Without Innovation There Is No Growth

Business leaders universally agree that growing their companies ranks among their highest priorities. Rising costs or falling sales can make expansion crucial for maintaining income or business value. Moreover, they might require new capital to obtain equipment for launching their following product or capability. Indeed, many other legitimate factors contribute to the need for growth.

Everyone in business acknowledges that the old saying, “Do what you always do, get what you always got,” is outdated. Without growth, a company becomes less competitive, stress levels increase, and employees may leave. It loses value. Without innovation, there is no growth. Luck becomes your only remaining growth driver!

McKinsey on innovation is the key to growing a company

Here is a quote from a recent McKinsey article:

“In this current era of competing priorities and endless disruption and uncertainty, we know that innovation remains a must-have, not just a nice-to-have, when capital is readily available. We also know that making a conscious choice to grow and supporting that choice with the right mindsets, development pathways, and capabilities can yield superior shareholder returns.”

And, here is another quote from a sifferent article,:

“Inovation and growth are inherently linked. Companies that build new businesses and develop new offerings, processes, or business models are better able to capture growth opportunities and hedge against disruption a highly uncertain business environment. This conclusion was forcefully reinforced in our recent survey of 1,039 companies around the world. The largest share of respondents identified the ability to innovate as the most important strategic factor for generating growth over the coming 12 months.”

Establishing a foundation

Before delving into the details, let’s explore the two definitions that underpin this story: innovation and value.

1. Innovation as defined by Innolytics:

“Innovation is a process by which a domain, a product, or a service is renewed and brought up to date by applying new processes, introducing new techniques, or establishing successful ideas to create new value. The creation of value is a defining characteristic of innovation.”

Consider that innovation isn’t limited to one individual, team, company, or industry. Once you identify an opportunity before starting a project, explore how others have tackled the challenge and what insights they may provide. Your objective isn’t to invent something completely new but to improve upon what you already do.

2. Value as defined by Middlesex Consulting:

Two types of value are linked to innovation: customer value and internal value.

“Customer value refers to the buyer’s perception of the tangible (economic) or experiential (emotional) improvements (benefits minus costs) to business outcomes (profit, ROI, CSAT, etc.) that result from using or owning the supplier’s products or services, compared to all alternatives.”

Evaluating customer value can be complicated and requires gathering feedback from customers. You will explore this topic in greater detail later.

“Internal value means the net improvements (benefits minus costs) in business outcomes (profit, ROI, CSAT, etc.) resulting from the implementation of new processes, the introduction of fresh techniques, or the establishment of successful ideas.”

 The main difference between the two value types is that internal value excludes emotional improvements (e.g., ease of doing business or employee friendliness). It is typically measured by well-known internal metrics such as profit, ROI, inventory turnover, and revenue from new products.

Without innovation, there Is no growth

Jeroen Kraaijenbrink, a strategy and leadership consultant, identifies four types of innovation:

1. Process innovation is inward-focused and operational, often enhancing efficiency or quality. For instance, when the production department initially set up its equipment, the industry standard was to process work orders in batches of 25 or 50. This method ensured that parts and assemblies were always available in the stockroom, thus preventing stockouts. Over time, Kanban and LEAN have become the operational models, even within your operation. However, your business never rearranged the equipment to minimize handling and wait times. Reorganizing the production department demonstrates innovation that generated internal value through labor efficiency and created space for adding new equipment.
2. Management innovation is inward-focused and strategic, often related to business organizations. For instance, a finance analyst examined the order totals per sales executive and discovered that direct salespeople, on average, generated 25% more revenue than independent representatives. As a result, the company started transitioning from independent reps to direct salespeople.
3. Business model innovation emphasizes outward strategies, focusing primarily on how an organization creates and captures value. For instance, when your largest customer inquired about ways to reduce their costs, you discussed the matter with some team members. You conveyed that a thorough design review before finalization could result in significant savings. They agreed, and for their next project, your team offered feedback that helped reduce costs by over 10%. They committed to applying the same approach to all future designs. Your sales team subsequently promoted this design review service to all clients, which quickly necessitated hiring three full-time design engineers. You billed customers based on the savings generated, benefiting you and your clients.
4. Product innovation has both outward and operational focuses. It usually involves modifying existing products and services or creating new ones to enhance customer value. For instance, based on the success noted in point number 3 above, you and your largest customer decide that instead of supplying individual parts, you will procure any necessary commercial components and build, inspect, or test complete assemblies. Over time, this service expanded to all your customers.

These four types of innovation share one key aspect: they were presented to the CEO after originating from lower-level team members. Case 1 featured a production foreman or manufacturing engineer, case 2 involved a finance analyst, and the last two cases were influenced by your customers.

Invest effort in managing multiple projects simultaneously. Don’t expect identical results from internal and customer-focused projects. Internal projects have limited potential outcomes, while external projects offer endless possibilities! For customer-focused projects, collect ideas from a diverse array of your customer base.

