Create Innovative Certainties: How Top Performers Navigate Uncertainty and Seize Opportunities for Growth
Should innovation still be on the agenda in such uncertain times? How do winners surf the ups and downs of choppy waves? Why is going beyond the core part of the the success pattern?
In an era of rapid change and increasing uncertainty, innovation is being leveraged for sustained growth and competitive advantage. While some might view innovation as a risky approach, others focus on wielding the innovation wand to create their own certainty amidst overwhelming external changes, weathering the storm, solidifying leadership positions, and charging ahead of their competitors who are hesitating.
And it’s been working well for them.
A recent McKinsey study of over 1,000 companies worldwide reveals surprising insights into how top performers leverage innovation to thrive and get way ahead in challenging times.
The Innovation Imperative: Key Findings from the McKinsey Study
McKinsey's research underscores the critical role of innovation in driving growth. 39% of respondents identified innovation capabilities as the most important strategic factor for generating growth over the next 12 months, the largest share compared with other priorities such as relationships with customers, talent, and operational excellence.
This finding holds true across industries, with highest of 61% in healthcare, 46% in automotive, 41% in high tech, while in other sectors such as retail, consumer goods and financial services, innovation falls slightly behind but still within top 3.
There’s other reports showing similarly interesting data on innovation as a priority:
A BCG analysis shows that the top 50 most innovative companies outperformed the global MSCI index by 3.3% over a 20+ year period
According to BCG's 2023 annual innovation survey, 89% of CEOs place innovation as a top three priority, even though only 20% are satisfied with their innovation results. 8 years prior, a McKinsey survey in 2015 found that 84% of CEOs believe innovation is critical for growth, while only 6% are satisfied with their innovation results. What drove this change?
Perhaps most striking in this new report is the comprehensive approach to innovation adopted by top economic performers. These companies are 63% more likely to innovate at scale by building or acquiring new businesses outside their current industries, and 50% more likely to expand geographically compared to their lower-performing peers. This multi-faceted strategy allows them to capture growth opportunities both within and beyond their core markets.
The numbers paint a clear picture: while 80% of corporate growth typically comes from within a company's core industry, top performers distinguish themselves by venturing beyond familiar territory. They are 78% more likely to build businesses in different sectors and 68% more likely to acquire businesses outside their core. This approach not only drives growth but also helps hedge against disruption in an increasingly uncertain business environment.
Futures Thinking as a Catalyst for Innovation
In light of these findings, the importance of futures thinking in driving innovation becomes evident.
Futures is about systematically exploring multiple possible futures to identify emerging opportunities and potential disruptions. This approach helps organizations anticipate disruptive trends and identify emerging opportunities both within and beyond their core industries. By employing a range of foresight techniques, from trend analysis to scenario planning, companies are empowered to look beyond their immediate horizon and prepare for multiple potential futures.
The power of futures thinking in catalyzing innovation is supported by research from the University of California, Berkeley. Their study found that organizations employing futures thinking techniques were 33% more likely to be first to market with innovative products and services. This proactive approach to innovation, rooted in systematic exploration of future possibilities, is precisely what sets top performers apart in McKinsey's analysis.
Strategic Scenario Building for Tailwinds
One of the key tools in the futurist's toolkit is scenario building. We leverage this technique to help businesses identify and accelerate into high-growth markets. This approach resonates strongly with McKinsey's advice on leveraging industry tailwinds and creating new ones through innovation.
As the McKinsey report notes, "Following your competitive advantage essentially extends your core business to adjacent or even breakout opportunities, but with less risk."
The value of scenario planning in navigating uncertainty is well-documented. A study by the Harvard Business Review found that companies using scenario planning were 27% more likely to outperform their peers during economic downturns. By exploring multiple potential futures, organizations can better prepare for a range of outcomes and position themselves to capitalize on emerging opportunities.
Resilience Through Innovation
Perhaps one of the most valuable insights from the McKinsey study is the importance of investing in innovation during downturns. The report states, "Companies that pursue growth even during downturns consistently outperform their peers."
The link between innovation and resilience is supported by additional research. A study published in the Journal of Business Research found that companies with strong innovation capabilities were 35% more likely to successfully navigate economic downturns and emerge stronger on the other side.
Another article by the some of the same McKinsey authors (I’ve had the privilege to work with Matt!) dove deep into this topic.
Since the start of the Great Recession in 2008, North American and European companies that controlled operating costs while also prioritizing revenue growth have delivered far more value to shareholders than their industry peers.
And Yes, We’ve Got Many Case Studies on How Futures Helps with Accelerating Growth
The Futures approach for innovation is not just numbers on paper, but immensely effective in practice.
Here is a case study that demonstrates how trend research, uncertainty analysis, and scenario building led to the ideas and development of strong business concepts in a highly risky scenario for an EV player to weather the storm of massive external factors.
Another one shared recently, on how Futures, especially with an emphasis on future-forward consumer/customer insights helped a CPG (haircare product) leader to successfully identify, size, and strategize on category growth opportunities to achieve 5% CAGR in such a saturated market.
More to be found at https://www.tbdfutures.com/case-studies. Let me know if you would like to know more.
It can be more risky to lean into the headwinds and continue with business as usual, than to innovate outside the box, especially in times of increasing disruption and uncertainty. The McKinsey study, along with insights from other research proved that top-performing companies are those that dare to grow with innovation.
As we look to the future, it's clear that those who master the art of innovation-led growth will be best positioned to shape the industries of tomorrow.
I founded TBD Futures to help leaders become more future-aware, future-prepared, and future-active. Would you like to know more?