Here’s What to Invest in to Drive Business Growth in 2020
There are two fundamental truths in business today – it’s never been easier to start a small business, and it’s never been harder to maintain the growth of a large company.
The lifespan of an S&P 500 company is rapidly declining. The average age of an S&P 500 company is under 20 years, down from 70 years in the 1950s, according to Credit Suisse. In a recent Fortune 500 review, almost 50% of companies a decade later were gone.
With these two market forces in play, it’s no wonder that start-ups are a major factor in the reshaping of industries, as they are able to address emerging customer needs faster, testing new approaches to pricing and delivering value in the process. These new approaches shake-up and in some cases, break the tried and tested models that many of the large incumbents have been able dependent on, making it increasingly hard for them to respond and easier for start-ups and well funded non-traditional competitors to move in and create new value.
The climate of an increased appetite for funding (European start-ups raised a record amount of $34.3 billion of venture capital in 2019 VC firm Atomico), coupled with the ecosystem of new tools means there are lower barriers to entry for start-ups. The impact of which is sectors are seeing the pace of disruption accelerate faster than in previous decades.
The uncertainty around Brexit and its impact on the economy has painted a rather bleak picture. According to the Office of National Statistics, the UK experienced its slowest economic growth since early 2009 – the economy flatlined month-on-month in October, after two months of declines. As we look ahead to 2020 corporates have a very clear choice around how they approach investing into innovation – conserve cash reserves for by slashing innovation budgets or invest further into innovation with an unrelenting focus on taking it from a cost-line to a vehicle for growth. The decision might sound like a no-brainer, but there will be a host of organisations that make the wrong one.
In 2020 corporates have a clear opportunity to approach innovation in a new way, where they can use innovation frameworks to fuel growth by taking a balanced approach to their innovation activity.
Fiona Grandi, KPMG’s National Managing Partner, put it well in the company’s annual innovation report: “For all businesses, the cost of underinvesting in enterprise-scale innovation is high. It can mean the difference between continued growth and obsolescence.” The report highlighted the key challenges behind executing successful innovation programmes – 61% of respondents say the challenge they most frequently encounter is competing priorities and over half (59%) said the biggest stumbling block was company culture and entrenched attitudes.
In 2020 corporates have a clear opportunity to approach innovation in a new way, where they can use innovation frameworks to fuel growth by taking a balanced approach to their innovation activity. This allows the company to drive bottom-line growth through optimising and enhancing the core business whilst identifying relevant products and services to drive top-line growth by expanding into new markets and new customer segments.
However, to realise these opportunities, we have to stop treating innovation as something that makes an interesting paragraph in the Annual Report or thinking that building an app means that your business is now digital-first.
Smart corporates will enhance innovation budgets in 2020.
The reality is business transformation requires a scientific and strategic approach that systematically helps to identify new opportunity spaces, rapidly test new ideas and scale those that clearly demonstrate a viable business model and a potential to deliver significant new growth at speed. Validation needs to be reduced from years to weeks.
This systematic approach helps de-risk the development of new business models by not only ensuring the ideas being developed can clearly demonstrate there is a big enough customer pain point that they are willing to pay to solve, but that that new business model and solution is both feasible and viable. This requires a new form of metrics for product councils or investment committees to assess what to double down on and what to kill. Finally, if we look at using internal talent to create these new ventures, then we need to equip them with the right skillset and mindset, as well as ensuring we look at new ways of recognition and reward as performance-related pay doesn’t work when failure rates outweigh success.
Smart corporates will enhance innovation budgets in 2020. However, extra money and people will not be the determinates of success. Those organisations that adopt a systematic framework that encompasses innovation strategy, new governance and funding models aligned to best practice within the Venture Capital world, relevant metrics and development of new capabilities across their organisations will be to succeed at driving sustainable and scalable growth and ultimately transforming their organisation to meet the changing demand of their customers.