Industries are dealing with exponential changes to the business environment that require greater discipline and agility in the innovation portfolio. More than ever, companies must have a robust innovation capability to develop solutions that meet changing customer and market demands, solve emerging business and operational problems, create and maintain future relevance, and drive growth in the new reality.
Although the need to manage innovation effectively is constant, COVID-19 further highlighted the need for the right innovation mindset and approach. According to survey research by KPMG LLP and InnoLead, innovation budgets took a hit in 2020. The crisis forced many hard-hit companies to focus on survival, which meant shifting resources to short-term operational needs and narrowing innovation objectives.
Yet the pandemic also illuminated the link between innovation preparedness and business resilience. Enterprises with leading innovation capabilities and deep connections to their markets were more successful at weathering the storm and building a strong foundation for the future. Through the pandemic, Philips leveraged imaging and monitoring innovations to help clinical partners anticipate COVID-19 patient needs and plan accordingly, while American Express invested in chatbots and natural language processing solutions to serve customers better in digital channels.
Four Steps for Disciplined Portfolio Management
KPMG is deeply invested in helping clients and ourselves manage the massive changes occurring all around. Our experience shows that innovation portfolio management is a systematic discipline that must be built and nurtured inside enterprises. Below are four tips for creating structures and mechanisms to achieve successful innovation outcomes that will shape the future.
1. Link Innovation Activities to Business Strategy
The innovation portfolio doesn’t work in isolation. Enterprises need to start with a clear overall business strategy to know what, where, and how to innovate. If the business strategy is a long-term plan to gain competitive advantage, the innovation portfolio is a key lever, feeding insights into the strategy and helping execute it.
Enterprise alignment on innovation is especially important in periods of disruption and uncertainty. Businesses facing the urgency to adapt to a new reality often must aggressively shift their portfolio, requiring a clearer vision of C-suite objectives. Fifty-nine percent of enterprises said their mandate for innovation changed in 2020.
To improve linkages, encourage continuous dialogue. Changing priorities require innovation groups to engage with senior leaders more regularly to understand what signals leaders are reacting to and pinpoint the best uses of innovation resources. Meanwhile, C-suite leaders need to hear from innovation teams about what is coming around the corner and how to respond over the short-, medium- and long-term.
With strong alignment, innovation portfolio decisions can more effectively drive key business objectives. Those objectives will vary (and require adjustment) depending on the business strategy and changing market conditions. Does the business want to be bleeding edge or fast followers? Is it focused on disrupting competitors with new, differentiated business models and solutions, or on fending off attacks and protecting an incumbent market position? The answers to these questions will help reveal the right mix of incremental, adjacent and transformational innovation, as well as the right balance of offensive and defensive innovation.
The work KPMG does with Enactus is directly aligned to key aspects of our business strategy: supporting our communities, making a positive impact on the world, and creating a strong pipeline of future employees. Enactus is the world’s largest experiential learning platform dedicated to creating a better world while developing the next generation of entrepreneurial leaders and social innovators. We created a course that Enactus uses to explore barriers and biases that can hinder decision-making, innovation and problem-solving, reinforcing foundational concepts of the KPMG design thinking for business model innovation methodology for solving complex, ill-defined problems.
2. Strengthen Inside-Out Innovation
Crucial to corporate innovation success is developing an environment that allows the enterprise to develop innovations strategically, effectively, and quickly from the inside. There are several ways to strengthen this kind of inside-out innovation.
One option is establishing an incubator, an organizational carve-out designed to help innovation spark and thrive by providing the necessary distancing from the core business. Incubators allow longer-term innovations focused on new markets, business models, technologies, concepts, and other emerging solutions to develop without the constraints of a mature business.
Ramping up cross-functional expertise and collaboration is also an effective approach. Even the best ideas die when they aren’t shared, prioritized, and set loose. This is an especially big risk in large complex organizations. KPMG improves innovation execution and outcomes by establishing a network of innovation leaders across the globe tasked with nurturing and spreading ideas and turning them into solutions. Well-connected innovation networks help enterprises spot the relevance and potential application of innovations from one part of the organization on another. By allowing innovation synergies to occur, they help maximize the return on innovation investments.
