‘Innovation Execution’—a new industrial paradigm emerges

The urgent drive to develop clean technology and innovate in many rapidly changing sectors, from automotive to robotics to industrials, has given rise to a wave of transformation that is altering the competitive landscape globally.

Much of the disruptive innovation we are seeing today comes not from established OEMs, but from disruptors who are challenging convention at every turn. These disruptors—often, but not exclusively, from China or Silicon Valley in the United States—are doing so both in nascent sectors such as clean energy storage as well as in more established ones such as automotive or heavy equipment manufacturing.

Disruptors are outperforming established OEMs on price, performance, pace of innovation, and capital expenditure (capex) efficiency by embracing an operating model that emphasizes innovation in every part of the business. They set high ambitions, invest heavily in research, challenge universal “truths,” and look for opportunities across the ecosystem, not just in manufacturing.

McKinsey’s name for this new operating model is the Innovation Execution model (see sidebar, “Innovation Execution: A new industrial paradigm”). The approach drives innovation and industrialization at pace and at scale, achieving steep cost ramp-down and performance improvements. As seen during previous paradigm shifts, such as industrial automation or lean manufacturing, this radical, emerging model may force established OEMs to adapt to remain competitive.

In this article, we analyze the performance of disruptors, who initially emerged from China and the United States, across speed, cost, performance, and capex efficiency to explore how they are achieving an unprecedented pace of innovation.

Established OEMs can take inspiration from these disruptors as they pursue their own transformations—building on their strengths, which include strong brands, extensive existing fleets and equipment in the field, and robust sales and service networks.

Disruptors have already gained significant market share in automotive and could soon become viable global competitors in a range of other sectors, such as equipment manufacturing, including trucks and mining equipment, industrials, and advanced technologies. Established OEMs still hold an advantage in many of these sectors and can seize this window of opportunity to turn disruption into a competitive advantage by embracing Innovation Execution.

Disruptors are rapidly gaining market share across industry verticals

For decades, established OEMs enjoyed stable market share across many industry verticals. However, the past five to ten years have witnessed a dramatic shift, with new disruptors, initially from China and the United States, rapidly gaining market share in technologies with significant innovation potential, such as electrification, renewable energy, robotics, autonomy, and AI.

In battery electric vehicles (BEVs), particularly, there has been a strong entrance of disruptors, mostly from China. These new disruptors have successfully entered the market and quickly gained share across all regions. For example, OEMs from China now represent around 10 percent of all BEV passenger car sales in Europe today (Exhibit 1).

We are seeing similar developments in robotic vacuum cleaners, where new market entrants from China have a majority share of the global market.¹Robotic vacuum cleaners market share analysis, Future Market Insights, March 14, 2025. In humanoid robots, Chinese and US disruptors dominate the market, accounting for more than 60 percent of the global humanoid robotic supply chain.²The Humanoid 100: Mapping the humanoid robot value chain, Morgan Stanley, February 6, 2025.

Outperformance in cost, performance, pace, and capital expenditure efficiency

Historically, OEMs from China lagged behind established OEMs on quality, specifications, and reliability. This has changed. Today, the growth in market share by disruptor OEMs comes from product quality, pace of innovation, and rapid cost ramp-down—as well as from a competitive advantage with regards to the efficient deployment of capex.

In multiple instances, the cost ramp-down curves for these disruptor OEMs are an order of magnitude faster than those observed at traditional European and US OEMs over the last decade. While government support has certainly played a role in the cost ramp-downs of OEMs from China, our analysis suggests government subsidies account for a smaller portion of the cost difference with established OEMs. What counts more are the goals they set and how they execute. For example, established OEMs target 1 to 2 percent cost improvement year on year, while our research shows that new OEMs from China can achieve 5 to 10 percent annual cost reduction, or more.

To illustrate: In 2020, Chinese OEMs were largely on cost parity with European and US established OEMs in BEV passenger cars. In the last four years, however, Chinese disruptors have reduced costs by as much as 20 percent (Exhibit 2). Looking ahead, if the current trajectory continues, the gap between disruptors and established OEMs will get larger over time.

Disruptor OEMs are not only outperforming on cost ramp-down; they are also unlocking performance improvements at a rate two to three times higher than their established OEM counterparts.

