More Companies Planning Digital Development

The number of companies planning digital development has increased, while K&H's innovation index has also risen, and the positive trend of the indicator has not been interrupted by the Russian-Ukrainian conflict, Balázs Németh, Head of Innovation at K&H Bank, said at the bank's online press conference.

The latest research, conducted in the first half of this year, examined the developments made in the past two years by Hungarian companies with annual revenues of more than HUF 300 million. K&H's innovation index consists of a weighting of four sub-indices. Four sub-indices were created from a set of 52 questions, which provide a picture of the innovation strategy of firms, including already implemented, planned and digital innovations. The weighted average of these sub-indices forms the K&H Innovation Index, with the highest weight – 50% – given to innovations planned for the future.

Balázs Németh explained that in the first half of 2022, the K&H Innovation Index increased to 30 points compared to 28 points in the previous period. The two-point increase compared to the previous measurement in the second half of last year is mainly the result of already implemented and digital developments. The digital innovation sub-index increased significantly by 5 points. None of the sub-indices decreased, which means that companies continue to prioritize innovation," he concluded. According to the survey, digital innovation has been implemented mainly in the areas of back-office processes and logistics, typically in medium-sized firms with a turnover of between HUF 300 million and HUF 1 billion, mostly in the retail sector.

He said it was good news that the number of agricultural innovations implemented within sectors had increased. In the last two years, the turnover of the firms surveyed from the sale of innovative products has decreased. The number of companies whose innovative products or services account for more than 20% of their turnover has also fallen. 16% of companies have received R&D funding in the past two years - and the proportion of companies that have received more than one such grant has increased, which he described as positive.

He stressed that three out of ten firms are looking at sustainability, having introduced environmentally friendly improvements in their processes. Digital transformation is only important for half of the firms, which he described as negative, and he said that serious education is needed to make the change.

In all areas of digitalization – such as big data analysis, software, IT systems development for teleworking – a significant increase was measured. Services and industry are leading the way in the use of innovative solutions this year, as in previous years.

He pointed out that the vast majority of companies are not yet exploiting the achievements of artificial intelligence (AI), such as speech recognition, fraud detection, chatbots, machine translation, and do not plan to do so in the next two years, which he called a competitive disadvantage. Short-term efficiency innovations are in greater demand, while only a small proportion of businesses are active in longer-term investments.

Russia’s war in Ukraine has had a negative impact on only 27% of the innovation activity of the companies surveyed, and 68% have not had any problems. However, companies are more pessimistic about the future, with 37% indicating that the conflict could have a negative impact on their innovation program.

K&H has now published the Innovation Index for the third time since 2021. The survey is repeated every six months. This year's data was collected between 28 March and 19 April.