Dive Brief:
- Companies that outshine their peers in both innovation and growth achieved higher profitability and superior total shareholder return from 2012 until 2022, McKinsey said, describing the companies’ common strategies for outperformance.
- Among 650 large companies worldwide, 53 showed both outstanding growth and innovation, surpassing rivals among Global 2000 companies in median excess annual shareholder return by 11 percentage points, McKinsey said in a report. Two-thirds of the “innovative growers” ranked in the top quintile in profitability among Global 2000 companies.
- “Innovation remains a must-have, not just a nice-to-have,” according to McKinsey. “Making a conscious choice to grow and supporting that choice with the right mindsets, development pathways and capabilities can yield superior shareholder returns.”
Dive Insight:
More than eight of out 10 CEOs (84%) believe that innovation is essential for growth, according to McKinsey. Yet only 6% of the top executives voiced satisfaction with their companies’ innovation performance.
Companies deemed by McKinsey to be innovative growers each follow four guidelines:
1. Put innovation at the core of strategic and financial discussions.
During quarterly earnings calls, innovative growers discuss innovation twice as much as their peers and link creativity to profitable and sustainable growth, McKinsey said.
The companies also nurture among employees an innovative mindset and seek to dispel creativity-killing fear of failure, criticism and career setback.
To motivate staff and investors, innovative growers share success stories and updates on progress, McKinsey said.
The companies more often express a commitment to investing in talent and digital capabilities, and are almost three times more likely than their lesser peers to cast their efforts as “transformation.”
2. Pursue multiple paths to growth.
Innovative growth companies generate superior revenue growth when expanding into adjacent industries, geographies or customer segments, McKinsey said.
Compared with their lesser peers, the companies generate at least twice the revenue growth when diversifying into adjacent segments and achieve advantages in customer relations, the value chain or business model innovation, according to McKinsey.
For example, after purchasing Pillsbury in 2001, General Mills cut its purchasing, manufacturing and distribution costs while boosting its operating profit by about 70%, McKinsey said.
3. Invest in a full range of innovation capabilities
Innovation growers channel capital effectively into resourcing, operational agility, and research and development, generating more than 5 percentage points of additional excess gross profit margin compared with other Global 2000 firms, McKinsey said.
The companies on average secured at least 100 more patents than their lesser peers, according to McKinsey.
“In fact, over the past two decades, innovative growers were awarded three times as many strong patents compared with industry peers,” McKinsey said. “The presence of strong patents often indicates higher value creation potential.
4. Cultivate robust deal-making capabilities
Compared with their peers, innovative growth companies complete three times more mergers and acquisitions focused on digital technologies, McKinsey said.
The companies define in advance their M&A goals, with C-suite executives sharing an understanding of the sort of deals they want to target, according to McKinsey. With such a consensus, the companies can quickly and decisively move when an M&A opportunity crops up.
Innovative growth companies show “a desire to acquire promising technical capabilities and intellectual property and a willingness to embrace new technologies and methods to stay ahead of the competition,” according to McKinsey.
