GOVERNING
INNOVATION
The recipe for portfolio growth
January 14, 2020
The recipe for portfolio growth
January 14, 2020
Governing Innovation: The recipe for portfolio growth
View TranscriptMany companies assume that innovation and growth come hand in hand — that creative, new ideas will spark more business and provide a better way to run a company. But how do you turn those ideas into commercial reality?
The answer isn't adding more to the innovation budget, according to our survey of 1,090 executives across 11 industries. The answer is to allow innovation to thrive in the right businesses. Companies should allocate innovation investments based on their businesses' future potential — not on today's needs — and apply governance to extract value from those investments.
Our research reveals that increased governance can create the right conditions for innovation to thrive in the right businesses. We call this Portfolio Innovation: the application of incremental and non-incremental (breakthrough or disruptive) innovation across businesses with different maturity levels.
Leaders need a structured way to direct their innovation investments. Chief strategy and chief innovation officers need to first determine their desired business portfolio composition for the future, discern what type of innovation each business needs, and set their investment strategy accordingly.
Legacy businesses
Growth businesses
Emerging businesses
INVESTMENT STRATEGY: LONGEVITY
Majority of innovation investments flow to legacy businesses
INVESTMENT STRATEGY: BALANCE
Majority of innovation investments flow to growth and emerging businesses
So what distinguishes companies that achieve growth from innovation and those that don’t? One factor is implementing more disciplined governance.
We identified 12 key governance rituals companies are practicing to effectively govern innovation.
Companies that govern innovation extensively delivered 2x revenue growth compared to those following a haphazard approach
We found that the 12% of companies that already adopt six or more rituals are achieving double the revenue growth of companies using fewer rituals.
In fact, when companies that aren’t governing innovation as extensively increase to six or more rituals, they expect to see their revenue growth catch up to those currently in the lead.
REVENUE GROWTH AND COMMITMENT TO INNOVATION GOVERNANCE
Revenue Trajectory (Past: 2013-2018 and Future: 2019 to 2023 Estimated)
It takes the right mix of innovation and governance
Some people fear that governance will stifle innovation. But in reality a systematic approach to managing innovation is key to greater financial impact.
When leaders align their future innovation investment strategy to the desired portfolio mix, they gain the power to turn innovation into a real advantage.
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