Innovate or optimize? Companies need to operate like its 2020 for the next four years

Most leaders are significantly underestimating the amount of innovation they will need to compete, according to a survey of 1,200 companies.

In the 2021 Global Leadership Study, Tata Consultancy Services found that executives lean too much toward optimization when setting business strategy when market conditions demand more innovation.

Image: Tata Consultancy Services

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Leaders and workers had to change daily operations and build entirely new products and services in response to the COVID-19 pandemic in 2020. Tata Consultancy Services predicts that companies will need to maintain that level of nimble innovation to meet the demands of the market for the next four years. That’s one of the takeaways from the company’s 2021 Global Leadership Survey.  

The survey of 1,200 business leaders from Asia, Europe, North America and South America also found that leaders rank innovation as the first priority for company culture while shareholder value comes in seventh.  

The survey found that companies are likely to choose innovation when considering where to compete (new sectors, regions or business models) and how to compete (new business processes). Optimization takes priority when the questions are what to compete with and how to lead. Survey respondents plan to improve existing products and services as well as existing talent management approaches instead of developing new tactics in those areas.

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The top takeaways from the survey are:

  • Continued growth and profitability will likely come from new sources including competitors and new industries and ecosystems.
  • Innovation and a customer and employee centricity need to drive culture more than shareholder value.
  • Cyberattacks will hit every area of business.
  • Optimization will be more important than innovation for growth and profitability.

In light of these findings, TCS researchers predict that company leaders are significantly underestimating the amount of innovation required to compete, even with the massive digital opportunities companies are anticipating. The report authors also see the ability to participate with competitors and partners in cross-industry digital ecosystems with new more highly digital products and services will be essential to finding new revenue streams for the next several years.

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The survey also compared how leading companies (those with higher than average increases in revenue and net profit from 2015-2019) are setting corporate strategy compared to followers (companies with lower than average financial performance). Leaders are more likely to:

  • Collaborate with competitors
  • Include ecosystems when building future strategy
  • Predict that revenue will come from purely digital offerings

The TCS Thought Leadership Institute conducted the survey to understand how large global enterprises have recalibrated their competitive strategies following the pandemic and looking ahead to 2025. Survey respondents were asked how they strike a balance between innovation and optimization in four areas: Digital strategies, digital offerings, digital ways of conducting business and leadership.  

“This study captures the pulse of global business leaders and their nearly ubiquitous belief that massive digital opportunities abound in the next five years, and their company culture must embrace an innovation mindset,” Krishnan Ramanujam, business group head, business and technology services at TCS, said in a press release. 

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Respondents also ranked innovation, customers and employee experience as more important to company culture than shareholder value. The top 10 list looks like this:

  1. Innovation
  2. Diversity, inclusion, equal opportunity
  3. Quality driven
  4. Customer centricity
  5. Sustainability
  6. Learning, upskilling, reskilling
  7. Employee experience
  8. Shareholder value
  9. Transparency
  10. Purpose driven

Tata analysts see these findings as a sign of the Amazon effect that places the highest value on customer-centricity and innovation in a digital economy. In a bit of irony, risk tolerance came in at spot 11, a ranking that might be a stumbling block in the quest for innovation. 

The survey included more than 1,200 CEOs and senior executives from retail, manufacturing, insurance, banking and financial and healthcare companies from the US, Canada, the UK, Germany, the Netherlands, France, India, Singapore, China, Australia, New Zealand, Japan, Colombia, Brazil and Mexico. Respondents’ companies had annual revenues over $1 billion, with an average revenue of $14 billion.

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