Investing in innovation: Three ways to do more with less

Investing in innovation: Three ways to do more with less

https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/investing-in-innovation-three-ways-to-do-more-with-less

By Matt Banholzer and Tim Koller
with Enes Gokkus and Laura LaBerge

In times of disruption, many organizations freeze their innovation spending despite its critical importance for long-term growth. Here’s how to avoid that trap.

Executives view innovation as their companies’ primary source of competitive advantage for delivering growth. However, in many sectors, that belief doesn’t align with companies’ spending on innovation or the returns they get on those investments, the latest McKinsey Global Survey on innovation finds.

During times of economic volatility, business leaders tend to focus on short-term profitability, often putting longer-term projects designed to spur growth on the back burner. Yet as our long-standing research shows, companies that take a through-cycle approach to investing in growth and innovation consistently outperform their peers.

Organizations that seek ways to develop pathways for future growth can gain a competitive advantage that lasts through periods of uncertainty.

In fact, innovation can be a solution to weathering uncertainty. When it’s unclear, as it is today, what the “next normal” will look like, organizations that seek ways to adapt their business models or processes and develop pathways for future growth can gain a competitive edge that often lasts through the recovery. In short, companies can’t afford to wait until the world is calmer before investing in growth—especially since the duration of current volatility is impossible to predict. Instead, they should adapt their short-term decisions to the shifting conditions while striving to maintain a portfolio of investments that will fuel their long-term success.

Rising expectations for getting more from less

In late 2024, we surveyed 1,017 executives across industries and regions to understand how they are approaching their innovation investments. The responses clearly indicate that companies are looking to generate higher returns on innovation spending without increasing budgets. Nearly 60 percent of respondents say they are either freezing or cutting their spending on innovation. Another 30 percent are holding funding for innovation flat

Notably, top economic performers are 61 percent more likely than others to increase their innovation investments. Additionally, some industries—including healthcare and pharmaceuticals, consumer goods, and technology—show higher willingness to invest in innovation.

Even as they curtail innovation spending, however, many companies view innovation as essential to growth. A third of surveyed executives expect more than a quarter of their companies’ revenue in the next three years to come from offerings not yet on the market. This expectation of innovation-fueled growth is highest in healthcare and pharmaceuticals, technology, and advanced industries.

Additionally, approximately 60 percent of respondents state that their companies would significantly underperform market expectations if they stopped investing in innovation. Nearly half also report that they will need to significantly innovate their current business models to remain financially viable over the next three years.

Growth ambitions undercut by missing innovation basics

The feasibility of executives’ aspirations to generate higher growth at current spending levels is doubtful given the success rate of their existing innovation portfolios. For example, nearly half of respondents say that only a quarter or fewer of their innovation projects get to market on time, and about a third say they see a similar low rate launch within budget. This is true even for incremental innovations, which are typically more predictable than investments in breakout moves. What’s more, many executives are unable to estimate how much additional value innovation initiatives would deliver over the offerings they would replace. This lackluster track record, combined with plans to lower innovation spending, could produce a significant gap between companies’ expected and actual growth.

When asked how their organizations’ innovation practices align with our long-established eight essentials of successful innovation, the surveyed executives’ responses highlight four areas in which the majority of organizations consistently struggle. In each area, fewer than 10 percent of respondents say that their companies perform strongly on the criteria for mastery of the corresponding essentials, and more than half identify them as capabilities in which their organizations are deficient.

When we looked deeper at companies whose executives report strong performance on these four practices, we found that they are more than twice as likely as those with the lowest-decile performance on these factors to find white space ahead of their peers and have more than half of their innovations launch within budget. They also report being up to three times better at scaling new businesses or offerings, attracting and retaining key innovation talent, and launching innovations on time.

The biggest disparity, however, is in respondents’ understanding of how their innovation projects perform. When asked whether incremental innovations tended to deliver more value than the offerings they replaced, more than a third of executives whose companies perform poorly on the four factors report that they do not know, compared with fewer than 10 percent of respondents from companies that perform well.

