Warc Blog

Major brands must innovate to survive

8 July 2014
NEW YORK: New technologies from 3D printing to advanced robotics could unlock over $30 trillion in annual value for major brands to tap into, but only if they adopt appropriate innovation models, a study has argued.

New research by McKinsey warned that fully 75% of players listed on the S&P500 - an index of the largest corporations by market capitalisation - might well be out of business in 13 years' time.

The reason, according to the consultancy, is disruptive change and the need for continuous innovation - processes forcing a firm's typical tenure on the S&P 500 down from 61 years in 1958 to 18 years in 2011.

During the next decade, McKinsey predicted, the rise of technologies from cloud computing, automation and the "internet of things" will be supplemented by shifts in fields like robotics, 3D printing and genomics.

"The potential total impact: as much as $33 trillion a year in additional economic value creation by 2025," its report said.

"That's a lot of opportunity, but it also promises massive shifts in profit pools, big changes in consumer behaviour and a hungry host of new entrepreneurs eager to shake up the status quo."

If they are to exploit these revenue streams, large corporations must avoid the "innovator's dilemma", whereby efforts to protect profit margins lead them to ignore lower-cost alternatives being developed by their rivals.

A traditional response to the innovation imperative is attempting to mimic electronics pioneer Apple, a goal McKinsey suggested brands ought to "abandon any hope" of achieving.

"Our research shows that from 1999 to 2008, Apple was the only global incumbent to propel its market cap skyward by creating entire new markets, repeatedly, from disruptive innovation," it said.

A more realistic method has been pursued by Samsung, now the number one player in the smartphone category, and an example of how "brilliant fast followers" can prosper.

"Even so, their success typically requires a deep willingness to rethink processes and rattle the existing foundations of their organisation and industry," the analysis said.

Big firms should thus be ready to quantify their aims with targets, reallocate assets, encourage responsible risk-taking, rethink talent management and evolve new business models - but also leverage the advantages that start-ups do not have.

"The good news for incumbents is that opportunities to foster innovation at scale are readily available to large companies with substantial data sets, a stockpile of capital and intangible assets, a process for managing a portfolio of businesses, and a presence in several places along the value chain," McKinsey said.

Data sourced from McKinsey; additional content by Warc staff

 
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