Struggling to Align Company Strategy with Innovation?

Innovation has become an area in which CEOs cannot afford to ignore. The importance of innovation has become a major area for senior executives to address as they look to improve their performance.

The result is that many executives now see the ability to formulate and implement an effective innovation policy as one of the most important aspects of their leadership development.

According to the Australian Bureau of Statistics (ABS), investments in innovation are now widespread throughout the country’s economy. In most recent figures, the ABS revealed 36 per cent of companies had introduced new innovations in 2012-13, while a further 22.8 per cent stated they were still in the process of developing new products and services.

However, innovation is also an area senior executives are struggling to align with company strategy, making it harder for companies to combine their development efforts with internal processes.

This was the finding from a recent study from Strategy&, formerly Booz and Company and part of PricewaterhouseCoopers.

The organisation’s research found that aligning company strategy with innovation is a major concern for companies in coming years, with 20 per cent stating this is the largest obstacle for a successful innovation policy.

A further 14 per cent are concerned about trying to incorporate company culture into their innovation policies, while 13 per cent are looking to build an external innovation network that could improve their performance.

The research found that product innovation is no longer the main area for companies to address, with the majority of research and development spending set to shift away from goods and towards services in the future.

Organisations are also beginning to prioritise radical innovations amongst new products, rather than investing in incrementally improving an existing product or service, according to Barry Jaruzelski, senior analyst at Strategy&.

“With the healthier market conditions, it is not surprising that business leaders say they plan to focus more on big breakthroughs. This will require companies to build new capabilities, an effort which they must not underestimate,” said Mr Jaruzelski.

“It’s not by planning or shifting spending alone that they will achieve this.”

Clearly there are weaknesses in the current approach towards innovation, meaning CEOs are going to need to spend more time aligning strategy with the development of new products and services.

How do different organisations approach strategy and innovation?

Innovation is usually assumed to be a single process, but in fact it will take different forms depending on the composition of an organisation and the different strategies that are in play.

That is the finding from a further research project from Strategy&. The organisation has formulated three unique forms that businesses can take when developing an innovation strategy.

These are:

  • Needs seekers – companies that use customer insights to drive their performance, finding innovative products that are specifically tailored to the needs of the customer.
  • Market readers – companies that are adept at reading shifts in their industry, and will then invest their research and development efforts into areas that are consistent with shifts in the marketplace.
  • Technology drivers – companies that are the most committed to out-of-the-box innovation strategies, relying on new developments and product offerings to offer something new to their customers.

Each of these different approaches to innovation require organisation-wide cohesion, which can then be applied to the specific product innovations that a company is pursuing. Strategy& also suggested that each of these models comes with a unique approach to the innovation process, with each being driven by different stakeholders within a business.
Strategy, not financing the key to effective innovation

Finally, one of the biggest mistakes CEOs can make is to assume that innovation is simply a financial exercise and that by increasing funding into a certain area they will be able to develop new products and services.

A study from the Harvard Business Review (HBR) suggests that the opposite is actually true – organisations that reduce their expenditure in research and development can actually see a greater return from their investments than those with a large budget for pursuing new products.

Using the case study of CISCO, the research suggested that innovation within an organisation consists of two different processes – explorative innovation and exploitative.

The first relates to a company’s ability to pursue big-picture thinking and develop products that are radically different to anything currently on the market. Exploitative research on the other hand, focuses on commercialising existing processes and driving new growth within an organisation.

Importantly, exploitative innovation doesn’t require a significant investment, and can often yield a greater immediate return for a business than explorative research and development.

In the case of CISCO, the researchers found that although overall investment in innovation declined in the early 2000s, the company’s output of patents – i.e. its exploitative innovation – actually increased.

Even more, successful organisations are those that can quickly change gear between these two different forms of innovation. By quickly shifting between philosophies, organisations were able to pursue the greatest number of new products and services.

Strategy underlying innovation

So how does organisational strategy factor into these findings? Well, firstly it illustrates how important company processes and management styles are for supporting research and development within a business.

Building and embedding this flexibility into the way a company approaches its internal processes is a major challenge for CEOs, especially as they look to develop a competitive organisation. Fortunately, the HBR research shows that developing the right strategy is more effective than simply expanding the budget for further innovation.