A similar pattern exists in executives’ understanding of the time and total investment that new innovations require: Up to a third of respondents whose companies do not follow these four innovation practices say their organizations have no visibility into whether their offerings launched on schedule or within budget. When organizations are flying blind on their innovation investments, maximizing value from them is nearly impossible.

Three steps to getting more growth at no extra cost

Whether business leaders are seeking to get more growth from their existing innovation investments or planning to increase their spending, transparency and accountability are imperative. One of the most critical (and most common) bottlenecks in the innovation process stems from ineffective allocation of resources—not because of insufficient funding but rather because of unclear or inaccurate definitions of how resources will be deployed and what kinds of returns they are expected to generate. This can result in low-performing initiatives being funded at the expense of higher-performing ones or critical initiatives failing because some teams deliver on their work while others don’t.

Companies can take three immediate actions to improve the performance of their innovation investments without additional cost: conduct a detailed assessment, or “teardown,” of the current innovation portfolio; encourage risk-taking while managing risk; and restrict who can freeze projects.

Perform an innovation portfolio teardown

Innovation portfolios are where business leaders’ commitment to their growth strategy is put to the test: If organizations aren’t funding a portfolio of initiatives, their leaders’ aspirations mean little. As our survey results demonstrate, most organizations struggle to make trade-offs between short- and longer-term initiatives, as well as among projects with different risk profiles. This inhibits their ability to align resources with business goals, particularly across multiple growth horizons. To better understand what their innovation dollars are funding and the returns these projects are expected to bring, business leaders can do a portfolio analysis, or teardown. The process involves applying an analytical methodology, as outlined below, to make better-informed decisions on innovation spending and improve ROI.

Is innovation spending aligned with strategic objectives? This analysis assesses the degree to which innovation spending aligns with expected growth areas, strategic priorities, and shifts in competitive advantage. Companies often continue to fund innovations for markets they had earlier decided to exit. This happens especially often during times of economic disruption when relative market attractiveness might change quickly, leaving the pipeline out of sync with new priorities.

It is also critical to align the portfolio with the company’s risk appetite. For example, organizations that aspire to be “first movers” or market leaders need to have a higher share of bold innovation projects than more conservative organizations that focus on incremental improvements have. Without this alignment of risk profile and growth demands, business leaders may end up disproportionately cutting high-risk, high-reward projects, leading to a portfolio dominated by relatively low-growth projects. Alternately, overprioritizing higher-risk innovation initiatives can leave companies exposed if their riskier bets fail. When the business environment is changing rapidly and risk assessments lag behind reality, companies are particularly prone to overestimating the stability of past trends.

Can the innovation portfolio meet growth expectations? Organizations with several business units sometimes lack a clear understanding of how one unit’s high-potential initiatives stack up against another’s low-potential initiatives. After all, one business’s low-hanging fruit can deliver higher growth for the overall organization than another’s highest-potential bet. Without this enterprise-level view, business leaders may defund initiatives with high growth potential in the service of equally allocating resources across business arenas rather than optimizing funding for the overall portfolio’s returns. Similarly, a lack of visibility into how business unit leaders make trade-offs between near-term and longer-term priorities can cause the enterprise to overweight short-term ROI versus long-term growth.

Before conducting a portfolio teardown, business leaders should consult their finance colleagues on how to weigh different risk levels or payout times. A single business unit or function, such as corporate R&D, can serve as a test case to ensure the math works. Shortfalls in the portfolio’s ability to meet growth expectations can then be filled organically by launching new businesses or offerings or through acquisitions.

Have underperforming initiatives been sufficiently pruned? Once business leaders have instituted a rigorous way of evaluating and comparing the likely performance of different types of initiatives, they can compare the projects’ net present value (NPV) to the resources needed to deliver it. This analysis generally reveals a long tail of low-ROI initiatives that are soaking up resources that higher-performing projects could better employ. Establishing stage gates can allow decision-makers to cut underperforming initiatives early in the development funnel.

