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(Bad) strategy is everything, in innovating

“Business as usual” is no longer a luxury a company can afford. More and more, companies are seeing that their revenue growth cannot outpace the increase in cost, resulting in decreasing profitability year-on-year.

The Lego management realised that their innovation efforts had to be aligned to their strategy and gave all staff the capability to create and suggest new avenues of growth. Photo: Bloomberg

The Lego management realised that their innovation efforts had to be aligned to their strategy and gave all staff the capability to create and suggest new avenues of growth. Photo: Bloomberg

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“Business as usual” is no longer a luxury a company can afford. More and more, companies are seeing that their revenue growth cannot outpace the increase in cost, resulting in decreasing profitability year-on-year.

With the fast-changing competitive ecosystem, brought about in part by technology and knowledge advancement, business leaders are recognising the urgent need to revisit their strategy. Innovation is a critical piece of that strategy — but many times, normally rational business people allow themselves to be blinded by the notion that innovation is unlike any other aspect of business and, therefore, does not follow the normal rules of corporate strategy.

In this alternate reality, the words “there is no such thing as a bad idea” are often cited — when, in fact, there is very definitely such a thing

 

A BAD SEPARATION

 

Sometimes innovation is separated from the rest of the company into a special unit or carried out in playful surroundings to make it unique. But the reality is that innovation needs to be embedded in the corporate strategy; and, in turn, that corporate strategy needs to be embedded in your innovation process.

There are three main aspects of business strategy — formulation, implementation and continuous evaluation — and innovation needs to be present in all three. It can come in varying degrees, ranging from re-targeting of market segments or untapped segments with re-packaged or integrated products and services; to the revolutionary industrial innovations which set new consumer trends and behaviours.

One of the most famous examples of a company that has undergone an innovation journey in recent years is Lego. Facing numerous disruptive innovators, Lego initially pursued innovation aggressively on all fronts and separated new innovative units away from the rest of the business — at the expense of alignment to their key tenets and their corporate culture.

The result was an unmitigated disaster and, after nearly folding under the weight of the new demands, the management went back to basics and realised that their innovation efforts needed to be aligned to their strategy and not a peripheral activity.

They developed a “Lego Group Innovation Model” that would be applied across all business units for consistency, and then applied it to their four key areas: Business, Product, Process and Communication.

By taking innovation as a standardised building block, Lego was able to reap the maximum rewards and regained its position as a leading global player.

 

GETTING STARTED

 

Many companies struggle because they fail to understand what innovation really means in their business or industry. According to Larry Keeley in his book Ten Types Of Innovation, defining what innovation actually means for your business is the first step towards innovation.

Innovation is not just about products: They can be new ways of doing business, new systems and processes or new ways of interacting with stakeholders.

Innovations are very rarely truly “new”: Most are based on previous advances or practices from other markets or industries.

Innovation is not just invention: It also requires an understanding of customer needs and how it can be delivered.

And innovation has to earn its keep: It must be able to sustain itself and return the weighted cost of capital.

The first step is the hardest one — identifying where to innovate, which is often more difficult than knowing how to innovate. Think of it as like striking oil: It does not matter how good your drill is if you are looking in the wrong place.

 

DON’T JUST GO FOR ‘EASY WINS’

 

Another mistake many companies make is to go straight for the low-hanging fruit — the “easy wins”.

But I would encourage you to go against that conventional wisdom and tell you to target the big problems with no easy answers — these are the ones that will bring scale change and have a real impact.

That said, the solutions themselves may be simple. It is easy to make the simple complex; it is far more inspiring to make the complex be simple. Be patient; the right answers will emerge, so you don’t have to compromise and accept incomplete solutions.

Ultimately, innovation does not count until it is in the market and it is making revenue for you, so you must give it every chance to fulfil that destiny.

Lego’s re-emergence through innovation was based on creating a more organised structure for their efforts. The management gave all staff — from the sales force to manufacturing to the executives — the capability to create and suggest new avenues for growth.

But their ideas were put to a simple test of compatibility to their strategy: Any innovation had to prove to be consistent with the company goal of Lego being recognised as the best company for family products and had to be self-sustaining in a defined period of time.

Another key to unlocking innovative capabilities is to ensure teams working on innovation have enough time to reflect and learn from the past and to think about the future. Research has shown that most people are too focused on day-to-day activities and this is often a constraint on innovation.

Freeing up time and applying the concept of “backcasting” — defining a desirable future, and then working backwards to identify policies and programmes that will connect the future to the present — is quite useful in framing the innovative idea and ensuring that the time available is fruitfully spent.

 

RIDING FAILURE TO FUTURE SUCCESS

 

It is clear that creativity and innovation come from different means, and businesses should use whichever method is most applicable in their context for their industry, culture, business model and maturity.

Fundamental to this, though, is willingness to fail, and even an expectation to do so. Not all innovation trials will be successful. In the words of Mr Chaly Mah, Chief Executive Officer of Deloitte South-east Asia: “It is important to also recognise failure points: Do not be afraid to fail fast and fail cheaply.”

When things fail, we automatically look at ways in which we can improve what we are doing. The key to innovation lies in the speedy recognition of failure and developing systems to report it, manage it and learn from it.

Companies must find new ways to move failure to the beginning rather than at the end of the innovation cycle. In other words: Would you rather fail when your product hits the market after years of hard work and millions of dollars in sunk costs, or fail earlier when you have less to lose?

Strategy and innovation go hand in hand. The strategic direction guides the search for ideas, and the ideas inform and shape the strategic direction. Getting started with innovation is often the biggest hurdle but with experience comes momentum, and with momentum comes success.

Companies must be prepared to make innovation an everyday part of their business and accept that there will be failures along with success. Only when you embrace innovation with all its pleasures and pains, will you be able to harness it and emerge stronger than your competitors.

 

ABOUT THE AUTHOR:

Dr Janson Yap is Regional Managing Partner of Deloitte’s Enterprise Risk Services practice in Southeast Asia and also the firm’s Innovation Leader.

 

This is part of a weekly series on Innovation every Wednesday. To read the previous articles, visit tdy.sg/cominnovate.

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