Taking passenger BEVs as an example, in the eight years from 2016 to 2024, one Chinese car manufacturer was able to more than double the maximum range of its flagship car, while a European established OEM grew its range by 50 percent (Exhibit 3). The disruptor not only caught up with the established OEM, but surpassed it, creating a 10 percent range advantage and a 40 percent cost advantage. Of course, there are other dimensions beyond range where European OEMs may still have an advantage; however, the example showcases how rapidly Chinese OEMs could close the gap in the dimensions they prioritize.

Undoubtedly, the trajectory of disruptor OEMs from China has been most pronounced in BEV passenger cars, but this is far from the only industrial sector where we see them rapidly closing the performance gap, while maintaining a significant cost advantage. In mining and construction equipment, for example, OEMs from China are rapidly closing the gap to established OEMs on both technical specifications and reliability; the latter being an important criteria for equipment purchases in the mining sector (Exhibit 4).

It’s clear there is still a gap between disruptors and established OEMs in the complex mining equipment industry. However, the trajectory of improvement showcases how rapidly disruptor OEMs have managed to shrink the distance to established OEMs in terms of performance, a competitive edge that has historically allowed European OEMs to maintain a strong position in the mining equipment space.

These examples emphasize how both cost and performance underpin disruptors’ market share expansion, and similar developments can be seen across a large set of technologies beyond automotive and heavy machinery, such as solar cells, robotic appliances, and batteries. In robotic vacuum cleaners, for example, disruptors from China have been leading the cost ramp-down, releasing new models more frequently and creating significant advantage over established OEMs (Exhibit 5).

In all sectors, the disruptors’ leadership on cost and performance is primarily driven by innovation and industrialization at a much faster pace and effect than is achieved by established OEMs today (Exhibit 6). This advantage is expressed through:

• Faster innovation lead times, with disruptor OEMs operating at a significantly quicker speed than established OEMs, including innovation cycles that are up to two times faster. For example, a leading Chinese automotive OEM goes from concept to launch of a new model in around 21 months, a leading US disruptor takes 36 months, while for several European OEMs it takes around 36 to 48 months to do the same.
• Quicker manufacturing industrialization lead times, with some established OEMs requiring 58 months for gigafactory construction, while a leading US disruptor needs 29 months, and a Chinese stationary battery player takes just 16 months.
• Higher investment in innovation, including in the construction and mining equipment space, where several Chinese OEMs invest 6 percent of revenue into R&D, on average. By contrast, established European OEMs invest closer to 4 percent of revenue in innovation, on average.³S&P Capital IQ, accessed February 2025.

This pace enables disruptor OEMs to innovate not only their core products, but also the production ecosystem around them, leading to several breakthrough innovations.

While many of these innovations are not new to established OEMs, the way they are implemented is. One such example is “gigacasting”—which involves casting major parts of automotive frames instead of pressing and welding them. Established OEMs evaluated this technology ten years ago but concluded that, given the complexity of model variants within their respective car programs, the benefits of casting were not enough to justify widescale integration into the manufacturing process. A US disruptor, however, was able to unlock the full benefits of gigacasting, in large part because of its single-variant product strategy.

Such innovations also allow disruptors to deploy capital more efficiently than their established OEM counterparts. A leading US battery producer has cut the required capex for battery production from $120 million per gigawatt-hour (GWh) when opening its first gigafactory in 2017, to around $48 million per GWh in its latest gigafactory, opened in 2022—with a target to reach $30 million per GWh by 2026 (Exhibit 7). Likewise, a leading Chinese battery producer’s gigafactory has a reported capex of $25 million to $35 million per GWh, while a leading European OEM achieves $65 million to $75 million per GWh at its gigafactory.

Innovation Execution: A new operating model for new technologies

Since Japanese OEMs introduced the lean manufacturing model in the 1960s and 1970s, with a focus on continuous improvement in product design and manufacturing, lean has become the prevailing operating model of most established OEMs. This is particularly the case for technologies or products deemed to be mature or where innovations are thought to be few and far apart.

The internal combustion engine (ICE) is one such example. Over the past 100 years or more, the ICE has been optimized toward the physical limitations of this technology. With limited additional scope for step-change improvements in performance and cost, OEMs have optimized their operating models for incremental innovation (Exhibit 8). The result has been to focus generations of engineers on improving existing solutions—rather than starting from a blank piece of paper to design the optimal solution and disregard established ways of thinking.

Because the cost ramp-down of mature technologies is generally slow, established OEMs have leveraged modularization and consolidation of volumes to lower costs and maintain a competitive edge. In immature technologies, however, this approach is not effective. Instead, because of the pace of technological development, disruptors find it is more important to rapidly implement new technologies as they emerge and make sure the cost ramp-down of core technologies such as batteries flows through to full product performance and overall costs.

