Business and industry can easily be equated to one big game. There are different players, strategies, plot twists and evolutions. The comparison is not aimed at trivialising your work but drawing attention to the fact that the most evolved players usually do the best.
At any given time, the next most brilliant invention might render many companies obsolete. It has happened before and will happen again. Just take a look at cell phones. Nokia, Motorola and Siemens ruled the roost for a very long time but who leads the dance now? None of them.
For the most part, innovative companies stay ahead of the pack and win new business. Looking for opportunities, upgrades and resolving customer inconveniences are what keeps you on top. That is why the top 1000 Global companies spend a combined $782 billion on R&D.
Innovation – What and How?
Innovation can be a fashionable buzzword thrown around by most with little regard to its meaning. In simple terms, it is the actions required to develop new value internally or externally for your business. It is the implementation of an inventive new process, product or idea. It comes in all shapes and sizes but typically falls under one of the following four umbrella terms:
Architectural Innovation: This refers to ideas, lessons and technology learned in one field and applied to another. Take the sonar example. Sonar takes the technology of ultrasound, modified it and applied in a completely novel way. Architectural innovation is a major factor in immigrant entrepreneurship statistics.
Radical Innovation: Radical refers to one business bridging out into new fields, developing revolutionary technologies and dynamic new changes to their business models. It paves the way for huge advancements in all sectors and gave birth to the likes of Google Maps, Toyota Prius and John Deere tractor sensors.
Incremental Innovation: Incremental innovation is what we see in every evolving business. It refers to the introduction of many small improvements compounding into a significant impact over time.
Disruptive Innovation: If radical is the creation of a new industry, disruptive is the creation of entirely new value chains. It is disruptive change that allowed smartphones to overtake all others in the industry or that forced all new car makers to develop an electric option.
What time is it? Time for change
The ever-evolving and competitive nature for business coupled with the continuously changing expectations of customers demand that we keep one eye on the future. If not, you will begin to notice many urgent reasons to innovate.
1. Rate of Growth is Decreasing
Every great relationship comes with a honeymoon period. You are swept away in the romance of it all, full of confidence that the fairy tale may last forever. Unfortunately for most businesses, there is a life-cycle for the vast majority of their product offerings which incorporates life beyond the honeymoon.
The cycle includes introduction and growth stages (the honeymoon) before advancing to a stage of maturity where growth rates slow down and proceeds to a decline.
A business can typically pinpoint the time to consider innovation when sales volumes begin to plateau. This occurs for a number of reasons most notably stagnation in comparison to competitors who have made improvements or changes and the saturation of a market. In order to renew a positive rate of growth, doing something new and innovative is required.
2. Tightening Profit Margins
We suggest looking at sales volume to acknowledge rates of decreasing growth as that highlights external factors affecting demand. However, the internal inspiration for innovation may come in the way of reduced profits.
Entrepreneurs looking to scale their businesses encounter this issue in the most dramatic of terms as expensive or inefficient processes stifle exponential growth. Most often dwindling profit margins create the conditions for incremental or architectural innovation.
Examine your internal process from suppliers to labour to marketing. Where are you losing money and what can be done to make changes? Perhaps there is new software that automates an outdated system? Time will always almost always equal money in innovation as saving human capital is one of the first places companies will look for innovation.
3. The Market is Changing
All of the innovation types mentioned above are unfortunately not exclusive to you and your business. In fact, it is open season. Depending on the amount of entry barriers to your market, you may even be highly susceptible to innovation impacts.
Customers are only so willing to tolerate certain inconveniences before demanding a change. Truth be told, they are often just waiting for a provider to hear their pains so they can switch. It is the reason for the successes of Uber, Skip the Dishes and Amazon. The previous value chains had inconveniences that customers had accepted until they were served up a pioneering option.
What are your industries biggest sources of friction with your customer base? What do they dislike or put up with? If a new player came into the market to eradicate this area of frustration, how much market share would they attract? These are the questions every company needs to ask. Nobody is irreplaceable so you need to figure out what is the next value chain improvement.
4. Alarming Staff Turnover
Employee churn refers to the percentage of employees that leave your company over a 12 month period. Lay-offs excluded, having employees leave your company is usually indicative of a bigger problem. It may relate to company culture or it might be that there are improved opportunities elsewhere.
The churn rate should be more concerning in more skilled roles as unskilled labor is usually more replaceable. Without sounding disrespectful, it is easier for employees in unskilled roles to move between alternatives. Specialists are choosing between fewer options.
Conduct exit interviews and competitor analysis to get to the root of this issue. What opportunities and processes are attractive to your team? Employee engagement improves staff retention and increases when your team feel heard. By listening to the team and introducing exciting upgrades, you have the benefit of remaining competitive for talent and inspiring your current workforce.
5. Branding or Association Issues
It is not breaking news that we are now living in a hyper-sensitive world. It has paved the way for a more inclusive society which we can all be thankful for. Unfortunately, it has also created the conditions for your company image to become embroiled in difficulties regardless of politics or fault.
With the recent social movements, we have seen the demand for branding and supplier changes from many well-known companies. Quaker, Washington Football and many others felt the need to change labelling under the weight of social pressure. MEC Canada even surveyed customers regarding certain equipment suppliers before cutting ties due to social stances.
A simple awareness of your public image and your associations that may impact your customer base is becoming a necessity. Thoughtful innovation may be a requirement to stave off any potential backlash.
Despite the outlandish spending of some R&D departments, innovation is quite simple at its core. It is proactive problem solving. While you may not have problems now, what will your industry look in the next 5 years? Will customers still be happy with the exact same offerings as you currently have? Will technology, automation or delivery have altered your course?
Someone will always be out front innovating and creating new value. You might believe you don’t have the time but this is a fallacy. Delaying innovation only hurts the business in the long run as someone else will get there first. If you are still in the growth stage or entering a plateau, what can you do to offer new value? How do you intend to shape the future of your business and industry?