Transforming cost-cutting into growth in your innovation programme

In times of uncertainty, when business models are challenged, companies are bound to cut costs to become more agile, robust and adaptable to change. Managers can support these efforts, namely within the corporate innovation programme.

Indeed, books do not set out which costs are good or bad for a specific company, or how they impact business strategy and operational reality. No measure fits all.

A successful strategic innovation programme thus implies the definition of specific priorities and mapping out what can be potentially bad and good costs, at different organisational levels:

  • On the one hand, bad costs should be seen as those that do not align with the growth strategy. They are waste and an outcome of inefficiencies that can and should be reduced;
  • On the other, good costs are those that support business capabilities to achieve growth goals, and may be worthy of more investment – so that in the mid to long term you end up saving more or increasing return.

In this process, it may seem easier to make centralised decisions at the board level, at a more macro level, with potentially higher impacts. Yet, simply externalising tasks and reducing headcount are often ways to overshadow a complex problem. Strategic cost-cutting challenges you to look at the bigger picture, to seek the root cause of the problem and to transform the system and its architecture.

In other words, the change must also happen from the bottom up, always with the right leadership and sponsorship, to define the areas of improvement clearly.

The employee community has to understand what’s happening, and to share and collaborate with the company’s challenges. They must be aligned with the business strategy, and feel they have a role to play and can have an active voice in the decision-making process. As an interested party, they must be welcomed into the discussion about the best ways to reach the proposed goals.

 

Andreia Agostinho Dias, Sales Executive
Diana Neves de Carvalho, Exago’s CEO

Get to know the Five Steps to Introduce Cost-cutting in your Innovation Agenda here

Step 4: Overcoming fears over cost-cutting within your innovation agenda

Typically, cost-cutting is an expression that frightens employees. It often suggests salary reductions, job cuts and increased individual workload. When introduced in your innovation agenda, you should thus ensure that both real needs and strategy are understood across the organisation, consistently framing any cost-cutting goals.

It is important that the community clearly understands that a strategic cost-cutting and improvement strategy can assume an innovative role in the company.

It should also be understood that it doesn’t strictly relate to cost reduction for specific areas but it can, instead, help you collectively find and assess new and more effective ways of developing a process or product at a lower cost, cutting redundancies and waste.

The Communication and Marketing departments should be involved in the programme from the beginning to present a comprehensive plan capable of reaching the entire workforce. Your goal is to inform employees, help them understand what is being done and why, and create empathy with the common challenge faced.

Aligning employees with the companies’ goals will contribute to aligning costs with strategy. Remember that everyone in a company can play an essential role in identifying ‘bad’ and ‘good’ company costs, mostly at the micro level. Besides the innovation management platform, brainstorming sessions with employees and among teams can also be very useful to categorise the existing costs and to collect insights on future good costs and potential investments needed.

This continuous engagement of your workforce will also make your employees more cost-conscious, imposing a more effective cost and spending culture.

Andreia Agostinho Dias, Sales Executive
Diana Neves de Carvalho, Exago’s CEO

Access the Five-step Guide to make cost-cutting work within your innovation initiative here

 

How to map costs for your innovation path to growth

We’ve seen why leaders with a clear vision connect innovation and strategic cost-cutting. In our economic environment, this becomes relevant for all companies, both incumbent and challengers.

At the top of the CEO’s agenda, we find over-regulation concerns (79%), geopolitical uncertainty (74%) and exchange rate volatility (73%), according to PWC’s 19th Annual Global CEO Survey. CEOs are not putting faith in global growth during these times of uncertainty.

In 2016, only 35% of CEOs believed that their own companies could grow during the year, as the figure below shows.

CEOs’ confidence in global economy and business growth prospects 

This was the lowest percentage since 2010 and, as the political agenda unfolds, optimism has likely fallen again in 2017. Prospects for 2018 are just as cheerful.

 

Blind cost-cutting is never the answer

Political instability, North Korea-US tensions, terrorist acts across continents, the refugee crisis in Europe, the BRIC’s slowing economies, stock market volatility, the Brexit process… Frantic news is putting CEOs on guard.

