Innovation Habits of High-Growth Companies

Shortly ago, I came across a worthwile new report from Wellspring , titled: The 2021 R&D and Innovation Agenda: The Innovation Habits of High-Growth Companies. It addresses the central questions:

• Can large firms innovate?
• And if so, do high-growth companies innovate differently than others?

Wellspring analyzed quantitative survey data from 300 R&D and Innovation leaders at US- and UK-based $1B+ firms across industry classes. Based on the data, they predicted which innovation behaviors correlate with top-tier financial performance at the firm level. As a result, the study identifies a set of innovation practices that are highly correlated with exceptional revenue growth compared to industry peers.

In the following, three of them are going to be highlighted, as they particularly support and underscore foundational Dual Innovation principles, advocated by me in my work with large companies. I recommend reading the entire report to gain insight into the remaining innovation behaviors.

Habit 1: High-growth companies invest in the future by placing strategic bets that reach beyond the present core business scope.

Growth outperformers direct nearly two-thirds of their innovation efforts toward adjacent and breakthrough opportunities - a marked difference from the conventional and widely propagated 'golden' 70:20:10 ratio.

Do high-growth companies invest in exploratory activities because they draw on available resources and earned trust to do so? The report makes clear: this reverse causality hypothesis does not appear to be a decisive factor. Instead, high-growth firms attain a leadership position by prioritizing strategic innovation programs. In other words, companies need not achieve industry leadership status first in order to innovate more broadly later on.

Bottom line: These findings suggest a clear relation between growth performance and investment intensity into mid- and long-term opportunities. Companies aiming to stay future-proof better adjust their innovation portfolios accordingly and build up their exploratory capabilities.

Habit 2: High-growth companies have a dedicated Corporate Ventures Group that can accomodate, fund and/or acquire high-impact innovation assets, such as internal ventures, startups or external technologies.

In order to make those corporate venturing spaces successful, they are well-aligned with the corporate long-term strategy and defined by a focus on generating forward-looking growth options - rather than just providing a direct return on investment or generating positive press for the company. Their goal is to incubate promising technologies and business models. Sometimes internal build-up, equity investment or outright acquisition might be the right play, other times a partnership or even an informal relationship seems the best vehicle.?In an ideal scenario, innovation and R&D teams play crucial and complementary roles: the R&D focuses on discovering and developing next-gen technologies. The innovation team’s mission is to coordinate pipeline activities globally through the full lifecycle.

Bottom line: Future-proofing a company calls for a dedicated corporate space and environment where exploratory initiatives can be effectively moved forward - endowed with sufficient leeway in decision making, at arm's length to and on eye level with the business groups. The identified Corporate Ventures Group seems to come close to what we call an Exploration Unit .

Habit 3: High-growth companies have a Chief Innovation Officer (CINO) or a similar executive-level innovation leader in place.

According to the findings, this is the only form of corporate innovation governance that positively correlates with high-growth companies. And even for those high-performing companies that orchestrate innovation primarily through other means - for example, a senior executive steering committee - they tend to exhibit the same key behaviors as those with a CINO at the helm. There must be a persistent senior-level leadership presence that is focused on driving a coherent innovation strategy and portfolio across the company, from conception through launch.

It’s not a coincidence that more than one-third of breakaway-growth companies have had a CINO in place for two years or more - and that this trait was highly correlated with high-growth firms. Although the corporate innovation function may get involved in short-term project wins, its unique mission centers on coordinating broader, cross-disciplinary innovation programs likely to otherwise fall through the cracks. Not only does it take time for these bets to generate concrete returns, but the CINO must also develop new structures for cross-functional collaboration, often overcoming organizational inertia in which the relevant teams had been accustomed to operating in silos, says the report.

Bottom line: The question whether large companies should put a CINO in place has been a longstanding one. Certainly, there is no one-size-fits-all solution and an optimal innovation governance scheme is highly company-specific. Yet, the data suggest creating a role for centrally orchestrating and harmonizing company-wide innovation activities has its merit and literally pays off (on average). In a Dual Innovation context, one major area of responsibility of such an innovation executive would be heading the aforementioned Exploration Unit.

Takeaway

The Wellspring report unveils that high-growth companies exhibit consistent innovation habits, the three above-mentioned ones of which encompass crucial management dimensions:

• Strategy/Portfolio: High investment in exploratory and non-incremental innovation endeavors (Don't play it safe!).
• Organization/Structure: Setup of a dedicated corporate innovation space (incl. appropriate underlying management system) where exploratory initiatives can be effectively accomodated, incubated and scaled without interference of the running business.
• Governance/Leadership: Appointment of a senior leader being in charge of non-incremental innovation activities across the organization - (ideally) acting on eye level with the business executives in the company.

My advice: Even though companies are highly individual, those that seek to become or stay future-proof better consider emulating these three organizational innovation hallmarks!