Barriers to Business Innovation

Studies have demonstrated that doing something new every day can help boost your problem-solving ability by priming your brain to adapt to new situations.¹

Sticking to the status quo can have the opposite effect, making you less able to respond to challenges requiring creative thinking. 

Adaptability is crucial for entrepreneurs who disrupt and drive growth. But how can business owners leverage this for success? 

The sales engagement experts at Sopro have partnered with a neuropsychologist and delved into government data on business innovation to find out. 

Creativity and neuroplasticity 

Creativity is a unique function of the human mind. It can open up new possibilities for business innovation with ideas that set you apart from the competition. 

According to brain-mapping studies, creativity stems from three areas of the brain working together – the default mode network (generates ideas), the salience network (identifies essential ideas), and the executive control network (evaluates ideas). This creates divergent thinking and allows us to generate new solutions to a problem.² 

By constantly taking in new experiences, solving new problems, and learning, our brains can innovate novel solutions by developing new neural pathways and linking old ones. This is known as neuroplasticity.

Dr Amber Johnston, Clinical and Neuropsychologist, Director of Healthy Mind Psychology, comments:

“The way new neuronal connections form in our brain is shaped by everything in our environment. This means there is always the potential for new neuronal pathways to develop and make connections.

“What can be challenging is that we tend to react in certain ways based on our past experiences due to well-worn pathways and associations. Our brain is always predicting what is expected of us presently from learned experiences from the past.

“A classic analogy is walking through the woods: we tend to follow a clear, familiar dirt path, but there’s always the potential to create a new path by stomping through the undergrowth. With enough time and consistency, that new path can also become well-worn and the new go-to pathway.

“The best thing about neuroplasticity is that it means we are never stuck. We can always be learning, moving towards new goals and directions, and our brain will support that.”

Industries engaging in innovation the most

Innovation has been shown to play a huge role in increasing business profitability. In fact, government data shows that innovative businesses generate nearly two-thirds (60.5%) of their turnover as a direct result of introducing new products, services, or processes. 

These are the industries engaging in innovation the most: 

Rank	Industry	Companies engaging in innovation*
1	Scientific research and development	69.0%
2	Manufacture of computer, electrical and optical equipments	61.9%
3	Manufacture of transport equipments	60.5%
4	Publishing, computer programming & information service activities/ICT	59.6%
5	Architectural and engineering activities and related technical consultancy	55.4%
6	Manufacture of food, clothing, wood, paper and printing	54.5%
7	Telecommunications	52.2%
8	Manufacture of fuels, chemicals, plastic metals & minerals	50.8%
9	Advertising and market research	49.2%
10	Technical testing and analysis	43.7%

Publishing, computer programming and information service activities

Almost three in five (59.6%) companies in the publishing, computer programming, and ICT sectors engage in innovation. This high level of uptake could be due to the industry’s nature, which is at the forefront of rapid technological advancements. For example, the progression of AI, led by businesses in these niches, requires innovative software and skills to utilise these new tools.  

Telecommunications

The Telecommunications industry is a saturated global market where companies must constantly innovate new products and services to remain competitive. As a result, more than half (52.2%) of telecommunications companies in the UK engage in innovation. The widespread demand for data also fuels innovation in this industry, as businesses constantly have to come up with ways to improve network capacity and speed. 

Advertising and Market Research

Almost half (49.2%) of advertising and market research companies also engage in innovation. Customer desires and behaviours are constantly shifting, shaped by cultural trends and rapid technological advances. Businesses in this sector must continuously adapt to these changes through innovation to stay ahead of the curve and capture the attention of their target audience.