In such an edgy environment, management is naturally driven to use cost-cutting to align costs with business strategy. Strategic cost-cutting becomes a path companies take to resist hardships, become resilient and prepare for more solid growth opportunities. It focuses efforts on business areas that can be controllable, freeing up resources for transformation and future growth.

All companies have encountered this reality in the last decade. However, blind cost-cutting, not aligned with strategy and sustainability concerns, may be dangerous. An arbitrary, opaque and misunderstood corporate cost-reduction policy will alarm employees and disengage them from business strategy and leadership’s main goals.

Cost-reduction programmes have time and again failed in the past. In its 2012 report, ‘Stop cutting and start optimizing IT spend’, KPMG says these initiatives flop due to unclear cost drivers, overly cautious cost strategies and the fact that cost discipline is not embedded in a company’s culture. Success depends on cost discipline as well as on changing behaviours.

 

So what should you change?

Where exactly should you cut? And how can you do it to make sure you move forward, finding new and better products and services and building a company fit for any future scenario?

To help you establish a strategic cost-cutting strategy within your innovation management initiative, we will share five major steps you can take to ensure that your business remains competitive, relevant and able to maximise its potential in the face of less favourable circumstances.

Andreia Agostinho Dias, Sales Executive
Diana Neves de Carvalho, Exago’s CEO

You can access the full paper here

 

How to mobilise the right audiences for innovation challenges

When putting your innovation challenges together, make sure you have a complete plan with clearly defined, targeted audiences, across cultures and business units, as well as key messages, frequency expectations and a communication and incentives strategy. The overall point is to know and hit your targets:

• Target your skills and expertise first: Within your organisation, you almost certainly have people with different types of expertise, from several areas of knowledge, studies and work fields and with different conceptual and practical know-how. It’s this diversity and richness that you want to connect to, and focus on, real business problem-solving. Still, according to your challenge’s specificities – more or less technical and more or less field-related – you may have to engage more restricted groups within your organisation, such as engineers, lab technicians, machine operators and analysts. You may also need to look outside your company’s walls to include suppliers, external experts and other stakeholders. Your innovation tools should allow you to do just that.

• Ask yourself what you are mostly looking for: The framework shown below may be of use to identify your challenge goals and target community.

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• Remember innovation challenges do not capture all individuals’ interest in the same way: You have to create empathy, establish almost an emotional commitment. This is also of critical importance in geographically spread-out organisations. For example, inefficiency in a headquarter compound’s energy use in Switzerland is probably completely irrelevant to the same company’s Peruvian employees. Although corporate challenges need to intersect your entire organisation, remember to align them to local reality, also making room for more explicit priorities within specific industry and geographic focuses.

• Seek some balance: Use both specific geographic or know-how groups (i.e. targeted groups), if needed, but always launch more broadly-based innovation challenges, to increase the sense of community and improve transversal collaboration.

• Take into account again that, across geographies and cultures, people are different: Individuals can be more social or insightful, more creative or more logical and critical thinkers – skills that you also want to leverage. The most typical behaviours can be connected with four profiles used in the Bartle Test of Gamer Psychology:
Achievers participate the most with ideas and comments to gather as many points as possible. They become huge contributors.
Explorers, who love to look around, are great at helping the community discover other potential contributions. They submit insights and diversify overall participation by doing everything.
Socialisers stimulate others to enhance their contributions. They submit many suggestions for improvement and love to check out what is going on, as well as watch leaderboards.
Killers love to compete for the sake of competing, and they are very active in the selection and evaluation process of ideas. They are great at differentiating what is good from what is less good and even greater at clarifying those ideas that are no good at all.

Participating has to not only be attractive and entertaining but also inclusive of all these types of players. Idea management software can help you do this as long as it allows several types of participation, such as idea and insight submission, comments to improve ideas and individual and crowd evaluation. From the beginning of the initiative and over time, gamification techniques also will prove helpful to engage your audiences in the innovation challenges.

