5 practices that help innovative companies to stay ahead

The global conversation is buzzing with excitement about the transformative potential of generative AI, which promises to revolutionize the way work is performed across various functions and workflows. However, it’s crucial to recognise that, like any technology, generative AI is not a panacea.

 In a recent 2023 McKinsey Global Survey focusing on digital strategies, which involved gathering insights from over 1,000 respondents, a remarkable correlation emerged. This correlation underscored the strong link between organizations that have successfully cultivated a robust culture of innovation and an adaptive operating model and their capacity to derive increased value from the latest digital technologies, including generative AI.

Let’s delve into the proactive steps that leading innovators are taking to maintain a competitive edge in this dynamic landscape.

Action, not just talk, on deploying gen AI

Generative AI has become a hot topic of conversation, but it’s the top innovators who are actively taking meaningful steps. According to a recent survey, a significant 30% of top innovators have already embraced the widespread deployment of generative AI within their innovation and R&D functions. This adoption rate surpasses that of innovation-challenged companies by more than six-fold.

When we examine the responses from top economic performers, 12% either agree or strongly agree with the integration of generative AI, whereas the remaining 88% exhibit a different stance. Meanwhile, strong innovators demonstrate a substantial 30% agreement with the adoption of generative AI, and even among weak innovators, there is a noteworthy 70% commitment to this transformative technology.

These findings underscore the varied adoption rates of generative AI, driven by factors such as innovation capabilities and economic performance.

Top innovators are reaping significantly better business outcomes from their AI investments

The strategic terrain for expanding and rejuvenating a company’s core operations can be delineated into several critical domains. These encompass the following:

Expanding the Core: Within this realm, top-performing companies allocate a substantial share, close to 75%, of both revenues and EBIT (Earnings Before Interest and Taxes) over a span of two years towards innovating new offerings within their existing business. Simultaneously, they earmark around 50% for expanding into novel geographies or segments.

Innovating into Adjacencies: When it comes to venturing into adjacent areas, such as innovating a new business along the value chain (e.g., vertical integration), acquiring another player within their existing business to enhance scale, and acquiring a new business within their value chain, economic leaders allocate approximately 25%, 23%, and 20%, respectively.

Igniting Breakout Business and Exploring New Horizons: For the pursuit of groundbreaking ventures and exploration beyond current boundaries, such as building a new business outside of the existing industry or ecosystem, and acquiring a new business unrelated to their current industry or ecosystem, top economic performers devote 20% and 18% of their strategic focus, respectively.

The need for an innovative operating model

These organisations are proactively reshaping their operational models to embrace AI leadership, thereby extracting substantial value for growth. Top innovators excel in deriving business value from their investments in technology and R&D. Survey responses reflect this success:

• 62% credit a strong innovative culture for consistently leading the industry in meeting emerging customer demands.
• 50% attribute their best-in-class speed of new product development to a strong innovative culture.
• 58% credit their strong innovative culture for consistently achieving product targets in the market.
• A significant 69% acknowledge that their R&D investments are highly impactful due to a strong innovative culture.
• 63% excel in discovering ‘white space’ ahead of the competition, thanks to a strong innovative culture.
• 59% successfully expedite the scaling of new businesses or product lines beyond industry norms, driven by a strong innovative culture.

However, 10% of respondents lament a weak innovative culture.

The way to compete with gen AI is changing

With services such as ChatGPT readily available to the public, and as public platforms experience rapid growth, access to cutting-edge AI technology is no longer a unique advantage. This means that the strategy for competing with advanced AI is evolving. Innovative organizations can implement five key steps to gain a competitive edge in this evolving landscape:

Master the Art of Asking the Right Questions: Leading innovators outshine their counterparts by a factor of four to five. They possess tech-savvy business leaders who understand how to leverage emerging technologies within their business operations and apply them strategically to create value. Additionally, they maintain agile teams capable of crafting their code.

Swiftly Identify and Eliminate Incorrect Solutions: These organisations have established systems and fostered a culture that enables them to promptly discontinue initiatives that prove ineffective and swiftly transition to the next innovative idea. Importantly, they boast up to nine times more cross-functional teams, which adopt a comprehensive, end-user perspective on the business. Executives within these organizations are three times more likely to believe that their company encourages risk-taking compared to their lower-level counterparts.

Consistently Develop Proprietary Data Resources: Top innovators are five times more likely to possess internal processes, products, and customer interactions designed for effective data capture, making effective use of both internal and external data sources.

Foster an Organisational Capacity for Rapid Learning: Leading innovators are over eight times more likely to have implemented agile practices across their entire organization, extending beyond just their information technology departments.

Integrate Key Human-Free Workflows to Harness the Speed of Advanced AI: Organisations that have already identified critical workflows benefiting from the rapid processing capabilities of advanced AI, and have established the necessary infrastructure, mindsets, and processes to support this, are ahead in leveraging the speed of advanced AI. Top innovators are more than eight times more likely to have successfully implemented this nimble operational model.

The pace of change in the world is accelerating, and organisations must adapt accordingly to stay competitive. While innovation has always been a choice, the business case for cultivating an innovative culture is now more compelling than ever. In the realm of generative AI, leaders are distinguished by their actions rather than mere words, and we anticipate that many more organizations will follow suit in this transformative journey.