“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can praise them, disagree with them, quote them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. While some see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”
– Apple Computer advert, 1997
These words capture the essence of the spirit that is at the core of Apple Computer. Even though Apple has been through some tough times and financially challenging moments during its lifecycle as a business, it has always held at its core the spirit of innovation, of creating value by challenging the status quo and doing things differently. Over time this spirit has paid huge dividends. In 2005 and 2006 Apple was identified as the world’s most innovative company through research conducted by Boston Consulting Group, pipping other innovative organisations such as Google, 3M and Toyota at the post. Apple’s efforts have resulted in revenue growth of 37% over a five-year period and net profit growth of 185% per annum over the same time.
What if you could grow your top line by 37% and your profits by 185% over a five-year period? Over and above the financial returns, Apple has delivered a wonderful experience to customers through innovation. You would struggle to find someone who does not love the simplicity, usability and beauty of the iPod or the MacBook.
With the increasing rates of change and the continued opening up of global markets, there is no doubt that innovation is playing an increasingly important role in value creation and success in business. The question is how do business owners and CEOs embrace this concept in a meaningful and practical way in order to drive growth and profit? Can smaller business with little or no research and development budget develop innovative new products and services that will differentiate them in a highly competitive market space? To explore how competitive advantage can be attained through innovation, you need to examine the different types of innovation and different opportunities for innovation within an organisation’s sphere of activities. Understanding this can enable a business owner to look at their organisation with new eyes as they try to identify new opportunities to innovate.
Types of Innovation
Creating value through innovation can happen in many different ways. Traditionally, new ideas have been classified as product innovations, process innovation or business model innovation. In recent times two additional types of innovation come to the fore: branding innovation, where an organisation differentiates itself or its offerings by building a unique brand; and management innovation, where managers use a range of new and different practices to enhance the performance of people working under them.
Innovations can also be classified as radical or incremental. Radical innovations are ideas that are different or new, ideas that break away from what was done in the past. Incremental innovations are improvements and adjustments to current products, services, processes, business models, brands or management practices.
1) Product innovation focuses on the creation of new products or services, or on improving the features of a current product or service. This type of innovation has conventionally garnered the most attention. It’s driven by R&D departments looking for new products or seeking to improve current products to make them more appealing and user friendly. The Kreepy Krauly is one of South Africa’s true radical product innovations, a product that when introduced, completely transformed the pool care industry in SA and ultimately went global. On the other hand the Gillette razor has been through a long series of incremental product innovations. The razor started off with two simple blades; over time the company has systematically improved the product from the Sensor, to the Mach 3, to the M3 Power to the latest version called the Fusion which has five blades on the front, one on the back and battery power to produce micro pulses for additional comfort.
2) Process innovation is the creation or improvement of a process by which a product or service is produced or delivered. Effective process innovations have the effect of stripping out costs, increasing efficiency and improving the customer experience. Henry Ford engineered one of the major process innovations of the 20th century when he created an assembly line for the manufacture of cars. Before Ford, cars were built by groups of two to three people who worked on a car from start to finish. Ford created a moving assembly line with many individuals doing repetitive tasks. This reduced the assembly time for a car from 12,5 hours to 2 hours and 40 minutes.
More recently we have seen a number of successful process innovations, many of which have been enabled by the web and other computer technologies. Michael Dell of Dell Computers created a process where customers configure their own computer and pay for it at the time of ordering; on receipt of payment the company orders all the parts from suppliers who send the parts as they are required on the production line, meaning that the company does not store any inventory. The computer is delivered to the customer 10 days after the order is placed. This process has huge financial benefits for the company: it gets its money before it builds the product; it does not incur the cost of storing inventory; and as both the manufacturer and retailer, the company is able to extract the entire margin from the sale of the product.
In South Africa we have seen Ster-Kinekor reduce the pain and uncertainty of buying movie tickets by introducing process innovations such as Ticketline, online ticket buying and touchscreen service at cinemas.
3) Business model innovation is the creation of new business models or the successful change in an element of a business model that substantially enhances a company’s ongoing performance in delivering benefits to customers and shareholders. Business model innovation usually results in fairly large-scale change and disruption. Google and eBay are two of the most significant business model innovations to have come to the fore in the past 10 years. Both these companies emerged from the Internet bust as stainable businesses and have since gone from strength to strength, proving that it is possible to make a profit as a dotcom company. In South Africa, Outsurance changed the business model for short-term insurance, allowing customers to interact directly with the company and rewarding them for not claiming.
