You're freezing innovation spend and still expecting growth

Picture the planning meeting. One slide sets the revenue target for the next three years, with a generous slice pencilled in from products and services that nobody has launched yet. Two slides later, the cost plan arrives with the innovation line frozen or trimmed. Nobody in the room says the slides contradict each other, because each belongs to a different owner and a different spreadsheet.

The gap in the plan

A McKinsey global survey of 1,017 C-level and senior managers across 99 nations suggests this happens a lot (McKinsey Global Survey on innovation). Nearly 60% of respondents said their organisations are freezing or cutting innovation spending, and another 30% are holding it flat. Yet a third expect more than a quarter of their revenue over the next three years to come from offerings that are not yet on the market. About 60% also say their company would significantly underperform market expectations if it stopped investing in innovation. Leaders know the work matters and are cutting it anyway.

What the top performers do

The survey's top economic performers, defined as companies with 15% or more revenue and EBIT growth over three years, were 61% more likely to increase their innovation investments. That is a correlation, and I would not claim the spending alone produced the growth. It does undercut the idea that cutting is the disciplined choice, though. The companies pulling ahead kept funding future revenue even when budgets were under pressure.

The delivery problem

Part of the instinct to freeze is understandable. Nearly half of executives say only a quarter or fewer of their innovation projects reach market on time, and about a third report a similarly low rate launching within budget. If three in four projects run late, the money looks like it disappears into work that never ships. A freeze does nothing for that problem. It starves the projects that would have worked along with the ones that never will.

Where the money is hiding

The same research points to a better lever. A consumer electronics company freed 20% of its innovation budget through a portfolio teardown, a consumer packaged goods company freed 20% and a chemicals company freed 12%. The method is unglamorous. List every project, ask what customer evidence supports it, and stop the ones that cannot answer. The money you recover can then go to projects showing traction instead of straight back to finance.

What to do next

Start with three moves that need no new budget approval.

• Put the revenue you expect from new offerings on the same page as the innovation budget, and ask your CFO whether the two numbers describe the same company.
• Run a portfolio teardown this quarter, and make every project owner show customer evidence or hand back the funding.
• Shrink the size of each bet and keep placing several. Fund small tests that produce evidence from real customers in weeks, and release more money only when that evidence arrives.

If your teams need a structured way to run those small tests, our Lean Startup Product Sprint gives them a working method. Either way, someone in your organisation needs to own the gap between the growth you have promised and the work you are funding. If that person is you, start with the one-page comparison.