Managing Director & Senior Partner
This article is an excerpt from The Most Innovative Companies 2015: Four Factors that Differentiate Leaders (BCG report, December 2015).
Size can give you scale, but for innovation, speed is more critical,” says Rakesh Kapoor, CEO of Reckitt Benckiser, the breakthrough-innovator consumer products company that we profiled in BCG's 2014 report on the state of innovation at companies worldwide. Speed has long been seen as an important attribute of strong innovators. The results of the survey underpinning this year's report, as well as our recent work with clients, indicate that its importance is rising fast. (See Exhibit 1.) Speed enables companies to catch consumer trends as they emerge, leave competitors flat-footed, and even drive costs down and quality up.
In our 2015 survey, overly long development times were the most-cited obstacle to generating returns on innovation and product development; 42% of global innovation executives said development times are too long—a 6 percentage point increase over 2014. (See Exhibit 2.) The same frustration is shared by strong, average, and weak innovators in roughly equal measure, but there the similarities end.
Fast innovators are much more likely to also be strong innovators—42% compared with less than 10% of slow innovators. Fast innovators are more disruptive—27% versus 1.5%. They get new products to market quickly and generate more sales from them (at least 30% of revenue). This is true for 35% of fast innovators but for only 11% of slower ones.
One example is fashion retailer Zara, part of the Inditex Group, the world’s largest apparel seller. Zara lives by speed. The typical fashion retailer is organized around individual functions to gain scale and cost advantages; as a result, product development, manufacturing, and delivery take months. Zara gets new styles to market in two to four weeks. To do so, it uses a cross-functional, integrated organization to accelerate decision-making and eliminate delays in functional handoffs. Design, procurement, manufacturing, and delivery are all organized into teams that work closely with store managers to quicken responsiveness to shifting market trends. Team performance is assessed on the basis of common metrics and incentives that focus on go-to-market speed and rapid lead times. As the former CEO of Inditex, José Maria Castellano, puts it, “This business is all about reducing response time. In fashion, stock is like food. It goes bad quick.”
Increasing speed to market leads to numerous financial and nonfinancial benefits. Greater agility has the potential to boost a company’s top and bottom lines, and flexible and mobile consumers demand it. The financial benefits are often directly measurable and vastly exceed the up-front costs of introducing speed-to-market approaches to the organization. Some examples of the benefits of speed:
From an innovation perspective, there are two aspects to speed: the rate at which companies develop new products and services, and the rate at which they deliver those products and services to market. Some companies emphasize one or the other; for example, innovation leaders stress development and fast followers focus on delivery. That said, companies that have designed their systems, organizations, processes, and cultures for speed in either context tend to have four things in common: they apply lean processes, prototype and iterate, have dedicated innovation staff, and follow the right metrics.
Fast innovators have long demonstrated that shortening innovation and product development cycles and reducing time to market can be a powerful source of competitive advantage. But a growing emphasis on speed, even among companies that are already fast, suggests that a new realization is dawning: the demand for speed is itself increasing.