We have entered into an entirely new era, an age of increasingly frequent and intense periods of turbulence in the global economy. This new normality puts an increased focus on the role of innovation, in order for organizations to create future growth and stay ahead of the competition.
According to the new book by you and professor Philip Kotler (CHAOTICS: The Business of Managing and Marketing in the Age of Turbulence), turbulence is the new normal. In these turbulent times, that will continue to be so, according to you book, would you say that the role of innovation changed?
- Let me start by saying that the new normality is based upon the convergence of a number of key drivers of turbulence of the new age that is giving us the normality. And the new normality is intermittent and unpredictable bursts of prosperity intermixed with spurts of downturn. We are moving away from the more predictable sine wave where we have the up cycle and then followed by a downturn, which was often followed by a recession for the past 60 years.
…all strategies wear out over time.
- With that in mind, when we have turbulence, especially when we have heightened turbulence, the notion of the inevitable strategy decay begins to take hold. And what I mean by that is that it is just a matter of how slow or how fast it goes, all strategies wear out over time, is just a given. But during times of turbulence, and especially during times of heightened turbulence, they wear out event more quickly.
- Now, having said that, companies that are the most vulnerable to that, are companies that are not going to be able to be flexible, to adapt, and be able to evolve their strategies more quickly. Oftentimes these tends to be the large MNC, often market leaders, because they have built whole organizations and functional silos, based upon today’s and yesterdays business models and strategies.
And this has to be more rapidly than they have in the past, which require innovation discipline, innovation protocols and an innovation culture.
- What does this has to do with innovation? It has everything to do with innovation. Because in order to stay current and actually stay future focused in your strategies, it will be absolutely necessary that your company’s products, its services and its processes will continue to evolve. And this has to be more rapidly than they have in the past, which require innovation discipline, innovation protocols and an innovation culture that will be pervasive throughout the organization. Your company will have to be able to be more agile, more adaptive, and all that should be done on a more accelerated basis.
So it has changed, it has become more important than ever, is that what you are saying?
- Yes, and the interesting thing is that that one of the first victims of turbulence, when things go into a time of downturn, is innovation. It is the first thing that gets whacked. Budgets get cuts in the majority of companies, new product and services introductions get cut. And we are talking about costs that are absolutely essential to stay close to the market place, to stay very close to customers and to consumers, whether they are the marketing costs, traveling costs for sales people or marketing people. Those costs tend to get cuts first. And when you look at the hard money that is spent on pure innovation projects, that’s one thing. The attendant costs that funnels activities to be able to feed into the whole innovation process, those innovation costs tend to get cut very quickly.
…those companies that have been able to work their way through the difficult times more quickly, and more successfully than others are the ones that has stayed on course and really stayed focused on innovation.
- Now the interesting thing, which I think is absolutely imperative, is that those companies that have been able to work their way through the difficult times more quickly, and more successfully than others are the ones that has stayed on course and really stayed focused on innovation. Look at a classic example, such as Apple. Whenever there is an economic downturn Apple goes forward more quickly with more innovative products and processes.
- If we go back ten to twenty years ago, people would laugh at them when they were starting to do their turnaround. But it was their innovation during this period—as they have ever since—that really sparked the interest, not only among consumers, but also among the business customers as well. And this has propelled Apple going forward. So the proof is there, at the same time, the old traditional models of how we approach innovation still tend to regrettably dominate mainstream of business thinking.
So your recommendation to managers in charge of budgets would definitely not be to cut down on these kinds of costs but rather increase. Or at least maintain?
- At least maintain. When a company is losing money, certainly that has to stop. But it is a matter of what to cut, how much to cut and then what to actually increase. I´m not saying that costs should not be cut, I´m not saying that at all, but you must be much more careful about what you are cutting.
- In the old days, by that meaning before 2007, when cutting costs, it could very well be the case that all departments were told that they had cut their costs with 20 percent. And the individual manager would probably be doing a very good job doing just that, with the exception of the occasional turf protection. But today every functional head should have an opinion about the cost cuttings of other department heads. And again that goes back to the notion of strategy decay. Because if the cuttings are based upon the strategy of today and the past, they may be cutting the wrong costs.
- What we have put forward in our new book with the chaotic management system is really a disciplined approach for detection sources of turbulence and for predicting consequent vulnerabilities and opportunities that will come from that turbulence, as well as how to develop critical, pragmatic and timely responses.
- I often use the metaphor of hitting the refresh button on your internet browser, because Chaotics Modulated Strategies ensure that business strategies and the organization that are being built to execute that strategy, are continually refreshed, relevant and revitalized, so businesses can successfully thrive for years into the future and to achieve what Philip Kotler and I call Business Enterprise Sustainability. That is essentially for companies to live a very long time and do so in a profitable, a robust and constructive way.
So in the new normality where turbulence will be more frequent and unpredictably, you are saying that adaptability and flexibility, and preparedness to handle the turbulence are going to be some of the key capabilities to survive and grow. Would that mean, from an innovation point of view, given that innovation is the managing of structure and creativity, that the age of ivory tower R&D driven business models is slowly going to be over?
…the ivory tower R&D will render itself Jurassic and obsolete in the new normality.
