Building a Culture of Continuous Innovation
In most organisations that we visit, we find that actually there are a lot of great ideas in the organisation but the organisation is not acting on them. Part of it is the culture, part of it is fear.
But it’s really important to actually start acting on those ideas and start trying to implement them. Sure, don’t take the big ideas and the big risks first up. But start looking at how you can implement something small with a quick win and build confidence, build the culture of the business so that you can actually create an environment of continuous innovation.
As we tell clients, it’s not about coming up with one great innovation. Because within three years, somebody else is going to have an innovation that supersedes it.
It’s about creating a culture and an environment. We create continuous innovation so you constantly can keep ahead of the competitors and keep finding new ways to build growth and to build profit in your organisation.
Keeping Your People Engaged
As a CEO, you’ve put a lot of time and effort into trying to find the right people in your organisation and build the right skills. You’ve got the board on-board with you, you’ve driven ideas in your organisation, but if you don’t start implementing those innovations, you’re going to lose those people. It’s very important sometimes to go for a quick win to keep people engaged than to have three-year or five-year projects for some innovation that’s down the road.
It’s also important to try and focus not always on big change but lots of small changes because it helps to keep people engaged. This also allows you to test the environment – what works, what doesn’t work, where the successes come from, where the failures are and also to test your market.
Because at the end of the day, if your customers aren’t buying your innovations, then you’d created the wrong innovations. You really look at making sure that you start early with your innovations and start implementing early so that you can test the culture, the processes and make sure that they’re working okay.
The Human Factor
What’s important about the “CEO Innovation Blueprint” is it’s not about theory; it’s about practical ideas and concepts to actually make innovation happen.
So often, organisations are spending considerable time and money in innovation but don’t actually make innovation happen. If they are making innovation happen, they’re not getting results. A lot of it is because they’re focused on the size, they’re focused on the technology. They haven’t focused on the people issues – the human factor around innovation.
This whole idea behind the “CEO Innovation Blueprint” is to help the CEOs identify the human factors that are stopping innovation from being successful. It’s looking at your customer issues. It’s looking at why creativities bog down in your organisation. It’s looking at why people are reluctant or fear change. It’s looking at why we’re not challenging the status quos well as we could be.
When you start tackling a number of these issues, the way that we are suggesting in the “CEO Innovation Blueprint”, you’ll start removing a number of roadblocks from innovation and you’ll start seeing greater success in profit and growth.
When Organisations Look at Problems the Wrong Way
We worked with clients around the world solving a variety of problems in different organisations. Some interesting challenges that we found were people looking at the problem the wrong way, just by simply changing the way they thought about the business problem and coming up with great innovations and new solutions.
One company that we were asked to come into help with was a direct marketing book retailer. They had a problem of trying to rebuild growth. It was an interesting environment because a lot of how the business was driven was by editorial staff. And they were looking at the product by how it looked, not what its value was to the customer.
When you’re thinking about a web page, the real estate of a web page, and then you want to try and get your high-revenue items high up on that web page, the editors are actually looking at what looked the prettiest or what was the best-looking cover.
Often that would be giving what was looking good preference over something that actually provided better return to the organisation. It’s just simple things like that, that can have an innovative impact on profit.
Another organisation that we were involved in was in the shipping industry. The shipping industry is a very good example of how cost-cutting virtually will bring it to its knees.
We came to this organisation where staff actually couldn’t go on leave because they were doing three peoples’ jobs and there was nobody to replace them.
We sat down and looked at the problems of the business. It wasn’t that the business wasn’t profitable, it was that the business was not looking at how to maximise the return.
In the shipping industry, people thought that the biggest assets were the ships. We actually identified that the biggest assets were the containers. There was more capital tied up in containers than there were in the ships.
Then we looked at it and what happened was that some goods were brought over from another country on a container that were taken out to the distributor. The distributor was using the containers as free storage and it could be sitting out at somebody’s site for two years, and that was capital of the shipping company.
When we changed around the focus, not on managing ships but managing the container and introduced container systems, we started driving growth around it.
We found scenarios where they were sending 2,000 empty refrigerator containers overseas, and at the same time they’re asking them to bring 2,000 refrigerator containers back to another local port. Simple mistakes like that were costing them big business.
Changing the focus from ships to managing containers started driving profit. But again this is the important part of remembering how we are solving the customers’ problems?
The customers were keeping containers on site as free storage so we were able to create a new business of hiring containers as temporary storage. We move something from something that was free storage to actually earning revenue from providing a service that the customer needed.
