Businesses are earning $2 for every $1 spent on innovation, Commonwealth Bank study finds

ROI

Innovations implemented by Australian businesses over the past year have contributed $110 billion to the economy, according to research undertaken by the Commonwealth Bank

 The second annual CommBank Business Insights Report, which looks at innovation practices and performance of companies with two or more employees and an annual turnover greater than $500,000, indicates that businesses are receiving $2 for every $1 invested in innovation.

On average, businesses that invested in innovation over the past year spent $300,000 on relevant activities. Further, the average revenue gains and cost savings derived from investment in innovation increased by 46%, from the previous year, to $592,000 per business – equal to a Return on Investment (ROI) multiple of 1.97.

On a national scale, the estimated earnings and savings from innovation amount to $110 billion (or approximately 6% of Australia’s GDP), an increase from $69 billion recorded 12 months ago.

“The research shows this investment in innovation is paying off, not just for individual businesses that are embracing innovation, but for the broader economy,” said Adam Bennett, Group Executive Business and Private Banking, Commonwealth Bank. “Australia stands to benefit greatly from a boost of billions of dollars provided by business innovation, as the nation looks to maintain global competitiveness.”

Meanwhile, Gareth Aird, Director Economics, Commonwealth Bank, said: “Productivity growth is essential for the continued improvement in the living standards of Australian residents, and at the heart of productivity lies innovation. In the past, Australia has done this quite well due to our constructive attitudes to risk-taking and entrepreneurship, and the most recent trends in innovation across Australian businesses look encouraging. To ensure our future remains prosperous, an ongoing focus from businesses and government on innovation is crucial.”

In terms of the way in which businesses received a commercial return from innovation, the majority (60%) accrued value through revenue gains while the remainder mostly cited cost savings and efficiencies. A majority (73%) also expected a return on their investment in innovation within 12 months. Short-term benefits were also expected – one in two anticipated a payback period of six months or less, and almost one in 10 expect immediate returns.

CommSec Chief Economist Craig James said: “The successful innovators have identified something that they do better, or more efficiently, than their competitors and thus gain an advantage. In this globalised world, every business needs to identify something that sets them apart.

“The innovation may or may not be significant in a monetary sense but must make a difference in meeting customer needs in some way. At a macro level, the more successful innovators an economy possesses, the greater the likelihood that productivity and efficiency can be enhanced with benefits to national markets,” James said.

The research also suggested that the more innovative a business is, the more effective it becomes at managing the investment and implementation of the innovation.

Across the four levels of innovation performance outlined in the report – starting with the least innovative, the ‘Resistors’, followed by the ‘Adopters’, then ‘Harnessers’ and the top innovators, ‘Disruptors’ – the Harnessers are investing the most in innovation, spending $427,000 on average.

However, the ROI for Harnessers is 1.8 times their investment, compared to 2.3 times for the more efficient Disruptors that are spending only $257,000 on average but for a greater return.

Bennett concluded: “At the organisational level, businesses are generating a considerable return on investment from innovation, and in many cases they are starting to realise returns in a matter of months not years.”

About the CommBank Business Insights Report

The annual Commonwealth Bank Business Insights Report (BIR) involved a survey of 2,473 business decision makers within organisations with an annual turnover of more than $500,000 and more than two employees. The survey was conducted by DBM consultants between August and September 2017, with data analysis undertaken by ACA Research and CBA.