We live in an age of agility, and organizations that want to survive, let alone thrive, needto increase their speed, adaptability, and innovation. It is a challenge many are not wellequipped to meet. In a survey of chief innovation officers and related roles which the authorsconducted for this white paper, nearly 90 percent of respondents said agility was highlyimportant to the future success of their companies, and 96 percent said they needed tobecome more agile in the future. Yet only 26 percent rated their company’s current agilityas high or greater.
These findings echo those of a 2009 survey conducted by the Economist Intelligence Unit (EIU) in which nearly 90 percent of CEOs and CIOs called organizational agility a core differentiator, and approximately one-half said that rapid decision making and execution are essential to a company’s competitive standing. That study in turn reflects an earlier analysis, conducted by the Massachusetts Institute of Technology, showing that agile firms grow revenue 37 percent faster and generate 30 percent higher profits than non‑agile companies.
More than 80 percent of corporations had undertaken one or more initiatives to improve agility. Yet, 34 percent said they failed to deliver the desired benefits.
Executives may realize that agility is critical, but companies, especially large ones, find it difficult to achieve and sustain. In the EIU survey, more than 80 percent of corporations had undertaken one or more initiatives to improve agility over the previous three years; 34 percent said they failed to deliver the desired benefits.
In search of a solution to the agility challenge, many companies have turned to innovation units in a variety of guises as part of the answer. In our survey, 70 percent of respondents stated that innovation units were highly or extremely important in creating greater organizational agility.
Innovation initiatives are increasingly common and incorporate a broad range of approaches such as scouting teams, incubators, accelerators, and venture funds. In our survey,70 percent of firms said they were increasing investment in their innovation units, 60 percent of which were created in the past five years.
Despite such increased investment in innovation, only 23 percent of companies said they had delivered a significant innovation – defined as one that accounts for more than 10 percent of the business’s revenue.
Such mixed fortunes perhaps explain why high-profile companies such as Ogilvy Group, Coca-Cola and the New York Times have closed some of their innovation units in recent years. As a recent article in the Harvard Business Review put it, “When a CEO announces a major initiative to foster innovation, mark your calendar. Three years later, many of these ambitious ventures will have quietly expired without an obituary.”
If agility is so critical, and innovation units are a way to achieve it, why are large corporations having such variable results? This report argues that some of the root causes lie in slow decision making, conflicting departmental priorities, risk-averse cultures, and silo-based information. The success of an innovation unit, we believe, depends not just on the unit itself, but also on how the company, as a whole, functions.
For instance, we observe that companies whose innovation units have proved successful usually share strong dynamic capabilities around effectively sensing the market, an ability to make decisins, secure and align the necessary internal and external resources, and a capacity to systematically shift the wider organization to adopt new initiatives.
In this report, jointly developed by Oliver Wyman and IESE Business School, we provide further background on the agility challenge and its causes. We also point to some best practices for improving the effectiveness of innovation units as part of increasing agility more broadly, including how to remove internal informational silos, develop internal talent, and avoid delays because of internal politics, to name a few. They are, admittedly, difficult to apply systemically, but at a time when many firms operate in highly uncertain environments, they are increasingly critical.
Julia Prats, Josemaria Siota and Nicholas Singleton also contributed to this article.