Staying Ahead of the Curve: Why CEOs need to embrace innovation to stay relevant

By Jeff Wray, Global EY-Parthenon Leader

In today's rapidly evolving business landscape, innovation isn't just a buzzword; it's a critical necessity for survival and success. Industries are constantly being disrupted by technological advancements, changing consumer preferences, and emerging market trends.

And this is within a shifting competitive landscape, with accelerating technology innovation, including embedding AI across the organization, and the continuing need to become a more sustainable business to attract and retain customers.

In 2022, the top 100 innovation leaders collectively invested US$720b, an increase of 15.3% from 2021. Compared to the pre-pandemic year of 2019, this latest annual research and development (R&D) expenditure figure was almost 40% higher.

The latest Global Investment Index says that “Rapid advances in biomedicine, energy and information and communication technology (ICT) have the potential to significantly transform every aspect of the economy, leading some experts to predict that the world might, after all, be on the cusp of a new innovation-driven era of high productivity growth.”

To remain competitive and relevant, CEOs and companies must proactively stay ahead of innovation trends in their respective sectors. This entails more than simply adopting new technologies; it requires a strategic approach that aligns capital allocation, innovation investments, the operating model and ecosystem partners with the overall business strategy.

Innovation is the driving force behind growth and sustainability. CEOs who understand this reality recognize that failing to adapt and innovate can lead to stagnation and eventual decline. Embracing innovation trends allows companies to remain agile, responsive to market changes, and better equipped to seize new opportunities.

But with so many avenues of innovation happening everywhere all at once, how should CEOs decide where they should allocate their finite research budgets? It will not be efficient or effective to just jump on the latest technology that’s grabbing headlines, as the early enthusiasm may not lead to real change or create significant value. While recent technologies such as blockchain and the metaverse may not have driven as much short-term business impact as initially expected, the buzz around generative AI (GenAI) is coupled with examples of real impact in a very short period and raises expectations about short- and long-term impacts of this new technology. ?

Across all sectors we are seeing upcycle of innovation, from battery advances in mobility, new drug discovery technologies in life sciences, more sophisticated robotics, accelerations in new energy sources, and welcome improvements in agritech.?

How can a company place the right investments again such wide range of quickly evolving opportunities?? Effectively allocating capital and R&D resources is a cornerstone of successful innovation. CEOs must ensure that the investment decisions of the company are in line with its long-term strategic goals.

First, CEOs should stay well-informed about the latest trends and innovations, both in their industry and in their existing ecosystem, and in those sectors beginning to impact their industry. More and more we see industry reinventions coming out of leftfield, whether from adjacent sectors, technology fueled startups, or academia. An in-depth understanding of what's happening in the market, especially at the cutting edge, is essential and requires different approaches to early-stage R&D involving a broader range of ecosystem partners.

In addition to evaluating the potential market impact of each innovation initiative (market size, growth potential, competitive landscape, potential disruption), CEOs also need to assess the technical feasibility of each innovation project. In a still tight labor market, where the most in-demand capabilities are scarce, the skills and resources required, and the company's existing capabilities should be a major consideration. In this environment, pursuing initiatives that are too technically challenging or beyond the company's current capabilities will require a different solution, either a joint-venture or a partnership. Successful innovation programs in the future are more likely to be done within strong ecosystems and innovative business models.

Interestingly, the answer to some of these questions may be the application of emerging technologies to understand what innovations to allocate resources to. According to EY latest CEO Outlook Pulse Survey, CEOs are already incorporating GenAI into their M&A process, often by partnering with their advisors who are leading on the development of these platform. We will likely see these systems being embedded in corporate strategy and corporate development teams.

While it's important to address short-term industry changes, CEOs should also keep the long-term vision in mind. Some innovation initiatives may be geared toward positioning the company for success in the future, even if they don't have an immediate impact.

Ultimately, the decision-making process for innovation initiatives should be a well-informed and strategic one. CEOs should balance the need for short-term competitiveness with the pursuit of innovations that will ensure the company's long-term viability and relevance in a changing industry.

There are three approaches that CEOs should embrace to stay ahead of the innovation curve:

Develop an innovation-centric culture: CEOs should foster a culture that encourages experimentation, creative thinking, and a willingness to embrace change – both within and outside of the company. Employees at all levels should be empowered to contribute their ideas, and the company should create platforms for cross-functional collaboration. This culture shift can lead to breakthrough innovations that might otherwise go unnoticed.

Establish dedicated innovation teams: To effectively keep up with industry trends, companies should establish, fund and give a clear mandate to innovation teams. These teams can be responsible for researching emerging technologies, monitoring market shifts, developing ecosystems partners and developing strategies to incorporate these trends into the company's offerings. Allocating resources to these teams ensures that innovation remains a core focus and isn't overshadowed by day-to-day operations.

Leverage strategic partnerships and ecosystems: CEOs should actively seek out partnerships with startups, research institutions, and other industry players. Collaborating with external entities can provide fresh perspectives, access to cutting-edge research, and opportunities for co-creation. By tapping into a broader ecosystem, companies can accelerate their innovation efforts and stay at the forefront of industry trends.

Embracing innovation isn't just a choice; it's a necessity for survival and success. To achieve this, CEOs must align capital allocation and R&D spending with their overall business strategy, ensuring that resources are directed towards initiatives that drive growth and maintain a competitive edge.

By fostering an innovation-centric culture, establishing dedicated teams, and leveraging strategic partnerships, CEOs can position their companies to thrive in an ever-evolving business landscape. As the pace of technological change continues to accelerate, those who heed the call of innovation will undoubtedly reap the rewards of their foresight and adaptability.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.