The investment in change needed for high business performance in five years will compromise business performance in the short- to medium-term. The trade-off facing the Executive of any organisation is between investment in strategic goals and delivering acceptable (‘survival’) performance in the meantime. Here are 4 high-level approaches you should consider – and a hot tip from our side.
Striking the right balance needs buy-in from the relevant stakeholders. In an owner-led organisation, there are only a few key stakeholders to convince, but is a large public corporation, the shareholders are likely to be many, and themselves corporate – a much tougher group to convince.
1 mission – 4 approaches
Let’s look at 4 high-level approaches as shown in figures 1 and 2.
Strategy 1, “Bull” – is extreme; massive investment in innovation aims to create a new market, or out-compete the early market-makers to create a huge market, with a huge market share, like Google, Facebook and Tesla. This is the strategy of entrepreneurs (figure 1) and must offer a great pay-back. Faith by investors is essential, as this sort of investment is a gamble.
Strategy 2, “Ostrich” – is the opposite extreme; innovation and associated investment is avoided to minimise short-term loss of performance, so performance can only grow slowly through continuous improvement, eventually dropping below the rising ‘failure’ curve. This was the strategy of many companies no longer with us (figure 1).
Figure 1: Investment in change, extreme approaches
Strategy 3, “Mouse” – differs from strategy 2 by investing in the minimum level of innovation and change to secure survival, but keeping short-term investment and loss of performance low.
Strategy 4, “Leopard” – maximises innovation investment while still keeping performance above the ‘failure’ curve and is rewarded in the 5-year timescale by better performance than strategy 3 gives.
Figure 2: Investment in change, moderate approaches
What strategy should one aim for?
For most organisations, somewhere between “Mouse” and “Leopard” is the only viable option for survival. Amazon, for example, is an organisation that has invested aggressively in growth to boost its business performance to stellar levels. Jaguar-Landrover, after decades of decline, leapt back from oblivion after investment by Tata when they bought it.
In most established organisations, their investment in innovation has to fall between strategies 3 and 4 – they simply don’t have the reserves to invest massively but recognise that some innovation is essential to survive. There are two conflicting demands to be reconciled.
- There is always pressure from the Finance team to minimise spend that doesn’t guarantee a return (“efficiency”)., and all innovation carries risk that it won’t work out
- On the other hand, the Sales force demands products and services that stay ahead of the opposition (“effectiveness”) by exploiting the best performance possible while meeting customer expectations and preferences.
The balance struck will depend on how convinced the Finance team are that the consequences of not investing justify the risk of innovation.
Regulation is a powerful convincer for Finance as non-compliance immediately threatens the very survival of the business. The change in market attitudes is usually less obvious, but can be just as devastating e.g. VHS versus BetaMax, Android and iPhone versus Nokia.
Markets are changing faster than they ever have: organisations must find a way to invest in innovation to survive.
To read more about Andrew’s thinking, download his white paper here.