If you can effectively manage innovation initiatives, you will avoid one of the more common root causes of growth stalls.
This article has been updated from a post originally published on February 26, 2018 and written by Steve Shapiro of CEB, now Gartner.
Most organizations don’t see it coming. Overall growth remains strong and performance metrics indicate smooth sailing ahead. Then comes the growth stall — not just a bad quarter, or even a bad year. Rather, a significant, sustained downturn in top-line revenue growth.
And yet, research by CEB, now Gartner, shows, 85% of growth stalls stem from factors that are avoidable — including a breakdown in innovation management that means investments in new products, services and business development aren’t achieving the desired returns.
93% of companies hit top-line growth stalls — stalls that destroy an average of 68% of the organization’s value
“Innovation management is the second most common driver of stall points since the Great Recession of 2008 through 2009 — behind companies failing to respond to emerging competition from emerging markets or changing customer preferences,” says Gartner practice leader Katie Camilli.
Our research shows 93% of companies hit top-line growth stalls — stalls that destroy an average of 68% of the organization’s value. In 2011, for example, $2.15 trillion in market value was lost to stalls. The research identifies 19 root causes of stalls, but shows a breakdown in innovation management accounted for a quarter of all stalls in 2011 in companies with over $1 billion in revenue.
Read more: How to Build an Innovation Culture
3 tactics to guard against innovation management stalls
Innovation breakdowns most often stem from inconsistent funding, slow product development, and even over-innovating. Many companies overspend on incremental innovation at the expense of the future. And nearly 80% of R&D leaders reported pressure to scale down or kill breakthrough projects in favor of more immediate priorities.
Growth stalls don’t stem from uncontrollable factors; they result from flaws in corporate strategy or organizational design
The risk of an innovation breakdown has increased since the Great Recession, and while there are many reasons that innovation management can break down, there are three tactics companies can use to prevent this particular cause of stalls.
- Compare the growth potential of the existing R&D portfolio to past results. Most senior leaders harbor unrealistic expectations based on their organization’s existing R&D portfolio, which leaves the company vulnerable to a stall. Instead, one chemical company categorized its projects as either transformational, next generation, or incremental, and compared forecast revenue with current performance to determine discount rates. This helped the company accurately determine the strength of its portfolio, expose potential shortfalls, and resolve risk factors.
- Identify gaps between the existing portfolio and objectives to identify critical innovation projects. One major cause derailed innovation management is the diversion of R&D funding to fulfill short-term business demands. Business leaders need to identify gaps in the existing portfolio and take steps to fix them. For instance, one US-based technology and services company designed a portfolio review process that ensured both long- and short-term goals were adequately balanced. A review team examined how the new proposed portfolio was aligned to long-term financial goals to show any mismatch between investment selections and growth targets. This also invited a candid discussion about a project’s worth relative to overall objectives and other projects. Business leaders could also revisit the project list and make changes if gaps emerged.
- Determine the link between business outcomes and portfolio changes. Senior leaders typically lack clarity on how changes to the R&D portfolio impact overall business growth. To really drive this point home, consider how one consumer products firm demonstrated the impact of portfolio changes. It modeled how shifting portfolio resources would impact key metrics and was able to illustrate how an increase in incremental innovation would jeopardize outcomes tied to next generational and transformational development.
Growth stalls don’t stem from uncontrollable factors; they result from flaws in corporate strategy or organizational design. The key is to be proactive and eliminate root causes like the breakdown in innovation management.
Gartner for Finance Leaders can read more about Overcoming Growth Stalls.