Never have enterprise firms had such a short shelf life. Innosight’s 2018 Corporate Longevity Forecast found that, if the current churn rate holds, fully half of S&P 500 companies will be replaced in the coming decade.
Could half of the S&P 500 companies be replaced in the coming 10 years?
While 80 percent of executives surveyed by Innosight said they “strongly” or “somewhat” agree that they need to transform, 55 percent of those same executives said they expect their competition to come from existing industry players rather than new competitors.
Corporate leaders may be right on the first point, but they’re likely wrong on the second. One of the most significant threats to corporations is disruption from agile startups with a culture of experimentation and risk-taking.
For example, Petsmart was forced to make the largest e-commerce acquisition to date in late 2017 when it was blindsided not by industry peer Petco, but by Chewy.com. Similarly, the entire ground transportation industry was turned upside down by ride-sharing companies Uber and Lyft, which have captured more than 70 percent of the U.S. business traveler market, according to a report by Certify.
Petsmart and dozens of other enterprises learned the truth of corporate innovation the hard way: Companies that don’t look to the future will soon become part of the past.
What’s Coming in Corporate Innovation
The news isn’t all bad for enterprise leaders, though. Three trends show corporate innovation is alive and well in 2019:
Corporations will look beyond traditional R&D and toward partnerships.
Over the past three decades, return on R&D spending has declined by two-thirds. As corporations see diminishing returns on internally focused innovation, they’re increasingly looking to external partners for innovation. Fortunately, one-on-one startup-corporate partnerships are no longer their only option.
Although they take more effort, accelerators and semi-internal incubators are two emerging solutions. Mastercard’s Start Path program accepted 11 new startups last year, for instance, most of which were directly relevant to Mastercard’s own financial services. Others, like Google parent company Alphabet, are spinning off startups built by internal team members.
The quickest, newest way to get an external perspective, however, is through corporate innovation consultants like Cie Digital. Chief operating officer Alvin Fong argues that it’s Cie’s experience with companies of multiple sizes spanning across different industries that sets it apart. “Startups and corporations come at innovation from two totally different perspectives,” explains Fong. “The best solution is often to find a partner who’s seen the subject from both sides of the fence.”
Artificial intelligence will be a primary source of innovation.
Although barely one-third of enterprises have adopted AI to date, according to Gartner’s 2019 CIO Survey, that’s changing rapidly. The research giant also found that the number of companies implementing one or more AI technologies has grown by 270 percent in the past four years.
Chris Howard, distinguished research vice president at Gartner, suggested in a press release that corporate innovation around AI can’t wait for the right talent. “In order to stay ahead, CIOs need to be creative,” Howard explained. “If there is no AI talent available, another possibility is to invest in training programs for employees with backgrounds in statistics and data management.”
What subfields of AI are the best bets for corporate innovation? Machine learning pilot programs doubled last year compared to the prior one, Deloitte data showed, and are expected to increase again by 2020. Particularly in the healthcare industry, natural language processing is a hotspot, growing to nearly $8 billion by 2022 from $667 million in 2016.
Improving the customer experience will be a top priority.
Even as brands invest more in technologies like AI, consumers are clamoring for more human customer experiences. A PwC report released last March showed that 75 percent of consumers want more social interaction in the future, while 64 percent think companies have lost touch with the human side of CX.
What’s more, consumers say they’re willing to open their wallets for a better CX. “CMOs take note: Our research revealed that 65 percent of U.S. consumers find a positive brand experience to be more influential than great advertising,” David Clarke, PwC principle and experience consulting leader, said in a press release. “Our findings quantify the potential ROI on experience investments, upwards of 16%.”
While AI has a role to play in all types of corporate innovation, many of the best CX changes brands can make are low-tech. Respondents to the PwC survey said fast and efficient service, knowledgeable and helpful employees, and convenience is their top three CX priorities.
For today’s companies, corporate innovation is literally a life-or-death choice. This past decade is proof that their scale, history, and expertise aren’t enough to keep smaller peers from surpassing them. Without an eye on the customer experience, investments in AI technologies, and the right partnerships, 2019 might be a brutal year.