Maximizing Growth Through Innovation

Executives view innovation as their companies’ primary source of competitive advantage for delivering growth. However, in many sectors, that belief doesn’t align with companies’ spending on innovation or the returns they get on those investments, the latest McKinsey Global Survey on innovation finds.

During times of economic volatility, business leaders tend to focus on short-term profitability, often putting longer-term projects designed to spur growth on the back burner. Yet as our long-standing research shows, companies that take a through-cycle approach to investing in growth and innovation consistently outperform their peers.

In fact, innovation can be a solution to weathering uncertainty. When it’s unclear, as it is today, what the “next normal” will look like, organizations that seek ways to adapt their business models or processes and develop pathways for future growth can gain a competitive edge that often lasts through the recovery. In short, companies can’t afford to wait until the world is calmer before investing in growth—especially since the duration of current volatility is impossible to predict. Instead, they should adapt their short-term decisions to the shifting conditions while striving to maintain a portfolio of investments that will fuel their long-term success.

Rising expectations for getting more from less

In late 2024, we surveyed 1,017 executives across industries and regions to understand how they are approaching their innovation investments. The responses clearly indicate that companies are looking to generate higher returns on innovation spending without increasing budgets. Nearly 60 percent of respondents say they are either freezing or cutting their spending on innovation. Another 30 percent are holding funding for innovation flat.

Notably, top economic performers are 61 percent more likely than others to increase their innovation investments. Additionally, some industries—including healthcare and pharmaceuticals, consumer goods, and technology—show higher willingness to invest in innovation.

FAQ

Q: How can companies maximize growth through innovation?

A: Companies can maximize growth through innovation by aligning their innovation spending with strategic objectives, encouraging risk-taking, and conducting a detailed assessment of their innovation portfolio.

Conclusion

In conclusion, investing in innovation is crucial for companies to maintain a competitive edge and drive long-term growth. By strategically allocating resources, encouraging a culture of innovation, and continuously evaluating and optimizing their innovation portfolios, companies can navigate through economic volatility and emerge stronger. Innovation is not just about creating new products or services; it’s about shaping the future of the business landscape.