Industries engaging in innovation the least

But what about the industries at the other end of the scale? These are the sectors engaging in innovation the least that could be missing out on business as a result: 

Rank	Industry	Companies engaging in innovation*
1	Real estate activities	23.2%
2	Accommodation and Food Service Activities	24.6%
3	Transportation (by land, water and air), warehousing and storage	27.2%
4	Construction	27.7%
5	Motion picture, video and tv programme production/programming & broadcasting	29.7%
6	Retail trade, except of motor vehicles and motorcycles	30.1%
7	Post and courier activities	33.1%
8	Mining and Quarrying	34.3%
9	Electricity, gas & water supply, waste management	36.2%
10	Financial and Insurance Activities	37.3%

Construction

Only slightly more than one quarter (27.7%) of construction businesses engage in innovation. The industry faces several obstacles that make innovation challenging, such as a reliance on manual labour and traditional techniques. The purchase of and training for the use of new equipment and technologies are limited in the sector, likely in part because they are expensive and time-consuming. 

Electricity, gas and water supply, waste management

Just over a third (36.2%) of electricity, gas and water supply, and waste management companies engage in innovation. This could be due to the high level of government regulation faced by companies in the sector, which ensures public safety and limits environmental damage. This red tape – though necessary – contributes to a much slower innovation process.  

Financial and insurance activities

Many financial and insurance companies rely on outdated technologies to operate, such as computer programs based on COBOL, a programming language developed in the 1950s. These systems are costly to upgrade and replace, hampering innovation. 

Additionally, companies in the sector are often risk-averse due to the high financial stakes, making the experimentation involved in innovation off-putting to stakeholders. As a result, less than two in five (37.3%) firms in the sector engage in innovation.      

The most common types of innovation 

Rank	Type of innovation	Businesses investing in innovation
1	Computer software	17.7%
2	Computer hardware	17.2%
3	Internal R&D	13.8%
4	Machinery and equipment	13.0%
5	Any form of design activity	11.5%
6	Training for innovative activities	10.4%
7	Acquisition of external R&D	4.8%
8	Launch advertising	4.7%
9	Changes to marketing methods	4.1%
10	Changes to product or service design	4.0%
11	Acquisition of existing knowledge	3.2%
12	Market research	2.7%

1. Computer software

Investing in new computer software is the most common type of innovation among UK businesses, experimented with by around one in five (17.7%). New software can help companies automate time-consuming tasks and reduce the risk of human error, boosting productivity.

2. Computer hardware

Computer hardware follows closely behind as the second most common innovation type (17.2%). Investing in computer hardware can help grow businesses, as newer hardware is more energy efficient and has lower maintenance costs. This allows businesses to invest revenue in other, more fruitful areas, like marketing, to secure more new customers. 

3. Internal R&D

Internal research and development rounds off the top three types of innovation businesses are investing in (13.8%). This process can give businesses a competitive advantage by refining existing products or services or developing new ones. 

The regions engaging in the most innovation 

Rank	English region	Businesses engaging in innovation
1	South East	40.2%
2	East of England	38.9%
3	North East	38.5%
4	South West	37.3%
5	London	36.8%
6	Yorkshire and The Humber	35.4%
6	West Midlands	35.4%
8	North West	35.1%
8	East Midlands	35.1%

1. South East

The South East of England tops the list as the most innovative region, with two in five (40.2%) businesses in the area driving change. Surprisingly, the region ranks above London, which doesn’t even make the top three despite being a hub for new technology. 

This could be due to the sheer volume of businesses included in the capital’s figures. The South East’s close proximity to London and its wealth of talent and resources could play a part in the region’s frequent implementation of innovative practices.  

2. East of England

The East of England comes in second, with a slightly lower 38.9% of businesses in the region engaging in innovation. Thanks to world-class institutions like the University of Cambridge, the region is a major player in research and development – a critical factor in driving innovation. 

3. North East

The North East takes third place, at 38.5%. Thanks to its history as a centre for manufacturing, the region is leading the way in innovation in the sector, particularly in battery production for electric vehicles. 

