Innovation Challenges of established companies

Based on analysis of 750 companies Marla Capozzi and Ari Kellen from McKinseyprovide some guidance.

Game-changing 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.

Our 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:

• Innovation 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 ideas.
  
• Structure to execute. 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.
  
• Hand-pick 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.

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