Disruptor OEMs recognize that we are entering an era characterized by immature technology, offering much larger potential for innovation. Unlike lean, which focused on manufacturing, the new Innovation Execution operating model mobilizes the end-to-end business—research, design, product management, manufacturing, and supplier management—in driving innovation and industrialization at pace and at scale (Exhibit 9). Access to huge global markets only supports their expansion.

According to our analysis, the Innovation Execution model has been able to deliver 10 percent annual cost ramp-down, step-change improvements in performance, and a two times faster pace of innovation versus established OEM operating models. The disruptors deploying this new model have three distinct characteristics:

High, or even absurdly high, targets on product and time

Innovation Execution disruptors set very high product and operational ambitions. They may not always reach their stretch targets as they continuously increase their goals over time, but these targets act as a forcing mechanism and foster a culture of innovation at pace. That said, many disruptors are able to get close, or very close, to their targets as a result of the continuous innovation culture they drive:

• A leading US automotive disruptor has announced a number of ambitious goals, including its aim to launch a fully self-driving robotaxi before 2027 and to produce a new cylindrical lithium battery cell designed to reduce costs by approximately 50 percent per kilowatt-hour (kWh).⁴“Musk, Tesla unveil long-awaited ‘Cybercab’ robotaxi,” CBS News, October 11, 2024; “The race for 4680 battery market leadership,” Battery Technology, September 4, 2024.
• A Chinese battery producer has set battery cell cost targets more than 50 percent lower than existing technologies from established OEMs. It also has a target to reduce battery cell costs by 10 percent every year.⁵Expert interviews.

Step-change innovation execution across all functions and the entire ecosystem

• Customer-back product strategy: Disruptors drive cost reduction and performance improvements by focusing on scale—initially targeting large, fast-growing market segments before expanding into others. The strategy emphasizes radical product simplification toward only clearly observed customer preferences. Differentiation is driven by software rather than hardware, while the number of product configurations is limited to support scaling and reduce complexity. For example, a US commercial vehicle disruptor removed regional variability by placing the driver seat in the middle of one of its flagship models, while also doubling down on software development to differentiate from established OEMs.
• Fundamental research focus: Disruptors aim to achieve a step-change in performance every one to two years by investing in groundbreaking research in parallel with traditional, incremental improvements. The approach prioritizes novelty and rapid test cycles—encouraging trial and error—with short cycle times embedded within research departments. A leading drone maker, for example, has curated around 150,000 of its customers as a beta-test community to help test fundamentally new products in development. This allows the drone maker to quickly identify problems and iterate its designs, leading to significantly shortened development cycles.
• Organizational culture geared toward early market launches: Products are introduced to market as soon as they reach minimum viable functionality to kick-start the cost ramp-down and gather early user feedback for rapid iteration. One US automotive disruptor launched a new line of vehicles that initially lacked certain software features or hardware components; these were later added via on-the-air (OTA) updates or physical upgrades at service centers.
• Fully involved supply chain: The disruptor strategy is structured for global scale and optimized for cost and performance by engaging the full supplier ecosystem in design and optimization. The approach drives cost and capex reductions upstream by setting high ambitions (close to the technical limit) at each stage of the supply chain, while ensuring economies of scale across the entire network. A Chinese automotive disruptor, for example, involves its supply chain partners in product design to improve product specifications on performance and cost, largely by working in very close partnership during development.
• Strategic insourcing: Disruptors tend to be extremely selective when it comes to strategic insourcing and vertical integration, opting to leverage their suppliers to the fullest—only insourcing when there is a clear advantage to doing so. For example, a leading automotive disruptor only insources parts where they can demonstrate a more than 10 percent cost advantage versus their suppliers. Likewise, a leading drone manufacturer outsources 60 to 70 percent of its drone parts, but the parts produced in-house account for around 80 percent of the drone’s value.
• Continuous manufacturing innovation: Defined by an intense focus on minimizing capex, time, and unit costs, step-change improvements in manufacturing processes are enabled by challenging established manufacturing paradigms, and through novel and customized processes and equipment. Reduced variability across product offerings further supports the introduction of new manufacturing approaches, as seen with the automotive disruptor that was able to leverage the benefits of gigacasting.