Consider the experience of a global producer of baking ingredients that found its R&D portfolio crowded with initiatives but delivering disappointing returns. The company appointed a “project killer”—an individual with deep knowledge of both food technology and the business aspects of the industry—to rein in project creep. This person maintained a database of all active projects, noting areas of repeated inefficiency, lack of success, or lack of market opportunity, and based on these criteria, built a dispassionate case for why a project should or should not continue.

Do gaps exist in the resource allocation process? Many organizations have performance expectations that are out of sync with past reality, leading to inflated growth projections that leave the companies exposed to missed growth targets and budget overruns. A methodical review of the reasons why recent innovation projects succeeded or failed can enable leaders to better vet the assumptions behind revenue projections and time to launch for initiatives in the pipeline. A postmortem can also flag breaks in the innovation process, such as high rates of exceptions being made for pet projects or “shadow spending” that doesn’t go through the standard approval process.

A portfolio teardown can identify significant opportunities for better resource allocation. One consumer electronics company ended up rebalancing its innovation portfolio, which freed up 20 percent of the budget, and identified opportunities for a 10 percent ROI increase at the portfolio level. Consumer-packaged-goods and chemical companies that followed a similar process freed up 20 percent and 12 percent of their R&D budgets, respectively, to deploy in higher-performing projects.

Encourage risk-taking while managing downside risk

Fear is an innovation killer. Corporate cultures and policies that are too risk averse can stifle innovation and lead to portfolios that deliver only incremental gains. Business leaders should dedicate explicit time and resources for teams to innovate, provided the projects meet the organization’s risk appetite. Setting targets that build in an allowance for failure and establishing processes for learning from those failures helps foster more innovation.

A corollary to allowing more risk-taking, however, is the need for visibility into a project’s progress. Companies that quickly halt unproductive initiatives can take more risks up front because they manage the downside. Failure to do so often leaves organizations with bloated pipelines of underperforming initiatives that deliver no growth.

Eliminate exceptions and restrict who can curb funding

A project isn’t a real priority if it isn’t funded. If the CEO or CFO considers an innovation initiative strategically important, they should ensure that the budget reflects it. Many organizations cite frequent exceptions to the resourcing process as an obstacle to their ability to deliver strong performance from their innovation portfolios. These exceptions stem largely from influential leaders promoting pet projects and shifts in business context that outpace the existing planning processes. Raising the company’s metabolic rate by increasing the frequency of updates to annual and quarterly plans might be required, but companies shouldn’t rely on frequent exceptions as a correction mechanism, as it can lead to inefficiencies and underperformance of the portfolio.

Companies that frequently pull funding from high-performing, longer-term initiatives to hit short-term targets sacrifice future growth and overall performance. It’s a tough choice that every management team needs to make at times, but it’s a call that the CEO should fully own. Things change—the past few months have clearly shown that. Exceptions to funding rules can multiply in times of uncertainty, especially if the resourcing process doesn’t include scenario planning. If such decisions are made on an ad hoc basis or, worse, through internal politics, the result could be a rapid erosion of the performance of the company’s innovation portfolio. It’s therefore important to categorize which projects will be funded (or defunded) as resource availability changes, existing initiatives fail to perform, or the business context shifts. Tying decisions to scenarios or contingency plans enables organizations to pivot faster when disruption happens.

U.S. outdoor hospitality is set to bloom in 2026. Here’s why.

https://hotelsmag.com/news/outdoor-hospitality-is-set-to-bloom-in-2026-heres-why/?

Jesse Baker is the founder and CEO of JET Hospitality, an outdoor travel & lifestyle brand, offering different types of accommodations and custom sportsman experiences in gateway locations across the Western U.S.

For decades, the hotel industry talked about “bringing the outdoors in.” Now in 2026, the moment has arrived, hotels have reversed course and an awakening is happening.

We’re entering a new era where travelers aren’t just looking to be near nature: they want to be immersed in it. From glamping and tiny homes to revitalized motor inns and RV-friendly resorts, outdoor hospitality is no longer a niche category but a core growth platform for the industry.

