BCG’s 2020 Most Innovative Companies Report Shows That Successful Innovators Produced Superior Shareholder Returns from the Great Recession to the Current Crisis, but Few Firms Manage Serial Innovation Success
DUBAI, June 22, 2020—For global businesses, a focus on innovation drives outperformance, and serial innovation success drives outperformance over time. In the years following the financial crisis of 2008–2009, the publicly traded members of Boston Consulting Group’s 2007 ranking of the 50 Most Innovative Companies outperformed the broader market on shareholder return by 5.6% a year through the end of 2019. But even the most innovative companies have a hard time staying that way—only eight companies have made the top 50 list in each of the 14 years BCG has compiled the ranking.
BCG’s latest report—The Most Innovative Companies 2020: The Serial Innovation Imperative—concentrates on what it takes to outperform over the long term. The report finds that doing so successfully requires developing a clear innovation strategy and supporting it with appropriate investment, leveraging the advantages of scale, and ensuring that the company’s innovation system is nimble enough to spot and seize the best opportunities quickly and decisively—whether in their own industry or an adjacent or distant one.
According to BCG’s findings, 63 percent of prominent MEA executives consider innovation a priority, both immediately and moving forward. Despite the worldwide economic decline due to the COVID-19 pandemic, the region has the opportunity to position itself strongly and competitively among other markets.
“Chemicals, consumer goods, and durable goods are the three main areas where innovation is pursued across the MEA,” said Rami Rafih, managing director and partner, BCG Middle East. “Although the business landscape is volatile at present, we have found that a considerable number of executives in the region are eager to innovate. With a persistent commitment in this direction, the regional portfolio of best practices can be further enhanced through prudent application – creating simultaneous value and profitability.”
BCG conducted the research for the 2020 report before the outbreak of COVID-19. Nonetheless this year’s core findings—which highlight the advantages of scale and the imperative for serial innovation—are highly relevant today as innovation leaders need to adapt to rapidly shifting patterns of supply, demand, consumer behavior, and ways of doing business. BCG’s research draws on the firm’s annual survey of more than 2,500 global executives on innovation trends and its global innovation performance database of more than 1,000 firms.
Boundary Busters
This year’s report reveals a new and surprising pattern: compared with 2015, significantly more respondents named companies traditionally associated with a different industry as a leading innovator in their own industry, such as Amazon in health care or Alibaba in financial services.
Some companies have always been boundary busting (3M is a leading example), but in a world where every industry is becoming a technology industry to some degree, this kind of innovation is an increasingly important capability. There is already significantly more cross-industry activity compared with 2016—an increase of 20%. Software and services companies are the ones most frequently cited as entering other sectors, but automakers, chemical companies, retailers, and industrial manufacturers are also playing more often in other companies’ sandboxes as they see opportunities for new technology-enabled business models and revenue streams outside their own core businesses.
The data suggests that successful self-disruptors earned an annual premium in shareholder return of 2.7 percentage points from 2016 to 2019 over companies that focused solely on defending their own turf.
A Bigger Bang for the Buck
Size is often seen as an impediment to successful innovation, but more than 40% of the big companies (defined as $1 billion or more in revenue) in BCG’s 2020 sample overcome the two most oft-cited obstacles: a lack of discipline in resource allocation and the difficulty of uniting the organization behind the innovation strategy. These companies manage to generate a larger percentage of sales from products or services launched within the past three years than their industry median.
This compares with on average 50% of the smaller firms surveyed. While smaller companies are somewhat more likely to outperform the large firms, the difference is small in magnitude and not statistically significant.
Large innovators that outperform their big-company peers also put more money behind their innovation programs—1.4 times more as a percentage of sales—and they get far greater payoffs: four times as much as a percentage of sales.
“The most successful large innovators take a page from the instruction manual of serial acquirers and systematize their success factors,” said Matthias Kruehler, a BCG managing director and partner and a report coauthor. “Just as serial acquirers integrate the discipline of effective M&A into their management systems, serial innovators understand that success depends on all facets of innovation working together toward a common goal—generating a continuing series of new products or services that make an impact in the marketplace.”
A copy of the report can be downloaded here.
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