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Creating mature innovation processes

The pace of change in business continues to accelerate. Agility is essential to survival.

Agility is do-or-die

What bodes well for CEOs’ dedication to creating resilience is how decisively they embrace agility, which has emerged as a critical capability this year. Sixty-eight percent of U.S. CEOs believe that it is a do-or-die for business, that being too slow leads to irrelevance. It is a significant increase since last year, when just 14 percent of U.S. CEOs thought so.

“With new transformative business models and service offerings emerging to keep pace with the demands of connected consumers, companies must be more agile across their service offerings with innovation and investment decisions executed quickly,” says Carl Carande, Vice Chair, KPMG Advisory. “Agility can be achieved via strategic alliances and joint ventures to enable rapid technology disruption in fast evolving markets.”

agile or irrelevant

To stay ahead, Jeffrey Simmons, CEO of Elanco Animal Health focuses on leading indicators rather than lagging ones such as last quarter’s sales or costs. “I spend hours studying the execution and the details of our business from manufacturing, through our pipeline to our sales organization, with the focus on lead indicators,” he says. “I want to know: How many sales calls are currently going out, and what is their quality?”

The rate of change and its monitoring is just one of the variables of agility, which is about much more than speed and flexibility. Agility is not a characteristic of a company, but a capability that starts with reading and interpreting the signals of change, decision making about investing in a portfolio of new initiatives to create change, and democratizing innovation.

“Today, it’s essential for companies to have a sophisticated sensory capability that detects signals of change in all aspects of business including technology, regulatory, political and environmental. Companies that are able to elongate their lead time—even by a fraction—have an immediate advantage in a fast-paced world. By seeing around the corner, companies can calibrate their investment portfolios, attract and retool talent, and provide a better product,” according to P. Scott Ozanus, KPMG U.S. Deputy Chairman and COO.

“Agility requires maturity in the innovation process,” points out Mike Nolan, KPMG Vice Chair, Innovation & Enterprise Solutions. “Without a mature innovation process that includes prioritization, governance and funding vehicles, your ability to respond to new market disruption as part of normal business activity is difficult.”

Maturing innovation

A vast majority of U.S. CEOs (78 percent) believe that they have structures in place to review their business models and ensure they stay competitive in the face of disruption. However, few believe that their innovation processes are mature: Sixty-three percent agree that over the next three years they need to improve their innovation processes and execution, compared with 8 percent last year. This recognition of the need to improve innovation processes, coupled with their recognition that being too slow leads to irrelevance, proves that CEOs understand the importance of such processes for becoming and staying agile.

What does a mature innovation process look like? It is integrated, with funding and formal links to business units and strategy solidified, the innovation portfolio tied to corporate visions, and outcomes that are both tracked and realized. A mature innovation process is also optimized, making it repeatable, scalable and pervasive (i.e., “part of the corporate DNA”). Currently, just 17 percent of companies boast an integrated or optimized innovation process, according to Benchmarking Innovation Impact 2018.[1]

To stay agile today, I think we, as individuals and as a team, have got to be taking in information—being curious and reaching out and learning from people.

Doug McMillon
CEO
Walmart

With revenue of over $514 billion a year, pivoting a giant like Walmart to digital has required significant organizational agility. For President and CEO Doug McMillon that sort of agility is only possible if leaders are prepared to open their minds to new ideas and commit to a process of ongoing learning.

“To stay agile today, I think we, as individuals and as a team, have got to be taking in information—being curious and reaching out and learning from people,” he says. “Being a company the size of Walmart, it’s important that we become lifelong learners across the entire company. We have a lot of leaders in the company—around the world—but each one of us, individually, has got to be growing and learning every day.”

 

[1] Benchmarking Innovation Impact 2018; KPMG and IL Research