Innovation x Growth: All of the above strategy

One of the recent headlines from the recently concluded World Economic Forum was the survey that PwC did to gauge the sentiment of the CEOs. Of the ~4,700 CEOs globally surveyed, ~45% were not confident that their companies will survive for the next ten years given the pace of technological change. While it’s a sobering statistic, it’s not that unexpected. Historically, R&D spend in the non-technology (‘traditional’) sector has been a meager ~2% of revenue compared to more than 20% in the pharmaceutical or software sectors. It’s not surprising that all of the top-ten chemical products were developed more than 50 years ago.

While technology is threatening the established companies, there are also opportunities presented for growth. One of those is due to climate change. As an example, the chemicals industry will have to decrease its overall emissions by ~60% by 2030 if global warming is to be reduced in accordance with the 1.5C pathway. To capture these opportunities, the C-suite at the companies will need to focus on innovation, and open its aperture further. Here are 3 examples.

• Increased focus on partnerships with technology companies, service providers to do a more collaborative R&D that plays to each companies strengths. This model is well established in the pharmaceutical sector to discover promising drug candidates. The right business model not only keeps the incentives aligned, but also establishes the playbook for large players for multi-year development and commercialization periods. Similarly, new innovation is brought to the agriculture sector by collaborating with right partners and tapping into the capabilities externally.
• Increased collaboration between large companies and start-ups. In one of the recent surveys in the chemicals industry, McKinsey found eleven innovation areas for potential collaboration. One of which bubbled to the top is process innovation to reduce carbon footprint by increased adoption of electrification, new feedstocks, and novel manufacturing solutions. Oftentimes, start-ups have unique technologies in these areas that can be complemented with the scale and GTM strengths of large companies. The process value chains get made and companies are able to bring new products with lower carbon footprint to the market.
• Leverage cross-border innovation opportunities to develop solutions for the local market. As an example in the Sustainable Aviation Fuels (SAF) industry, sources the local feedstock that improves livelihood, adapts the conversion technology, and is now getting commercialized in the local market. Technologies can cross boundaries, improve the status quo, and provide the overall good.

Odds are that for many companies to be still around in 10 years, it will be all the above strategy. These will not substitute, but will be additional tools that the C-level leaders will have at their disposal to complement existing assets.

While the headlines are dire, there are structural changes in well established companies, these also present opportunities for growth. To capture those, focus on innovation, a nimble business model, and a new mindset will be required.