The research emphasised that effective leadership was essential for managing the strategic shift between the two forms of innovation.

“Visionary leadership is also about helping the company overcome inertia so that it can shift effectively from one frame of mind to another when the time comes. Few companies pivot easily, but those that do position themselves to ride wave after lucrative wave of exploratory, then exploitative, R&D,” stated the HBR authors.

As innovation becomes an increasingly important business function, effective CEOs are going to have to consider how they can align company strategy with innovation initiatives to drive greater value in their company.

Building an agile company: the case of McDonalds

Every business needs to be able to keep up with market changes in the face of widespread upheaval. Maintaining this organisational agility isn’t easy, especially for large companies with an international outlook.

Building an agile company the case of McDonaldsbWhile there are plenty of examples of industries that have been up-ended as a result of new competitors and changing conditions, there are also many that have managed to respond to these changes.

Among these is McDonald’s – one of the world’s largest and most iconic fast food brands that has reinvented itself in recent months by focusing on agility and innovation.

Meeting the challenge of a competitive marketplace

The food sector, and fast food in particular, has traditionally been one of the most competitive industries. The relatively low barriers to entry and large customer base have seen organisations compete on price, convenience and the shortest possible wait between ordering and eating.

While these factors have traditionally underpinned the industry, evolving market conditions and increasing competition from “fast casual” dining experiences that focus on quality have changed the industry.

For companies like McDonald’s, international economic conditions, such as slow spending in Europe, have affected sales while a generational shift away from fast food has decreased the number of young consumers dining beneath those iconic golden arches.

In the case of McDonald’s, the result has been slumping revenue and profits. The company’s revenue has dropped 11 per cent, resulting in a 30 per cent decline in profit, according to a report in Fortune Magazine.

To address this, the company has embarked on a strategy to become leaner. This year alone, the company will close around 700 under-performing stores around the world – double the original predictions. However, this shift is going much deeper than simply closing stores – the company is moving quickly to redefine its dining experience.

Reimagining the consumer experience

To reinvigorate global sales, McDonald’s has unveiled a number of new dining experiences that aim to reconnect with younger patrons, while also creating a higher-quality and more personalised product.

One such innovation has been the introduction of the Create your Taste experience in Australia, giving diners the opportunity to build their own burger from a range of 30 different ingredients. This new way of ordering uses touch-screens in participating stores that patrons can use to customise their meal.

This innovation is currently available in around 30 stores, but will be rolled out to 700 stores over the next nine months – underscoring how quickly this service is being scaled across the business.

While the Create your Taste product has been adopted across a large number of stores in Australia, other innovations have also been launched.

In Sydney, McDonald’s has launched The Corner, a redesigned McCafe that is styled to resemble an independent cafe rather than a chain. The design plays down traditional McDonald’s branding like the golden arches in favour of gourmet, personalised offerings served with metal cutlery and a range of cafe style hot beverages.

While the company has no plans to roll The Corner out nationally or internationally, it highlights the creative directions the company is pursuing in an attempt to reinvent its dining experience. This isn’t the first time Australia has seen the trial of new experiences from the company either – the first ever McCafe opened in Melbourne back in 1993.

Has this shift worked?

Transforming one of the world’s largest fast food services into an agile company that embraces modern trends is no easy undertaking. For McDonald’s, it’s too early to tell whether these organisational shifts will reverse the company’s financial position.

At an organisational level, there are signs this move is being embraced, with the company’s Australian CEO Andrew Gregory stressing these changes are designed to build a more transparent and responsive dining experience.
For other business leaders, the McDonald’s experience underscores how it is possible for even the very largest enterprises to become more agile and innovative. As market conditions continue to challenge organisations, developing, testing and implementing new strategies across multiple branches and departments will be a defining feature of successful companies.

Keeping step with the pace of digital disruption

By TEC Speaker Simon Waller

You don’t have to look far to see the impact that digital disruption has had on our lives. Technology that was once central to our lives now belongs in a museum, replaced by new devices that are faster, smarter and more useful to us.

