How top performers use innovation to grow within and beyond the core

Innovation and growth are inherently linked. Companies that build new businesses and develop new offerings, processes, or business models are better able to capture growth opportunities and hedge against disruption in a highly uncertain business environment.  This conclusion was forcefully reinforced in McKinsey’s recent survey of 1,039 companies around the world. The largest share of respondents identified the ability to innovate as the most important strategic factor for generating growth over the coming 12 months.

What distinguishes top economic performers from the broader group, however, is their comprehensive approach to innovation and growth—both within and outside their current industries or geographies. In the survey, top performers cited innovating new offerings as their number-one investment priority for accelerating growth over the next 12 months. They were also more than 63 percent more likely to innovate at scale by building or acquiring new businesses outside their current industries and 50 percent more likely to expand geographically compared with their lower-performing peers.

On average, 80 percent of corporate growth comes from within a company’s core industry, and innovation is critical to that growth. While overall industry momentum and commercial levers such as pricing and marketing are critical, the next two largest factors, noted by 38 and 34 percent of the survey respondents, respectively, are innovation of new offerings within the core business and expanding into new regions.

Each of the top companies followed a clear path of strategic advantage in choosing their innovation investments, to both maximize the upside potential and limit risk. They based their strategies on evergreen principles of innovation.

1. Commit to an innovation aspiration. Companies that pursue growth even during downturns consistently outperform their peers, our research shows. Their leaders foster an aspirational mindset by building an innovation culture and ensuring employee ownership of growth initiatives.
2. Discover new ways to extend your strengths. Top performers master ways to take their unique strengths and deploy them profitably outside their immediate ecosystems. Where are your manufacturing capabilities, intellectual property, customer relationships, and other strengths truly distinctive? AI tools can facilitate these searches,7 revealing more granular growth pockets faster than traditional methods. Following your competitive advantage essentially extends your core business to adjacent or even breakout opportunities, but with less risk.
3. Accelerate into tailwinds. If you operate in an industry with high growth momentum—thanks to rapid innovation, as in semiconductor or biotechnology sectors, or significant headroom for growth, as is the case with emerging technologies—focusing on gaining more market share in that sector by innovating new offerings or acquiring new capabilities is a less risky (and likely more profitable) growth path than moving into an unfamiliar sector. Companies in mature or highly competitive markets, on the other hand, can bolster their growth by exploring high-growth markets elsewhere.
4. Evolve and disrupt your own business, even the entire ecosystem. Many of today’s top companies didn’t just ride industry tailwinds—they created them. For example, defense technology unicorn Anduril Industries is challenging the industry’s conventional “cost plus” acquisition model in the public sector by fostering an open ecosystem of partners to build customized, interoperable solutions.
5. Scale faster by hardwiring M&A into your innovation capabilities. Many leading organizations acquire capabilities, such as technologies or intellectual property, to accelerate their growth. They define growth opportunities they want to capture, develop lists of capabilities required to win in those spaces, and then assess which capabilities they already have, which they should build organically through innovation, and which they need to buy. Such capability maps help business leaders chart paths into areas of strategic importance and reduce the risk of falling behind competitors.