Responding to disruptive change is challenging
Today, the pace of change is often faster than a company’s ability to respond. Companies understand why they need to evolve, but many struggle with how. According to the 2019 CEO Outlook, 68 percent of U.S. CEOs believe that agility is “a do-or-die for business.” And while that is a practical reality, disrupting is harder than we think.
Responding to disruptive change is challenging because agility requires maturity in the innovation process. Without a mature innovation process that includes prioritization, governance and funding vehicles, your ability to respond to new market disruption as part of normal business activity is difficult.
A vast majority of U.S. CEOs (78 percent) believe that they have structures in place to review their business models and ensure they stay competitive in the face of disruption. However, few believe that their innovation processes are at maturity: Sixty-three percent agree that over the next three years they need to improve their innovation processes and execution, compared with just eight percent last year. This, coupled with their recognition that being too slow leads to irrelevance, proves that CEOs understand the importance of such processes for becoming and staying agile.
This aligns with findings in the Innovation Leader report sponsored by KPMG, Benchmarking Innovation Impact 2020. Companies are moving away from the traditionally accepted ratio of 70-20-10 incremental (core), adjacent and transformational innovation towards a 50-25-25 breakdown. These businesses are making a concerted effort to improve their existing products and services, while also investing in transformational, new business models and approaches.
This supports our prior findings that, “firms that are underinvesting [in transformational innovation] may wind up at a strategic disadvantage…more likely to be rendered irrelevant by rivals making a more serious commitment to innovation.”
Agile companies are able to spot the relevant signals of change, see the time horizon for the scope of that impact, then prioritize their investments. Many organizations struggle to assess how that may converge and that could, if not interpreted right, lead to inaction or wrong areas of investment.
But not every company can be a disrupter. Investments in new technologies don’t always pay off in the near term. For true investments it may take three to five years to see results. Agile companies extend their timelines for financial gains and look at other returns—ROI measures like customer loyalty—in the meantime.
To stay competitive and embed resilience, you need to keep an eye on your core business, but consider how responsive it is to the current business environment. Leave a line item for seed funding to look at new innovations. Market disruption does not wait for the annual budget review process, so neither can you.
Faced with unprecedented change and disruption, business leaders must be equipped to act quickly and make the needed investments to develop mature innovation processes.
For further insights and data from leading U.S. CEOs and KPMG leaders, download the entire “Agile or irrelevant: Redefining resilience” U.S. CEO Outlook report here.