While technological development has always been happening, what we have seen in the last few years is the true impact of digital disruption. Now, business processes that used to be lodged firmly in the analogue world are finding their feet in a digital existence that looks very different to anything we have seen before.

For many CEOs, the challenge is now two-fold. Not only do they need to start embracing technology within every level of the business, they also need to become the leading proponents of technology and win over sceptical workers to these new opportunities.

The end of business as usual

One of my favourite quotes comes from Kevin Kelly, a founder of Wired Magazine, who said:

If we were sent back with a time machine, even 20 years, and reported to people what we have right now and describe what we were going to get in this device in our pocket – we’d have this free encyclopaedia, and we’d have street maps to most of the cities of the world, and we’d have box scores in real time and stock quotes and weather reports, PDFs for every manual in the world – we’d make this very, very, very long list of things that we would say we would have and we get on this device in our pocket, and then we would tell them that most of this content was free. You would simply be declared insane. They would say there is no economic model to make this.

The point here is the influence of technology appears in many ways, making it hard to predict the future. Digitisation has inevitably and irreversibly changed business organisations so that there are entire industry sectors offering free services, with diverse and creative ways to be profitable.

In just about every sector there are start-ups and innovators looking to challenge the way businesses are traditionally run. These upstarts are often able to thrive thanks to their reliance on technology and their willingness to push the envelope in ways that risk-averse organisations aren’t prepared to pursue.

Kevin Kelly was also quick to point out that over the next 20 years we are going to see even greater change – the kind that will make the last 20 years look like a snail’s pace by comparison.

This change has become so widespread that even attempting to predict the future is pointless – with the words likely to feel outdated as soon as they leave our mouths. So while we cannot stop this disruption from occurring, we still don’t know what form it will take or how it will occur.

Preparing for a world where technology underpins every business

Just as the future business world cannot be predicted, it is becoming clear that every job in the future will require some level of technical or IT knowledge.

The findings in the UK Digital Skills Taskforce, published in 2014. The study found that 90 per cent of jobs will require at least a basic understanding of digital technology, while 56 per cent require an intermediate to advanced skill set.

Many workforces simply don’t have this depth of expertise that they need in order to thrive in a digital future. Building these skills require comprehensive training efforts and upskilling programs to ensure existing staff can handle an increasingly digital workload.

This is also true at the C-Suite. Many senior executives will have come of age at a time when digital technology was still in its infancy and therefore may not be familiar with the latest developments that are changing work on the shop floor. CEOs that want to make the most of digital technology need to acknowledge the limitations of their own skills as well as those of their staff members.

Technology that is truly personal

If you look at the history of technology, among the biggest changes has been taking technology and making it personal and relevant to an individual.

Take computers as an example. The very first computers were solely the preserve of governments and very large businesses. Over time, mainframe computers became standard in businesses, before being replaced by the personal computing revolution.

Of course, the PC was never really personal – it still had to sit on a desk be plugged into a wall and even with the advent of the internet, the connection still came through the wall. It has only been with the growth of mobile computing that this technology can truly be called personal.

While the march towards truly personal technology is a great boon for individuals, these same changes need to be addressed at an organisational level. CEOs need to recognise that old patterns of procuring and using technology are still done through the lens of the organisation, rather than the individual user.

Scaling technology to a personal level also demands scaling business decisions and direction to that same level as well.

Business that is led by innovation

Every company sits on a scale – from those who are leading digital disruption to those who are actively trying to preserve an old technology in the face of change.

Historically, companies at the latter end of the scale were those that were seen as successful – they had a proven track record, a specific niche and were dependable. Innovative disrupters were the opposite; treated as highly risky undertakings working on the periphery of established processes.

Now, that relationship has been inverted. Protecting old industries is now seen as a dead-end, while the top end of the disruption scale is seen as the area where real growth is occurring. A shift in business thinking needs to occur so that companies focus on moving up that scale. That’s a change that cannot come soon enough – and it has to start with the C-Suite.

Expecting the unexpected

Being told there is no way to predict the future may come as anathema to CEOs that are used to market research and sales forecasts, but it’s a realisation that needs to happen. Every industry and sector is already playing catch-up with technology and trying to keep pace with the latest innovation, and this challenge is only going to grow from here.