4) Branding innovation is the creation of value within a business through the development of a powerful brand. Not yet recognised by many as a distinct type of innovation, in practice, branding innovation can have a significant impact. Richard Branson’s Virgin was ranked among the most innovative companies in the world in a Boston Consulting Group survey, yet Virgin is nothing more than a brand. Virgin unashamedly copies products, processes and business models from other companies, but it delivers them to the customer in a unique, distinct way under the umbrella of a powerful, recognisable brand.
In South Africa, Kulula.com has claimed a significant chunk of the domestic airline market by being highly innovative in the development of its brand. Kulula.com copied the business models of Ryan Air, Southwest and Jetblue, and its bright green branding, idiosyncratic adverts and humorous approach has set it apart as an innovative and recognisable brand that has disrupted the South African airline industry.
5) Management innovation is the discovery and implementation of new ways of organising, leading, coordinating and motivating employees. Management innovation has only been recognised as a concept in the last few years, but those who have taken time to examine how innovative managers get the best out of their people have come away with some very interesting insights. One of the most fascinating and innovative business leaders of the past two decades is Ricardo Semler, the CEO of Semco, a business based in Brazil. Semler took the business over from his father at the age of 21. For the first few years he consistently worked 18-hour days, including weekends, until one day he collapsed on the factory floor from exhaustion and poor health. This forced him to seriously re-evaluate the way he was managing the business. He transformed his leadership style and management practices, documenting this massive experiment in the book Maverick: the Success Story behind the World’s Most Unusual Workplace. Here are some of the innovative ideas chronicled in the book:
- Each business unit is small enough so that those involved understand everything that is going on and can influence the outcomes.
- Demonstrating trust by eliminating all symbols of corporate oppression as well as the perks of status.
- Sharing all information and eliminating secrets. He believes that you can’t expect involvement to flourish without an abundance of information being made available to all employees.
- Every six months bosses are evaluated by their subordinates and the results are posted.
- Salaries are public information unless the employee requests that they not be published.
- Employees set their own salaries. They are encouraged to consider what they think they can make elsewhere; what others with similar skills and responsibilities make in the company; what friends with similar backgrounds make; how much they need to live on.
- 23% of pre-tax profits are shared with employees. Employees vote how the pool will be split. They must vote to determine the manner of each quarterly distribution. In practice they always vote for equal dollar shares.
- Eliminating policies and rules wherever possible.
- Job rotation; 20% of managers shift jobs each year.
- Setting up workers in their own businesses as suppliers to the company.
Semco has grown from a $4 million to a $212 million business over a 24-year period and has withstood some incredibly tough economic downturns in the Brazilian economy.
Not all these way-out practices may be relevant to every organisation or team, but perhaps they serve as inspiration to drive you to question what you could do differently in running your business or leading your team; this can give employees the freedom to flourish and the incentive to really take ownership and think out the box.
The reality is that you are unlikely to be able to embrace every type of innovation in your business – it would be too risky and too radical to try to innovate in every possible way. As a business owner or leader you should consider which types of innovation are most relevant in your business and work at driving a maximum of two or three types of innovation. If you are in a fragmented industry in the early stages of development, then product innovation is likely to be important. If you are in a more mature industry where cost and speed of service are relevant, then process innovation will come to the fore. Business model innovation will be important in declining industries where you are looking to rejuvenate or radically disrupt the industry. Branding innovations are useful in industries where consumers are highly critical, while management innovations can have broader appeal in many industries in various stages of development.
There are many different definitions of innovation but the majority focus on three core elements: searching for new opportunities and ideas, building and refining a new idea, implementing the idea to create value. Innovation can be defined as the process of recognising an opportunity and turning that opportunity into a new idea that is put into widely used practice. Peter Druker was the first management thinker to recognise the importance of innovation in the value creation process within organisations. He defined innovation as “the means by which entrepreneurs exploit change as an opportunity for a different business or service.”
To build competence as an innovator, you need to constantly be on the lookout for trends and changes that could affect your industry; you need to search for opportunities that emanate from technological, societal, demographic and economic shifts. You need to translate those changes and shifts into ideas for new products, processes, businesses models or brands. You need to work hard at implementing the new idea so that its commercial value is ultimately realised.
