Creativity’s bottom line: How winning companies turn creativity into
business value and growth
Top-performing
companies use four key management practices to turn creativity into value.
Most of us can remember a couple of favorite ads.
They’re funny, clever, thoughtful. Creativity can delight, even inspire. But
does it generate business value?
The short answer is
yes. That conclusion came through clearly in McKinsey’s analysis of one widely
recognized proxy for creativity. To have a quantitative measure that could be
used to examine the linkage between creativity and business performance, we
developed the Award Creativity Score (ACS), an index based on the prestigious
Cannes Lions awards given annually for advertising and marketing excellence.
The ACS index weighs
three factors: the total number of Lions won by each company between 2001 and
2016, with more points assigned for the most prestigious awards; the breadth of
categories represented; and consistency over time, based on the number of years
a company has been recognized.
We found that the most
creative companies, based on their ACS, did better than peer firms on two key
business metrics: financial performance and McKinsey’s Innovation Score. This
doesn’t mean there’s a straight-line path between climbing the podium at Cannes
and besting market indices or out-innovating competitors. But when we dug more
deeply, we found that the most creative companies did certain things
differently. Specifically, they exhibited a set of four business practices that
we believe drive their marketing creativity, their ability to innovate, and
their capacity to translate those virtues into business value.
While measuring
creativity remains an inexact science, our analysis provides evidence to
support the notion that creativity matters for the bottom line and identifies
the practices that differentiate the most creative companies from the rest.
Creativity is associated with superior performance
There are many reasons
why companies perform well, such as market position or technology leadership.
But it’s also true that creativity is at the heart of business innovation, and
innovation is the engine of growth. With an increasing focus on the science of
marketing—including performance marketing, marketing AI, and advanced
analytics—it’s important not to forget about the art of
marketing.
Creative leaders outperform their peers on key financial
metrics
When we looked at the
financial results of companies whose ACS scores were in the top quartile, we
found they performed better than peer firms on three key measures:
·
67 percent had above-average organic revenue
growth.
·
70 percent had above-average total return to
shareholders (TRS).
·
74 percent had above-average net enterprise
value or NEV/forward EBITDA.
Firms that scored lower
on ACS were far less likely to post above-average financial results.
We have further
confidence in the linkage between ACS and superior financial performance, given
other McKinsey research that has shown the value of distinctive creative work.
In almost 90 percent of categories, consumers are not loyal to their chosen
brands, and almost 60 percent will switch when considering a new purchase.3This means the moment of initial
consideration can be decisive in a consumer’s decision journey—and great
creative can be a key to winning the battle for initial consideration.
Creative leaders are also more innovative
Firms in the ACS top
quartile also scored 16 percent higher than the average consumer-facing company
on another key measure: McKinsey’s Innovation Performance Score, which is based
on a set of indicators that our research has shown are linked to innovation
outcomes.These insights are corroborated by other McKinsey research, which has
shown that the fastest-growing companies—the ones we call Creators—are
particularly strong at developing new products, services, or business models.
The four practices associated with creativity and
innovation
Although creativity is
strongly correlated with superior business performance, senior executives can
hardly expect better results simply by exhorting their people to “be more
creative.” To determine what executives can do, we used data from two surveys
to identify the distinctive practices of firms with top ACS scores.
The first was a new,
dedicated survey explicitly designed to identify practices associated with
creativity. The second was our Innovation Diagnostic, which tests for 104 practices
associated with innovation. The combined data show the firms that consistently
do well at Cannes are distinguished by four key practices. These provide clear
lessons for companies looking to turn creativity into growth.
1. Hardwire creativity and innovation in daily practices
As obvious as it may
sound, creativity and innovation need to be business priorities. Even more
important, a company needs to execute on those priorities in its daily
practices. This can be difficult, given the relentless pressures on business
leaders to hit quarterly financial targets.
In companies within the
top ACS quartile, senior executives serve as role models for creativity and
innovation. They don’t simply encourage their people to pursue those
objectives—they see themselves as personally on the hook to deliver creativity
and innovation.
In addition, almost 60
percent of companies in the top ACS quartile self-identify as industry shapers
or innovation leaders versus slightly more than one-third of their peers. In
the most creative firms, a strong narrative has permeated the enterprise:
people inside the organization believe in what the company is trying to do and
that they can help to achieve it.
This commitment is
reflected in a mind-set that prioritizes creativity and innovation. Thirty
percent of the firms in the ACS top quartile discuss creativity and innovation
at more than half of their board meetings versus only 20 percent of peer firms.