While there’s no sure-fire way to succeed, there are some steps CEOs can start to take. Focusing on technology skills, both their own and those of their staff, is essential for building digital-first organisations. Likewise, understanding how personal technology and innovation are now shaping the business landscape are essential for informing future business planning.

In an unpredictable future, mastering these strategies will give businesses a chance to make the most of digital disruption, rather than becoming another disrupted organisation.

Is company culture holding back your organisation?

Company culture can be a difficult thing to quantify and measure, especially for an SME that is looking to become more innovative.

While CEOs and company leaders will play a major part in establishing and maintaining a strong internal culture, there are still issues which derail these initiatives.

This is especially challenging if it means that companies cannot remain competitive and stay ahead of the opposition. Innovation is just one area where company culture can play a major role in long-term success or failure.

This issue was recently explored in the Culturing Success report from Microsoft into how widespread innovation is within a small business and what is setting apart high-performers in this space. The research reported that nearly 70 per cent of SMEs in Australia are finding it difficult to become more innovative because of company culture.

According to the report, there are four cultural issues which are undermining the performance of Australian firms. These four are; working in silos, employee distrust, poor collaboration and a fear of failure.

The importance of innovation was underscored by Microsoft Australia’s Managing Director, Pip Marlow, who stated that “innovation is vital to the success of any business, no matter how big or small.”

“However, our research reveals that many businesses find it difficult to develop a culture of innovation.”

While there is clearly a lot of room for Australian companies to improve their processes, the report did highlight features that set highly innovative companies apart from the competition. The 33 per cent of firms that fell into this highly innovative category possessed five key features, including:

A strong customer focus
Awareness of and appetite for innovation
Visible and involved leaders, which in turn create engaged employees
Authentic internal dialogues
A supportive working environment

The result of implementing these processes is a considerable improvement in the performance of an organisation. According to the research, 39 per cent of high-performing firms reported above average growth, compared to less than a quarter of those who are poor innovators.

So how can companies achieve this new focus? The report suggested four strategies that companies can embrace to move closer to the example set by highly innovative organisations:

Attract new staff

The study emphasised that attracting the right staff is an important part of building an innovative business. By bringing in new perspectives, organisations will be able to create great ideas and subsequently see them through to completion.

The advantages of attracting the right staff go beyond boosting innovation, they can also play an important role in realising customer engagement.

Many Australian companies are already aware of the challenges that come alone with attracting and retaining valuable staff members. For fast-growing SMEs like Enablis, finding the right staff members has been the core challenge when trying to scale the business to handle further expansion.

Collaborate with external partners

Creative ideas and innovative solutions don’t just come from within a business – in many situations, creative ideas will actually come from tapping into the skill sets of other firms and working collaboratively.

Business collaboration is also becoming increasingly important across new technology, with collaboration over cloud technologies predicted to double over coming years, according to a study from Research and Markets.

Evaluate performance

Companies that are looking to become more innovative will need to have established and concrete processes to measure performance. Microsoft suggested organisations can audit themselves to understand exactly how well they are realising an innovation strategy at each stage.

One option that companies can use is the assessment tool provided by Microsoft. This quick test was designed to accompany the research and allows businesses to measure how innovative they really are. This sort of information can then be used to identify the areas an SME will need to work on if they want to move up the scale.

The benefits of this system were also highlighted by Pip Marlow, who emphasised the advantages of taking this assessment for small-business owners.

“Microsoft’s new self-assessment tool is the first of its kind to help small and medium-sized businesses identify their culture-related obstacles and then implement tangible solutions to become true innovation leaders,” stated Ms Marlow.

Build a flexible workplace

Staff will often perform better if they have the opportunity to get out from behind their desk and work in a way that best suits them. Not only can making this change ensure that staff are thinking creatively, it can also reduce the amount of stress they feel outside of work.

Solutions like working from home and employees choosing their own hours are easy ways for small businesses to introduce more flexibility, and thinking along these lines is a key ingredient in building an innovative company.

A flexible workplace can also involve introducing new processes to reduce the amount of time spent working on menial or repetitive tasks. For TEC member Alister Haigh, introducing ‘Baxter’ – a robot  designed to take over menial processes – has introduced a new level of flexibility into his family’s chocolate business.

