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Innovating for Global Growth

Seven Takeaways from the 2016 European Strategy Leadership Summit

May 6, 2016

About 100 senior Euro 500 executives from 20 countries, representing a wide range of industries, convened in Venice on April 28 and 29 for BCG's seventh European Strategy Leadership Summit. This year, with companies facing the twin challenges of an uncertain global economic environment and continuing digital disruption, the theme of the gathering was "Innovating for Growth: From Emerging to Mature Markets." The sense that emerged was that while growth is now harder to achieve, it’s not impossible. Benetton CEO Marco Airoldi provided a case in point, describing his team’s efforts to reignite growth for the storied retailer. Finding good growth just requires thoughtfulness, more innovative approaches, and discipline. Here are seven takeaways from the various sessions.

1. Growth requires an exploratory mindset. Keynote speaker Knut Haanæs of BCG, building on his recent TED talk, encouraged the group to avoid the “success trap,” the tendency of executives to prioritize exploitation of known options over exploration of new ones. Haanæs, the former global leader of BCG’s Strategy practice and coauthor of Your Strategy Needs a Strategy, noted that a growing number of companies are at risk. He shared data showing that for a sample of 2,500 large companies, the median present value of growth opportunities as a percentage of share price declined by 16 percentage points between 1998 and 2014. A focus on efficiency and productivity is good, he argued, but excessive exploitation incurs a real cost: over successive ten-year periods, “explorers”—companies that struck a proper balance between exploitation and exploration—outperformed “exploiters” by 3.9 percentage points on sales growth and 2.1 percentage points on total shareholder return.

2.  Remember “2, 20, 80, 150.” Your best customers may be your best source of growth—so argued BCG’s Michael Silverstein, coauthor of Rocket: Eight Lessons to Secure Infinite Growth. He shared a rule of thumb: “2% of your customers directly contribute 20% of your sales, propel 80% of total volume by their recommendations—and deliver 150% of your profitability by buying without discounts.” These customers, a company’s “apostles,” drive its future—but few companies treat them with the respect they deserve. Silverstein exhorted participants to “wrap them in love” and to shape product plans, new offers, and business model changes around their needs.

3. The most successful innovators are investing to become faster, leaner, and more digital—and are expanding their focus beyond the core. According to BCG’s Most Innovative Companies 2015 report, 79% of global innovation executives say that innovation is a top-three priority for their companies. Andrew Taylor, a coauthor of the report and BCG’s global leader for innovation strategy, shared four ways that top innovators are adapting their innovation strategies and processes in response to today’s rapidly changing environment. Overall, top innovators seem to be heeding Haanæs’ call to strike a better balance between exploitation and exploration. These companies focus, first, on speed in order to keep pace with shifting markets—and, second, on lean processes to both drive speed and conserve resources. Together, speed and lean foster a shift toward a more nimble, “test and learn” innovation culture. Third, leading innovators are embracing digital tools and big data, incorporating them not only into the innovation process but also into new products and services. And finally, they are targeting adjacent growth opportunities with new processes that protect adjacent exploration from the exploitation of the core.

4. Emerging markets remain an essential source of growth, but capturing that growth is more challenging. While the era of easy growth may have passed, winning in emerging markets is still a requirement for any company seeking to achieve, maintain, or extend its global leadership. Different markets call for different approaches. Regarding China, BCG’s Jeff Walters argued that consumption remains the strongest engine of growth and that a segmented, multichannel approach will be essential. China's younger generation, for example, has very different needs and habits from those of the generation that preceded it, just as the needs and habits of its upper classes differ from those of its middle and lower classes. Africa remains a frontier with huge opportunity for growth but unfamiliar rules. According to Patrick Dupoux, who leads BCG’s Casablanca office, it’s still early in the game, so both multinationals and the Africa-based companies with which they compete have opportunities to develop dominant positions. For all the outward signs that Africa is rising—the modern buildings, the technology, the services—the real economic story involves things that are happening but that are less visible: an increase in political stability and in the ease of doing business, a much higher percentage of educated workers, and, above all, a growing number of people with disposable income and the desire to progress. And across all emerging markets, digital channels are critical. According to BCG senior advisor David Michael, emerging markets were home to 1.6 billion Internet users in 2015—of whom 500 million had made at least one online purchase. Winning over these customers requires embracing mobile, navigating the local digital ecosystem, and focusing not just on online sales but on digital influence. The example of India is illuminating (see From Buzz to Bucks: Capitalizing on India’s ‘Digitally Influenced’ Consumers, BCG Focus, April 2013).

5. Multinational companies need to develop strategies to counter increasingly potent emerging-market rivals. Both the strength and the number of emerging-market-based companies is increasing. According to David Michael, these “global challengers” combine audacious aspirations for global leadership with decisive action. Michael, a longtime coauthor of BCG’s annual Global Challengers report, commented that a decade ago it was difficult to identify 100 such companies. Today, by contrast, it is hard to narrow the list down to 100. In his view, multinationals are making a grave mistake if they fail to assess these rivals and devise plans to respond to the threat they represent. A recent BCG report, Transformation in Emerging Markets: From Growth to Competitiveness, offers some pointers.

6. There is more than one way to map demand. BCG’s Guillaume Charlin described how leading companies are unlocking new sources of growth by looking at demand in more sophisticated ways. Traditional lenses such as demographics increasingly fall short—they don’t do a good job of uncovering the real needs of customers. After all, the same customer might want something radically different from a product depending on the situation. Is he alone or with friends? Is she on the go or relaxing? Charlin described BCG’s demand-centric growth methodology, which combines extensive survey data with cutting-edge analytics to reveal distinct and actionable “demand spaces,” and he told stories of how companies are leveraging these insights to rethink investments across their product portfolio, reigniting growth.

7. Advanced analytics and machine learning will play an increasingly important role in innovation. BCG Fellow Philipp Gerbert, a coleader of BCG’s Strategy practice in Europe, discussed several key technology-driven shifts that will affect how companies need to approach innovation and growth strategies. Algorithms, not real-world processes, will increasingly be the source of a company’s insight and speed-related edge. The rise of “digital twins”—virtual representations of products, people, and businesses, with which innovators can experiment—are a case in point. Also, learning will increasingly be more important than knowledge. As a consequence, harnessing machine learning as a critical element of innovation strategy will make an important contribution to competitiveness. Gerbert argued that the best results require a systematic optimization of the collaboration between man and machine, with people engaging with, interpreting, and shaping machine inquiry.

Innovating for Global Growth
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