Innovation Challenges of established companies
It is no secret that established companies have major challenges with
on analysis of 750 companies Marla Capozzi and Ari Kellen from McKinseyprovide
innovation is a beautiful thing. Disruptive products and services
are unleashed. New markets are created. Customers smile, employees
cheer and shareholders win. What's not to like?
The problem is that large companies find game-changing innovation
staggeringly difficult to achieve. Recently, we analyzed the performance
of 750 large companies in the decade before 2008. Apple was the
only incumbent in this period to grow by creating new markets repeatedly
through disruptive innovation.
analysis suggests that big companies should focus instead on what
we call "innovation at scale" - that is, achieving repeatable
and sustainable organic growth from new products, services and business
models that build on the core business. This approach, too, is challenging:
just 6% of the companies we analyzed managed to innovate at scale
consistently through the period. But innovation at scale seems to
be within reach of many more companies than might succeed in creating
brand new markets.
What does it take to innovate at scale? The first element is robust
strategy. In our work with clients, we find that companies that
innovate at scale have a deep understanding of their assets, capabilities
and what makes them successful. They understand at a granular level
where growth came from in the past and where it is likely to come
from in future. Aspiring to double revenues by 2020 may be a terrific
stretch goal, but it is not a strategy.
Robust strategy is important because it creates the framing and
focus needed to drive greater innovation. Ask people simply to "innovate"
and the likely response is a mishmash of ideas. Focus, which can
come in the form of simple guard rails, provides the crucial guidance
on what really matters to the company's future success and what
types of innovation are required. These factors allow people to
experiment and take more risks.
The second element needed for innovation at scale is careful attention
to organization. While there is no set formula - organization must
follow strategy, not be the starting point - our work with innovative
companies points to a few areas on which to focus:
cannot be a side show.
Companies that integrate innovation into strategic planning, budgeting
and resource allocation are six times more likely to achieve desired
financial targets. Leadership, especially in the C-suite, is closely
correlated with innovation outcomes.
Stay "open" longer. Many companies
now use open innovation principles to harvest ideas from consumers,
employees and other stakeholders. But once the idea portfolio
is set, the process is often surprisingly insular and linear.
War gaming innovations early, and testing across multiple economic
scenarios, can provide a market view and help to further refine
It is hard to find a clear correlation between organizational
design - that is, use of innovation centers, incubators and labs
- and successful innovation at scale. That said, these structures
can be helpful ways to bring people together, allocate resources
and track progress.
talent. Innovation projects staffed by volunteers tend
to underperform those run by people selected for the role. This
shouldn't disqualify people who raise their hands for the right
reasons (e.g., passionate about the idea, hunger to contribute)
but it is a reminder that raw enthusiasm is no substitute for
the right expertise and capabilities.