What the latest BCG report tells us about what leaders need to do to build innovation capability

Innovation has never been a higher priority for companies, yet most struggle to deliver on their aspirations. BCG's 2024 global innovation survey found that 83% of companies rank innovation as a top-3 priority. However, innovation readiness has plummeted, with just 3% of companies scoring in the "ready zone" on BCG's innovation maturity benchmark, down from 20% in 2022.

This disconnect between high aspirations and low readiness creates a troubling picture of "zombie" innovation organisations going through the motions without a clear strategic direction. To get back on track, I'd suggest leaders need to take action in two key areas:

1. Sharpen innovation strategy and align it with business strategy

2. Leverage generative AI to accelerate innovation

Sharpening Innovation Strategy

The survey found that over half of respondents cited an unclear or overly broad strategy as a top challenge for innovation. Yet only 30% reported plans to refresh their innovation strategy, with most focusing instead on efficiency and increasing project throughput. This misalignment between concerns and actions is a major issue.

Leaders must develop a sharp business strategy with superior strategic foresight to close the gap. This means looking across an uncertain landscape to separate signal from noise and create a perspective on future shifts in customer priorities, adjacent market opportunities, disruptive technologies, potential partnerships, and competitive moves.

With a clear business strategy as the foundation, leaders must infuse it throughout their innovation system. BCG has identified six best practices for linking innovation to strategy. All of which I agree with, but the first one I absolutely endorse as it makes up a significant part of the work I do with leaders around the world, so I know through experience that it's disproportionately important.

1. Senior executive ownership - Innovation championed by the CEO or other C-suite leaders - This is where the 'ODC' framework I use with senior teams worldwide shines. ODC stands for 'Own, Drive, Contribute' and centres on senior teams 'Owning' the innovation agenda.
2. Clarity on innovation's role - Shared story on how innovation supports strategic direction??
3. Focus on competitive advantage - Explicit focus on opportunities where the company has a right to win.
4. Specified domains—The innovation portfolio is centred on specific areas supporting the overall strategy—this is where a clear Innovation Thesis comes into play!
5. Target portfolio structure - Vision for how resources should be deployed across domains and time horizons
6. Quantified objectives - Concrete perspective on innovation's contribution to financial goals - this is where a clear focus on Innovation Accounting comes into play!

Companies that incorporated four or more of these practices outperformed the median percentage of sales from new products by five percentage points. Those embracing none underperformed by 5 points.

The report highlights several companies successfully linking strategy and innovation:

• Tata Group's executive chairman drives innovation from the top, focusing on accelerating India's development in areas like automotive and semiconductors—with clear objectives like EVs representing 30% of domestic vehicle sales by 2030.
• Novo Nordisk and Eli Lilly - Long-term commitments to diabetes innovation positioned them to capture leadership in anti-obesity medications.
• Aptiv - Rigorous portfolio management approach aligned to the vision of an electric, software-defined future of mobility.
• Nvidia - Stayed true to a passion for accelerated computing while remaining flexible on the best path, leading to AI chip leadership.

Leveraging Generative AI

The second key area leaders must focus on is embracing generative AI to accelerate innovation. The survey found that 86% of companies are at least experimenting with GenAI in their organisations. However, many need clarification on identifying and delivering the most attractive GenAI opportunities.

BCG recommends three broad value plays all companies should pursue with GenAI:

1. Deploy - Quick wins using off-the-shelf tools to boost productivity in narrow use cases
2. Reshape - Rethink critical internal functions through the GenAI lens to drive improvements??
3. Invent - Enable new products, services and business models

While "invent" represents the most significant long-term opportunity, "reshape" is typically a more accessible place to build transformational GenAI expertise. The report highlights ten ways leaders can reshape their innovation systems with GenAI across the innovation cycle.

Strategize phase:

• Test strategic assumptions - Use GenAI to bring external perspective and challenge core beliefs
• Identify/explore innovation domains - Connect dots to understand the shifting landscape of demand
• Develop ecosystem insights - Map competitors, complementors, and partnership opportunities

Create phase:??

• Generate new product/service ideas - Rapidly expanding universe of options in ideation
• Generate images, designs, models - Create realistic visualisations of potential new products
• Generate reports - Streamline creation of innovation-related content
• Challenge early ideas - Use as devil's advocate to strengthen concepts

Scale phase:

• Support personalised customer journeys - Leverage conversational skills for tailored outreach
• Develop e-commerce content - Speed creation of product launch materials??
• Support sales reps - Provide digital assistant to boost efficiency and effectiveness

The report provides examples of companies already leveraging these use cases:

• Nestlé using GenAI to analyse online/social trends
• Mattel quadrupling Hot Wheels concept images??
• Sanofi is cutting clinical trial report creation time by 40%
• L'Oréal developing AI beauty advisor and speeding e-commerce content creation

Key Actions for Leaders

To build innovation capability in this new landscape, leaders should take the following actions:

1. Develop superior strategic foresight capabilities to spot shifts in the external environment. Make this an ongoing discipline, not just an annual exercise.
2. Sharpen business strategy and ensure innovation strategy is tightly linked. Be clear on target customers, priority innovation domains, and how innovation will drive financial objectives.
3. Assess the current state of innovation readiness using a framework like BCG's Innovation-to-Impact benchmark to identify gaps across dimensions like ambition, governance, talent, and idea-to-impact process. Or our Innovation Maturity Assessment (AIM) to measure your current level of innovation capability and how embedded it is into organisational culture across five core dimensions; strategy, leadership, management, culture, and processes.
4. Develop a plan to close readiness gaps, focusing on infusing strategy throughout the innovation system. Embrace the six best practices for linking innovation to strategy.
5. Build GenAI expertise through focused experiments aligned to strategy. To gain experience, start with "deploy" and "reshape" use cases before moving to "invent."
6. Prioritise GenAI use cases that can accelerate innovation. Focus initial efforts on high-impact areas like testing assumptions, exploring domains, generating ideas, and supporting commercialisation.
7. Cultivate innovative talent and mindsets—Upskill existing teams on strategic foresight, GenAI, and other vital capabilities. Hire for complementary skills.
8. Create governance mechanisms to guide innovation activities and capital allocation. Ensure resources are focused on the most attractive domains aligned to strategy. This is where a clear approach to Innovation Accounting comes into play!?
9. Implement rigorous portfolio management. Regularly assess the health of the innovation pipeline and rebalance as needed across time horizons and risk levels. This is where our portfolio management tool ‘SATORI’ has proved invaluable to clients around the world!
10. Establish clear metrics and incentives linked to innovation strategy and objectives. Create accountability for delivering on innovation aspirations.

These actions allow leaders to reboot their innovation systems for the challenges ahead. In an era of rising interest rates, talent scarcity, and rapid technological change, having a sharp innovation strategy tightly linked to business strategy - and leveraging new tools like GenAI - will be critical to creating a sustainable competitive advantage.

The innovation imperative has never been stronger. However, with only 3% of companies genuinely ready to deliver, there's an immense opportunity for leaders who can close the gap between innovation aspirations and innovation readiness. Those who successfully build innovation capability aligned to strategy will be best positioned to drive growth and value creation in the years ahead.

If any of the above resonates with you, get in touch (@crisbeswick) to talk to us about how we can help you build a high-performing innovation system and embed innovation capability into your company culture.