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 analysed the performance of 750 large companies in the decade before 2008. Apple was the only incumbent in this period to grow by repeatedly creating new markets 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 through new products, services and business models that build on the firm’s core business. This approach, too, is challenging: just 6% of the companies we analysed managed to innovate at scale consistently through the period in question. And yet innovating at scale is far more attainable for most companies than creating entirely new markets through disruptive innovation.
So 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 the future. For instance, doubling your revenues by 2020 may be a terrific stretch goal, but it’s 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 will be a mishmash of ideas. Employees need a proper creative framework so they can focus their ideas on what really matters to the company’s future success and on the types of innovation required to attain it. This will enable them to experiment and take more risks.
The second element needed for innovation at scale is careful attention to organisation. While there is no single strategy that works best, our work with innovative companies points to a few key points to keep in mind:
— INNOVATION CANNOT BE A SIDESHOW. 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. Today, many companies use open innovation principles to harvest ideas from consumers, employees and other stakeholders. But once these companies’ idea portfolios are set, their innovation processes often become surprisingly insular and linear. War-gaming innovations early and testing them across multiple economic scenarios can provide companies with a market view and help them further refine their ideas.
— STRUCTURE TO EXECUTE. It’s hard to find a clear correlation between organisational design – that is, use of innovation centres, incubators and labs – and successful innovation at scale. That said, these structures are good at bringing people together, allocating resources and tracking progress.
— HANDPICK 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 (such as being passionate about the idea and hungry to contribute). But it is a reminder that raw enthusiasm is no substitute for the right expertise and capabilities.
Many questions remain about how we achieve successful, repeatable innovation at scale. How do we build employee capabilities in experimentation, testing and prototyping? How do we apply a strengths-based approach to innovation, understanding that successful teams and networks require a range of different innovation aptitudes? How do we balance the need to align innovation efforts with strategic priorities against the need for the firm to remain open to new ideas? What we do know is that innovation at scale is a critical management challenge for every big company that cares about sustainable growth.
(Marla Capozzi is a senior expert in McKinsey and Co’s Boston office. Ari Kellen is a director in McKinsey’s New Jersey office.)