Jun 3, 2020 — Exhibit 2 | The Top Innovation Priorities for Committed Innovators by Industry manual of serial acquirers and systematize.
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SUCCESSFUL INNOVATORS WALK THE TALK Committing to Innovation How Committed Innovators Are Placing Their Bets Innovation and Disruption IN INNOVATION, BIG IS BACK The Big Engines That Can More Bang for the Buck Overcoming Barriers Designing a Winning Innovation System WHEN IT COMES TO INNOVATION, ONCE IS NOT ENOUGH Systematizing Innovation Success Getting Started APPENDIXNOTE TO THE READER
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size, and skill are a powerful combination. Drive to set an ambitious agenda and fund promis – ing opportunities. Size to transform these opportunities into real sources of new reve- nue. And the skill, as embodied in a well- tuned innovation system, to be able to do it over and over again. And the world™s most innovative companies have been getting bigger. The revenue of a typical fismallfl company on BCG™s 2020 list of the 50 most innovative companies is $30 bil- constant dollars) in our first survey in 2005. But drive and size mean little if your innova -tion system can™t build on them for serial suc – cess. And here our research offers a more so -bering assessment. Serial innovation is hard. times or fewer. Only 8 companies have made the list every year: Alphabet, Amazon, Apple, HP, IBM, Microsoft, Samsung, and Toyota. edition of BCG™s Most Innovative Companies explored the data and interacted with clients, however, it became clear that this year™s core even more relevant today as innovation lead – ers need to adapt to rapidly shifting patterns of supply, demand, consumer behavior, and ways of doing business. Moreover, our research has shown that com -panies doubling down on innovation during outperform over the long term. But doing that successful – ly requires developing a clear innovation strategy and supporting it with appropriate investment, leveraging the advantages of scale, and ensuring that your innovation sys – tem is nimble enough to spot and seize the best opportunities quickly and decisively. As we explore these themes, we draw on our global innovation performance database of that make the best stand out from the rest. Innovation is a top-three management priori – ty for almost two-thirds of companies. This is the lowest level since the financial crisis in -tain economic outlook amid geopolitical ten – We can disaggregate our findings further. say that innovation is a top priority, and they support that commitment with significant
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the total) are the reverse, seeing innovation as neither a strategic priority nor a significant target of funding. And ficonfused innovatorsfl – match between the stated strategic impor -tance of innovation and their level of funding proportion of committed innovators in the Committed innovators are winning. Almost -portion of sales from products and services launched in the past three years, compared confused. The skeptics may or may not be – times neither strategically sound nor feasible they are consistent. The confused are a puz – zling lot with a worrying disconnect between strategy and innovation spending. And winners are more likely to be committed innovators, further evidence of the divide be – tween the best and the rest that we have dis – cussed in the past few innovation reports. In – tween strong and weak innovators with re – We also discovered that strong innovators were making increasing use of external inno -vation channels such as incubators and part – innovators have properly digitized innovation weak innovators. The relationship between commitment and results is the latest evidence – trum of innovation-related criteria. While many companies struggle to address multiple innovation challenges at once, com – mitted innovators prioritize a handful and as a result address them more effectively. They focus on advanced analytics, digital design, Companies may embrace these enablers for different reasons. Advanced analytics, for ex -ample, are a top priority for industrial goods companies that are seeking to develop new analytics-driven value propositions, such as agricultural equipment manufacturers mov -ing into precision farming enabled by the report success in solving the challenges they prioritize. All companies have plenty of room to improve but doing so may be hampered by 6647131191010967100145%COMMITTED Innovation is a strategic priority and they invest accordingly 25%CONFUSED Commitment and resource investment 30%SKEPTICAL Innovation is clearly not a strategic or investment priority Top 1 Top 11+ Very low Very high Strategic priority (rank) Innovation spending 1 (% sales)Low HighTop 4Œ10 Top 2Œ3 Source: BCG Global Innovation Survey. Note: n = 1,014 (most innovative companies sample). 1Innovation spending includes cost and amortized investments, on the basis of industry-specific analyses. One-Quarter of Companies Are Not Walking the Talk on Innovation
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only cross-industry disruptive innovation companies, retailers, and industrial manu- facturers are also playing more and more often in other companies™ sandboxes as they see opportunities for new technology-enabled business models and revenue streams outside their own core businesses. These disruptors are often orchestrating eco -systems that bring together the capabilities of multiple participants in a new platform or service offering. The auto industry™s shift to -ward autonomous driving and a mobility model is one prominent example, as demon – strated by Sony, Alphabet, and Apple, as well as automotive companies such as Tesla, Volkswagen, and Bosch. The IoT and other technologies create oppor -tunities for traditional companies, such as manufacturers, to transform themselves into data-enabled software or service businesses. These companies often play offense and de – fense simultaneously. Think of the ongoing transformations in the automotive, aircraft, and farm equipment industries, where com – panies are moving from manufacturing equipment to combining equipment, data, software, and connectivity to provide entirely new types of solutions. The data suggests that successful self-disruptors earned an annual solely on defending their own turf. innovation ambition, appropriate resourcing, and the ability to break in -dustry boundaries are not the only prerequi – sites for innovation success. As we examine in the other chapters of this report, winners find a number of ways to differentiate themselves. And large companies are increasingly using size to flex their innovation muscles and may be even more advantaged now than before the crisis. 02040 600102030405060Inbound disruption: % of players from other industries that are also innovating in these industries Consumer goods Industrial goods and manufacturing Automotive Chemicals Travel and tourism Insurance Pharmaceuticals Media and entertainment Wholesale and retail Telco Materials Medtech EnergyTransportation Financial institutions Durable goods Outbound disruption: % of players in industry that are also innovating in other industries Sleep zoneRelatively isolated industries Sources: BCG Global Innovation Survey; BCG i2i team. Note: The percentages are based on an analysis of the share of votes for players in each industry that are either fiinboundfl (votes in industry going to players primarily outside own industry) or fioutboundfl (votes going to players primarily in own industry, received from other industries). Companies playing offense tend to see significantly higher TSR (three-year horizon).
