The Strategic Importance of Innovation and Growth in Business

Innovation and growth are inherently linked. Companies that build new businesses and develop new offerings, processes, or business models are better able to capture growth opportunities and hedge against disruption in a highly uncertain business environment.

This conclusion was forcefully reinforced in our recent survey of 1,039 companies around the world. The largest share of respondents identified the ability to innovate as the most important strategic factor for generating growth over the coming 12 months.

The Role of Innovation in Different Industries

While we found some variation by industry, innovation capabilities were consistently among the top three growth levers. In sectors undergoing significant disruption—energy, for example, where supply disruptions and large investments in sustainability require companies to evolve their businesses—innovation is particularly important. But even in industries where the evolution of business models is a less urgent need, such as retail, nearly a third of the respondents identified innovation as a top three source of competitive advantage.

Innovation Spurs Growth within and Beyond the Core

On average, 80 percent of corporate growth comes from within a company’s core industry, and innovation is critical to that growth. While overall industry momentum and commercial levers such as pricing and marketing are critical, the next two largest factors, noted by 38 and 34 percent of our survey respondents, respectively, are innovation of new offerings within the core business and expanding into new regions.

How Top Performers Accelerate Growth through Innovation

Each of the top 20 companies followed a clear path of strategic advantage in choosing their innovation investments, to both maximize the upside potential and limit risk. They based their strategies on evergreen principles of innovation.

Key Recommendations for Companies:

• Commit to an innovation aspiration.
• Discover new ways to extend your strengths.
• Accelerate into tailwinds.
• Evolve and disrupt your own business, even the entire ecosystem.
• Scale faster by hardwiring M&A into your innovation capabilities.

Frequently Asked Questions (FAQ)

Q: How can companies foster a culture of innovation?

A: Companies can foster a culture of innovation by encouraging experimentation, rewarding risk-taking, and providing resources for research and development.

Q: What are some examples of successful innovation-driven growth?

A: Companies like Apple and Taiwan Semiconductor Manufacturing Company have successfully driven growth through innovation by introducing new products and disrupting traditional business models.

Conclusion

Top performers understand that investments in innovation are the best way to secure growth in an uncertain economic environment. By innovating new products, processes, and business models as a means of both expanding their core businesses and breaking into new sectors, they not only emerge as leaders of their industries but also create entirely new businesses that grow the economic pie for all.

McKinsey Quarterly 60th birthday

We are celebrating the 60th birthday of the McKinsey Quarterly with a yearlong campaign featuring four issues on major themes related to the future of business and society, as well as related interactives, collections from the magazine’s archives, and more. This article will appear in the third themed issue, on the Future of Growth, which will launch in May. Sign up for the McKinsey Quarterly alert list to be notified as soon as other new Quarterly articles are published.