Related resources about without innovation there Is no growth

• Innovation At GE Is Strong In Spite of Financial Problems
• 13 Ways to Above Average Organic Sales and Profit

Getting started making innovation a part of your corporate culture

Much has been written about transforming a company’s culture, and I won’t review any of those books, articles, or webcasts again. Instead, I would like to share the most valuable insights I’ve learned and applied successfully:

• Be an innovative leader: Remember that each of us is like our own small business. We want the opportunity to care for our families, thrive in a wonderful community, and maintain a healthy work-life balance. We look to our leaders to help us achieve our goals. Furthermore, we should eliminate unnecessary bureaucracy and ensure that information flows freely.
• Encourage risk-taking and embrace failure: Ensure your team asks questions and that you answer them truthfully. You can set boundaries regarding which topics are off-limits, such as people’s health or salaries. However, if challenged, you must clarify why a topic is restricted. Keep in mind that taking risks will inevitably lead to some failures. Projects should be structured to identify potential weaknesses, but when a project fails, the team members involved should be commended for failing quickly, and the lessons learned should be shared throughout the organization.
• Encourage collaboration: Motivate employees to collaborate across functional areas. While you might not replicate Google’s “20% time” policy, which allows employees to dedicate part of their workweek to personal projects, you could offer a small group of employees two to four hours weekly to collaborate on a shared project.
• Cultivate external relationships: Nothing suggests that all innovation needs to be driven internally. All employees should be able to attend trade shows, participate in sales calls, meet with new and existing customers, and be encouraged to join networking platforms like LinkedIn. If you establish strong connections with local peers, why not create a program where an employee shadows someone at another company with a similar role each week? The following week, they can swap roles. After each session, the employee and their supervisor should allocate specific time to discuss the insights gained.
• Gather customer feedback: Before launching an innovation initiative designed to enhance customer value, connect with various customers to ensure they recognize the benefits of a successful project.
• Engage everyone and celebrate innovative successes: To inspire creativity and enhance customer satisfaction, include all employees in innovation and acknowledge their achievements while celebrating them.
• Participate in Best Places to Work competitions: Think about how much the company’s morale could improve, how much easier it would be to fill job vacancies, and how much larger the business could appear in your universe.

Measuring the results of your innovation initiatives

We have discussed why innovation is crucial for a business, the various types of innovation, and how to launch and sustain innovation initiatives. Now, we will focus on measuring the outcomes of your efforts. We will emphasize creating customer value, as your finance department and the Board of Directors (or equivalent) have already evaluated and addressed internal value creation.

Assessing customer value can be both challenging and straightforward. Here are the reasons it can be challenging:

• It reflects the buyer’s perception of the new net benefits gained from each initiative.
• Gains are perceived differently by various people and departments. For example, suppose you manufacture precision cylindrical rods weighing about one pound and reduce your packaging from 25 to 10 per box. In that case, your customers’ receivers and stockroom team will appreciate handling the lighter packages. However, their finance department will notice the increase in shipping costs, and their sustainability representative may be concerned about the extra cardboard.
• Benefits from one source are compared to those from other viable options. Imagine you and your neighbor both lease an entry-level luxury car simultaneously. A few weeks after picking up your vehicles, you meet to discuss your early experiences. You mention that your BMW 330i has outstanding handling and fuel economy, but it took you an hour to set up the infotainment, navigation, and comfort features. Your neighbor, who drives a Genesis G70, observes that the ride is stiff, and outside noise fills the cabin. Still, the audio system effectively masks the noise and delivers excellent sound quality. Do you think each of you is reevaluating your perceptions of your car choice?
• Individual perceptions are shaped by their environment. This is different from the previous scenario. Suppose someone drinks excessively one night and wakes up with a hangover. In that case, they are likely to view value and satisfaction as much more challenging than if they had enjoyed a special dinner, gone to bed early, and woken up feeling energized and smiling.
• As a result, perception changes quickly and frequently.

The simplest way to measure customer value creation is for someone in your C-suite, marketing, or sales teams to develop a strong personal relationship with the decision-makers and influencers your business interacts with at each customer location. They should build trusting and respectful relationships through relatively frequent yet not intrusive interactions. When necessary, both parties should feel comfortable having honest and constructive discussions about business performance and the value they create for the customer each year.

It is not unusual for the President of a contract manufacturer to ask the Production Manager at a customer, “In the past six months, we made two significant changes to what we deliver to you. Do you believe we provide more value than before these changes? If so, how much have we added to your bottom line?” Ideally, others in your business would engage in similar discussions with lower-level staff at the customer. These conversations should occur before the President meets, allowing him to remind his “partner” of the value created that she may not recognize.

Key takeaways

• Business growth is essential.
• Without innovation there Is no growth.
• Innovation creates value for customers and internally.
• Creating value for customers has limitless potential, while projects focused internally provide only limited benefits.
• Internal value is simple to quantify.
• Customer value is intricate and is most effectively assessed through business-to-business conversations.

About Middlesex Consulting 

Middlesex Consulting is an experienced team of professionals whose primary goal is to help capital equipment companies create more value for their clients and stakeholders. We continue to provide superior solutions to meet our clients’ needs by focusing on our strengths in Services, Manufacturing, Customer Experience, and Engineering. If you want to learn more about how we can help your organization avoid revenue loss because customers fail to renew service contracts, please contact us or check out some free articles and white papers here.

Image by Gerd Altmann from Pixabay