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.

READ MORE:
How to introduce a cost-cutting strategy in your innovation initiative: step 1

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

Ten years building the future together

In 2006, an IT visionary, an innovation hunter and an algorithm doer met for coffee and an idea came up. In November 2007, Exago was born.

Now, on our 10th anniversary, we celebrate the results of our brilliant customers and the over one million users who have taken part in building their organisation’s future.

From the thousands that have come to life, we share 10 simple yet impactful ideas to stir us all.

We challenge you to pick (at least) one!

 

How to conquer your Daily Innovation Zone

Once you’ve understood the four quadrants of the innovation model – steady growth, productivity gain, industry leadership, game change -, you’ll need a plan to conquer your own Daily Innovation Zone. This means also learning how to create game changing innovation with minimum cost and risk.

To do it, consider the green zone at the bottom of the model. This is the daily innovation zone and spreads across from process to product innovation but in a narrow band on the boundary of incremental change.

Innovation Quadrant for Corporate Innovation

The theory is that a company that trains itself to constantly innovate in this zone – small changes and improvements on a daily basis – will most certainly position itself to deliver that big radical, game changing product or industry leading process in the long run. These baby steps would help the company start small, take lower risks, and make innovation a part of its DNA.

Daily innovation is more about building a culture of innovation. It is not about creating an “innovation committee” or “working group.” It is about motivating everyone in the organization to think like an innovator, celebrating daily improvements in the life of the organization. A zone where saving a sheet of paper is treated on par with reducing the cost of production, or adding a new feature to a product.

From janitor to CEO, everyone is involved in the process. Self-driven, motivated and eager to make a change – with a sense of pride at the changes they bring and a reward that may be as little as a pat on the back.

READ MORE:
Creativity, creative leadership and the value of innovation management

FROM THE START:
“Innovation is not for us”, they say

By Rumman Ahmad. An MSc in Creativity and Change Leadership from Buffalo State University, Rumman trains, teaches and facilitates groups of people to learn and apply the creative process to solve problems, energizing and motivating them to do their best. He is also the organizer of an annual conference on innovation in Pakistan. An Exago partner since 2016 in this key geography, Rumman has developed a Model for Daily Innovation which can be complemented by Exago’s innovation management software.

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

Finally, your 7th innovation journey must-have

Last but not least, when launching your innovation management effort, remember to find a way to communicate why the initiative is bigger than just a simple project with a set of processes and tools. A strategic intent that shows the outcomes of the effort will not only benefit the company, but your people and the world we live in.

Show your teams that this is the opportunity to define the company’s future, to out-differentiate our competition and, more importantly, to write history together.

In short, make sure you find what makes you all jump out of bed in the morning. It´s the ultimate must-have to guarantee, over time, a seat in the Innovation Journey.

Ready to board? Check your must-haves:
Are you ready for your innovation journey?