One of the biggest dangers for companies is to believe that their success means they are doing things right and keep on doing them that way. We have all heard the story of a dominant company that lost its way by not embracing change, or, by going about it the wrong way.
Taking a classic case in point, the Kodak example who at one time was the biggest photo printing company in the world. But, fearing that photography going digital would undercut its wildly profitable film business, executives buried the digital camera technology they had developed in 1980’s for fear of cannibalising its all-important film business. In contrast, Fujifilm who envisaged the disruption of digital and the decline of the traditional film took a more flexible approach to executing its strategy – by getting as much money out of the film business as possible, preparing for the switch to digital and developing new business lines. In response Fujifilm developed in-house skills and new digital product lines whereas, Kodak took the easy route to milk its wildly profitable film business and partner or, buy its way into new markets as digital took off.
Today Kodak share is only 15% versus Fujifilm who controls 40% of the photofinishing market and should serve as a warning about the danger of relying on market position and status quo over embracing change.
Balance your strategy framework to focus on your needs of today with the future state of your business
For the most part, change is uncomfortable for companies, particularly when things are going well. Most organisations want growth and acknowledge that innovation is a critical component of achieving that growth. Yet so many of them do not grow or, innovate past a certain point. One of the most common reasons for this is the perceived gap between the innovation of tomorrow versus the reality of running the business today.
If you feel as though your organisation is mired in ‘chugging along’ delivering business as usual here are few pointers to ensure you execute the right strategy to grow and innovate to survive. It is different for every company and depends on the industry. Here are a few questions to consider when creating stepping stones between running your business profitably today and growing it for the future.
1. Are you asking ‘Why’
Companies must change their own thinking about long-held business habits to successfully anticipate market trends to create new businesses and Why is a great question to start transforming your mindset! It can be easy for companies to get complacent and comfortable in their success. One way to avoid this is to think about what you would do if you were starting the company from scratch today. Often, new employees ask these questions naturally. Consultants can help because they ask these questions to better understand how to help. Why do you do it this way? What would you do differently? What would you do the same? Are there things you used to do well that have been lost as you have grown? Asking yourself these questions can help you narrow your business innovation focus.
2. What amount of risk is smart?
The introduction of change brings risk and defining the risk versus reward of a potential opportunity guides how much risk is worthwhile to determine the right changes to pursue. For example, if a new product could increase your market by 10% but, you would sacrifice 50% of your revenue to get there, it may not worth it. Diverting all your research and development resources to new products may accelerate new revenue but, if recurring revenue from existing customers is at risk, this may be shortsighted. The answer is usually less dramatic than this example.
More often than not, the biggest risk in the change journey is a distraction from regular operations and unforeseen challenges. If uncertainty and speedbumps are anticipated as a normal part of the process, you can more easily deal with them. That is why sports teams have backup plans and substitute players on the bench and so, too must companies when assessing change with a long-range view and the confidence that the risk of the change effort is worthwhile.
3. Are your growth and change execution strategies looking far enough into the future?
Many companies seeking change falter because they do not dedicate the time to assess market trends and changes with the longer view in mind. Drawn to the immediate payoff of a quick-win, instead, many companies focus on the core business rather than those macro changes 3 to 5 years into the future that will impact the market you serve. This is particularly perilous for fast-moving industries like tech when executing strategies for growth. There are three key premises companies should consider when implementing their growth strategies.
(i) Maintain and improve your core products or, services. Get as much money existing products or, services to milk your current revenue by reducing costs and increasing efficiencies.
What can you change and improve to add revenue by attracting new customers and increasing the loyalty of customer base? Now, imagine that you lost them entirely. Imagine that you’re Kodak and customers refuse to buy photo film anymore in preference for the digital alternative. You would move straight to growth strategy (iii) create new business(es) – as did Salesforce when creating CRM as a cloud offering, for example.
(ii) Expand into new markets and nurture emerging business. Taking what you already have, and extending it into new areas of revenue-driving activity. Innovate products and services that extend, expand and enhance your existing portfolio but, do not yet produce revenue.
There may be an initial cost associated with developing new go to market products and strategies, but these investments are a well-proven way most companies increase addressable markets and revenue but, stop here. Examples of this could include launching new product lines or, expanding your business geographically or into new markets. With the necessity to keep ahead of the competition, companies must also embrace what we call innovation the third growth path rule.
(iii) Create New Business(es). Introduce entirely new elements to your business that don’t exist today by investing in transformative initiatives that look to create new products and services.
They may not produce any real returns for several years out but, could potentially double or, triple your addressable markets and, or, represents an entirely new way of solving the problems you solve today. Innovating and preparing to switch to new markets and trends happening in the industry gives any business the best chance for sustainable growth.
A standout case in point is Salesforce, they did not really create the CRM business, the leader in that sector was Seibel Systems. But, Salesforce determined that CRM users were likely ready to use a CRM solution that was not necessarily managed and implemented by its own IT department. A bold idea at the time and, as we all know how they were absolutely correct. At Salesforce, it became clear the normal enterprise IT department at customer companies had little resources to satisfy the new application demands of its lines of business. By offering its technology via cloud customers could build its own applications using business analysts and project managers rather than programmers from the IT department? Might have been a different story if, Seibel had anticipated customers preference and prepared to offer its CRM IT service via the cloud?
Practice the 70 / 20 / 10 rule for your strategic plan
As a rough rule of thumb try to ensure that around 70% of your activity is focused on (i) maintaining and improving your core products and services. After all, you need to survive and thrive today to have any chance of succeeding tomorrow. Allocate around 20% of your effort to focus on (ii) nurturing emerging business and R&D. Leaving 10% of your overall effort. focused on research and experimentation (iii) to create future new in-house businesses and diversification of your portfolio.
How close are you to the 70 / 20 / 10 rule? Do you have a clear understanding of your current reasons for success? Do you have a plan for if they were to be taken away from you? Did you find this article helpful?