Innovative Firms Gain Widening Profit Advantage By Going Sustainable

10 11 2008

Newswise

The profitability gap between companies that compete on the basis of innovative products or processes and firms that compete with a low-price advantage has more than doubled over the past three years, a new survey of Georgia manufacturers has found.

The 2008 Georgia Manufacturing Survey also found that Georgia companies are making significant progress in adopting sustainable techniques – another form of innovation – though they tend to focus on short-term cost reduction rather than long-term profitability and growth.

Results of the survey, done periodically to assess the business and technological condition of Georgia’s manufacturing community, were released this week by the Enterprise Innovation Institute and the School of Public Policy at the Georgia Institute of Technology. The results are based on responses from 738 companies with more than 10 employees.

“Innovation remains as important as ever,” said Philip Shapira, a professor in Georgia Tech’s School of Public Policy and one of the study’s co-authors. “Those Georgia companies that innovate receive rewards for doing so. But a significant number of companies still have not adopted innovation as a leading strategy.”

The survey showed that companies competing on the basis of innovation had a three-year average return on sales of 14.5 percent – nearly twice the 7.6 percent average for companies competing with low prices. In the 2005 Georgia Manufacturing Survey, companies relying on innovation saw an average return on sales of 6.3 percent, compared to about 3.6 percent for the low-cost competitors. The gap between the rewards for these two competitive strategies nearly doubled during the 2005 to 2008 period.

Slightly less than 20 percent of Georgia manufacturers compete based on price, compared to fewer than 10 percent that use innovation as the competitive edge, the study found. Half of Georgia manufacturers report gaining a competitive edge from quality products or services. Other strategies include quick delivery, adding value and adapting to customer needs.

Wage rates are also associated with competitive strategy. Innovative companies pay an average of nearly $42,000 annually per employee, compared to a range of $33,000 to $37,000 for other firms.

The survey studied innovation in products, processes, organizational structures and marketing. About 70 percent of the manufacturers responding to the survey report that they had introduced a new or technologically improved product or process in 2008.

Support for the study came from the Georgia Manufacturing Extension Partnership at Georgia Tech, the Center for Paper Business and Industry Services, the Georgia Department of Labor, the QuickStart Program of the Technical College System of Georgia, and Habif, Arogeti and Wynne, LLP. Beyond Shapira and Youtie, authors included Luciano Kay, Ashley Rivera, Bryan Lynch and Andrea Fernandez Ribas.

For more details about the Georgia Manufacturing Survey and to download the 2008 report, please visit (http://www.cherry.gatech.edu/survey).

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