K&H: Firms Spending Significantly Less on Innovation

Innovation

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While the majority of Hungarian companies see themselves as innovative, their share of turnover spent on innovation has fallen significantly in the first six months of 2022, according to the K&H Innovation Index.

The survey shows that the majority of companies surveyed, 62%, prefer to think of themselves as rather innovative. However, only 7% of firms see themselves as leading innovators in their sector, with the majority (55%) rating their own operations as average in terms of innovation. Those in the retail sector are the most positive: 9% see themselves as leaders in their sector and 57% think positively about their company from an overall innovation perspective. 

Despite the fact that the majority tend to think of their operations as innovative, less than a tenth of Hungarian firms - only 8% - have a written innovation strategy, even as part of their corporate strategy. Interestingly, this compares with 18% in the previous half-year, a significant drop. A smaller proportion of companies in all segments indicated that they had such an innovation strategy. However, the more a company rates itself as an innovator, the more likely it is to have a written innovation strategy. 

Written Strategy, Agile Leadership

"The research data confirms that companies are realistic in their assessment of their own position in terms of innovation compared to other firms making up the competitive environment. Firms that see themselves as leading innovators reported more implemented, planned, and digital innovations, and described the leadership style of their managers as agile. These, together with the existence of a written innovation strategy, i.e. a clear development direction, all contribute to a higher innovation index," said Balázs Németh, head of innovation at K&H.

However, it is interesting to note that 57% of companies that consider themselves more innovative than average have not introduced a new product or service in the last couple of years and 74% do not plan to do so within a year, while for, 47% digital transformation is not a vitall issue. 

Despite this, 55% of the surveyed firms say they expect as much innovation in the next 2 years as they did in the last 2 years. The main drivers of innovation in the first half of this year were adapting to customer needs, improving the quality of products and services, and operating more efficiently and responsively. Only 45% would innovate to reduce or optimize costs, and even fewer firms are thinking about innovating to gain a competitive advantage or enter new markets. 

The ranking of the factors hindering innovation has changed more significantly for the first half of this year: while in the previous half of the year, companies cited the difficulty and uncertainty of obtaining subsidies as the most problematic, the lack of need for new innovation is now the main problem. For 4 out of 10 firms, previous innovation is sufficient, while three say that innovation is not justified by market competition.

The research notes that the lack of resources and difficulty of obtaining funding was cited by 26% and 18% of firms respectively.

Innovation Spending Falls

The survey also reveals how much Hungarian firms spend on innovation. Respondents were also asked how much they estimate they have spent on innovation over the past 2 years, with Balázs Németh adding that Hungarian firms spend on average less than a tenth of their turnover on innovation, at 8%. This is significantly lower than the 10% recorded in the previous half-year. Most respondents - 24% - spend up to 5% of their turnover on innovation (an increase compared to the previous period), while only 15% of firms reported spending over 10%, a significant decrease compared to the second half of 2021.

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