These are just sort of the types of examples of innovations in small ways that can have a big impact on business.
The Importance Of Having Strategic Vision
Some of the topics that the CEO Innovation Blueprint raises to help the CEO to bring the board on-board is around issues as having a very strong strategic vision.
It’s very hard to bring people on specific issues. But if you explain that this is a strategic vision, then you can often sell the board on the strategic vision.
One of the critical things for a CEO to focus on as innovation leader is to drive a very strong strategic plan. Once you have a strong strategic vision with a strong strategic plan, it’s very easy to bring the board along as it’s very easy to drive the management to follow that vision.
A CEO’s Credibility
For the CEO to successfully sell a strong vision, it’s also very important to be credible. It’s very easy to exaggerate or to avoid looking at problems because you’re trying very hard to sell a concept.
But the more credible, the more honest you are about the business problem and identifying the business problems and what can go wrong, that can be as important to selling that vision as identifying what could go right.
When You Lose Support From The Board
One of the challenges with innovation is sometimes it takes longer to perform or that the cost go up. There are number of things where it doesn’t go to plan. It’s a big challenge because as soon as it starts derailing, you lose the support of the boards, you lose the support of the executive team.
What tends to happen is that people try to withhold information or delay information because we believe that if we tell what’s happening, then we’re going to lose support.
What we find at the moment is because people are risk-sensitive, they more react to what they don’t know than what they do know. If we keep the board up-to-date with what’s going on, even if there’s not much going on, that we show that we are keeping them aware of what’s going on, we’re keeping them aware of where things might be going wrong, they are more prepared to trust and accept where innovation isn’t quite going to plan.
Again, this is where good, strong corporate reporting is helpful because it helps to keep the board informed. A well-informed board will be more prepared to keep supporting you with new innovations and taking new risks on new opportunities.
One topic that we keep repeating in the CEO Innovation Blueprint is it’s not about innovation, it’s about results. At the end of the day, you as a CEO have been tossed to drive growth and drive profit.
If innovation isn’t going to drive profit and growth, then should you be using that innovation? What we’re really focused on now – it’s not innovation that’s important, it’s the results that are important.
Everything that you do needs to keep coming back to: “Is that innovation going to drive results? Is that innovation going to drive growth? Is it going to help us to grow profits? Are we solving the customer’s problem? Is our business model right?”
It’s very important not to get caught up with the technology, not to get excited by innovation, but to keep coming back to “how is it going to improve our business?”
A very good example was a recent seminar that we attended talking about Digital Instruction to financial institutions. We spent our morning listening to a number of speakers talk about exciting technologies, exciting new innovations.
The problem is that not one stage through all the speakers that they mention about how to resolve a customer’s problem. If we’re not solving the customer’s problem, how are we helping to grow the business and grow revenue and grow profit.
It’s one of the important things to bring perspective to innovation. It’s not about the technology. It’s about how it solves problems and how it grows the business.
The Issue With Volatile Markets
CEOs live in a volatile environment, with changes occurring. A recent study by the CFO Institute identifies volatility as one of the major problems for organisations.
If you look at the traditional reporting that you have in a boardroom, you have budgets. Budgets are virtually out-of-date by the time they’re approved.
Organisations like Unilever no longer have budgets. They have dynamic forecasts.
Every time a new business plan is added into your organisation, the forecasts are adjusted so that the board is always looking at the latest position of the business, not on some expectation that was formed three or four months ago.
It’s an example of how organisations need to change their reporting processes to help them to deal with a volatile market.
How To Deal With A Volatile Market
One of the hard parts with a volatile market is that whatever your business plan is, it almost guarantees that’s not what’s going to happen. There are so many factors that will change the business.
How do I, as a board or CEO, try to ensure that the business will be viable? How do I deal with that when we have to constantly innovate and come up with new ideas? We can’t rely on what’s going to happen down the road. How do you deal with that?
One of the things that a lot of organisations are moving towards is to have scenarios and stress testing. The idea is that you don’t have one budget or forecast, that you have multiple, that you take into account multiple factors that occur.
You might say, “Look, we think this is what’s going to happen for the next three years.” And you might create another business plan to say, “But if this happens, this is what the business would look like.” And then another one that says, “If that happens, this is what the business would look like.”
You can come up with multiple forecasts to deal with multiple scenarios that could happen. It expands the capability of the organisation to react and come up with ideas and innovations to solve multiple possibilities that could happen over the next two to three years.
