The pandemic has driven more companies to push innovation to the top of the priority list and change the way they set their companies’ goals and processes.
The latest innovation survey from Boston Consulting Group (BCG) shows a 10-percentage-point increase to 75% in companies citing innovation as a top-three priority – the largest year-over-year increase in the 15-year history of the report.
Companies are also committing more resources to support their intentions. In 2021, more than 60% plan to increase investment in innovation, and one-third of those plan to boost spending by more than 10%, a level similar to 2020.
But according to BCG’s latest report, “Most Innovative Companies 2021: Overcoming the Innovation Readiness Gap”, only about 20% of companies have built the high-performing innovation systems necessary to transform ambitious aspirations into real results.
There are wide ranges in preparedness among industries, too, with some showing large gaps in innovation readiness.
Companies that are both committed (they back priorities with investment) and ready (they have the necessary platforms and practices in place) are up to four times as likely as those that aren’t to outperform their peers in gaining revenues from new products, services, and business models.
“CEOs are ramping up their companies’ efforts and investment, recognising that innovation’s power to boost resilience and drive advantage is more important than ever,” says report co-author Justin Manly, a BCG MD and partner.
“We see a risk, however, that their hopes will not be realised because their companies are not ready. The good news is that most can radically improve their readiness with a few targeted changes in strategy, operating model design, and organisational capabilities.”
This year’s ranking of the 50 most innovative companies (see the list below) underscores the power of commitment and readiness. In addition to 33 holdovers from last year, the 2021 list contains 12 companies that have returned to the top 50 after an absence of at least one year, and five firms that are new to the rankings.
According to BCG, the 50 most innovative companies are Apple, Alphabet, Amazon, Microsoft, Tesla, Samsung, IBM, Huawei, Sony, Pfizer, Siemens, LG, Facebook, Alibaba, Oracle, Dell, Cisco, Target, HP, Johnson & Johnson, Toyota, Salesforce, Walmart, Nike, Lenovo, Tencent, Procter & Gamble, Coca-Cola, Abbott Labs, Bosch, Xiaomi, IKEA, Fast Retailing, Adidas, Merck & Co, Novartis, Ebay, PepsiCo, Hyundai, SAP, Inditex, Moderna, Philips, Disney, Mitsubishi, Comcast, GE, Roche, AstraZeneca and Bayer.
Differences in readiness also show up in performance, as demonstrated by the shareholder returns that members of BCG’s previous 50 most innovative companies rankings have generated.
The pre-pandemic top 50 from 2020 outperformed the MSCI World Index by a staggering 17 percentage points over the past year; and even if you remove the high-flying tech giants from the calculations, top innovators still beat the index by 13 percentage points.
Two big issues in innovation readiness are executive leadership and a disconnect between product-facing teams (often in R&D or product development) and customer-facing teams (often in business development, marketing, or sales). Innovation has long been a priority for many CEOs, and BCG’s data shows that C-suite-level engagement matters: among companies that outperform their peers on innovation outcomes (as measured by the share of sales from new products and services), close to 90% demonstrate clear C-suite-level ownership, compared with only 20% of underperformers.
“Our research shows that executive teams at innovation leaders engage in the process far beyond merely setting the agenda and holding people accountable,” says report co-author Ramón Baeza, a BCG MD and senior partner. “They also elevate customer insight, actively manage the portfolio, and personally engage with innovation teams. A strategy-led, CEO-driven, data-informed innovation culture is central to putting the five key pieces in place.”
BCG research also suggests that the disconnect between product-facing and customer-facing teams is the primary obstacle to innovation success. Almost a third of companies in the 2021 survey cited less-than-optimal collaboration between their R&D and sales teams as their biggest barrier to higher innovation output.
“Leading companies deploy an array of solutions to bridge the product development–sales divide and build momentum for more disruptive innovation,” says report co-author Konstantinos Apostolatos, a BCG MD and senior. “These efforts range from the strategic, such as using M&A to fill capability gaps, to the day-to-day—setting up small teams with end-to-end ownership from strategy to ideation to market launch, for example. Leaders also ask the question: ‘What share of our revenue did we gain from new products, digital services, or business models?’.”
Companies in the top 50 tend to exhibit higher gender and ethnic diversity in their leadership: Microsoft, Alibaba, Cisco, Philips, and Novartis, for example. “There’s this big chicken-and-egg question when it comes to diversity and innovation: which comes first?” says report co-author Johann Harnoss, a BCG associate director. “We tried to put this question to rest, using the unique data we have going back to 2005. We see clear evidence that diversity drives innovation, and not so much that innovation attracts more diversity.”