The top motivations for innovation

Rank	Motivation for innovation	Percentage of businesses
1	Improving quality of goods or services	45.5%
2	Meet regulatory requirements	37.3%
3	Increasing value added	35.5%
4	Meeting technical, industry or service standards	33.3%
5	Replacing outdated products or processes	31.5%
6	Increasing range of goods or services	30.8%
7	Increasing market share	28.7%
8	Increasing capacity for producing goods or services	28.6%
9	Improving flexibility for producing goods or services	28.5%
10	Issues arising from the coronavirus (COVID-19) pandemic	27.9%
11	Recent increases in energy prices	27.7%
12	Reducing costs per unit produced or provided	25.7%
13	Improving health and safety	24.0%
13	Reducing environmental impact	24.0%
15	Entering new market	20.9%

1. Improving quality of goods or services

Topping the list as the most common motivation for innovation in business is improving the quality of goods and services. Almost half (45.5%) of UK firms innovate for this reason, which allows businesses to respond to their customers’ needs more effectively. This, in turn, can help drive growth by securing repeat customers and expanding customer bases. 

2. Meet regulatory requirements

Meeting regulatory requirements is the second most common reason for business innovation. Regulation means products and services can enter the market safely, protecting customers from potential risks and reducing the likelihood of liability claims. When regulations are revised, businesses must adapt to comply, influencing almost two in five (37.3%) to look for innovative solutions. 

3. Increasing value added

In third place, more than a third (35.5%) of businesses engage in innovation to increase the value added to their company, product, or service. Innovation can increase value for several reasons, including attracting new customers, increasing productivity, and reducing costs.  

The top barriers to innovation

Rank	Barrier to innovation
1	No need due to market conditions
2	No need due to previous innovations
3	Availability or costs of finance
4	Issues arising from the coronavirus (COVID-19) pandemic
5	Lack of qualified personnel

1. No need due to market conditions

Market conditions are key drivers of innovation, with business competition and customer demand both encouraging research and development. However, when the market is already doing well, some firms could view innovation as an unnecessary risk, stunting new developments. 

2. No need due to previous innovations

Some businesses avoid further innovation because they feel their previous advances are sufficient to compete in their chosen market. While this can be true, innovation is vital in ensuring continuous growth and long-term stability, including adapting to constantly evolving markets. Complacency could mean companies lose opportunities for increased efficiency and growth.  

3. Availability or costs of finance

Finances can significantly impact businesses’ ability to innovate. Investing in research and developments that have no guarantee of paying off is a risk that many firms can’t afford. That said, the ROI of successful innovations can open new markets and propel businesses forward. If a company’s offering stagnates due to a lack of innovation, it can risk being outcompeted in its field. 

Rob Harlow, Chief Innovation Officer at Sopro, comments on the impact of innovation in business and offers his tips: 

“Innovation is essential to long-term success in any industry, offering significant improvements to problem-solving, service-offering, and overall business performance. Openness to implementing new tactics and processes allows companies to adapt to market changes quickly, capitalise on emerging trends, and gain a crucial competitive edge. 

“This can be through creating a unique product or service that will attract more customers or by carving a new niche in your industry to meet unfulfilled customer needs. You can do this by collaborating with your customers to collect feedback and monitoring industry trends to inform your innovations. 

“Alternatively, innovation can take the form of changing the way you engage potential new customers and generate business. For example, breaking out of your old marketing habits and implementing a multi-channel approach to prospecting, as well as sophisticated lead generation and nurturing strategies, can help scale your business. 

“While adjusting to new ways of operating might be difficult, it’s worth remembering that one of the biggest reasons for losing deals is choosing to stick with the status quo. Meanwhile, embracing innovation can drive your business forward and put you at the forefront of your sector.” 

Methodology

Data on the most frequent types of innovation, innovation engagement rates by industry, innovation rates by region, and the most common motivations and barriers to innovation were taken from the UK Innovation Survey 2023. 

*Note: ‘Other professional, scientific and technical activities’, ‘Manufacture: not elsewhere classified’, and ‘Other services not elsewhere classified’ were removed from the businesses engaging in the most and least innovation sections as the industry categories are too broad to draw accurate conclusions.

1-https://zuckermaninstitute.columbia.edu/why-you-should-try-something-new-every-day 

2-https://www.psychologytoday.com/gb/blog/experimentations/201802/your-brain-creativity