Rethinking the innovation equation - KPMG Global
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Rethinking the innovation equation

Rethinking the innovation equation

Rethinking the innovation equation

Steve Hill | Leadership,

From adopting emerging technologies like blockchain and artificial intelligence to expanding into new markets, leaders are constantly tasked with making smart bets. In our fourth Global CEO Outlook, we heard from CEOs about their biggest opportunities and challenges, including the need to grow their businesses through thoughtful innovation investments. 

But the calculus around innovation investments has changed – and rethinking conventional wisdom on planning and evaluating investments can help increase the chances of success. A few thoughts:

Play the long game. Pursuing new technologies may not pay off in the short term. The financial returns on significant, transformational investments can take more than five years, if you see any at all. Especially when the goals are ambitious – like entering a new market or a tapping new business model – patience is key. Extend the timeline for evaluating financial results from your innovation investments.

But this approach conflicts with traditional wisdom and can pin forward-thinking leaders against certain stakeholders. In our survey, half of the CEOs (51 percent) said their board members have unreasonable expectations of returns on digital transformation investments. Managing stakeholder expectations on time horizon is key.

Redefine ROI. Financial return is no longer the only metric for investment success. Aside from immediate revenue gains, investments can generate significant value in other ways. This can even include qualitative indicators, like improved brand reputation and relevance or customer loyalty. Success can also be viewed through the lens of employee recruitment and retention – top talent is increasingly looking to work on cutting edge initiatives at innovative organizations. 

Act with agility. Our world is dynamic, and the cycles of technological change are much faster. This makes agility more important than ever. In our survey, over half of the CEOs (59 percent) said that acting with agility is the new currency of business.

Investment strategy is no exception. Avoid waiting for the annual budget process to recalibrate strategy or evaluate a new investment possibility. Throughout the year, consider allocating ‘seed funding’ – or a small pool of resources for a short research sprint. This gives you the flexibility to explore new opportunities and vet projects before committing to larger investments. Seed funding can also help you understand a new technology or space in a matter of weeks or months. Experimentation and fast iteration are crucial. 

Also, rethink traditional program oversight. Creative output is not always linear and sticking to a conventional, highly structured project management approach can stifle true innovation progress. 

Trust your intuition. Quality data is crucial for decision-making but overreliance on data can lead you down the wrong path. Data only tells part of the story, and your intuition should also help guide strategic decisions. We heard the same thing from the CEOs in our survey. 67 percent said they have overlooked data-driven insights when it contradicted their own experience or intuition. 

Car racing provides a good analogy. As a driver, technical data — brake pressure, angles of steering input – is at your fingertips. But sometimes, your experience and gut kicks in and if necessary, overrides all other inputs. The same is true for investments. Perform the data analysis and use it as an input for strategic decisions, but also trust your gut.