Innovation Management Watch Summary: “Investing in innovation: Three ways to do more with less” by McKinsey & Company)

When disruption hits, many organizations do the same thing: they protect short-term profitability by freezing or cutting innovation spend. McKinsey’s survey-based article argues that this reflex is understandable — but costly. Companies still expect future growth to come from offerings not yet on the market, and many leaders believe their business would materially underperform expectations if innovation stopped. The tension is clear: growth expectations remain high, yet budgets are flat or shrinking, and executives are being asked to “do more with less.” 

The survey results suggest the gap is not only about funding levels. It is about performance basics. Many organizations report low rates of on-time and on-budget delivery, even for incremental projects. Worse, some leaders can’t confidently estimate whether innovations are creating meaningful incremental value over what they replace. In other words, organizations may be trying to optimize innovation ROI while lacking consistent visibility into cost, timing, and value. When leaders are “flying blind,” cutting innovation can feel safer than defending investments — even if those cuts undermine long-term competitiveness. 

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McKinsey’s core message is that getting more growth without increasing budgets depends on transparency and accountability in how resources are allocated across the innovation portfolio. A common bottleneck is not insufficient funding, but unclear definitions of where resources will go and what returns they should produce. This opens the door to low-performing initiatives lingering, “pet projects” getting exceptions, and high-potential efforts being starved of support because they are longer-term or higher-risk. 

To address this, the article proposes three immediate actions organizations can take to improve innovation performance without additional cost. 

First, perform an innovation portfolio teardown — a detailed review of what’s funded, why it’s funded, and whether it matches the organization’s growth priorities and risk appetite. This includes checking alignment with strategic objectives (and exiting initiatives linked to markets the company no longer prioritizes), evaluating whether the portfolio can realistically meet growth expectations, and pruning initiatives that soak up resources without credible returns. The teardown is also a chance to identify gaps in resource allocation processes — for example, unrealistic assumptions about timelines and investment levels that repeatedly lead to overruns. 

Second, encourage risk-taking while managing downside risk. The authors emphasize that fear can suppress innovation and lead to portfolios dominated by incremental gains. Leaders should explicitly make space for experimentation within the organization’s risk appetite — and pair that freedom with clear visibility into progress so unproductive initiatives can be stopped early. The ability to halt weak projects quickly is what enables organizations to take smarter risks upfront. 

Third, reduce exceptions and restrict who can freeze projects. If an initiative is truly strategic, it must stay funded — especially when volatility triggers reactive cost-cutting. Frequent exceptions, ad hoc funding decisions, or politically driven freezes can rapidly erode portfolio performance. McKinsey argues that decisions to defund long-term, high-performing initiatives to hit short-term targets should be owned at the top (CEO-level), and that scenario-based funding rules can help teams pivot faster without relying on constant exceptions. 

Key takeaway for innovation leaders: In uncertain times, innovation is not a luxury — it is a source of options. The practical path to “more with less” is portfolio clarity: know what you’re funding, prune low-value work early, create room for smart risk-taking, and apply discipline to who can pause or pull funding. 

This watch summary is based on the McKinsey & Company article “Investing in innovation: Three ways to do more with less” by Matt Banholzer and Tim Koller, with Enes Gokkus and Laura LaBerge (June 5, 2025). All rights to the original content remain with the respective copyright holders.