what is a good way to determine how innovative a company is

Innovation is a leading priority for CEOs: more than than 70% list it as 1 of their top three areas of focus. Yet merely xvi% of companies nosotros've surveyed believe that they're better innovators than their peers.

What'southward holding them back? In our experience, innovators typically autumn short for i of two reasons. Either they pursue the wrong innovation model for their business and competitive context, or they don't support a good model with the capabilities it requires.

BCG recently studied more 100 of the world's most innovative companies—manufacture leaders in TSR and fixtures in BCG's annual innovation study. (Come across, for example, The Nigh Innovative Companies 2016: Getting Past "Not Invented Hither," BCG report, January 2017.) Our goal was to determine which types of innovation models the leaders employ, which models are most successful in which industries, and which underlying capabilities are necessary to deliver on each model.

6 Innovation Models

Our research revealed six distinct innovation models: creator, solution builder, leverager, expander, defender, and fast follower. (See the exhibit.)

Let's have a quick look at these models and the types of companies that embody them:

• Creators fit the pop notion of highly innovative companies. Typically led by a potent, assuming, visionary leader, they disrupt their core markets, protect their intellectual holding, and make highly focused big bets that become the stuff of industry lore. Apple tree, which had a TSR of 21.2% from 2008 through 2017, is the classic example. ¹ Notes: 1 All TSR percentages in this article are for the menstruum 2008 through 2017.
• Solution builders wait to the market for inspiration, cartoon on observations and deep insight to accost customer priorities and issues. Nike (16.5% TSR) typifies this model, combining customer insights with cutting-edge blueprint and engineering science. For example, shoe-based sensors link to web-based platforms offer highly personalized feedback that customers value.
• Leveragers create a superior business model and then capitalize on it to sustain their industry leadership. Zara (whose parent company had a TSR of 16.8%) is a Spanish retailer whose fast-cycle innovation and fashion-forward designs inverse the industry. At the center of Zara's success are its breakthrough design, manufacturing, and distribution processes, which dramatically shorten the time it takes for new items to reach stores.
• Expanders utilize their cadre capabilities in new means to have over next markets and spur growth. Pharmaceutical innovator Gilead (fourteen.4% TSR) continually enters new illness categories and markets in search of growth, achieving success through potent management, repeatable R&D and manufacturing processes, and a tolerance for take a chance that enables a long-term view. Past acquiring Pharmasset in 2011, for instance, Gilead was able to develop two best-in-class treatments for hepatitis C and gain admission to that promising market.
• Defenders tend to win in mature or slow-changing industries and to innovate defensively in order to protect their reward. As technology transforms more and more industries, adhering to this model becomes increasingly risky. The key to success is the ability to monitor the landscape for potentially disruptive innovations and to defend against them using tactics such as partnerships and acquisitions. When Allstate Insurance (6.4% TSR) used this arroyo, information technology was able to identify the shift to online and app-based products—and to acquire pioneer Esurance to continue from falling behind.
• Fast followers optimize their capabilities across all dimensions in order to quickly respond to—and ofttimes improve upon—competitive innovations. Reckitt Benckiser Group (14.7% TSR) is a best-in-class fast follower in the consumer products manufacture, which is characterized by low consumer-switching costs and short product development cycles. To minimize take chances and maximize speed, the company focuses technical capability and resource investment downstream, in product testing, with minimal energy spent upward forepart, in consumer insight and ideation.

Context Is Critical

Choosing the correct innovation model for your company is all almost context. Industry context matters considering just a subset of models can succeed in virtually industries. Some models are improve suited to—and increment shareholder value in—certain industries and sectors than others. For example, 4 models drive TSR premiums in consumer retail:

• Creators take on more risk merely can achieve dramatic success. Lululemon Athletica (15.6% TSR), for example, capitalized on the growing yoga movement by offering a distinctive life style brand that encompasses everything from the actual products to the in-store client experience to corporate philanthropy.
• Solution builders create loyalty by understanding specific shopper segments and meeting their needs. For instance, Target (viii.i% TSR) delivers a "cheap just chic" prepare of offerings that see the needs of its young, oft trendy customers.
• Leveragers create a superior business organisation model and then capitalize on information technology to sustain a position of industry leadership. Costco (13.4% TSR), for example, combines everyday depression prices, a lean supplier network, and a members-only approach to stand out from the retail pack.
• Expanders accomplish rapid share growth by moving into side by side markets. For case, Amazon (30.3% TSR) brings its consumer data analytics, logistics capabilities, and exceptional customer service to an ever-expanding number of retail sectors, including fashion, luxury dress, and—with the company'south recent buy of Whole Foods—brick-and-mortar grocery.

Companies struggle when they pursue an innovation model that their industry doesn't advantage. For case, retailer Sears (–23.6% TSR) used the defender model, counting on its brand recognition and network of brick-and-mortar stores to stay ahead. But when agile online players upended the retail industry, Sears lost its edge.
A company's individual context is also disquisitional when choosing the all-time innovation model: How of import is innovation to the company's strategy, its competitive position in the larger market, and the capabilities and advantages that set information technology autonomously? As the examples higher up show, companies in the same industry can succeed with different models—but the chosen model must align with a company's strategy, strengths, and capabilities. For instance, Amazon and Costco both have advantaged—but different—business concern models. The expander model is a better choice for Amazon because it reaches a much broader pool of consumers and drives more rapid summit-line growth, both of which align closely with the company'southward strategy and appetite.

Answering a set of mutual questions can reveal your visitor's context. Is innovation seen as a growth engine or a defensive tool in your overall corporate strategy? How strong is your company'due south competitive position, and how durable is the source of your competitive advantage? How important is brand, and what is the relative forcefulness of your brand equity? How robust are your innovation-related capabilities compared with others in your industry? How much are you willing and able to invest in innovation? And, most important, how quickly does your sector change—and what value tin be gained if your organization stays ahead of the bend?

When choosing a model, look for ane that competitors either aren't using at all or are using poorly. Consider the investment required in terms of dollars, time, and the cost of upgraded capabilities, and so filter the options through the lens of your ambition and resources.

When choosing a model, await for ane that competitors either aren't using at all or are using poorly.

Making It Work

Migrating to a new model or improve adjustment your capabilities with an existing i are the most challenging aspects of transforming a company's innovation capability. The half dozen innovation models are not abstruse ideas. Each has a fix of design principles and characteristics that govern the whole.

It helps to have an innovation design conspicuously laying out all the interconnecting pieces that must align with and support the model. These include the company'south organizational structure and culture; tools and processes for idea generation, commercialization, and portfolio management; and metrics and incentives to drive, track, and measure results. Such a design tin can aid companies commit to and reinforce their models through the design decisions that menstruation through their organizations. Consider the following:

• The fast-follower model adopted past Reckitt Benckiser has potential for success in the consumer products industry, just the company'due south private success is enabled by other factors every bit well, such equally a flat organizational construction that maximizes speed to market place.
• Nether Armour is a solution builder. To build more targeted solutions, the company invests in advanced analytics to better understand what the data reveals nearly the behaviors and needs of its fettle community.
• Amazon's best-in-class expander model would not work without the company's loftier tolerance for risk, which is reflected in its internal metrics and people incentives.

In our experience, the six innovation models offer a powerful style for organizations to evaluate and refine their innovation strategies. They too help executive teams grapple with disquisitional questions, such equally, Which model are nosotros pursuing and why? Are our processes and organization aligned with that model? Does the model confer advantage in our industry? Which models are rivals pursuing—and how well are they doing? Should we reconsider our innovation strategy and model? What investments and capabilities would a shift in those areas require?

Working through these questions volition help companies cull the correct model, develop the supporting engine to drive it forrad, and reap the growth dividends that accumulate from innovation success.

Well-nigh Boston Consulting Group

Boston Consulting Group partners with leaders in business and society to tackle their nigh important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, nosotros work closely with clients to comprehend a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.

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Source: https://www.bcg.com/publications/2017/innovation-strategy-product-development-model-right-for-you

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