Monday, February 12, 2007/
Get yourself some over-the-horizon radar if you want to stay relevant.
I just visited a company that had a big problem: it needed to innovate badly and so the entrepreneur had sent out for some butcher paper, got the team together and decided to have a brainstorm. They came up with lots of good ideas, but the problem was the innovation process was random and chaotic.
McKinsey does some good stuff on innovation. Their experts believe that the timeframe or horizon chosen for growth and innovation depends on the business’s financial performance, the capacity of its management team and the rate and uncertainty of industry evolution.
If the business is “stagnant” (is producing marginal or average returns), it’s probably not generating the financial and other resources needed to support growth and sustainability. Naturally then, a focus on improving near-term performance would take precedence over longer-term strategies such as entering completely new business arenas.
In this case innovation could be focused on improving customer service to drive retention or creating new marketing techniques to grow sales by attracting new customers. But it could just as well be focused on reducing costs, lean manufacturing and “Six Sigma” being great examples of process innovation. (Six Sigma is a data-driven approach and methodology for eliminating defects, driving towards six standard deviations between the mean and the nearest specification limit, in many processes, from manufacturing to transactional and from product to service.)
If the company had a solid performance and sufficient resources, then the entrepreneur must continually look over the horizon to develop new revenue streams to supplement or replace existing businesses as they fall victim to the ravages of competition and the product lifecycle. These “searching” businesses must create a pipeline of new revenue opportunities and ensure that it attracts enough entrepreneurial talent to launch and grow their “field of dreams”.
Oh, and how about the really top companies with a great core business and emerging revenue streams? They still need to focus well over the horizon to identify future innovation and growth options and ensure they don’t get side-stepped by dramatic changes in customer tastes or disruptive technologies. This is particularly acute in industries such as technology that are evolving quickly or unpredictably. Though a little exaggerated, Bill Gates often lamented that Microsoft was only ever two years away from insignificance through failure to predict and stay ahead of industry evolution.
If you are in a rapidly evolving industry such as gaming software, and you are not spending half your time over the horizon, then maybe a career change is in order, whether you like it or not!
- How well has the business performed financially over the past three years?
- Do you have any new products or services that are gaining ground in the market?
- How much time and effort is spent looking for growth opportunities and contemplating industry evolution?
- Is the business attracting entrepreneurial talent?
- Have you developed any options to reinvent your business or create new businesses?
* Parts adapted from McKinsey
Frederick writes: But it could just as well be focused on reducing costs, lean manufacturing and “Six Sigma” being great examples of process innovation — this is bullshit — six sigma prevents innovation.