Step 3: Invest more in a bottom-up approach for your innovation agenda

When developing your innovation agenda, bear in mind that employees deal with inefficiencies in your company daily, often having diverse and powerful ideas related to organisational processes and products. They also have opinions and insights concerning the areas and processes in which it could make more sense to cut or to invest.

Top-down approaches sometimes bring your initiatives from micro level to macro level, relying on transformational opportunities to reduce costs. Yet they do it without looking at the whole picture, unable to identify the real inefficiencies, unable to create a sustained way to drive costs and to change inefficient spending behaviours.

You can save time and money by having your employees contribute ideas for the cost-cutting strategy, as well as cost-optimisation ideas that can transform and impact the company positively.

Any ‘reductions’ or ‘cuts’ should aim at building a more robust organisation, in search of innovative ways to redefine itself. There are limitless options according to your reality. Have a look at some sample results from customers who incorporated a cost-cutting strategy in their innovation agenda:

  • By selling obsolete stock items to employees interested in buying them, an organisation generated a new revenue source and freed storage space, allowing a much more rational use of space;
  • A client was able to streamline its customer support call centre efficiently, improving service quality and vastly reducing the number of calls received by the customer service department, simply by adopting different colours for cables, routers and set-top boxes;
  • They also saved €2M with a new, eco-friendlier packaging system;
  • Another client embraced distribution of administrative documents by bike, a cool and eco-friendly idea with significant results: by replacing 30% of the motorcycles with bike couriers, distribution costs were reduced and almost a ton of CO2 emissions was saved in just seven months.

STEP 3 advises you to invest more on a bottom-up approach, calling on people’s knowledge and experience to help you separate the wheat from the chaff and find concrete and innovative solutions, mainly at micro level.

(more soon)

FROM THE START:
Strategic cost-cutting and improvements in the innovation corporate agenda

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

What are the good and the bad costs in your innovation agenda?

When introducing a cost-cutting strategy in your innovation agenda, you should first have a clear view of your company’s strategy and map out good and bad costs for programme intervention, at macro and micro levels. Both macro- and micro-level-oriented strategies have value and they often make more sense combined.

At a more tactical level, and in line with your strategy, you need to look at your whole organisation and differentiate between the critical ‘good costs’ and the non-essential ‘bad costs’:

  • Bad costs are those not aligned with the overall growth strategy of the company;
  • Good costs support the business capabilities needed to achieve the overall growth goals.

In an online article in Forbes, PWC’s strategist Rodger Howell says that ‘once a company’s costs are classified, strategic cost-cutting and improvement become a process of minimising exposure to bad costs and maximising investment in the best ones’. He adds that this practice helps to ‘create a more resilient growth model’, which is ‘particularly important during times of uncertainty’.

These bad and good costs can happen at both micro and macro level, as the figure below shows. It is key that you keep this matrix is mind when defining your strategic cost-cutting and its goals, and how to address each quadrant.

Strategic cost-cutting matrix

Overall, the bad costs are waste and an outcome of inefficiencies, which can and should be reduced. Do not underestimate them. Even micro-level bad cost-cutting, such as reducing power and resources use, can have tremendous impact on your balance account. Not only are these costs easily identifiable by your employees, but they can also be incorporated into your incremental innovation agenda in ongoing challenges, so that you are always capturing and addressing new and existing inefficiencies.

Measures to cut bad costs at a macro level (such as closing units or laying off people) may, however, have a stronger, higher and more immediate impact on your financial balance. But is it the way for your growth? We are not saying it isn’t part of it, but there are other ways you should always consider as well. These costs are better leveraged by external teams carrying out a strategic analysis to understand which costs are no longer aligned with the organisation’s strategy and can therefore be eliminated without negatively impacting core business.

On the other hand, good costs are those that support business capabilities to achieve growth goals. They may be, in consequence, worthy of more investment, so that in the mid to long term you end up saving more or increasing return.

At a more macro level, they will likely imply some investment and a more disruptive transformation, but can also have a larger financial impact. For instance, if you decide to redesign a profitable business area, you can open doors to new clients and markets and to higher returns.

At a more micro level, for example, by changing a product material or a method of doing things, you can also pave the way for an unexpected internal revolution. Here again your internal workforce can provide useful insights to redefine current products, services and processes. There is always space for improvement, and including this quest in your innovation agenda will help you structure and centralise the process, thus reducing investment in external advisory services and bringing interesting and relevant inputs for your business aligned with your needs.

There is no magic formula and no equation to tell you how and where to cut exactly.

The main message is: remember to look at the bigger picture and understand which methods are more efficient in which situation, so as to develop an effective strategic cost-cutting and improvement strategy.

This process of employee engagement and empowerment will also make your organisation more future-fit and will create a cost-conscious culture, essential to creating a sustainable cost-cutting and improvement strategy.