The other scenario that’s very important for innovation is the stress-testing scenario. How do I know that this scenario is going to be successful? And what would be the impact to the business if it failed? Before you actually move towards implementing that scenario is to apply stress testing. Take your current business plan and apply what you think that innovation will do and then apply worst-case scenarios and say, “If this went wrong, this is the impact we’ll have on our business.”
And whilst we can’t remove the risks that innovations will fail, what we can as a board and management team have is a bit of understanding of how badly it would impact the business if it did go wrong.
Improving Your Reporting Processes
CEOs and boards have been looking at how they can improve their reporting processes. Balanced scorecards and strategy maps are types of tools that they’re looking at to try and understand the business and the objectives and how they can manage it.
They haven’t been as successful as they’d like because they go back to the original problem, which is that they’re basing information on historical information.
The strategy map tells you that we’re meeting objectives last month, but it’s not identifying to the board that something’s going wrong with the strategy and we won’t meet those objectives in three months’, six months’, or even two years’ time. It’s very important to start looking at strategy maps not from the historical perspective, but to see if the organisation is going to be meeting the objectives in two years’ time so that you have time to make those changes.
That’s what drives your innovation. If you understand that you’ve got a problem in 12 months’ time or two years’ time, then right now you’re going to start thinking about how you can challenge that problem. That’s where the creativity comes up. It becomes the justification for innovation and that drives new ideas in the organisation.
The other problem that comes up with scorecards is that it can actually often discourage innovation. Because a lot of the KPIs that you have in scorecards are actually price-drive, sort of like, “Did the salesman meet the revenue targets?”
But how many of the KPIs in your scorecard are about the management coming up with a new idea? How many new ideas have you tested? How many innovations succeeded or failed? What was the result of those innovations?
If your scorecards and strategy maps are only focused on measures around performance, such as revenue and sales and operational cost, and you don’t have any performance measures related to coming up with creative ideas and innovation and how that innovation is performing, then don’t be surprised when management doesn’t put a priority on innovation. They put a priority on performance because that’s what you’re measuring them on.
The Importance of Moving Towards Enterprise Strategic Planning Systems
Because of the volatility and the demands of reporting that boards and CEOs need that’s very different from the information that you get from general ledgers and ERPs and manufacturing systems, what we’ve built up over the years is arranged on spreadsheet systems.
This is becoming a growing threat to organisations around innovation.
Spreadsheets have a high risk of error. Studies have identified that there is an average of 90% of spreadsheets in an organization that have errors in them. Now most of them aren’t material. But if you’re making judgment calls on your business and you’re trying to assist innovation and that spreadsheet is wrong, then you can have some major repercussions.
As part of becoming an innovative organisation, it’s really important to try and move towards enterprise strategic planning systems and move away from systems like spreadsheets that can create substantial risk to your organisation.
The Problem With Copying Other Innovators
In my book The CEO Innovation Blueprint, I talked about being careful not to copy or follow other innovators. It’s very simple: it’s a very quick way of solving a problem–somebody’s come up with a great way of doing something and everybody tries to follow, and copy, and duplicate. The problem is that often that organisation has grabbed the market share already and the only way that you are going to compete with them is through price.
What’s also very interesting, one that I’ve often raised with CEOs, is often digital disrupters aren’t profitable. There are a number of digital disrupters’ organisations that are growing but they haven’t made a profit and their revenue is struggling to cover the cost. So if you’re thinking about trying to compete with an organisation that can’t make a profit by doing exactly what they’re doing, you’re running into a lot of troubles.
It’s very important to step back and actually think about how you can differentiate yourself. That disrupter might’ve identified the problem, but how could you solve that problem in a different way and how could you organize to do that while solving a whole lot of other problems?
And so it’s very important; don’t follow what the digital disrupter is doing but actually consider how you could leapfrog the digital disrupter, and how you can differentiate yourself.
The Defense Against Digital Disrupters
When we’re looking at digital disrupters and how we can defend ourselves against them, we need to understand what it is about the digital disrupter model that is making such a difference. And probably one of the key issues about digital disrupters is that they’re actually focused on cutting out the middle man. Look at the top of digital disrupters like peer-to-peer lending. Peer-to-peer lending allows the person that’s lending the money to talk directly to the person who wants to borrow the money without him paying money to a middle man called a bank.