Make Innovation Happen
Turn Innovative Thinking into Results
Many a great innovative idea has either fallen short or not even made it out of the starting blocks due to poor, or worse still, non implementation.The process below is based on an article published in the August 2006 issue of Entrepreneur, Making Strategy Work, The 4-phase Process, in an interview by Patty Vogan with Michael Canic, a business consultant and author.
We have taken Michael Canic’s 4-phase process of making strategy work and applied the logic to turning innovation into reality.
1. The Assessment Phase
The key here is that leaders create the time and environment to make innovation happen. (See Making Innovation part of the business DNA) Secondly, as the leader of your organisation, decide on where you can make innovation happen in your business (See Types of Innovation)
2. The positioning phase
The question to ask here is, “What do I want to accomplish in my commitment to innovate?” Break it down to a few simply worded sentences that capture what you wish to achieve (the end goal).
Then develop another simply worded sentence to capture what “winning” would look like. Think of the early days of Apple, when the primary goal was to create the most user-friendly operating system for personal computers.
3. The Planning Phase
The general question to ask here is, “How do I get there?” This is the phase that has to be information-driven. How do you resource the team to brainstorm the innovation and how and when is the time created?
4. The Implementation Phase
Here you must answer the question, “How do I ensure it happens?” This is the most important phase and the one where innovative plans or thinking can fail. A critical and underestimated part of any implementation is alignment – ensuring the factors that impact people (from skills, authority, resources and incentives to processes and structure) are all aligned with the key goal. It’s alignment through the eyes of the people, not just leaders, that counts. A second critical aspect of implementation is commitment building. Be sure to structure regular communications and engagement with employees. Our underlying belief is that information, input and involvement together help to build commitment.
The last part of this phase involves execution management. The leadership team should meet for a few hours every month to track and manage the implementation of the plan, and then every 90 days to recalibrate the plan. Reality changes, and the plan or elements of the plan can become irrelevant. So every three months it’s critical to question the assumptions upon which the innovation plan was built and make adjustments as necessary. Have you lost a key customer? Has a new competitor come into the market? Has a promising investor bailed out on you? What has changed the reliability of your supply chain? When a company vigorously adopts a disciplined strategic management process to ensure a positive outcome of the innovation idea, it’s much more likely to achieve the goal.
Innovate For Change – Think Like A Social Entrepreneur
Why consider the social entrepreneurship model?
Social entrepreneurship is an exciting business arena that finds new, sustainable business solutions to long-standing problems. Social entrepreneurs see social challenges (such as poverty, homelessness, poor infrastructure or lack of quality education) as an opportunity for change.
This approach brings together the best that business practices offer and blends it with the best that civil society offers (a social mission, broader stakeholders involvement and the engagement of the community). By generating income from business activities and reinvesting its profits back into driving its mission, this approach generates both social value and economic value simultaneously.
Why consider the social entrepreneurship model?
1. Seeing social challenges as opportunities
South Africa’s social and structural challenges, from our poor ranking in health and education to the high level of unemployment, provide a myriad of opportunities for entrepreneurs that are willing to roll up their sleeves and work to build a better future.
The recent winner of the recent Nation Builder Social Innovation Challenge, Lungi Tyali, is a great example of this mindset.
Across Africa, there is a dire lack of provision for the electrification needs of the majority of the population, especially in rural communities. In South Africa, at present, there are 3.4-million households without a formal, metered electricity supply; 2.2-million in formal and 1.2-million in informal households. Lungi Tyali is the CEO of Solar Turtle who, with her business partner, James van der Walt, created a solar energy solution for rural and off-grid areas. Solar Turtle provides a solar-powered kiosk in a container that serves as a hub for renewable electricity. During the day, the solar panels are open to collect sunlight and at night they are enclosed and locked securely into the container.
Related: How To Be A Social Entrepreneur
2. Social entrepreneurship has low barriers to entry
Many of the most successful social enterprises start off small with an enterprising individual seeing an opportunity in their local community and building from this small beginning. There is no prerequisite for a university degree of formal training. Growing social enterprises can thus also offer employment opportunities to unskilled workers and youth without experience, addressing South Africa’s high level of unemployment.
One such story is that of Nonhlanhla Joye, the founder and facilitator of Umgibe Farming, Organics and Training Institute. Ma’ Joye, was diagnosed with cancer in 2014 and as a result, could not work to provide food for her family. She decided to grow organic vegetables in her backyard to feed her family. Unfortunately, the chickens ate all her vegetables and she had to come up with a solution.