• Make sure also that you have an appropriate system of incentives and recognition in place: This meets your audience’s different aspirations and motivations, stirring idea generation and added-value contributions. Periodic cycles of incentives – connected to challenge cycles – will ensure people want to improve their participation and remain involved over time. Remember as well to align the incentives with your publicly communicated purpose.

• Communicate continuously, from the beginning and as the process evolves: Good communication will play a part in making the challenge attractive to those who are called to participate. The more individuals see the success of projects to which they have contributed, the more likely they are to remain mobilised. For this undertaking, involve your communication teams – on a country and business level as well – in developing more detailed and well-oriented plans.

HERE’S WHAT OUR CLIENTS SAY ON THE SUBJECT:

‘The innovation challenges we launch for particular groups are typically more narrow because we are communicating to a target very familiar with a given topic or reality. We can then start from a more specific point and ask for answers that are more concrete. In more general challenges, we always chose more open questions, although we also guide these groups with insights to lead them and frame the challenge’s scope (explaining what exists, what is already being done and what has been tried without success).’

‘It’s important to match needs and competencies. Also, it’s very important to deliver feedback. Always.’

 

FINALLY, TRY THESE ACTIVATION QUESTIONS:
  • To whom is this innovation challenge useful, and who can benefit from meeting it? (This question supports you through alignment with country and department priorities.)
  • What incentives and messages should I use to engage my different teams?
  • Does it create empathy with the target?
  • Is the challenge being communicated in an attractive way?
  • Do I need specific skills or knowledge to meet this challenge?

Diana Neves de Carvalho, Exago’s CEO/ dnc@exago.com
Francisco Bernardes, Exago’s head of Innovation Services/ fmb@exago.com

READ MORE:
Are you building your innovation challenges right?

FROM THE START:
Your ultimate innovation challenge – what works and what doesn’t

First, ask what your innovation purpose is

Nike’s goal is ‘to bring inspiration and innovation to every athlete in the world’. Starbuck’s motto is ‘to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time’. What is your company’s mission? And how does your initiative take part in carrying it out?

At the end of the day, it all comes down to purpose. When launching your innovation initiative, you must first clearly identify what is your higher strategic purpose – the one that will bind together your leadership, management and employees.

From our experience, getting key players inside your organisation aligned is hard, requiring diplomatic and pragmatic skills. When launching your innovation effort, you must also find a way to communicate that the initiative is bigger than just a simple project with a set of processes and tools. Individual employees need a meaningful purpose to motivate them to dedicate their free time to activities that are not part of their official job description.

You thus need to follow up on, and build on, your organisation’s mission. Define a purpose for your innovation effort and identify ‘the jobs-to-be-done’ through innovation. Show your team that this is an opportunity to shape the company’s future, to out-differentiate the competition.

Whether you seek to apply innovation management to meeting very explicit business challenges or to creating a company-wide culture and capabilities, ask yourself, ‘What do we want to change?’ Understanding your ambitions helps you define a migration path, set your expectations, get the challenges right and allocate resources more rationally.

Your challenges thus have to be aligned with your company’s higher purpose and the strategic objectives you set. You should also define clearly what you want to accomplish and why, as well as the specific needs your chosen challenges address.

Try these ativation questions:

  • Why are we doing this?
  • What do we want to change in our organisation?
  • What are our organisation’s specific needs that are addressed by this challenge, and how can people relate to them? (Focus on the problem, on defining its scope instead of jumping to a solution.)
  • What is the desired outcome? (Understand the perspectives of customers, stakeholders and other beneficiaries. This should be addressed qualitatively and quantitatively whenever possible.)
  • How does this connect with our company’s mission? And with more strategic goals?

We will next see the importance of picking useful and feasible fights, when launching your innovation challenges.

Diana Neves de Carvalho, Exago’s CEO/ dnc@exago.com
Francisco Bernardes, Exago’s head of Innovation Services/ fmb@exago.com

READ MORE:
How to pick useful and feasible ‘fights’ for innovation challenges

FROM THE START:
Your ultimate innovation challenge – what works and what doesn’t