So if you’re trying to compete against a digital disrupter whose whole focus is to take you out of the transaction, then you need to rethink about what your business is about. And this is a very important thing, that we go back to that same question: “What is the problem that you’re solving for the customer?” Because if you can add value to the transaction, then the customer will keep you in the transaction. If you’re not adding value to the customer, then they’re very happy to bypass you.
So again, when you’re looking at the digital disrupters, don’t look at the technology; look at how you’re adding value to your customer.
Don’t Cut Revenue; Add Value
Moving on from thinking about the digital disrupter, one of the challenges that comes on is that a lot of what’s happening in the business world at the moment is having impact on price. We’re finding that competitors are driving down price. What’s very important with innovation is not to actually do something that reduces your revenue but to work out how you can increase your revenue.
When I was talking about the digital disrupter, how I can compete against them, it is to make sure I don’t end up cheap like them. I shouldn’t be cutting my margin. Instead, I should focus on how I can add value, and justify why I should charge the price that I would like to get for the organisation.
A very good example is a situation that happened in the United States, in a country town. We had a father who was running a hairdresser, the only hairdresser in the town, and it was employing a number of people and making a reasonably good trade.
Along came a company that just cuts, looking at volume, and was price-sensitive. So they came in, they were offering $6.00 haircuts. And this family-owned hairdresser started losing its customers.
Father’s very worried, and the son came back from an MBA, and asked “What are we doing?” He sat down and looked at the problem. And it was a very good solution, a sign in the window that says: “We fix $6.00 haircuts.”
And it’s really important to think about this, that the organisation that was looking at driving volume and price wasn’t looking at how he added value to the customer. Should you duplicate what they’re doing and cut your profits? Or should you look at how you can add value to that business?
You need think very carefully when you’re dealing with a digital disrupter. don’t follow then mental model of cutting your revenue.
On Roll-Up Reporting
One of the topics that the The CEO Innovation Blueprint touches on is about roll-up reporting or corporate reporting. If you think about how businesses have changed over the last ten years and what the requirements of the board are in the last decade, the needs of the executive and the boards have outgrown the reporting systems in the organisation.
You’re a CEO, you’re trying to drive change, trying to drive growth, trying to drive profit. You’re coming up with new ideas. You’re trying to be an agile business. You’re trying to be a lean business. You need to understand where the business might be in two years’ time. You need to be reacting to what’s happening with your competitors.
And your reporting system tells you what happened last month. How’s that helpful? It’s nice to know, but you can’t change what happened last month. You need to know what could happen next month to drive that change.
So if you’re a CEO who’s looking to be a competitor, dynamic, and responsive, you need to really think about how you can change your corporate reporting systems and strategic systems to actually support you in that drive.
Youth, Maturity, and Coming Up With Fresh Ideas
We see a very interesting scenario quite often where companies believe that we need to bring young people into the organisation because young people are going to come up with the fresh ideas and challenge the status quo. And it’s not an appropriate way of measuring; it’s not age that brings skill to the table. You can have very clever young people that can come up with those ideas but you can actually have older, more mature people that come up with those ideas.
So it’s very important to not misunderstand why those ideas are fresh. Often, a young person coming into the organisation is not encumbered with what’s been going on in the organisation. And in that, they’re often challenging and asking reasons why and often seem to be coming up with fresh ideas.
But we actually have a great opportunity sometimes with more mature workers in the organisation because they have a lot of experience. And they actually do ask the question why, but they fear to actually raise it with management. And we need to tap into that because they’d seen what’s going on in the factory line, they know what’s going on with the customers, they’re actually aware of a number of issues that we could actually come up with some great innovation but they’re not communicating it. And a lot of that is because we often create this scenario or culture in the company we regard the older workers may not be the people that contribute to the business.
So it’s very important not to be confused that age will bring creativity, innovation, and new ideas into the business.
A Blockage of Creativity
So the sort of topic that “The CEO Innovation Blueprint,” touches on are issues that might stop creativity in your organisation. You can’t get innovation if you have people not coming up with ideas. So we need to identify what is blocking those issues.
Communication is one of those problems and one of the issues that we find in organisations is the fear of judgment. People won’t raise ideas to the table because they might be judged to be foolish or naïve. So there’s a range of issues that we need to try and deal with or try to challenge it. To site examples that “The CEO Innovation Blueprint” raises is how to change the structure of your business and the culture to overcome those issues.
