The innovation commitment

November 13, 2019

 

Here is an excerpt from an article written by Daniel Cohen, Brian Quinn, and Erik Roth for the McKinsey Quarterly,published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

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To catalyze breakthrough growth, leaders must set bold aspirations, make tough choices, and mobilize resources at scale.
Seven years ago, we unveiled research highlighting the existence of innovation’s eight “essentials”—a collection of attributes and behaviors that appeared to underpin superior innovation performance. Since then, we’ve validated the essentials through further research and seen them in action at hundreds of companies. This work has deepened our conviction that not only do the essentials matter but also that mastering them is critical to survival at a time when transformational growth is needed to defend against disruptive rivals (see sidebar, “Defining the eight essentials of innovation”).
Simply put, the ability to develop, deliver, and scale new products, services, processes, and business models rapidly is a muscle that virtually every organization needs to strengthen.
Our latest research highlights a growing performance gap separating innovation “winners” from companies that merely muddle along. We recently compared innovation proficiency—based on competencies defined by the eight essentials—for 183 companies against a proprietary, company-level database of economic-profit performance. This analysis showed a strong, positive correlation between innovation performance and financial performance. Our research also shows us that innovation winners are extending their lead most conspicuously in two areas.
First is the ability to set a bold yet plausible aspiration for innovation that is grounded in a clear view of the economic value that innovation needs to deliver. And second is the ability to make tough resource-allocation choices about the people and funds required to seize innovation’s value at a scale sufficient enough to make a difference.
This article focuses on these two essentials—aspire and choose—not because the other six are any less important, but because without these two in place, innovation investments often become scattershot and are more likely to disappoint. Setting aspirations and making tough resource-allocation and portfolio choices also are areas where a company’s top leaders play a unique and disproportionate role in creating change. Some leaders are doing this by defining what we call the “green box”—a quantification of how much growth in revenue or earnings a company’s innovation needs to provide in a given timeframe. As we’ll see, it’s a concept that can help animate the aspirations and choices that collectively separate innovation leaders from the rest of the pack.

Setting aspirations and making tough resource-allocation and portfolio choices are areas where a company’s top leaders play a unique and disproportionate role in creating change.

What the numbers say

It bears repeating: simply mastering a few of the eight essentials—for example, by generating and harnessing consumer insights or engaging more effectively with start-ups—is not enough. As the innovation performance curve depicted in Exhibit 1 shows, companies that master five of the essentials enjoy a substantial uplift in economic-profit performance, and there is an even greater uptick with seven or more.

This finding is consistent with our experience, which is that the very best innovators benefit from interdependent, organization-wide activities and practices aimed at delivering innovation. Effective innovation operating models spur companies to generate, prototype, develop, de-risk, deliver, and scale innovation initiatives. A well-integrated system that’s grounded in the eight essentials also challenges leaders to break out of their comfort zones, while giving them visibility into the ongoing portfolio of projects so that they can confidently invest valuable time, people, and funds to their best effect.

Another noteworthy finding is the widening gap we see in two of the essentials: aspire and choose (Exhibit 2). Here, it seems that leaders are getting better while laggards mostly run in place. In our experience, there are many reasons for this gap, starting with the enormous differences we’ve observed in how deeply executives focus—or don’t—on innovation-related activities. A worrying datapoint from our survey is that despite the high importance that executives place on innovation, fewer than 25 percent said they were involved in setting innovation targets and budgets. That figure points to the shift in mind-set—and management approach—that many leaders must make.

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Here is a direct link to the complete article.

Daniel Cohen is an associate partner in McKinsey’s San Francisco office, Brian Quinn is a partner in the Chicago office, and Erik Roth is a senior partner in the Stamford office.

The authors wish to thank Matt Banholzer, Danielle Barber, Marc de Jong, Laura Furstenthal, Katie Lelarge, Nathan Marston, and Miao Wang for their contributions to this article.

 

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