She innovated a growing system using plastic bags. Before long Ma Joye was teaching other community members to use her growing system. A platform was born where poor communities started growing vegetables to feed themselves and collectively sell their surplus produce.
3. Corporate Social Investment, with purpose
Social enterprises also offer individuals and companies the opportunity to invest in lasting social change. Unlike traditional philanthropy, the impact of social enterprises has the potential to be much more lasting by directly providing affordable social goods and services, as well as employment opportunities.
Nation Builder, for example, is a platform* that brings like-minded businesses and civil society together in order to learn from each other and partner together for the greatest possible impact through wise and responsible social investing.
4. Personal actualisation
Perhaps the most rewarding advantage of being a social entrepreneur is the impact you can have on society, but this model also offers several personal benefits:
- working to solve issues you care about
- freedom to explore and create innovative solutions that can inspire change
- the opportunity to turn passion into profit
- working as your own boss.
Having The Perfect Product Isn’t Enough To Keep You In Business
The odds of the small business surviving aren’t stacked in its favour. It’s more likely to fail than succeed. That’s the bitter truth. However, once it’s able to shake off the niggling teething problems, watch it as it unfolds from a pupa to a beautiful butterfly.
There is a small bakery operates in my neighbourhood. It bakes bread; no cakes or other confectionaries. The best home-made bread that has your palates yearning for more. This is in sharp contrast with the bread produced by bigger bakeries. They also supply bread to the neighbourhood.
The bigger bakeries operate a model that is largely automated to the point that they lose a very important ingredient beyond flour, yeast and whatever goes into making bread. They lack the personal touch that gives it the home-made feel. This is why the neighbourhood bakery is preferred despite being pricier.
The small bakery isn’t without its flaws; avoidable flaws that may, sadly, sink the business. My view is more on the certainty of the demise of the business as observers would’ve noticed a slow yet steady decline in the output of the business. These flaws aren’t unique to the bakery, several other small businesses have share the same flaws.
Why would a customer who is willing to pay more for a product suddenly cease patronising the business. What other factor apart from higher price, in the absence of a drop in purchasing power, would make a customer buy bread of supposed inferior quality from the competition.
A couple of years ago when I moved to the neighbourhood the business was doing great. Even during a biting recession the shelves were always stacked with freshly baked bread of different varieties. Despite the excellent product on display, there was an unsatisfactory trend in the operation of the business.
For one, the sales personnel are rude. Having the right staff is necessary to grow any business, but when this very fundamental issue isn’t gotten right it will be fatal to the business. After all for how long would customers put up with poor service delivery in the face of stiff competition from bigger rivals.
Small business owners must realise that proper training of staff is as important as sourcing for capital and shouldn’t be overlooked as the survival of the business also rests on it. Bigger businesses in this regard always come out tops in comparison with their smaller counterparts.
Annually, big businesses spend billions of dollars on staff training for the simple recognition of the fact that having disgruntled customers, on account of poor service by personnel, is dangerous for business. Despite their size, big businesses tend to understand better the importance of the single customer. Also, how the discontent of a few customers can translate into poor sales which is detrimental to the business.
The mindset of a small business shouldn’t be different. Investing in staff shouldn’t be treated with levity to ensure the business not only stays afloat, but also grow it. Growing a business is in itself tough work, small business owners shouldn’t make it tougher by providing terrible service.
The neighbourhood bakery lacks this important feature and it’s been responsible for the steady decline in sales. I didn’t know the poor service rendered by the attendants had attained much notoriety until I was having a conversation with a group of individuals at a religious gathering and the issue came up. It’s a sad realisation.
For financial reasons small businesses aren’t known for recruiting the best personnel. Most employ the services of family members. While there is nothing wrong with this, it’s important to ensure such person is the best fit for the business. Employing family members may lead to a myriad of problems for the business. Therefore it will be in the best interest of the business not to employ an incompetent family member than have him ruin the business. This is a risky way of running the business.
The feeling of the customer towards the goods or services businesses provide is key to its success or failure. This is because customers can have the most unbiased assessment of the business rather than management and staff. Despite the poor service the bakery openly had on display, no one seemed to have bothered complaining to the owner of the business. So it may seem.