Very good example is if you have a management meeting, management meetings often dealing with the challenges; why is our revenue not up, why have you got production issues, why do the computer systems fail in the middle of the day and so on. And it’s a very challenging environment. It’s putting that pressure on people; “Why haven’t you performed? Why haven’t you responded? Why haven’t you reacted? Why have we failed here? And why have we failed there?” If you think about it, it’s not really conducive to somebody coming up with new ideas, or fresh ideas, or challenging status quo. Because it’s a very judgmental-type meeting.
So we always recommend is to not have the innovation meeting as part of the normal business meeting so you can create a different culture. So you can create a situation where now you have a different meeting. This meeting is really just about coming up with ideas. It’s not about judging people, it’s not about saying “This is a silly idea.” It’s really about just brainstorming, coming up with fresh ideas, prepared to challenge the status quo without fear of being contradicted or judged for making those environment. And just by having a separate meeting you can increase creativity of your business substantially.
Technology vs Business Model: A Defense Against Digital Disruption
“The CEO Innovation Blueprint” deals with some contentious topics that are important to people right now, and one of those is digital disruption. And many companies are looking at how do we defend our self against the digital disrupter? And it’s very good time to stop and really think about your business.
One of the mistakes that companies make about digital disruption is about the technology. It’s not about the technology. It’s about the business model. And if you’re going to defend your organisation against business with different business model then you need to think about how you change your business model, not follow the digital disrupter’s model.
A good example that we talk about at the moment, of digital disruptions, is about the travel agency. When you used to, 30 years ago order an airline ticket you phone up somebody, the travel agent would actually book the ticket for you and courier a physical ticket. And when you think about what we’ve been doing in the last 20 years in the way that we try to streamline our business, we focus on 80-20 Rule; what is 20 percent of the work that would generate 80 percent of the revenue?
So you can imagine these travel agents who saw this as a great opportunity, develop their business, it’s a low-hanging fruit, it’s a simple process, we book an airline ticket, courier it out, make a cut in the business. And along comes digital disruption of internet airline booking.
So the organisations that get the structure of their business along the 80-20 Rule that actually made them increasingly more exposed to digital disrupter than the general business that hadn’t focused on the 80-20 Rule. Travel agents have been affected by digital disrupters. So how does Flight Center, as a travel agency, doing such tremendous growth at the moment, and this really highlights the issue for any organisation digital disrupters, is Flight Center has moved away from the 80-20 Rule. Flight Center’s focused on the aspects that internet booking systems are very poor at doing.
If you think of a situation, it’s very easy, I’m going to fly from New York to Los Angeles or Sydney to Melbourne go into internet, book one seat, put your credit card tickets, you got your ticket. That’s nice and easy.
Now, I’ve got to travel between countries, I need to make several stops, half-way through the journey we’ve got an appointment with another new customer. We’ve got to adjust the travel journey and I’m sitting there, I’m in a rush, I’m time poor, and I’m trying to deal with an internet booking system that can’t manage it. Along comes Flight Center and says, “We can do that for you.”
So Flight Center’s actually focusing not on the low-hanging fruit but on all the complex stuff and making life simple for the customer. And it’s a very good example of if you’re trying to compete against the digital disrupter, don’t focus on the simple stuff. Really focus on what the digital disrupter isn’t actually good at doing.
If your company’s looking at how to defend yourself against the digital disrupter, don’t do what the digital disrupter does which is focusing on a simple process. Focus on what the digital disrupter is not good at doing and that’s all the complex stuff, the difficult stuff where you can help the customer.
Do Not Mistake Technology for Innovation
When you’re thinking about digital disrupters, it’s very important to re-think what are they doing. And one of the challenges is again, it’s not about the technology.
One of the problems is that we keep making the mistake that technology is innovation. Often, technology is automation. I mean, all a website is doing is that instead of picking up the phone and talking to somebody on the phone who enters the details into a computer system, we get the customer to self-serve and they enter the details for us through a website. But that’s not innovation, that’s automation. Websites have been around for 25-30 years so how’s that innovation?
So digital disrupter with technology is more about methods of automating process rather than coming up with an innovation. Uber is not really innovating. We’re talking about booking a taxi ride which has been around for years. And the website, so if you’re using a web application, some mobile devices to help you to book a cab ride.
It’s an automation process, not an innovation. If you try to compete against the digital disrupter, don’t make the mistake of the technology. Step back, really think about how could I do the business model differently where I can solve the customer’s problem? And after I’ve really thought about that, start looking at how I can use technology to enable that.