Seventy percent of top-quartile firms view marketing spend as an investment rather
than an expense, compared with only 40 percent of other firms. Moreover, nearly
one quarter of the top-quartile firms prioritize marketing spend relative to
other budget categories, something none of their peer firms do. By looking at
marketing spend more as a cost of goods sold than as a discretionary operating
expense, these companies are able to govern their resource allocation and
decision making in a fundamentally different way.
The commitment to
creativity shapes how money gets spent. As a percentage of sales, the marketing
budgets of top-quartile firms are more than two-and-a-half times those of their
peer firms. The most creative firms also spend more on data scientists. As a
result, 86 percent of top-quartile firms consider their marketing capabilities
to be “best in class,” something only 40 percent of other firms say. Investing
in the right tools—and even more importantly, in the right people to use
them—is a fundamental prerequisite for successful innovation.
2. Become customer fanatics
Companies at the top of
the ACS rankings have a near-fanatical devotion to understanding their
customers. This leads them to go way beyond standard research methods like
surveys and focus groups. Instead, they rely on multiple sources—advanced
analytics, ethnographic research, and behavioral analysis—to understand
customers intimately.
Three key practices are
at the core of the Discover dimension of McKinsey’s Innovation Diagnostic:
customer orientation, use of multiple lenses to generate insights, and development
of differentiated value propositions based on those insights. Along all these
dimensions, companies in the ACS top quartile did better than other
consumer-facing firms, with 15 to 17 percent more of their people agreeing or
strongly agreeing that their organizations were strong in these practices.
The most creative
companies employ two particular practices more than other firms: they regularly
observe customers in the customers’ own environments, and they understand the
problems customers are seeking to solve through use of their products and
services. Creative firms also combine insights gained about customers’ needs
with technologies and new business models to come up with white-space solutions
and distinctive marketing campaigns.
3. Feed the need for speed
Speed may be the
defining attribute of modern business, and ACS leaders outperform their peers
in this regard. Specifically, survey responses tell us they translate insights
into action—new product launches or new marketing campaigns—more quickly than
comparable firms.
For a start, the
companies in the ACS top quartile make faster decisions: 74 percent of them say
their decision making is “sometimes fast,” as opposed to only 40 percent of
other firms. And 11 percent of the top-quartile companies say “risk taking is
encouraged” internally, something reported by none of their surveyed peer
firms.
While the most creative
companies move quickly, they also do so with rigor, by defining specific
deliverables as opposed to vague goals, and making clear who is accountable for
delivering and when. Almost three quarters of companies with top-quartile ACS
scores have “clear goals” and “regularly track and report” against these goals
versus only 40 percent for firms with lower ACS scores.
4. Adapt or die
Firms with top ACS
scores also show an ability to adapt after the launch of a new product or
marketing campaign. The top-performing companies recognize that launch is just
the beginning of a process of obtaining marketplace feedback, which serves as
the basis for ongoing evolution and improvement. Nearly two-thirds of the
people working at companies in the ACS top quartile agreed or strongly agreed
that their organizations were able to learn from early market signals, as
against fewer than half at other firms.
To adapt well involves
applying data and analytics to understand how customers are reacting to a new
product or campaign and then moving quickly to reshape the offering in
response. A core capability to make such a test-learn-adapt approach work is
being able to work in agile ways. That starts with putting in place
cross-functional teams with the authority to act, thereby avoiding delays for
approvals or expert input. More than three-quarters of people at ACS
top-quartile firms agreed or strongly agreed that their organizations had a
strong cross-functional culture, while only 56 percent of people at other firms
could say the same.
Many executives
consider creativity an ineffable activity that can’t be managed—and, in fact,
creative ideas often do come from stark moments of deep insight. But as the
writer Jack London noted, “You can’t wait for inspiration, you have to go after
it with a club.”
Effective
creativity—the kind that drives growth and business performance—comes from
“working the problem” and having in place disciplined management practices that
can foster sparks of insight and then shepherding them into tangible business
outcomes.
By Marc Brodherson, Jason Heller, Jesko
Perrey, and David Remley
http://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/creativitys-bottom-line-how-winning-companies-turn-creativity-into-business-value-and-growth?cid=other-eml-alt-mip-mck-oth-1706&hlkid=bb285a89a6cf4f1d8a258c6eee8a2f5d&hctky=1627601&hdpid=b0e338ff-a4de-4e8b-8918-f9142c5efcaf
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