June 16, 2023 How CEOs Can Drive Innovation in Manufacturing

As emerging technologies have erased traditional boundaries, innovation will lead the way and manufacturing CEOs must drive that change.

For decades, manufacturers had a playbook for reliable profits that worked well:

1. Create products
2. Farm them to distributors and retailers
3. Cut costs or boost unit sales.

However, the game has changed dramatically, and yesterday’s playbook won’t win the game today.

As emerging technologies have erased traditional boundaries between sectors, innovation will create tomorrow’s market leaders, while yesterday’s may struggle to find their place on this new competitive playing field. In this environment, innovation isn’t just about developing new products but about changing cultures and mindsets.

Based on our experience working with leading innovative companies, the below is a playbook guided by five main insights for CEOs to drive innovation:

Disruption dies in diffusion

Today’s disruptive pace requires a general who leads the troops from the frontline. The innovation process is like driving through quicksand. The vehicle will stall as it slows down and loses its momentum. When innovation loses its momentum, it also stalls. It is critical that the CEO is at the forefront and keeps moving innovation forward, not acting merely as a supporter or champion. The more disruptive the innovation, the more it needs the CEO leading from the front, shepherding the idea and guarding it from dilution due to personal and political agendas, bias, partial understanding, and/or risk aversion.   

Past is not a prologue for future

Even if a CEO’s organization is king on the chessboard, it can be trapped by pawns attacking from unforeseen directions. CEOs must ask: “Am I positioned to play the game better, win the game — or to change the game?” The more successful you are today, the more important that you make disruption part of your agenda to avoid the pitfall of complacency.

In this dynamic environment, CEOs should be looking toward ecosystems to amplify innovation and market impact beyond what can be achieved with their own resources, at an accelerated pace. As the natural focal point for building these relationships, CEOs should recognize and leverage the unique strategic advantages that come with their role — across business units, markets, regions and more. This is affirmed by 71% of manufacturing CEOS in the EY CEO Imperative Study.

Focus on customers – big and small

Data from consumers fuels new products, new business models and new markets — yet historically manufacturers may have little to no interaction with their end-consumers or even their customers. Even less is known about those whose needs largely aren’t being met, which are untapped markets waiting for solutions.

The EY CEO Imperative Study shows that customer-sourced innovation is a top priority for CEOs overall, with 67% focusing on it. However, only 40% of CEOs at thriving companies say it is a top priority. When manufacturers better understand their customers they’re positioned to both grow and transform their business models and value chains, while pushing for innovation and taking calculated risks.

One need only look to online room or vehicle rental platforms as well-known examples of using available data to tap into under-utilized inventories and customers to revolutionize entire markets.

Embrace base hits as well as home runs

A CEOs job is to balance risk while driving growth. Disruptive ideas come with risk.

• A portfolio approach to innovation (similar to venture capitalists) is essential to enable leaders to manage the balance between sure incremental bets vs. big disruptive bets.
• Commercialize quickly and fail even faster: When innovation is driving growth on the top and bottom lines, investors are more likely to support it.
• Treat innovation as a series of sprints rather than a perfect product. If a problem can be defined, solved quickly and the lessons learned used to inform the next iteration, even if the feedback cycle is small, positive results will occur.
• Consider alternate investment strategies to engage with innovators/start-ups and other ecosystem players.

Nontraditional upstarts are achieving what many manufacturers with decades of experience never could, through different approaches to hiring, partnering, connecting, and building. CEOs must shed yesterday’s competitive mindset and accelerate their organizations into tomorrow

To avoid tunnel vision, embrace multidimensional thinking, experimentation and engagement

Solutions emerge when multiple perspectives and approaches are engaged in problem-solving. Outside perspectives offer a lens unaffected by the company’s internal culture, therefore looking outside an organization should be considered.

Additionally, talent in manufacturing grows scarcer by the day: by 2030, over two million manufacturing jobs in the US could go unfilled according to the National Association of Manufacturers. It is vital for a CEO to create a narrative around their organization’s purpose that appeals to the market and rewards innovation — so jobs are filled with both individuals who have specialized skills and also with people who have diverse ways of thinking.

Conclusion

CEOs must lead the charge like their future depends on it — because it does. While it’s true that innovation is the job of everyone in an organization instead of just one person, the CEO must determine the path forward and set priorities, as well as stomp on the accelerator to compel action when institutional inertia threatens to drag down needed change.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

About the Author

Mitali is a principal in the EY-Parthenon Strategy practice.

Over the last two decades, she has helped clients navigate unique performance improvement issues that straddle strategy and operations, including corporate and business unit strategy, merger integration, corporate venturing, business model innovation, product innovation and development, and performance improvement.

Mitali has both rich and diverse experience, working with Fortune 100 companies, to startups in diverse industries. She has worked extensively with the C-suite and board level to quantify, design and deploy innovative and strategic changes that increase shareholder value.

Mitali holds an MBA from the Kenan-Flagler Business School, University of North Carolina, Chapel Hill and an EE (with honors) from the National Institute of Technology, Kurukshetra, India.

https://www.ey.com/en_us/people/mitali-sharma

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