Why Corporate Innovation Has Stalled and How to Fix It

Corporate innovation has become one of the most important strategic priorities in the business world, and yet companies have never been less equipped to deliver on these ambitions. In a recent survey of 1,000 companies, Boston Consulting Group (BCG) found that while 83 percent of companies place innovation in their top three priorities, only 3 percent have the capabilities to execute. We call this the “innovation gap.”

While a healthy amount of effort and investment is being thrown at the problem, very little of it is addressing the underlying barriers that hold innovation efforts back. At the heart of it, we discovered there are three very human challenges that create friction in a large number of corporate innovation efforts.

3 Problems Plaguing Corporate Innovation

1. Innovation Is Hard to See

History is littered with examples where experts failed to see innovation as it was unfolding right in front of them, but it happens all the time. When the Wright Bros conquered human flight in Dayton, Ohio in 1903, they literally changed the course of human history. Yet no one wrote about it in a major news publication until four years later. Western Union once wrote off the telephone as having too many shortcomings to be considered a serious communications device. 

More recently, The New York Times published an article in 2015 saying that Apple would probably never enter the cellphone market. When they did so just two years later, Microsoft held a funeral for the iPhone, believing it would never gain traction in the crowded smartphone market. 

What’s evident from these stories is that there is often a gap between a game changer occurring and people recognizing that the game has been changed. In an era where the cycle of disruptive forces is constant, a company’s inability to identify and scale innovation from within their organization creates a huge friction to progress and leaves them vulnerable to outside competitive forces.

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2. Innovation Happens Gradually

People often confuse innovation with invention. Invention, that light bulb moment where a great idea occurs or where the solution to a long standing problem suddenly pops up, is an elusive and often mystical process. And it has little to do with innovation. When done well, corporate innovation relies more on a sustainable engine that is able to generate new features, offerings and business models than it does on lightbulbs.

Rather than a concerted, consistent effort to innovate over a long period of time, many companies prefer to jump on the “flavor of the month” bandwagon, generating a series of proof of concepts destined for the graveyard than actually following through on any one idea. The result is that they often miss the boat on truly transformational shifts and then spend the next decade playing catch up.

When quarterly earnings and an ever reducing C-suite tenure rule the world, very few companies have an appetite for rewarding long-term thinking. 

3. Innovation Requires Us to Change Ourselves

Change is hard. Even when we know that making a small change in our lives would be beneficial, our human nature causes a reluctance that can sometimes be hard to rationally explain. Without first changing ourselves, our chances of doing new things effectively are dramatically reduced.

We see companies trying to incentivize new thinking with an innovation bonus; performance bonuses may work on a factory production line, but are extremely hard to implement when generating long-term and often intangible results. Quarterly performance cycles have also been a huge hurdle. It’s hard to get people to pay attention to game changing generational initiatives when their success metrics push them towards short-term results. 

Perhaps one of the biggest changes required is the need to embrace failure. We’ve heard so much in the corporate world about “fail fast, fail forward,” and yet so few examples of organizations that are able to effectively prioritize experimentation over compliance and standardization.

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How to Improve Corporate Innovation

Like any other discipline, innovation can be tricky and unnecessarily complicated. The right conditions for innovation vary from company to company, department to department, and team to team.

However, there is a single observation that holds true as a universal rule: Most failures occur because of a lack of structured innovation systems.

This finding was recently reinforced in BCG’s 2024 edition of their annual “Most Innovative Companies” report. In particular, the report calls out the need for systems that create a linkage between innovation strategy and business strategy.

In order to get this mix just right, companies should pay attention to the following three principles when reviewing their innovation system:

1. Suitability: Ensure the mix of innovation tactics is suited to the specific capabilities and strategy of the organization. If the leadership team is heavily involved in the innovation effort and wants to be hands on, then innovation tactics like employee upskilling programs and internal innovation hubs might be a better fit than setting up open innovation ecosystems, and vice versa.
2. Breadth: Spreading innovation investments across a range of initiatives is much more effective than doubling down on a single tactic. Much like managing a stock portfolio, there is no start and end line. It’s more about managing a variety of bets to create a winning outcome as a whole.
3. Depth: Focusing success measures around the outputs of innovation is a key indicator of a good system. Don’t confuse motion with progress. Running a training program for thousands of employees is not useful if they have no channels through which to funnel these new methods and skills. The end goal should be to generate new features, offerings and businesses.

As a change agent within your organization, there has never been a better time to introduce an element of systems thinking to an arena that has too often been shrouded in mystery and guesswork. The good news is that leadership teams are already invested and are allocating resources to the problem, they just need help to make these investments more effective.