Innovation at Communications and High Tech Companies Jeopardized by Rising Costs and Talent Shortage, Accenture Study Finds

BARCELONA – Seven out of 10 telecommunications carriers, high tech companies and media firms stopped new product development projects last year due to budget over-runs, rising costs and a shortage of expertise, according to findings of an Accenture (NYSE: ACN) study released today[1].

Accenture queried more than 270 senior executives involved with product development at major companies in Europe and the United States to find out if their pace of development has slowed, despite the need for these companies to introduce new, innovative products and services in an increasingly competitive market. The survey found that:

* More than two-thirds (70 percent) of the companies stopped developing at least some services in the past year.

* More than half (58 percent) of the companies said the primary reason for discontinuing services was budget over-runs during new product development.

* Nearly one-third (30 percent) of companies said they were unable to attract the right level of in-house expertise for new-product innovation.

According to the survey findings, last year each of the companies discontinued, on average, 15 new products. In addition, 10 percent of all companies surveyed — including more than one-third (35 percent) of those in the United Kingdom — discontinued more than 50 products or services last year. This occurred despite the fact that three-quarters (75 percent) of all companies said they had a pipeline of product ideas developed with input from customers, suppliers, alliance partners, academics and inventors.

Among companies that introduced new products, half (50 percent) focused only on extensions to existing products, with voice services cited most often. In terms of some of the newer areas where demand is expected to rise, only one-quarter (25 percent) of respondents said they planned new developments in social networking; approximately one-third (30 percent) planned to introduce products and services related to user-generated content; and only one in five (19 percent) said they planned product development in mobile advertising. European companies were leaders in introducing newer services over the last year, such as personal information management (introduced by 45 percent of European companies surveyed) and fixed mobile convergence (introduced by 37 percent of European companies surveyed).

“Carriers, software companies, high-tech firms, media enterprises and entertainment conglomerates can find themselves collaborating or teaming one day and competing against each other the next,” said Angelo Morelli, senior executive, new product development and innovation, Accenture’s Communications industry group. “The question is whether companies have the business, technology and operations capabilities in place to innovate quickly and cost-effectively. Unfortunately, although innovation is absolutely the key to profitable growth, many companies scale back on product development when money is tight because their development process might not be completely efficient.”

The main contributor to increased costs, according to the survey, is project delays that translate into additional expense. In fact, 42 percent of companies surveyed reported an overly slow pace as they move a product from idea to prototype to launch.

Nearly one-third (31 percent) of the senior executives surveyed said they now involve third-parties and/or customers in their new-product development process. These executives said working with third parties spurs innovation but also slows the process. In addition, one-third (34 percent) of executives said that poor cooperation between departments within their own companies constrained effective product development, and 25 percent of the executives reported a lack of pre-launch testing.

“Communications and high-tech companies must find a way to continue to stoke essential product development activities, despite financial and operational pressures,” Morelli said. “We believe that a next-generation service infrastructure can be integrated with existing operations, providing simple linkages to external suppliers, a unified view of the customer, and reduced the complexity of creating, launching and managing services.”

Although a majority (63 percent) of respondents said that open innovation — an approach to development that relies on a wider circle of collaboration among multiple third parties — is a cost-effective alternative to traditional development, only about one-third (29 percent) of respondents said they always use this approach. Whether or not they implemented an open development environment, 57 percent of all companies surveyed experienced rising costs in new product development, including nearly equal percentages of U.S. and European firms (58 percent and 56 percent, respectively).

The Accenture research also found a correlation between companies achieving greater success in new-product development and the means they are using to achieve it. Thirty-seven percent of European companies are likely to employ open innovation, versus 27 percent of U.S. companies. Forty seven percent of European companies surveyed said they planned product launches in the coming year, compared with 32 percent of U.S. companies.

Although the average product launch time across all companies surveyed is six months, French and German companies were more likely to average less than three months for new-product launches than were companies in the United States and United Kingdom — 44 percent and 30 percent of French and German companies, respectively, compared with 21 percent and 20 percent of U.S. and U.K. companies, respectively. In addition, European companies were also more than twice as likely as U.S. companies — 21 percent, versus 11 percent — to launch more than 50 new products in the last year.

“Clearly, even the companies that are more likely to branch out to newer areas of technologies and services, leveraging third parties and specialized providers in an open development environment, need to improve their processes and cut costs,” Morelli said. “It’s our belief that a service delivery platform, which is a standardized architecture for service creation and execution, accelerates the introduction of new applications and services in a collaborative, efficient way. An open service delivery platform can help developers create services faster, and with less expense, enabling service providers to innovate – even in challenging times.”

For more information on the research, visit www.accenture.com/NewProductInnovation.

Methodology
To identify the challenges with which communications companies are dealing regarding new product innovation, Accenture queried executives at 277 communications, media and high-tech companies in the United States, the United Kingdom, France and Germany. Sixty-three percent of the executives who responded work in telecommunications, 26 percent work in the high tech sector, and 11 percent work in the media industry. The online survey explored the correlation between companies that meet or exceed their new-product launch plan and those committed to open innovation. The survey was conducted in August and September 2008.

About Accenture
Accenture is a global management consulting, technology services and outsourcing company. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. With more than 186,000 people serving clients in over 120 countries, the company generated net revenues of US$23.39 billion for the fiscal year ended Aug. 31, 2008. Its home page is www.accenture.com.