Innovation is great for the bottom line, but if companies mismanage it there's a good chance the money will be wasted.
That is one of the key findings of a survey of Corporate Canada's innovation practices to be released Tuesday by the Conference Board of Canada.
"The results suggest pretty strongly that it's worth managing innovation. You get more bang for your buck," Conference Board vice-president Michael Bloom explained in an interview.
Nearly half of the 450 companies surveyed acknowledged they have no "formal innovation management process."
Companies who spend lots of time on innovation, but do not manage it properly, actually do worse, on average, than those who spend less, Mr. Bloom pointed out.
On the other hand, companies with well-defined innovation policies and practices show higher long-term growth in revenue, profits and company worth.
The results are sobering, given that Canadian companies chronically invest less in research and development than businesses in other leading industrialized countries, most notably the United States.
R&D spending is closely associated with better labour productivity – another area where Canada's performance lags.
"We have this macroeconomic dialogue [about the value of innovation], but when you look at the companies, a heck of a lot of them aren't making this a strategic priority, and formally managing themselves for innovation," Mr. Bloom said.
Among the key surprises in the survey results, he said, is that very few Canadian companies rely on private-sector financing to do innovation – despite lots of evidence that it drives growth and profits.
"If you look at where the money comes from, the real surprise is how much companies have to depend on themselves," Mr. Bloom said. "People are self-funding, more than I thought."
The leading source of financing for innovation among companies is internal cash flow, rather than banks, angel investors or venture capital funds. The No. 2 and No. 3 sources are the federal and provincial governments.
The dearth of private financing for innovation in Canada is caused by a combination of companies not effectively selling the financial benefits of what they're doing and a failure of lenders to price the risks of innovation.
Several factors produce better financial results for companies, including sharing innovation decision-making between top executives and lower-level staff, as well as using multiple indicators to track success, according to the survey.
The survey also identified the leading impediments to innovation, and the No. 1 problem is money.
In descending order, the top 10 most-cited challenges are lack of funds, company size, the nature of the industry, fear of risk, technological difficulties, corporate culture, low-cost competition, inability to implement ideas, regulations, and the poor business climate.