READ MORE:
For step 2 in cost-cutting within your innovation agenda, you will need this

FROM THE START:
Strategic cost-cutting and improvements in the innovation corporate agenda

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

Why leaders with a clear vision connect innovation and strategic cost-cutting

A successful cost-cutting strategy is connected to an organisation’s capacity to evolve, to innovate, and to do so as a whole. Companies can, in fact, keep innovating in ways that do not require high investments in new product research and development, and which can save substantial amounts of time and money.

This process should start internally by capturing the wisdom of each employee, but can also reach external stakeholders, harnessing their potentially powerful insights, creating communities around the company and building communication bridges with clients and suppliers.

By listening to all these voices, and collecting the diverse expertise and know-how of their workforce, organisations can avoid waste, concentrate energies and operate in a more efficient way – thus getting prepared to react and adapt to continuous change.

Losing ‘fat’, as we know, makes us more agile, and agility is key in our times.

In this sense, leaders with a clear vision tend to use cost-cutting to align costs with business strategy. ‘Strategic cost-cutting’ helps companies lower costs, focus on the aspects of the business that are controllable and free up resources to fund transformation and future growth.

Innovation management does not offer magic formulas to do this, nor to mitigate slow growth. Yet sustainable growth, by its essence, cannot exist without ongoing innovation.

In the upcoming posts, we seek to understand what a strategic cost-cutting approach is in more detail, and how it can be important for companies in our economic environment. We also highlight how an innovation culture is fundamental to implement it, and guide you through five major steps to make it work in your organisation.

READ MORE:
How to map costs for your innovation path to growth

FROM THE START:
Strategic cost-cutting and improvements in the innovation corporate agenda

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

Why is innovation management a powerful tool to engage Generations Y and Z

Large companies looking for creative and transforming ideas need to leverage innovation management to conquer employees, particularly Gen Zers and Millennials. Those leading must develop the mindset and organisational structures to empower these younger generations and help them reach full potential, while being part of their company’s evolution.

Being able to align an individual’s everyday work and goals clearly with the organisation’s strategy gets people to think in new ways and imagine new possibilities. It makes it easy for employees to see how their contributions matter.

An innovation management software can help you share your company’s vision and strategy, get people involved, and continuously find new answers, as change becomes constant. Additionally, by including evaluation mechanisms, these sophisticated platforms give the community the chance and means to assess, as a whole, the ideas presented – thus harnessing and activating your company’s collective intelligence.

Idea management software (such as Exago Smart) also promotes a collaborative culture, for individuals and the community, answering directly to the main needs and motivations of both Millennials and Generation Z, as the following table shows:

innovation management to engage generations y and z

As innovation becomes the natural way of doing business for both these generations, organisations should focus on gathering and maximising their potential. The greater challenge, however, lies in managing this process in an efficient, collaborative and transparent way, using technology as a bridge to make their voices and contributions a real part of the corporate evolutionary path.

READ MORE:
Six best innovation practices to engage Millennials and Gen Zers

FROM THE START:
Loyalty is no longer enough to both employers and the workforce

Aylin Olsun, managing partner of ASO Company
Diana Neves de Carvalho, Exago’s CEO

Never forget your most valuable innovation asset

When targeting participants for your open innovation programme, consider suppliers, customers and universities. But don’t forget your most valuable asset: your employees are themselves a community of stakeholders, often from different countries, cultures, backgrounds and businesses. They are your most important open innovation source.

In this sense, after laying out goals, challenges and workflow designs to engage your external contributors using a software platform, your innovation initiative provider should also help you to integrate the generated content with your internal community. This means you invite your people to screen and evaluate the best contributions given by those external participants, adopting the software platform for their own purposes.

They will help you deal with and efficiently assess expected high volumes of information – and to decide which contributions a final jury should analyse to find the competition’s winner. By doing this, you gather and leverage your organisation’s collective intelligence, aligning it with initiative’s goals.

True, your teams may have their own orthodoxies. But remember they can identify, better than anyone else can, both ‘false positives’ (ideas that seem auspicious but wouldn´t work in your organisation) and ‘false negatives’ (ideas seemingly outside your scope but carrying unexpected value).

This approach also makes sure that you don’t get stuck in bureaucratic monsters, when having to analyse all inputs received. It lets you focus on the process’s later stages, promoting transparency, winning sponsorship and accelerating decision-making and implementation within your organisation.

All in all, while embarking upon your open innovation quest, be sure to capture equally high external and internal levels of engagement. The entire initiative and evaluation process, in particular, must be efficient, and the balance between your external and internal collective intelligence is key to get it successfully done.

Pedro da Cunha, Exago’s co-founder/ pdc@exago.com

READ MORE:
Six must-haves in the quest for open innovation success

FROM THE START:
Open innovation and the fight for your audience