How Do Innovative Companies Outperform Competitors and Increase Shareholder Returns?

What Is an Innovative Growth Strategy and How Can It Help Your Business Expand?

Discover how companies outperform competitors through strategic innovation. This analysis explains how R&D and targeted mergers drive continuous business growth.

Read the full article to learn how to implement an innovative growth strategy and explore the best practices for driving long-term profitability in your organization.

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For most companies, the current business environment is one of constant disruption and chronic unpredictability. One thing does appear certain, however: According to research from McKinsey & Company, companies that embrace both innovation and growth – “innovative growers” – outperform their industry peers and provide better returns for their shareholders. Innovative growers accomplish these feats by setting their aspirations high, promoting a company culture that emphasizes and creates the capacity for innovation, and opening pathways for growth via strategic mergers and acquisitions.

Take-Aways

• Innovative growers give shareholders a better return on investment than their industry peers.
• Innovative growers make innovation central to their overall business strategy.
• Innovative growers pursue growth on multiple fronts and invest in improving their capabilities.
• Innovative growers pursue strategic mergers and acquisitions.

Summary

Innovative growers give shareholders a better return on investment than their industry peers.

McKinsey & Company surveyed 650 substantial public companies that grew relative to their industry peers between 2016 and 2021. Of these, 53 organizations grew and innovated more than their peers. “Innovative growers” outperformed in terms of shareholder returns and overall profitability: Two-thirds of innovative growers generated profits that placed them in the top fifth of Global 2000 organizations.

“Most of our innovative growers achieved total shareholder returns above their industry median between 2012 and 2022. The median excess annual shareholder return among these 50-plus companies was 11 points higher than that for Global 2000 companies.”

Innovative growers can operate in any sector, but among those surveyed, most were technology, manufacturing, media and telecom, or consumer services-focused businesses. These companies employ some shared “best practices” that organizations in any industry can emulate.

Innovative growers make innovation central to their overall business strategy.

Innovative growers do so well financially compared with their industry peers in part because they incorporate innovation into their overall business strategy. They discuss innovation within their companies far more than their industry peers. Doing so engenders an “innovation mindset” among their employees. They establish high but achievable employee goals to dispel the anxiety over failure that often slows innovation.

“Innovative growers unfailingly put innovation at the center of strategic and financial discussions, thereby signaling its importance to the growth and health of the organization.”

Innovative growers also pursue skilled employees and ways to improve their “digital capabilities.” One company surveyed boosted its online sales by 80% by creating a faster mobile checkout and developing a tool that allowed customers to visualize how products would appear in their homes.

Innovative growers pursue growth on multiple fronts and invest in improving their capabilities.

Innovative growers take advantage of existing growth opportunities within their business models. They also enter “adjacent” markets where they believe they already have a competitive advantage and the ability to grow by reaching new customers, unlocking new capabilities, or pursuing new value-chain or business model transformation opportunities.

“Innovative growers are also more likely than peers to have adopted agile operating models and implemented rigorous and dynamic resource allocation processes.”

Innovative companies surveyed tended to have flexible operating models that allowed for easier incorporation of new technologies – such as generative AI – into business processes. These companies tend to invest heavily in and achieve more concrete results from research and development (R&D). Over the past 20 years, innovative growers have been granted over twice as many powerful patents as their industry peers. Such patents amplify a company’s capacity to generate value. One medical technology company wanted to increase its robotics offerings, so it began channeling more resources to R&D. With these extra resources, the R&D team was able to generate roughly 750 more patents than the company’s competitors, resulting in a significant return on investment for shareholders.

Innovative growers pursue strategic mergers and acquisitions.

Innovative growers benefit from mergers and acquisitions (M&A), which they pursue in accordance with predetermined growth strategies. By defining their growth objectives clearly, companies can target appropriate M&A options and act quickly when opportunities arise.

“Innovative growers complete three times more digital M&A deals compared with peers.”

Innovative growers use M&A as a way to acquire new technical capacities as well as intellectual property. For example, a technology company sought to expand its product line and ecosystem to include home security goods and services. They purchased a wireless home security camera company and several other companies within the industry. In so doing, the company also acquired associated patents, which allowed them to go on to create new products.

About the Authors

Matt Banholzer is a partner in McKinsey’s Chicago office; Rebecca Doherty is a partner in the Bay Area office; Alex Morris is a partner in the Toronto office; and Scott Schwaitzberg is an associate partner in the New York office.