The global glamping market alone grew at an estimated 12.5 percent compound annual growth rate between 2020 and 2025, which shows sustained demand for outdoor-oriented accommodations that blend comfort with access to nature. 

The Moment Has Arrived

Outdoor travel demand has been building steadily for years, but the momentum entering 2026 feels different. The healing power of nature was pegged as a top luxury travel trend for the year, but we’re seeing that in all market segments, not just high-end.  

Additionally, the market signals have changed. 

In fall 2025, Marriott Bonvoy officially launched its Outdoor Collection and a dedicated outdoor travel platform, opening hundreds of outdoor-oriented hotels and tens of thousands of homes to mainstream travelers. 

Shortly after, Google Maps and Ford partnered to bring the U.S.’ longest off-road route, the TransAmerica Trail, onto Street View, making thousands of miles of remote terrain digitally accessible for the first time. 

Once major hospitality brands and technology companies start building infrastructure around outdoor travel, it’s clear this isn’t a niche anymore. We’re still early—but that’s exactly why operators should be paying attention now.

Location Strategy

One of the biggest shifts I see is how location is being redefined as a strategic asset. Properties near national parks, state parks, scenic byways, trail systems and outdoor-recreation hubs are no longer adjacent benefits—they’re becoming primary demand drivers.

The real estate paradigm is evolving accordingly. Across the industry, we’ve seen strong performance from purpose-built glamping resorts and thoughtfully reimagined roadside properties. Instead of competing for dense urban footprints, developers are finding opportunity in motor inns, RV parks and underutilized highway-side assets positioned along outdoor corridors. These properties offer what travelers increasingly value: space, simplicity and a sense of place.

2026 and the Great American Road-Trip

Throughout 2026, continued growth in road trips, multi-generational trave and extended stays built around outdoor exploration is expected, as the United States celebrates its 250th anniversary. People want to experience the history behind those 250 years firsthand, and outdoor lodging will sit at the center of that movement this summer and beyond it.

For hotel owners, this moment calls for flexibility. Travelers want options: tiny homes, glamping units, RV sites and hybrid accommodations that allow families and groups to travel together without sacrificing comfort. Outdoor-friendly amenities like firepits, trails, outdoor dining and communal gathering spaces are no longer add-ons: they’re central to the experience.

How Hoteliers Can Capitalize

For operators considering how to participate in this shift, a few principles stand out:

Design for the outdoors, not just adjacent to it. A patio alone doesn’t make a property outdoor-led. Thoughtful design includes trail access, gear storage, a curated map and programming that helps guests engage with the surrounding landscape.

Build flexibility into new projects. Modular cabins, space for RVs and campsites and purpose-built glamping structures allow owners to scale intelligently while adapting to seasonal demand.

Elevate the experience, not just the room. Even in outdoor settings, hospitality still starts with heart. A warm welcome, thoughtful service and human connection matter just as much when guests are intentionally unplugging.

Partner locally. Aligning with state parks, scenic byways, outfitters and community events creates a sense of place and embeds a property into the destination’s story.

Navigating the Challenges

Outdoor-focused properties do come with operational considerations: seasonality, infrastructure, staffing and regulatory complexity. These challenges are manageable, but only with intention.

At one of our coastal properties, for example, guest access to the beach required a long, inconvenient walk. Rather than accept that friction, we invested in building a bridge that created direct access. The result was a five-minute stroll instead of a trek—and a significantly improved guest experience.

Staffing is another common hurdle. Seasonal hiring requires thoughtful onboarding, retention strategies and clear pathways for returning team members year after year. Operators who plan for this early tend to outperform those who treat staffing as an afterthought.

What’s Next?

Looking ahead through 2026 and beyond, outdoor-centric lodging will continue its transition from emerging category to mainstream expectation.

