Sunday, 26 August 2007

Why are so few companies successful in Business Innovation?

Growing complexity in correlation between trends and developments
So far companies have in particular followed those specific trends and developments that are an extension of their current value proposition. KPN for example has for a very long time concentrated on monitoring and helping to develop above all technological (telephony) developments and translating them for the Dutch market. It is clear that this will no longer be enough for KPN. The new strategy is aimed at the provision of communication, information and entertainment services. For this all the relevant Mega, Consumer and Market trends must be monitored and analysed as they relate to one another. This is also called ‘viewing from different perspectives’. Too often many businesses are still viewing from a single perspective. They have no workable method, tools or the right competences at their disposal to be able to spot these trends as they relate to one another and then to analyse them. Let alone translate them into innovations in their value proposition.

Growing unpredictability in consumer behaviour
If consumers display stable buying behaviour and are easy to classify in customer segments, the company can make a clear delineation at which the innovation is to be aimed. Volvo and Saab for example have succeeded in appealing to a clear target group with a safe, luxury passenger car. Customers have therefore remained loyal to these brands for a very long time.
Capriciousness characterises the behaviour of the consumer of now and the future. Other forms of living together, communicating, consuming and experiencing clearly have their repercussions. The modern consumer wants an appeal to his DNA, the “genetic blueprint” of his behaviour. The company must be capable of understanding this DNA and translating it into a new value proposition. The chances of the company’s survival are determined by two crucial factors: insight into the specific customer and the speed of reaction to the constant changes within the target groups. Capgemini’s research Trends in Retail (2006) shows that only a few companies have proved successful in this.

Obsolete organisational structures and governance models
The growth of companies in recent years has mainly been realised through acquisitions. This has led to a structure of relatively autonomous business units, each with their own Research & Development, marketing, production, etc. The units are aimed at achieving their own result, they are first and foremost product-oriented and there is no flexibility in the cost structure. Growth and expansion are achieved by copying a business unit with a complex, expensive and inflexible structure. From the position of the central company this leads to suboptimisation of the operating result and an uphill struggle to adapt the value proposition quickly.

For these businesses innovating mainly means investing with a high risk factor. Many innovations have been and are still technology (and product) driven. Converting new technology into market products requires research. This research takes place in separate organisational departments such as Research & Development (R&D). Research costs time and money. And research is often driven by budget rather than business cases, in which costs and revenues are related to one another. Improvements of the innovation in R&D environments are often aimed at shortening that lead time, reducing the costs and avoiding the risks. To make the revenues from the innovation understandable there is a need within the business unit to work with other departments such as Sales and Marketing. Differences of insight in the area of control, allocation of costs and income, dealing with risks, etc, do not fit within the existing structures and governance models.

Businesses do not know how they can transform in a controlled manner into new structures and management that do fit in with a flexible manner of innovation. The research “Erasmus Competition and Innovation Monitor 2005” shows that in innovative businesses 25% of the innovation success is determined by R&D investments and 75% by managing cleverly and organising innovatively.

Undeveloped competences in fossilised business culture
Changes in the strategy and structure of a company require changes in the culture of the business. In one organisational structure a specific business culture will have a strengthening effect and in another a paralysing one. Look at a business where technological knowledge of things and 120% quality experience were preconditions for performing (think of the old Utilities businesses). A technocratic organisational culture of hierarchy, protocols, standards, more matter than people-oriented attitude, will have a strengthening effect here. An organisational culture that is characterised by chaotic creativity, scope to keep reinventing the wheel and actually aimed at behaviour of people, has a paralysing effect. A complex change of competences and behaviour of staff is necessary.
A company can develop a new innovation structure (for example strong cooperation between the R&D departments of the business units), but the differences in the organisational cultures often appear to prevent changes. The success of transformation is an interaction between changes in the business strategy, the organisational structure and the organisational culture. This is not an obvious change competence that businesses have in house. Yet the logic of the new innovation structure must be in keeping with the new logic of the feeling.

1 comment:

Mark van Huijstee said...

If relatively autonomous busines slow down innovation (indeed they do), why not apply the learnings from supply chain management within the organisation? If they do not talk, consider using the tools (and the experts) applicable to those that are not normaly inclined to talking.