BCG's latest research highlights a widening innovation readiness gap: never since they started producing this report has the priority of innovation been so high and the innovation readiness been so low!
They explain this is mainly due to environmental factors like the pandemic, macro-economic climate, and geopolitical tensions. However, these factors alone don't paint the full picture. Drawing from our Vibrance experiences across Australia and abroad in the last 24 months, I delve deeper into the underlying reasons behind this alarming trend.
Why is innovation priority so high?
With 83% of companies announcing innovation as a top-three priority, it may seem that innovation has become a non-negotiable priority in organisations. Depending on where you stand on the optimism to cynicism continuum you might think that innovation has finally been recognized as the vital driver of growth and resilience that it is, or that it merely has become a mandatory box to check for appearances' sake, just like most sustainability commitments. In both cases, it's no longer acceptable to exclude innovation from the strategic priorities presented to boards of directors.
Why is innovation readiness so low?
Let’s pause first on how BCG defines innovation readiness. In the 2021 iteration of their survey they explained that “BCG’s innovation-to-impact (i2i) framework helps companies measure the readiness of their innovation programs to operate at a consistently high level of efficiency and effectiveness. The framework allows companies to assess their relative strength on ten essential factors related to their processes and capabilities. Scoring is based on a 100-point scale that reflects best-practice maturity. We consider organisations that earn a score 80 or above to be ready to realise their innovation aspirations.”
At 20% of organisations scoring 80 and above in 2021, the ability to realise innovation aspirations was the hard-earned capability of a small minority. At 3% of organisations in 2024, those innovation aspirations are now a distant dream for almost everyone.
So why the gap?
Anyone involved in strategy work would acknowledge that meeting all your strategic objectives is the exception rather than the rule in organisations. In times of high uncertainty in a fast-paced environment, the strategic objectives and priorities coming from a traditional, yearly strategic planning process might be obsolete even before they’re formally validated. Now if, as an Executive, you’re committed to objectives that are no longer realistic and you have to reallocate efforts and resources to achieve at least some of those objectives, where are you going to cut? Often the answer is to cut where it hurts the least, where it is the most acceptable not to meet objectives, where the ROI of your efforts is the furthest. In most cases, innovation will fit this profile and amid competing objectives, innovation often takes a back seat or gets cut.
Efficiency innovations, offering more immediate returns, tend to survive better while transformative and sustaining innovations, with higher uncertainty and longer payback periods, are sacrificed. Keeping some focus on efficiency innovation allows to save face on the objective to be more innovative, and justifies the rationale to de-prioritise innovation initiatives in adjacent or new terrains that have more uncertainty and a more distant ROI. While making perfect sense in the short-term, this approach not only stifles long-term growth but also undermines the innovation systems supporting them. By innovation systems we mean all the infrastructure required in terms of governance, processes, methodologies, tools, programs, organisational structure, etc. for innovation to create new growth and long-term resilience.
So the gap is bigger than ever because while it is no longer acceptable to exclude innovation from the strategic priorities, it is still too easy to give up on that priority. And in the uncertain market environment of the last couple of years, innovation is still an easy victim to sacrifice.
But as my business partner Sahil Merchant pointed out in his provocative article survival sucks, “Does it make sense to await the absolutely perfect economic climate before looking to grow?” Maintaining the commitment to innovation in a downturn is a smart move that can reap huge benefits in the long-term.
Given their assessed state of corporate innovation, BCG rightly advocates for rebooting innovation systems, and for leveraging AI as a key solution in that effort. However, AI itself has posed a dual challenge. While a promising opportunity to facilitate the reboot of innovation systems, it has also monopolised executive focus and resource allocation in innovation departments over the past two years. It has also (mis)led organisations to feel like they are ticking the innovation box, even if what they are doing is too narrow or shallow to bear significant fruits. In the last 12 months we have observed how the AI distraction has inadvertently starved innovation systems of the attention and resources they require to thrive in the long-term.
As organisations navigate unprecedented challenges, being able to leverage corporate innovation to create new growth and long-term resilience has become a differentiating strategic capability. This has been the focus of my work at Vibrance and the main topic of The Invincible Company, the book I co-authored with my friends at Strategyzer.
What the latest BCG survey shows us is that this capability is currently out of reach of almost all organisations where the innovation readiness is just too low. If we want thriving organisations in a thriving society we can’t let this situation continue. It’s time to close the innovation readiness gap. Why not make it a real strategic priority in your organisation?
About Fred
Executive advisor on strategy and innovation. Co-author of The Invincible Company, a guide to building resilience in organisations with corporate innovation and shortlisted for the Thinkers50 Strategy Award 2021.
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