The opportunity lies in differentiation. Hybrid models that sit at the intersection of traditional hospitality and outdoor lifestyle, like revitalized motor inns, highway-adjacent properties and destinations where guests can enjoy crisp hotel linens while waking up steps from a trailhead is where the industry is headed.

A Call to Action

As we move through 2026, I encourage hotel owners and developers to evaluate their portfolios through a new lens. Where is there an outdoor story potential? Where can flexibility unlock new demand? How can your property invite guests to step outside, both literally and figuratively?

If the past decade was about adding outdoor touches to traditional hotels, the next will be about rethinking lodging from the outside in. And 2026 may well mark the year outdoor-led lodging moves from trend to industry standard.

The Hard Choices Behind the World’s Most Admired Companies

This year’s World’s Most Admired Companies report finds that the best firms are going big by going long term. They also want workers in the office.

https://www.kornferry.com/insights/this-week-in-leadership/hard-choices-wmac-2026?

Short-term performance or long-term transformation? AI efficiency or value creation? In-office or remote?

Today’s business environment is defined by a host of competing forces, but it appears that the most successful firms are making some critical calls. According to Korn Ferry’s annual World’s Most Admired Companies list, the top companies are focusing much more on the long term than their peers, even amid many short-term pressures. Indeed about one-third of WMAC leaders say the pace of change has led them to invest more in new technology and focus more on future strategy, versus about one-quarter of leaders of peer companies. “WMACs are looking out further and more frequently to align strategy with accelerating disruption,” says Mark Royal, a Korn Ferry senior client partner and co-author of the World’s Most Admired Companies (WMAC) report, which Korn Ferry has published in partnership with Fortune magazine since 1997. The report’s findings are based both on key indicators and on interviews with some 3,000 executives.

As part of that long-term play, AI integration is another focus for WMACs, with nearly 40% saying it is their most pressing business challenge; only 30% of leaders of peer companies feel similarly. Royal says this is partly because WMACs often have deeper pockets and a bigger business moat than their competitors, both of which help them withstand pressure—for instance, from rising costs or changing consumer-buying habits brought on by tariffs.

At the same time, WMAC leaders have also made a clear decision on the long-running return-to-office debate. More than 45% of WMAC executives say office time is collaborative, and that the quality of their work benefits from employees’ physical presence. By contrast, less than 30% of those at peer companies feel the same way. Instead, they report spending their day in the office on calls or in virtual meetings, both of which they say they can accomplish at home. “WMACs make returning to the office purposeful and worth it,” says Royal, “while peers are fueling frustration and disengagement.”

One big difference: The research shows that WMACs are doubling down on talent development. They are doing it by investing more in learning and development, encouraging lateral moves to gain experience, thereby lessening the strain on managers. Peer-company executives, on the other hand, report spending more time in meetings and routine tasks that slow down productivity and strategic planning.  

While WMACs have historically focused more than their peers on people and development, their approach is shifting to “a stewardship over ownership model,” says Laura Manson-Smith, global leader of organizational strategy consulting at Korn Ferry and lead author of the report. Nearly 60% of WMAC executives say they have shifted their emphasis from long-term retention to shorter stints that produce value both for the firm and the employee. Put another way, they not only expect talented workers to leave, but actively develop them to be redeployed elsewhere in the firm, or even outside of it. Whereas 40% of peer-company executives cite traditional P&L responsibility as the fastest path to success, less than 30% of WMAC executives do. Other emerging paths to leadership at WMACs include lateral moves to gain experience, leading through technology, and even leaving the organization and coming back with new skills. “It’s a mindset shift to more of a marketplace approach,” says Manson-Smith, “where talent is an enterprise asset to be built, protected, and moved to where it creates the most value.”

DUHC&S | Strategic Hospitality Consulting & Advisory

We transform hospitality and tourism businesses through strategic solutions, operational efficiency, and comprehensive renovation. With over  40 years of experience  working with brands like Hilton, Hyatt, Sheraton, and Sonesta, we enhance asset value and profitability through:

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*Market penetration and commercial strategies

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✅ Successful projects across 6 Latin American countries

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