Technology-enabled innovations are creating enormous value potential in every industry. But too many companies are failing to convert that potential into reality. This results in a significant gap between what is possible and what is being achieved today. We call the value that is yet to be unlocked, “trapped value.”
The challenge is that most large companies are unable to apply innovation fast enough, at a fundamental level, to release that value—driving growth as they should, and avoiding obsolescence in the process.
What’s the evidence? We surveyed C-level executives at 840 companies around the world, and we found that most of the businesses that had significantly increased their investments in innovation did not achieve above-average growth. In fact, our research indicates that the return on companies’ innovation spending has declined by 27 percent over the past five years.1
There is, however, reason for optimism. 14 percent of respondents in our study report that their companies have bucked the trend, turning innovation investments into accelerated growth. These companies have outgrown their peers in the past five years, and they expect to continue on that trajectory for at least the next four years.
High-growth companies adopt a distinct approach to innovation that helps them turn their investments into value. Three lessons emerge from their approach.
First, they recognize that innovation must be change-oriented—by applying innovation with the right intensity, to alter existing ways of doing business, and thus achieve deep organizational change.
Second, they know that innovation must be outcome-led; these companies foster their innovation efforts across the business and have the discipline to tie them rigorously to financial performance.
Third, they understand that innovation must be disruption-minded—in terms of capital investments over time, and the type of initiatives that those investments fuel. Indeed, 47 percent of the high growth companies allocate 60 percent or more of their innovation investment to disruptive innovation (see Figure 1).Figure 1—Investment in disruptive and incremental innovation
% respondents (Others, n = 722 vs. High growth companies, n = 118)
It is clear that large companies are committed to innovation—but only some do it well. To assess their own starting point, business leaders should ask themselves the following questions:
Confident “Yes” answers are indicators of readiness to put innovation to work and create a company that is fit to win.