CEO Outlook Shows How Innovation Comes of Age

According to KPMG’s 2017 CEO Outlook, 57 percent of U.S.-based CEOs revealed they lack sufficient processes to sense disruption in their respective markets. From startups and new competitors to emerging technologies to shifts in political, regulatory and economic conditions, companies without methods of sensing disruption may find themselves at significant risk.

“It’s encouraging that seventy-two percent of executives said they are actively disrupting the sector in which they operate, but in order to be successful, they need processes and capabilities that allow them to separate relevant weak signals from market noise,” said Mike Nolan, vice-chair of KPMG’s Innovation & Enterprise Solutions. “With a broader view of potential disruption, companies can develop sound strategies and make smarter investments to achieve both short and long term goals.”

U.S. CEOs confident in growth, fueled by innovation
Forty-three percent of U.S. business leaders are confident that America’s economy will grow over the next three years and 37 percent anticipate growth for their respective companies. However, almost all (95%) believe that the level of topline growth will be less than five percent over the next three years.

“To meet investor expectations, it becomes even more important for companies to innovate. The hard part is balancing how much investment is necessary to succeed; too much innovation can starve a company’s core strategy, while too little can erode competitive advantage,” said Nolan.

Innovation investment largely tied to technology
According to the study, 6o percent view technological disruption as more of an opportunity than a threat. In response, CEOs are placing a significant investment emphasis on emerging technologies areas such as data & analytics (61%), and artificial intelligence (58%) over the next three years.

As a core component of many important decisions made by leaders, the emphasis of increased spending on data and analytics focuses on ensuring data integrity. Nearly half of leaders (48%) expressed concern about data quality. As a result, one-third of CEOs revealed an inability to base business decisions on their data until they invest in improving its quality.

What has improved among CEOs is their confidence in integrating cognitive technologies, such as artificial intelligence. This year, 61 percent of leaders expressed concern over implementing cognitive technology, compared to 85 percent last year. The rapid advancement of the technology, its ability to augment employee productivity and improve quality of work has lead businesses to warm up to leveraging these new technologies.

Approaches for innovation investment
For companies unsure of how to invest in innovation, leaders have options. They can determine whether to build a product or service from the ground up, buy a company with the product, technology or business model needed to increase speed to market, or ally with a proven entity whose complementary capabilities can increase value.

“Leaders have to ask themselves, ‘Are we making these investments to address a short- term gain, such as a reaction to a recent move made by a competitor?’ Or should we make this investment because it will help drive our longer- term business transformation?’” said John Farrell, national managing partner, KPMG’s Innovation & Enterprise Solutions.

At a time when experimentation is expected, leaders must find ways to transform their ideas into reality without overburdening operations. Companies of all sizes can learn from startups by forming a business case supported by small “seed” investments before launching a full-scale product or service that focuses on enhancing customer experience and market value.

“This approach helps companies gain real-time insights so they can evaluate whether their innovation efforts should be accelerated, reinvented, or discontinued,” offers Nolan. “With naturally competing interests and priorities, leaders need the resolve to manage these decisions to effectively execute their vision for success.”