High-paced innovation and execution culture—with CEO role modeling

• Challenge everything mindset: Challenging the status quo is incentivized and encouraged at both an individual and functional level, with existing truths questioned continuously. First-principle problem-solving is at the core of the approach, asking, for example, “what is the physical limit?” or “who is doing this better than anyone else?”
• Fast decision-making through empowerment and decentralization: Decision and execution speed is enabled by decentralized decision-making, combined with flat organizational structures and full accountability for achieving targets. Engineers can take decisions before a broader consensus is reached and speed is viewed as the primary decision-making value, rather than the exactness of decisions made.
• Open and fast external information and expertise exchange: In China, we have seen the executive teams of leading automotive OEMs, battery producers, and other technology players in the value chain share problems and solutions openly in WeChat groups. Such rapid information sharing without fear of intellectual property (IP) dilution allows them to quickly find solutions to common challenges and accelerate development timelines. A core reason this works is because IP protection is not seen as critical; speed of execution is the competitive advantage rather than IP protection via patents.
• Radically open internal information access: Information such as R&D drawings, specifications, market data, and strategy is stored in easily accessible internal databases, with wide access across the organization, including procurement, engineering, and manufacturing. At the Chinese factory of an established OEM, the principle of open internal information access has reduced the need for information requests and alignment meetings by more than 50 percent.
• Cross-functional accountability: Cost and performance targets are set for the entire product and on individual subsystems within the product (for example, the battery system within an electric vehicle). If one subsystem does not reach its target, none do—fostering collaboration across organizational or value chain boundaries. At a US disruptor, for example, all engineers are held accountable if targets are not reached, regardless of which subsystem missed its target.
• AI and digital tools to free up engineer time: Disruptors have leveraged AI and other digital tools to radically reduce administrative tasks and repetitive workloads for engineers and problem solvers, allowing them to focus on breakthrough ideas. Many disruptors are geared toward better adoption of disruptive digital technologies, given their focus on first-principle thinking and their willingness to disregard established processes.
• Meritocracy focused on capabilities: Deep technical expertise is highly valued. Experienced engineers are appointed as product owners and department leaders, while middle managers are removed to create flatter organizational hierarchies. A disruptor from China, for example, structures its leadership with top-talent engineers and PhD graduates, rather than traditional business executives.
• Innovation Execution operationally role-modeled by senior executives: CEOs and management teams are personally engaged in innovation: role modeling first-principle problem-solving, challenging traditional solutions, and showcasing decision execution at speed.

The beginning of a new industrial paradigm

Looking ahead, we expect the emerging Innovation Execution operating model to continue disrupting the industrial status quo, eventually leading to a new paradigm—just as we saw with automation at the beginning of the 20th century and lean manufacturing later (Exhibit 10). This time around, the effect on competitiveness could be as big, or even bigger, as that seen during previous paradigm shifts.

Just as in these previous paradigm shifts, there will be established OEMs that are able to adapt and survive, while others may not. This time, however, the step-change required is not only in one department (for example, in manufacturing during the era of lean), but rather across the entire organization.

Established OEMs will therefore need to change their operating models across product strategy, R&D, manufacturing, and supply chain, requiring bold intervention from CEOs and leaders at all levels of the organization.

Across industry verticals, established OEMs need to understand that they are being fundamentally challenged, and that a new industrial paradigm may be on the horizon. The proliferation of AI and other disruptive technologies may only shift the balance even further toward the Innovation Execution disruptors, making the case for transformation stronger still.

While there are some industries where Innovation Execution disruptors already have major momentum and it may be too late for established OEMs to shift gear—for example, solar cells produced in China—in many other industries, Innovation Execution is only starting to happen. In such spaces, established OEMs could get ahead of the development and make the Innovation Execution model a competitive advantage.

Already we have seen some large, established OEMs beginning to fundamentally evaluate their operating models, typically following four key steps as a starting point:

1. Building conviction and understanding in management. Teams begin by developing an understanding of cost and performance industry developments to create conviction around how disruptor OEMs will enter their markets and grow to become large, relevant competitors.
2. Getting inspired. Management and engineering teams visit disruptors in other industries for inspiration in the “art of the possible.”
3. Setting ambitious targets to unleash the power of innovation. Those who embrace Innovation Execution push management teams to challenge existing beliefs and break with convention. They also use ambitious targets and incentives to force a new way of thinking.
4. Piloting the new way of working. With ambitious goals established, they find ways to start piloting the new operating model, potentially within internally ring-fenced, or entirely separate, projects or organizational entities. Typically, a successful “lighthouse” product launch executed under the new operating model and a corresponding step-change in performance and cost act as strong motivators for change in the rest of the organization.