What differentiates the winners from the losers? Sales? Profit? Market share?
Well, if you live for now only, then maybe.
But the true marker of what makes a company great is innovation.
Let’s not kid ourselves that merely improving an existing product or process through technology is innovation. It’s just not.
Real innovation, often termed ‘moon shot innovation’ is about creating new ideas, new products, new ways of doing things. It’s about reinventing ourselves for the world we live in.
I had an interesting debate with someone in this field a few weeks back.
Presented with the question ‘what does it take for a company to create a capability of innovation’ I naturally proceeded to answer it with a lecture on all things people!
But it’s not just about having the right skill sets or attitudes. It’s ingrained in a company’s culture. Its strategy. Its modus operandum. Its reason for being.
That’s why young companies find it easier to innovate. Because they didn’t have a previous reason for being. So, people are not locked in to established norms, and can instead think freely about their role in a digital world.
Can big companies achieve real innovation?
A lot of you who have or are still working inside large organisations will no doubt relate that innovation often comes slowly in big firms.
With layers of bureaucracy, limitations to decision making allowances at each level, and a lack of insight in to what’s happening elsewhere, the creation and execution of new ideas can often be arduous.
I read a fantastic article on innovation in business by Dave Roos on ‘How stuff works’. He described a successful company as a great white shark, saying ‘In its prime, it chews up the competition. But if it dares to sit still for too long, it dies.’
He then explored how some of the world’s most profitable and enduring companies have achieved the long track record of success by constantly reinventing themselves.
Reinventing. That’s a pretty scary concept isn’t it? But increasingly that’s the key to companies surviving as the world moves forward.
Though real innovation in large companies can be difficult, it can and does happen. Take IBM as an example.
A company that is, rightfully, known as the undisputed leader in the advancement of computer technology in the 1970s and 1980s almost collapsed in 1993 after posting a (then) US record loss of $8bn.
The rise of cheaper ‘computer clone’ firms devoured their market share. And IBM, slow to respond as large firms often are, came very close to finding itself as a mere listing on Wikipedia. (Sounds a bit like the rise of Aldi and Lidl in Retail doesn’t it?!).
At this point, the company decided enough was enough. They either go the way of ‘Old Yellow’ or they reinvent themselves. And reinvent themselves they did.
They made a very brave decision to move away from their core business dependence of making micro-chips, computers and other hardware. And, instead, they decided that their new focus would be on providing computer services and IT expertise to businesses.
They restructured to ensure they had the right people and culture to navigate that change. And they remained focused on their mission during that transition, always thinking about the long term. Not just ‘now’.
So why are more companies not reinventing themselves when it’s obvious their markets are changing?
It seems that real innovation often only comes after a period of pain.
Pain in our bodies is there to tell us when something is wrong. And painful experiences in business are no different. They tell us ‘now’s the time to do something different’.
Real innovation in firms which are posting growth and profit is difficult. Why, after all, would you change what you’re doing when what you’re doing is successful?
But as with our health, we can’t take growth and profit for granted. Illness has a horrible habit of creeping up on us.
And, as proven by once successful companies like Blockbuster, Blackberry and Woolworths, when you neglect to innovate in times of success, the inevitable pain of sector disruption (driven by the basic economics of product and market life cycles) might just be too much for you to cope with.
Interestingly, a number of large companies, like PWC, are now recognising this issue and are actively ‘buying in’ innovation. They recognise that they, culturally and structurally, will always struggle to match the innovation of fresh, young businesses who have nothing to lose. So, instead they acquire it. Or incentivise it.
This was a tactic employed by IBM themselves who, after that strategic decision in 1993/4, acquired over 200 firms to buy in the skill and reach they needed to support their new mission.
How do you become a ‘great company’.
In Jim Collins’ book ‘Good to Great’, the very criteria by which a good company can achieve the accolade of being a ‘great’ company is tough. Really tough.
They argue that a CEO who leads a firm to a number of years of market eclipsing performance is a ‘good’ CEO. And they lead a ‘good’ company.
But only if that company continues to achieve market eclipsing performance after that CEO departs can we truly measure how great that firm is.
As an example, let’s look at J Sainsbury’s. Justin King was a good CEO of a good company. But he wasn’t a great CEO, and Sainsbury’s isn’t a great company. From a share price that fluctuated from 350-400 pence per share between October 2010 – October 2013 (Justin Kings’ last 3 years in the job), Sainsbury’s saw a decline in value to 214-292 pence per share in the following 3 years after his departure. Surely if the firm was ‘great’, they would’ve seen the impending disruption to Retail coming, and they would’ve been innovating to prepare the firm for it. Not just focusing on today’s profit and valuation?
As a tangible metric in Jim Collins’ book, a ‘great company’ needs to post market eclipsing growth for a minimum of 15 consecutive years. Or 60 consecutive quarters. And that growth must continue when the CEO departs.
So, to become a truly ‘great company’, you need to ensure you don’t just survive. You need to thrive. And that will require real innovation.
Some of the truly ‘great’ companies that Jim Collins identified did just that. They hit what they called a ‘transition point’. Kimberly-Clark sold its paper mills and focused instead on the paper consumables market. Gillette fought off 3 take-over bids that would’ve provided an instant 44% return on shares to their investors. And instead, with eyes firmly focused on the future and the potential of its new innovative products, they became a truly great business that provided investors with a return 3 times that figure.
Real innovation is not just about ideas. It’s about discipline and a focus on the future, not just now. And it’s dependent on having the right people and culture to deliver on the promise.
The result may mean you changing the very nature of WHY your business exists. But ultimately leaves you stronger and better prepared for the rapidly evolving world we live in.
Better to adapt and thrive than merely to survive (and possibly die), right?