Seven ways to make innovation pay

Changes in technology, new customer behaviours and regulation are disrupting the business and global landscape. Creating value through innovation is a challenge that resonates with businesses across the globe.Our recent private equity survey in Asia found that amid continued slow growth in the region, private equity firms are working to find new ways to improve their portfolio companies’ operations – and earnings.

Indeed, we are seeing this renewed determination to create value through innovative operational excellence across geographies and industries. All successful companies continuously have a turnaround mindset, challenging the status quo and the normal way of doing business. Leaders of these companies look for alternatives not only in their own industries but also wherever there is an example of disruption that triggers growth. This turnaround mindset is what is needed to anticipate an opportunity rather than simply cure a problem.

For example, Ferrari, despite being a niche manufacturer, continues to come up with more than one innovative new product every year. Ferrari continuously follows the changes in consumer behaviour in its target segments; this is an opportunity that is evolving, particularly in non-traditional markets.

At a government level, Gulf Cooperation Council (GCC) countries in general are using the high liquidity coming from their natural resources to prepare themselves for the future. For example, Abu Dhabi is building nuclear power stations despite the huge availability of oil. And Saudi Arabia is diversifying industry out of the oil-related industries into pharma, consumer goods and automotive, among others.

Value creators foster cultures of continuous improvement. They exhibit a bias toward focused innovation. They constantly seek new ways to execute exceptionally on the strategies already in place rather than abandoning those strategies and searching for new ones. They dramatically increase value through a laser-like focus on operational execution. They don’t financially re-engineer themselves to the top of the stack. Instead, they focus on one or more aspects of their operations where success can give them an exceptional lead, and they work it harder and better than everyone else in their sector.

Through our research and experience, we’ve identified seven practices shared by those companies that have outperformed their industry peers in the years since the economic crisis. Those practices are:

• Making life easier: Customers aren’t looking only for lower prices – they’re looking for value-added products that make their lives easier. Companies that continued to offer high-value products often found that customers were willing to pay for them.
• Shopping anywhere, anytime: Similarly, rather than selling off parts of their distribution systems or closing down branches, winning companies made their goods and services more accessible. They took advantage of omnichannel opportunities while also building bigger and better-located retail outlets.
• Spending surgically on big data: Rather than trying to use data analytics everywhere, successful companies took a targeted approach, selecting areas such as customer acquisition, retention and profitability that would make a big difference to revenues and profits.
• Bringing innovation to cost-cutting: Successful companies looked for ways not only to reduce their spending creatively but also to reinvest the resulting savings into innovations and new markets that would pay off and improve the value they offered their customers.
• Investing aggressively during the downturn: Rather than stockpiling cash, value-creating companies reinvested in the business. They charted a clear course toward the horizon rather than battening down the hatches and waiting for the storm to pass.
• Mastering mundane operations: Value-creators demonstrated a relentless and laser focus on execution. They paid much more attention to the critical components of their operations – activities that may often appear to be mundane – than their peers.
• Leading with clarity and commitment: Leading companies didn’t discount the importance of real leadership. Instead, the best executives establish concrete milestones to gauge progress toward goals, with emphasis on internal and external transparency. To achieve these goals, they treat employees and business partners with respect, they motivate through incentives, and they invest in developing talent and relationships. In return, they get superior performance and occasional sacrifice during tough times.

In short, the executives at the top of the leading firms paid as much attention to the qualitative aspects of the business as they did to the quantitative. They painted a clear picture of what the company was about and where it was headed. They focused relentlessly and avoided abrupt shifts in strategic direction. Clear thinking, motivational messages and actions, and organizational excellence were ultimately every bit as important as the operational and financial steps they took to thrive amidst the downturn. Through this integrated leadership, these companies were able to build resilience, harness complexity, and master globalization – and ultimately create value in a low-growth world.

Author: Stefano Aversa is Managing Director & Co-President at AlixPartners

Image: Ships are pictured in the shipyard at Bremerhaven, Germany. REUTERS/Fabian Bimmer