Finally, investing in technology is a good strategy for improving inside-out innovation. KPMG taps into emerging technologies like artificial intelligence and analytics to track signals of change and market disruptions—ultimately leveraging those insights to inform innovation priorities and design or development considerations. During the pandemic, the use of virtual digital collaboration tools has accelerated dramatically to continue ideation and accelerate innovation execution even when we can’t come together in person.
And remember: Whatever option (or options) you choose, inside-out innovation also starts with attracting and nurturing innovation talent. Bringing the right resource to bat on innovation projects is crucial to innovation execution and success.
3. Pursue a Robust Outside-In View
The innovation portfolio must be tied to what is happening outside the enterprise—what, when, and how disruptions are happening. Enterprises that are paying attention can bring emerging ideas into the organization and develop game-changing solutions. Investing in data analytics and machine learning can help enterprises gain deeper insights from customers, competitors, and analysts and also track the movement of VC and PE money, a strong indicator of where markets are heading.
When competing in a market of constant change, it is more important than ever to tap into outside thinking. External perspectives complement internal innovation activities and enable the continuous learning and ideation required for relevance in the emerging new reality.
Co-innovation is a powerful tool for outside-in innovation. By engaging with clients and customers on shared business problems, enterprises can combine resources, ideas, and perspectives to co-develop fast, relevant market solutions. A real-life example comes out of the KPMG client co-experimentation program. We recently collaborated with a global financial services company to enable near real-time consumer behavior tracking to respond to COVID-19-driven market disruptions. The company was being inundated with questions about customer transactions from clients impacted by COVID-19 and retailers re-working supply chains and marketing plans. KPMG data scientists and engineers helped them automate and analyze internal and external datasets faster and more frequently to better answer client questions and enhance strategic decision-making.
Another way to take outside-in innovation to the next level is to nurture a startup ecosystem—that could include joint ventures, minority investments, acquisitions, and alliances with disruptors revolutionizing the industry. Establishing an investment vehicle to acquire innovative companies and solutions can accelerate the value delivered to the enterprise ecosystem.
Finally, businesses can create an alliance ecosystem with a mix of channel and ecosystem partners. Strategic alliances are central to keeping pace with evolving market needs, allowing enterprises to combine forces to maintain relevance amid disruption.
When it comes to innovation, great is often the enemy of good. Sometimes you have to put a concept out there and gather feedback, rather than wait until it is “perfect” and then launch something that misses the mark.
4. Fail Fast
When it comes to innovation, great is often the enemy of good. Sometimes you have to put a concept out there and gather feedback, rather than wait until it is “perfect” and then launch something that misses the mark.
Foundational to healthy innovation portfolio management is the ability to know when to allocate more resources to an innovation project, put it on ice, or kill the project all together.
Embracing a lean startup methodology for innovation helps enterprises proactively accelerate high-potential projects, while shelving others. Rapid experimentation and prototyping enables companies to identify, prioritize, and save the most relevant innovation initiatives and direct appropriate funding to accelerate time to market and achieve the initiative’s strategic goals.
Meaningful metrics are also crucial to success. Enterprises should ensure metrics are focused on what matters most to the C-suite, eliminating those metrics that don’t matter and can burden teams and slow down progress. Research shows that two primary metrics for innovation are most important to senior business leaders: new revenue generated, and new efficiencies or cost reductions.
Businesses should also validate portfolio decisions by tracking how innovation results drive the overall business strategy. Some innovations have long-term horizons and can’t be measured against current revenue streams; others must get to market quickly to gain competitive advantage. Innovation metrics should reflect both timelines.
Final Thoughts
Industries dealing with exponential changes to the business environment require greater discipline and agility in the innovation portfolio. These four competencies can help bring greater discipline to corporate innovation activities—and deliver meaningful results.
Cliff Justice is a Principal in the KPMG Growth and Strategy organization and is the firm’s U.S. Leader of Enterprise Innovation. He is a recognized authority in business services strategy, technology operating model design, and operations with more than 25 years of experience in global sourcing and enterprise transformation.
Shannon Gilmore is a Managing Director in the KPMG Growth and Strategy organization, leading the Strategic Investments program office for firmwide innovation investments. Shannon drives the firm’s innovation lifecycle—from discovery and validation of new innovation opportunities, through planning, execution, market launch, and measurement.
Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
© 2021 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization.
InnoLead regularly publishes Thought Leadership pieces written by our Strategic Partner firms.