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when it comes to innovation, small companies have the edge. They are quick and nimble. They have no legacy organizations, technology, or infrastructure to hold them they can play for the longer term. Big compa – nies, by contrast, are weighed down by internal bureaucracy, bound by out-of-date systems and ways of working, and if publicly traded, too focused on the next quarter™s earnings to think about the longer term. But even before the crisis, the data suggested a more nuanced picture. While smaller com – and helps ensure that they stay closer to – novation success rates of smaller companies were not higher in any statistically signifi – cant way than those of larger ones. And to -day, given the greater ability of larger com- panies to fund investments from their own cash flows, some of them may actually have an edge. Of course, if size is not an impediment to in -novation, it stops being an excuse for under -performance. After all, as we show in another chapter of this year™s report, the most innova – tive companies in BCG™s annual listing have been getting larger. So what distinguishes the large companies that are innovation winners from the rest? Large companies face a few common obstacles. The top two issues cited by all large firms in our 2020 innovation survey are a lack of discipline in resource allocation, including insufficient rigor in cutting ques- tionable projects while putting muscle difficulty of uniting the organization behind But not all large companies are alike. More sample overcome these two key obstacles. They fall into the innovation leaders catego – of sales from products or services launched within the past three years than their indus – try median. This compares with on average – – ly to outperform the large firms, but the dif -ference is small in magnitude and not statistically significant. Innovation leaders appear to be remarkably alike, regardless of size. Smaller leaders make investments in innovation as a percentage of sales at a similar level as bigger companies. They are equivalent in speed to market and achieve comparable returns. The real distinc –
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tions emerge when we look at what distin -guishes large leaders from other large firms. Large innovators that outperform their big-company peers put more money behind greater payoffs: four times as much as a per – they also take time to get things right, with large leaders reporting average times to mar -ket for innovation outside their core that are up to five months longer than the times for others. So among the larger innovators, what are the key differences between the leaders and the laggards? To our surprise, culture does not appear to be one of them. In fact, the cul- tures of large companies, both leaders and Granted, an innovation culture is notoriously hard to describe or assess. Still, the data sug -gests culture may not be a precondition for, Leading large innovators pursue different pri -orities and more carefully design their inno- vation systems for impact. Laggards must first put a lot of attention into fixing the basics: building new and critical incubation or devel -opment skills, gaining leadership support, and establishing strategic clarity on the direction of innovation efforts. Leaders seem to have the luxury to address higher-order issues, however, such as filling gaps in product- market fit and building a stable of scalable more likely to prioritize business model inno -vation although not uniformly across indus – – engines, to imagine entirely new offerings in response to emerging customer needs, or to adapt current business models to ongoing -vide an important edge, particularly in turbu – lent environments. These differences do not suggest that some strategic choices are better than others. They do spotlight the importance of having an internally consistent systematic approach to innovation. Deeper analysis of the differences between leaders and laggards in the same industry leaders expanding their advantage in five aspects of their innovation systems. These are talent, ambition, governance, funnel manage – ment, and project management. $10Œ99million56%3779644%42%$1Œ4.9billion48%52%$100Œ999million$5Œ10billion44% 56%58%42% 58% > $10 billion296171277 LEADERLAGGARD REVENUE Sources: BCG Global Innovation Survey; BCG i2i team. Note: n = 1,217 (most innovative companies and i2i samples); innovation leaders are defined as generating more output in terms of percentage of sales from products launched within the past three years than the industry peer median.
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13181.4×727~4xINNOVATION INPUT in % of salesINNOVATION OUTPUT in % of sales6166COMMITMENT % top three priority 115205 monthslonger TIME TO MARKET noncore, in months 3x return Sources: BCG Global Innovation Survey; BCG i2i team. Note: n = 744 (most innovative companies and i2i samples; large firms only). 1Proportion of firms that rank innovation among the top three strategic priorities. Cautious Critical of ideas Low prestige IndividualisticRigidDeliberate SlowCollaborative Freedom to act Playful Risk permitting Fast Builds on ideasHigh prestige Sources: BCG Global Innovation Survey; BCG i2i team.
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