5 Keys to Innovation as a Strategic Choice for Business Growth

There are many paths to grow a company’s revenue and earnings. That topic typically consumes the majority of management bandwidth. Organic market growth, geographic expansion and acquisitions are all viable strategies. But are you ignoring the role of innovation? Surprisingly, a recent survey suggests many are.

GSA Business Report recently polled companies about what big initiatives they were considering for 2016 (1). About 1/3 of the respondents said they were kicking off a new and different advertising campaign. Another 1/3 said they were making no changes and “staying the course”. The remaining 1/3 were contemplating a big capital expenditure or planning an acquisition.

These answers in one way or another relate to organic market growth, expanding revenue through geographic expansion or increasing revenue by acquiring another business. All good ways to grow, but does that mean not one company surveyed felt improving their internal ability to innovate was crucial to long term success? If so, that is a disturbing trend.

A better long term, more sustainable strategy to grow both revenue and earnings is by innovating. That does not mean you ignore those other strategies, but disregarding the power of innovation is a mistake.

Innovation may be perhaps the most overused word in the business lexicon today and there are varying opinions on its meaning. But no matter how defined, it entails finding ways to create new products and services that can grow average selling price and margins or generate entirely new revenue streams.

But what does becoming more innovative require?  What are the key aspects? Consider the following:

Management Model and Culture

First and foremost is the management model and culture. The “traditional” management model is being disrupted (2). It was built for the industrial age and is no longer relevant in today’s digital, interconnected world. The management model and the culture should also be viewed as a source of sustainable competitive advantage. Unlike business models and product innovations, the management model and the supporting culture cannot be easily duplicated by competitors.

Senior Manager Engagement

Innovation in both business models and products is a key business process. It encompasses every functional group in the business, and is ultimately the responsibility of the senior leader in the business. It requires a high level of engagement. If “innovation” is viewed as R&D’s responsibility, the business will ultimately suffer.

Effectiveness, Not Efficiency

The traditional management model emphasizes efficiency. That’s what lean manufacturing is all about (3). While incremental product enhancements can be thought of as more “efficient” projects, radical innovation that generates new sources of revenue and earnings is more risky. This type of innovation is messy, and often “inefficient”. While many senior leaders lament the need to be more “innovative”, the reality is they are not comfortable with the uncertainty. Innovation, therefore, should be viewed more in terms of effectiveness, not efficiency.

 

Over-reliance on Existing Knowledge

Every business was at one time a startup, creating new knowledge. Maybe it was a new business model, or applying a cutting-edge technology to meet a latent customer need. At some point, to monetize that knowledge, it must become an algorithm. In a manufacturing company, the algorithm can be the drawings and manufacturing work procedures to fabricate and assemble the product.

Many existing businesses, however, become overly reliant on existing knowledge. In today’s world, knowledge has become a commodity. It moves seamlessly and quickly through the global economy. An imperative for every company, therefore, is to create new knowledge to maintain competitive advantage and grow revenue and earnings. That means allocating resources and investing in more risky projects. Not easy for a CEO in a public company rewarded on quarterly results.

Innovation Processes

Finally, institutionalizing innovation via effective processes is crucial. The many processes and sub-processes focus on work flow, information flow, or decision flow. They require close collaboration between management, R&D, Manufacturing and Marketing. Many surveys and statistics prove that companies with robust processes are more successful at innovation. These include the front-end processes where customer needs are understood, ideas captured, decisions made on what should be developed and products fully defined. Once a project starts, execution is center stage. The use of phased development processes, understanding project risk and choosing the right project management tools become paramount.

In conclusion, there are multiple ways for a business to expand revenue and earnings. The GSA survey suggests that companies tend to focus on traditional methods like a new marketing campaign or acquiring another company. But what about innovation? That should be viewed as a primary means to generate new products and services that can create additional sources of revenue and improve margins. Ignore innovation and you doom your company to stagnation and the risk of being eclipsed by competitors.

Notes:

1. Poll: New Ad Campaigns Top List of Company Change in 2016. GSA Business. March 9, 2016.
2. See for example: Disrupting the Management Model and Rethinking Your Company’s Purpose Benefits the Bottom Line.
3. See for example: Abusing Lean Methodologies.

 

Bio
Jeff Groh is President of New Product Visions (newproductvisions.com) located in Flat Rock, NC. New Product Visions helps companies improve their innovation management practices. We focus on processes, organization, management engagement and culture. Services include consulting, Innovation Coach™ Workshops (newproductvisions.com/workshops) and software enablers. Mr. Groh spent 30+ years in industry in a variety of management roles in sales, manufacturing and new product development prior to starting New Product Visions. He is particular passionate about the role of senior management and the culture that supports innovation success. For additional information or a no-cost on-line assessment of your company’s innovation management practices, email Jeff at jgroh@newproductvisions.com or by phone at (302)-367-3160. Available for select speaking engagements.