, if you don’t take advantage of product innovation quickly and get products into the market first, you will lose in the marketplace.”
Our survey results show that budget constraints are hindering the innovative efforts of many growing companies. Research and development to foster innovation is a low-priority for capital allocation, and 45% of private company CEOs say budget constraints are the greatest barrier to innovation.
“Private companies often have fewer resources and therefore must be careful about making mistakes they will not have the ability to recover from. At the same time they must be more entrepreneurial because they tend to be smaller and closer to their customers. It’s a real balancing act,” says Redifer.
As they balance the bottom line with a nose for growth, increasing innovation budgets may not be an option for many private companies. So the question is: How can they do more with less?