Innovation is the route to corporate value creation says new report

UK firms must stop competing on cost and start competing on value, claims a new report. Failure to do so will see the UK plc fall further behind its international competitors. Innovation, the report says, is vital to making the shift.

íPathways to Value: How UK Firms Can Create More Value Using Innovation Strategicallyí by the Advanced Institute of Management Research (AIM) identifies three key value creation strategies for UK companies. Written by researchers from some of the UKís leading business schools, the recently published report, outlines three Pathways to Value that firms can follow. Innovation is central to all three.

Companies can:

Increase efficiency and effectiveness by identifying and adopting innovative best practices. This is something UK industry fails to do at present.

Innovate to produce products or services that generate more revenue by commanding higher prices or selling in greater volume - but remain at the same position in the value chain.

Innovate along the value chain by moving to a position where products and services inherently generate more value.

The report reveals that following the path to enhanced value creation represents a significant challenge to policymakers and senior management. To successfully implement these strategies, firms need access to a workforce with the necessary skills and training, as well as investment - both areas where policymakers play an important role.

For senior management, the challenge is committing to the long-term change required. AIMís research indicates that managers need to answer some tough questions if they are to deliver value through innovation. A radical shift in the way corporate strategy is formulated is needed.

Any firm wishing to make the transition to a high-value business has to start with a clear and candid understanding of its true position in the value chain, says the reportís lead scholar Dr.Tim Edwards, a lecturer at Cardiff Business School, Cardiff University. Before it can consider adopting one of the three Pathways to Value it must ensure that the necessary conditions exist - in terms of skills, resources, and the ability to absorb new ideas.

Background to the report

In May 2003, leading Harvard academics Professor Michael Porter and Dr. Christian Ketels published their report UK Competitiveness: Moving to the Next Stage.

The report, commissioned by the DTI and the Economic and Social Research Council, investigated the competitiveness of UK industry. In it the authors identified a significant productivity gap between the UK and its major competitors including the US, France, Germany and Japan. They concluded that, to close the gap, the UK must become a high value, high innovation economy.

We find that the competitiveness agenda facing UK leaders in government and business reflects the challenges of moving from a location competing on relatively low costs of doing business to a location competing on unique value and innovation.

This report forms part of a series of reports commissioned by the DTI and prompted by the Porter/Ketels report. The series focuses on the issue of innovation in UK industry.