Firms are always looking to find an edge; ideally differentiation should be the prime motivator for any strategy. But often CEOs fall into chronic sameness, an inertia driven by a feeling that they must focus on cost, even cheapness, to remain competitive; termed as innovation plateau by Alejandro Ruelas-Gossi.
A main indicator of how widespread this plateau has become is the decline of corporate investment in R&D. Investment in fundamental science, the R, has dropped from being more than 2% of U.S. GDP in the 1970s to 0.78% today. Lesser the science, fewer the ideas for new businesses.
CEOs need to be able to identify when strategic inertia is staring them in the face. Alejandro has identified four symptoms, that should warn executives that they are stuck on an innovation plateau. These four are born of good intentions but are ultimately self-destructive:
- Obsession with low-cost (reduction) programs. Rather than paying attention on increasing revenues, CEOs tend to focus on reducing costs. The excuses for this imbalance being as simple as, “Attacking the cost side is always the easiest and quickest way to grow”. Firms resisting the race to the bottom with this ideology often protrude in the crowd. Lean is a powerful management tool, but having the “exact” number for efficiently doing the work of “today” jeopardizes the “future” by not having extra people thinking on it. Efficiency is not innovation.
- Obsession with listening to the customer. Firms try to deliver the value that they think their customers want, with the pre-conceived notion that almost everyone wants their products to be as inexpensive as possible. But great CEOs understand that the responsibility of defining greatness is theirs’, not the customer’s. As Steve Jobs was fond of asking,Am I really going to ask customers if they want an iPad?
- Obsession with incrementalism. The benefits of compounded marginal gains can be substantial. “Small ball” can be effective in the short term; but when asked about the future, CEOs almost always talk about their current portfolios – by what percentage will they rise or fall? Radical innovation, a new dominant design that can lead to a step-change in the company’s fortunes, is often absent in the agendas.
- Obsession with acquisitions. When failing to innovate, CEOs acquire talent. This as per Alejandrois indicative that the company certainly finds itself stuck on the innovation plateau. As per his observation the more innovative a firm is, the fewer acquisitions it makes; it develops in-house talent focusing on a few great things.
How to overcome the innovation plateau? Customers don’t always want to shop on price — exploiting an emotional relationship can help escape the race to the bottom. Natura, a Brazilian cosmetics firm, produced a mother-baby product line that undercut Johnson & Johnson’s leading position in the baby product market by linking Natura’s products with ‘Shantala method’, a popular technique in Brazil for strengthening the bond between mother and infant through massage. This allowed Natura to compete with Johnson & Johnson on something other than price.
The team at Actuate Business Consulting, a knowledge based management consulting firm in India, believes that companies should augment their hunger, deepen their domain knowledge and focus on discovering higher value through constant innovation in existing products, through new products, and look at expanding globally – even in a world of seemingly fleeting competitive advantage and strategic inertia.