Of course, none of these approaches alone is going to transform a business into an innovative organisation. But, by combining these different factors into a single coherent strategy, businesses will be well-placed to become a highly innovative firm that is also a leader in their industries.

For small businesses, building this sort of culture is going to require constant attention and maintenance. While this might sound daunting, the benefits for SMEs that can embrace this way of thinking are certainly going to be considerable.

How to boost productivity through better office design

When measuring the benefits of energy efficient building upgrades, many companies only consider the savings. While a reduction in costs may be considerable, there are far more business advantages to better design.

Some of the biggest organisations in the world are beginning to concentrate more on the layout and sustainability of their offices, including technology giant Google.

Anne Less, e-team innovation program manager at the firm, said the importance of eco-friendly measures in the workplace can’t be overstated.

“Energy efficiency is a huge focus for Google – both in our productivity and our operations – and we’ve found that it aligns with our goals for healthy workplaces,” she said in an interview with the Rocky Mountain Institute (RMI).

“There is a strong correlation between workplace satisfaction and temperature, and similarly with Googlers’ self-reported productivity.”

According to the RMI, Google makes decisions on office design throughout the entire real estate lifecycle, right from concept to construction and beyond.

The business also often weighs factors such as user experience and worker health alongside traditional issues such as cost and energy usage. As such, Google aims to create innovative plans that make the best use of natural light, are more sustainable and ensure staff aren’t exposed to harmful materials.

These measures mean Google now only uses half the US average for energy in its test building, with the company stating its hopes that other enterprises will begin to understand how such investments can bear fruit.

Going green in Australia

A new report by the World Green Building Council (WGBC) stated that staff costs typically account for approximately 90 per cent of operating expenditure for organisations.

This means that even a moderate improvement in productivity at the workforce level can have significant financial implications for employers. In Australia, businesses waste $7 billion a year on absenteeism and poor health.

Romilly Madew, chief executive of Green Building Council Australia, said the report – which her organisation sponsored – will help companies in the country appreciate the value of environmentally-friendly designs.

“Operating from sustainable office space is increasingly recognised as a strategic business decision that is not only environmentally and economically-sound, but can also enhance a company’s biggest asset and expense – its people,” she added.

Peter Hilderson, head of energy and sustainability services for the Asia-Pacific region at Jones Lang LaSalle, said there is a “sweet spot” where financials, people and buildings overlap. In other words, enterprises can achieve mutual benefits by creating office spaces that not only help their bottom line, but boost productivity among employees.

“Organisations that invest the time and apply the necessary rigour to implementing this framework will unlock the benefits of these inter-relationships and reap the rewards,” he stated.

Taking the next steps

The WGBC report outlined a number of areas where businesses can examine their existing building design and make improvements.

If your organisation is looking to upgrade to a more sustainable future, these changes could be a good place to start.

Air quality: Enhancing indoor air quality has been shown to improve productivity anywhere between 8 and 11 per cent. High ventilation rates and low concentrations of CO2 are important factors in achieving better air quality.

Active design and exercise: The health benefits of exercise should be encouraged, including access to gyms, bike storage and green space. The WGBC said people who cycle to work are much less likely to take sick days.

Lighting and nature: A growing body of research shows that green space and nature both have a positive impact on health, particularly mental wellbeing. Office layouts that prioritise access to windows and natural light, therefore, are tied to a boost in productivity.

Temperature: The WGBC said it is difficult to separate the benefits of air quality and room temperature, as they are often closely linked. However, providing staff with control over their thermal comfort is thought to produce productivity gains somewhere in the single figures.

Amenities and location: This is becoming an increasingly important part of modern offices, particularly in relation to childcare. Businesses that have provided these services on-site experienced a significant financial gain through reduced absenteeism.

Noise: Employees typically highlight loud office environments as a severe impediment to productivity in knowledge-based jobs. In fact, there can be a 66 per cent drop in performance due to distracting sounds, according to one study cited by the WGBC.

Interior layout: Recent research has suggested that creating a number of different task-oriented workspaces is the key to making workers more productive. This means providing separate areas where staff can socialise, brainstorm or work on their own.