It will be in the best interest of a small business owner to leave an open channel for feedbacks from customers. This isn’t the case with the bakery and some other businesses face this challenge too which may lead to further problems.
The inability to provide an avenue for customers to channel their complaint to the proper individual creates a problem of inaccessibility. Accessibility happens to be an area of strength for small businesses because of their size. In larger businesses, despite creating channels for complaints there is usually no personal relationship between the owners and their customers. This is an area a small business shouldn’t be found wanting.
One would imagine that as a small business, the owner of the bakery should be easily accessible to interact with customers to in order to obtain feedbacks pertaining service and staff performance. This isn’t the case as the business clearly takes this important factor for granted. A lot of customers don’t know the owner of the bakery despite patronising it for years.
On paper the size of small businesses translates to easy accessibility. A closer look will reveal that the owners of small businesses tend to take a lot of things for granted. They fail to realise that they have to be consciously open to the idea and cultivate the habit of seeking feedbacks from customers. A small scale business has to maximise its potential for dynamism and flexibility. If it can’t take advantage of its unique qualities then it’s doomed.
There has been a reduction in the variety of bread baked and in addition to this is the equal reduction in the amount of bread on display generally. From observation it’s clear that patronage has taking a massive hit.
It’s painful witnessing the slow demise of a business with a good product due to its own failures. Having the perfect product won’t on its own keep the small business in business. The odds of the small business surviving aren’t stacked in its favour. It’s more likely to fail than succeed. That’s the bitter truth. However, once it’s able to shake off the niggling teething problems, watch it as it unfolds from a pupa to a beautiful butterfly.
Customers Are The Heart Of Innovative Businesses
Keep your customer at the heart of your business.
One of the main reasons start-ups fail is because they don’t create solutions that meet their customers’ needs. Failure is avoidable. Businesses that understand their customers feelings, challenges, expectations and motivations make themselves indispensable in highly competitive markets because they recognise that true innovation is led by customer insight.
An incredible example of a business that believes in innovation driven by insight is Netflix. They revolutionised the way people watch video content by listening to their customer’s needs. You’ve probably heard the story before: after paying a $40 overdue DVD fee, Reed Hastings co-founded Netflix. He was simply too busy to return his DVD. He recognised that this experience wasn’t exclusive to him, but that it was a problem that many people faced. He saw a gap in the market for receiving and returning videos more effectively, and that is how the $150 billion business was born.
If your start-up doesn’t fulfil a human need, then you’re setting yourself up for failure. It’s not enough to have a cool idea. Ask yourself, “What is the market need behind the offering?” and then test ways of delivering your offering in the most user-friendly manner. Talk to your consumers, understand their likes and dislikes and establish your business purpose before haphazardly allocating funds to R&D.
You can’t go from being a California based DVD-by-mail provider, to becoming the world’s largest online video streaming service without a business plan. It’s important to recognise the step-by-step process of success. Netflix didn’t go from delivering DVD’s to pouring capital into the production of video content within six months. That sort of development would have bankrupt the company almost immediately. It took 21 years for the business to become content creators.
- In 1999, the company became a subscription service because they found that customers preferred paying a monthly fee rather than making a once off purchase.
- Then, in 2009, the company used investor capital to expand their DVD collection because their clients wanted a larger selection of movies.
- In 2010, the business expanded internationally because they saw a gap in the market across various countries.
- Finally, in 2013, Netflix created its first original content series because customers craved fascinating content beyond the overused Hollywood archetype.
The point is: Progress didn’t happen overnight. The business had to set goals and objectives. They then had to fund their growth by presenting market opportunities, backed by customer insights, to their investors. Establish your start-up one step at a time and make sure every progression isn’t innovation for innovations sake – it must be inspired by a human need.
Netflix was founded by a computer scientist and a marketing director. While one partner focused on Netflix’ service development, the other focused on sales. Since the company’s origin, collaboration and balance have been the cornerstones of the business’ success.
Netflix is currently composed of a diverse team of tech-professionals and designers. They understand the importance of combining technology and design to offer customer-inspired user-experiences.
After conducting consumer research, Netflix discovered that series and movie artwork influences viewing decisions by 82%. This has resulted in the creation of more descriptive and provocative designs. Netflix is known for leveraging human-behaviour to revolutionise their service offering.
As an entrepreneur, you can increase your ROI by partnering with the experts that understand human-based innovation.
Keep your customer at the heart of your business.
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