Innovation is the systematic practice of developing and marketing breakthrough products and services for adoption by customers.
(From https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-innovation)
Innovation
When you think of innovation, what springs to mind? Maybe it's a flashy new gadget—but don't be mistaken. There's much more to the world of innovation, which extends far beyond new products and things you'll find on a store shelf.
If products alone aren't the full story, what is innovation? In a business context, innovation is the ability to conceive, develop, deliver, and scale new products, services, processes, and business models for customers.
Successful innovation delivers net new growth that is substantial. As McKinsey senior partner Laura Furstenthal notes in an episode of the Inside the Strategy Room podcast, However you measure it, innovation has to increase value and drive growth.
What are examples of successful innovators?
Real-world examples of successful innovation, related to some of the eight essentials listed, can highlight the benefits of pursuing innovation systematically:
- Mercedes-Benz Group invested extensively in digitizing its product development system. That allowed the company to shorten its innovation cycles significantly, and its capabilities for personalizing cars have improved, even as assembly efficiency rose by 25 percent.
- Gavi, a public–private partnership founded to save children's lives and protect their health by broadening access to immunization, used nonfinancial targets to help drive its innovation efforts—and this helped the organization broaden its aspiration for impact in a way that was bold, specific, measurable, and time bound.
- Lantmännen, a large Nordic agricultural cooperative, faced flat organic growth. Leadership created a vision and strategic plan connected to financial targets cascaded down to business units and product groups. Doing so allowed the organization to move from 4 percent annual growth to 13 percent, on the back of successfully launching several new brands.
- The information services organization RELX Group brought discipline to choosing its innovation portfolio by running ten to 15 experiments in each customer segment in its pipeline every year. It selects one or two of the most successful ideas from the portfolio to continue.
- International insurance company Discovery Group mobilized the organization around innovation by creating incentives for a thousand of the company's leaders using semiannual divisional scorecards. Innovation isn't a choice; it's a requirement and a part of the organization's culture.
These examples aren't necessarily what you may think of when you imagine disruptive innovation—which calls to mind moves that shake up an entire industry, and might be more associated with top tech trends such as the Bio Revolution. Yet these examples show how committing to innovation can make a sizable difference.