More than ever, industry giants are applying what we call “non-incremental” innovation, to shake up their established businesses. Our research shows that, during the next five years, many companies plan to double down on non- incremental innovation. To get the most out of their efforts, incumbents will need to rethink how they invest and who they partner with.
At big multinationals, recent decades proved to be a golden age for the pursuit of incremental innovation. Cautious improvements in products, services and operating processes, the thinking went, would allow industry giants to strengthen their dominance.
Those days are over, our research shows, as technology-fuelled disruption is forcing the world’s largest firms to change how they innovate. More than ever, incumbents are applying what we call “non-incremental” innovation, to shake up their established businesses.
The Next Wave of Innovation
What is non-incremental innovation? It’s the kind that propels the creation of a new product or service, using a new technology (think of the first iPhone); or that introduces an entirely new offering (think of the hyperloop mass transit technology, which has the potential to enable travel at previously unimaginable speeds).
Another example is the artificial meat industry, which, though not new, has taken off and is now estimated to be worth $1.8 trillion globally. Traditional food industry giants, such as Tyson, Perdue and Nestlé, have jumped in, battling tech startups for market share. From burgers to meatballs to chicken nuggets, these incumbents have invested in meat alternatives that can be found on supermarket shelves.
In 2018, Unilever, yet another incumbent, acquired Vegetarian Butcher, a Dutch pioneer of plant-based meat, as part of its strategy to expand into healthier, more eco-friendly fare. Burger King has committed to using Vegetarian Butcher’s patties in its Rebel Whopper, which will be sold in 2,500+ restaurants across Europe.
We estimate that, in 2019, 1,090 large companies allocated nearly $1.8 trillion to drive innovation in their old lines of business (which still account for nearly 60% of their companies’ revenues, on average), compared with $1.4 trillion allocated for innovation in newer businesses (Figure 1).
Our research shows that, during the next five years many companies plan to double down on non-incremental innovation in their old businesses. Whether this shift to non-incremental innovation will pay off for incumbents is unclear. But executives certainly are optimistic. Of the 1,090 companies we surveyed, 40% that plan to intensify their non-incremental innovation also expect to achieve double-digit growth in their old businesses in the next five years – a far rosier outlook than among companies that have decided to pursue other innovation strategies (Figure 2).
Prepare for the Innovation Wave
To get the most out of non-incremental innovation, industry incumbents will need to rethink how they invest and who they partner with in the future. While it may be intuitive to prioritise investments in new technologies, that will not be enough. What will be even more critical is the creation of supporting capabilities (e.g., new facilities, such as innovation labs) and a focus on enabling employees (e.g., through specialised training) to apply non-incremental innovation in ways that greatly improve outcomes. Non-incremental innovation will likely be more challenging to scale, too. That is why companies will need to rely more on partners outside of their industries.
Prepare to invest beyond technology
Investment stakes are particularly high when it comes to implementing non-incremental innovation. One reason: companies often need access to technologies that are not (yet) proven or affordable.
Consider the application of the breakthrough robotic technology that enables doctors to conduct minimally invasive surgery. MIS represents a major disruption to the field of surgery; it replaces the traditional practice with a technique that involves only a few small incisions, made by a surgeon augmented with a robotic arm. For patients, MIS offers many benefits over traditional surgery, including reduced blood loss, less pain and faster recovery. Yet these benefits have not been enough to overcome the costs associated with MIS, especially the $1 million–$2 million price tag of a typical surgical robot.
If such fixed costs were spread across higher volumes, however, MIS could well become cost effective. To increase MIS adoption, hospitals will need to invest more in training surgeons (and other staff) in how to use MIS at scale. The broader point: to accelerate the adoption and diffusion of non-incremental innovation, companies should prepare to invest in new capabilities and to enable employees to work in different ways, with effective help from technology.
One example of this is the Hospital Corporation of America (HCA), the world’s largest private hospital group, with nearly 300 hospitals, 240,000 nurses and 37,000 doctors in the US and UK. HCA isn’t skimping on its technology investments – it’s invested over $400 million in surgical robots. Yet it’s also making complementary investments, including a residency program (to train surgeons for MIS) and a dedicated robotics service line (to offer surgeons better administrative support).
Prepare to rethink partnerships
Incumbents also need to think carefully about where the demand for offerings enabled by non-incremental innovation will reside. Often, these will be in areas beyond their comfort zones. To increase the reach of non-incremental innovation, incumbents must become “boundary spanners” – forming new, sometimes unconventional partnerships and alliances outside of their existing markets. Enel, the Italian energy utility, has excelled in this area.
Consider the impact that electrification of vehicles is having on utilities across the globe. Given a healthy projection for the demand for electric vehicles (EVs), much stress will be placed on utilities to generate and distribute electricity, especially when many EVs will likely plug in for fast-charging during peak load times. Recognising this early, Enel developed a bi-directional recharging system based on vehicle-to-grid (V2G) technology that promises to transform a large fleet of parked electric vehicles into a virtual powerplant.
To use this innovation to transform its old business model (which was centred on generation, storage and distribution of electricity from a central grid to a decentralized micro-grid), Enel is partnering with Japanese auto manufacturer Nissan, which has a strong foothold in the EV market. Nissan started to pilot the potential of the V2G technology with Enel in 2016, and the partnership has since evolved significantly: notably in 2019, Enel, Nissan and the public research company RSE (Ricerca Sistema Energetico) launched a centre for testing a comprehensive range of V2G technology functions in Milan, equipped with Nissan LEAF cars and charging infrastructure developed by Enel X.
As a result of the partnership, Nissan’s EVs can exchange electricity with Enel’s power grid and contribute to its ancillary services, which include the optimisation and regulation of electricity demand. The benefits of the partnership flow both ways, allowing Nissan to offer cutting-edge technology in its cars. Nissan has established similar partnerships with other utility providers in Germany, France and the United Kingdom and has plans to explore similar opportunities in Australia and Chile.
The reality of how innovation is applied in large organisations today stands in sharp contrast to that of the not-so-distant past. Non-incremental innovation is no longer on the periphery of old businesses; whereas it was once reserved predominantly for experimentation with new business ventures, often in nascent markets, it is now the driver of the profound changes that we are starting to see everywhere, including in food, healthcare, cars and energy access.
Faced with this reality, large incumbents should waste no time preparing to put non-incremental innovation into practice. There is no better way to begin such preparations, our research suggests, than by refocusing investment and partnering strategies.
About the Authors
Gianfranco Casati (left) is Accenture’s Chief Executive Officer for growth markets.
Vedrana Savic (middle) is Managing Director for global thought leadership at Accenture.
Koteswara Ivaturi (right) is a manager at Accenture Research.