The report, HR as a driver for innovation, argues British employers must accept the need to experiment and risk failure, or be left "behind the curtain on the global business stage".
According to Robert Bolton, co-leader of KPMG's global HR Centre of Excellence, HR should take the lead on this.
"HR teams are fortunate to be responsible for many of the levers required to being about the transformation needed if innovation is more built in to business than bolted on," he said.
"The organisations that are most likely to prevail are those where entrepreneurialism and risk taking is recognised and celebrated by leaders and where honest failure is viewed as a learning experience."
The KPMG report also called on employers to look beyond the size of their R&D budgets and concentrate instead on creating a "true culture of innovation".
It said successful companies reject an insular approach, preferring to collaborate with external networks and customers, and that making sure ideas are shared, tested and rewarded is key.
Bolton said: "Anyone looking to unleash innovation on a sustainable basis should start by asking how much they are prepared to think ahead and do things differently.
"Those at the top must be prepared to take risks and accept the consequences. Anything less fosters a culture of blame when things go wrong - and is the best way to ensure that innovation is stifled before it has a chance to flourish."
