It is nearly impossible to find a causal relationship between innovation activity and financial or marker performance. The key is not to come up with more ideas – rather to launch products and services that people are willing to pay money for because they think their life will improve. The critical thing is effectively tuning into the right signals.
Often companies that embark on an innovation program see a dip in revenues – until the internal processes are retooled to take advantage of a new way of working. Let’s have a look at a couple of Australian companies regarded as innovators …
A recent AFR article ranked Domino’s as the 4th most innovative company on the ASX 200 however the share price isn’t tracking with the innovation releases. Some were genuinely customer centric like online and web ordering, pizza tracking and hotspot delivery while others are more dubious like drone delivery and Zero-click ordering which only works if you don’t count all the clicks required to unlock your phone, open the app and log in. It must now answer a Senate inquiry on allegations of one sided franchisee contracts and “lacking accountability for technology pushed onto franchisees”. Perhaps it needs to innovate more on helping franchisees succeed.
AFR lists Telstra the 10th most innovative company yet its share price has been declining since 2015.
Complexity naturally layers over time – an organisation must constantly fight to simplify where possible. You’d be forgiven for thinking that creating more products correlated with innovation – this has led to a nightmare 1,800 different plans.
The 2022 strategic plan lays out some uncommon innovations designed to help customers …
- Radically simplifying product offerings – reduce number of plans from 1,800 down to 20.
- Eliminate profit pools driving customer dissatisfaction.
Let’s see if the market rewards Telstra once it starts executing on its new plan.
If you get transformational product innovation right, it can look like this …
In Q4 2007, Apple sold nearly $4B worth of iPods (42% of total revenues). Instead of riding the success wave, several years prior Apple bravely started developing an innovative new product that would directly cannibalise it’s cash cow – the iPhone – and the rest is history. Unfortunately now it considers removing the headphone jack “brave”.
There are no silver bullets
Idea management software vendors would have you believe that innovation can be managed like sales – all you need is a fat ideas pipeline. Technology can certainly be a great enabler but if your efforts aren’t valued by customers, revenue will not follow.
Maybe there’s one silver bullet
A recent report from BCG suggests that increasing the diversity of leadership teams leads to more and better innovation and improved financial performance.
Of the six dimensions of diversity considered, the most significant gains came from changing the makeup of the leadership team in terms of the national origin of executives, range of industry backgrounds, gender balance, and career paths.
The report found that even small changes to diversify the management can have an impact on the bottom line. For instance, hiring women to equal just 2.5% of the leadership team would result in a full percentage point increase in innovation revenue.
So is it worth it?
If you define innovation as the ability to adapt to market signals telling what your customers value, and if your market is experiencing significant change then your very survival depends on developing a culture that seeks to help people.