-I do believe that it will be forced to evolve. For example an organization whose main purpose is change management and change management training. They said to me that do you realize that what you are saying about the new normality, it’s either the best thing or the worst thing for change management, because by definition you are saying that it makes change management obsolete. As it is no longer an event or an activity that takes place in isolation, it now must be part of the underlying company’s culture as well as its overall operations. So if by definition we are talking ivory towers that are not continuously connected and has touch points out there, in the market place and in the external environment as well as throughout the internal environment in their own organization—unless they have a number of touch points constantly getting input and constantly evolving—then, yes, the ivory tower R&D will render itself Jurassic and obsolete in the new normality. And we are already seeing the signs of that over the past 18 months.
One chapter in the book focuses on “Disruptive Technologies and Innovations”. Can you tell us a little more about that?
-When we begin to closely analyze the two drivers of turbulence in the age in which we are now living, i.e., globalization and IT, they are the essential drivers of turbulence that has triggered the new normality. When we see all these innovations coming from all over the world and they are communicated and transmitted instantly and simultaneously, their impact and their effects are creating disruptions in warp speed now and even more so in the future. What does that mean? It goes right back to the inevitability of the strategy decay. That it will happen more quickly. Because often companies´ strategies are based upon specific technologies and when those technologies are what I call unstable—not that the technologies are unstable as such, but the predictability or the reliability is unstable—when companies have their whole strategy built upon such a technology, then it becomes quite interesting.
- For example, when I was speaking at a conference lately I had I senior executive from Samsung in the room. He said that when Samsung or any of its competitors builds a new facility it sometimes costs as much as 4-6 billion USD for the production. In the new normality, companies now must have trigger points, a gated decision process, that sometimes after as much as one billion dollars are spent, a company may have to scrap everything because of a disruptive innovation or disruptive technology has taken place.
- So what that means for all of us? Whether your company is a large global multinational or it is a small or mid-size company, is that disruptive innovations and technologies are going to have an impact and will invariably have a higher cost than doing business, at least in the first instance, as is the case possibly with Samsung. But if companies are able to stay ahead of the competition, when it comes to being on the receiving end of the disruptive innovations and technologies, then over time the costs are going to be lower compared to their competition.
It all goes back to trying to internalizing the whole notion of innovation and being able to move very quickly.
- It all goes back to trying to internalizing the whole notion of innovation and being able to move very quickly, and also to be able to move away and to be able to quickly pull the plug on what is not working. So decision making at all levels has to be accelerated.
- What does this mean? Basically leaders of any organization really have to broaden and expand their mindsets, because the days of predictable fixed structures are coming fast to an end.
Talking about the importance of being and staying innovative, how would you define “innovation management”?
I have been in too many brainstorming meetings where there has been more storm than brain going on.
-In a way it’s a contradiction, because by definition if you are trying to manage innovation you might stifle it. There are some companies that I am aware of that had tried to create rigid processes for innovation which has done exactly the opposite. And actually stifled innovation because they tried to manage it too closely. But to have a very unstructured and loose approach to innovation is probably not going to be helpful either. I have been in too many brainstorming meetings where there has been more storm than brain going on. So there need to be some kind of structure to help people funnel their thoughts and their contributions.
- Not being an expert in innovation per se, what I have observed is that those companies that tend to do it the best tend to have some sort of protocol or constructs in order to channel, to instigate and to motivate people to interact in activities that promote innovation. I would suggest that it is very important to define different ways that companies can manage innovation without stifling or inhibiting it. Procter & Gamble in its sector is an excellent example of successful innovation management.
So the trick is to provide people with a flexible enough structure that help them direct their creativity in the right direction – or maybe there is no “right” direction?
It’s not that they can’t find the solution—it’s that they can’t see the problem.
-Yes, and I also believe there is a right direction because it always begins with a need or a problem to be addressed or an unfulfilled want or desire that is out there. What often seems very apparent in retrospect tends to elude most people and most companies in the first instance. Why is this the case? Simply because they are not thinking, not seeing what the problem really is. A quote that Philip Kotler used in Chapter Four in CHAOTICS: “It’s not that they can’t find the solution—it’s that they can’t see the problem.” So often the case is that people and companies simply cannot see the problem or even that there is a problem or an unfulfilled need or desire in the market place. That´s where it begins, that’s where the organization has to take step back and be a bit refreshed, in order to understand that they have to start to look at the world, their customers, their business, in a different way going forward.
-And this brings us back to when going forward, we are going to have less and less of the predictable environment that we had in the past. We are going to have more spurts of prosperity intermixed and intermingled with spurts of downturns, which is going to keep us all on our collective toes. We have to be very aware on an ongoing basis. This doesn’t mean that it’s going to be anarchy or chaos—quite to the contrary, any disruptions will more for those companies unprepared or ill-prepared to handle turbulence. More now than before, it means that we have to be receptive to changes on a continuous basis. Looking back over the past 18-24 months, we can now state that we have ventured into a period where the unthinkable has become a reality. For example if a barrel of oil rose to 200 dollars in the next two months or dropped down to 20 dollars over the same period, there is nobody that would be shocked. In the “old days” just 10 years ago, for the price of a barrel of oil to rise or drop by 50 %, it would take a decade or more.
Some would argue that the best way to create future growth and stay ahead in the competition would be to work with innovation management in order for your organization to come up with better products, smarter ways of organizing your processes, a smarter business model etc. Would you agree on that?
-I would agree, yes. The fundamental message that we are sending out is that we have to make sure that whatever we are doing in our strategies, and when we look at our strategies, these strategies has to be continually refreshed, relevant and revitalized, which is what Chaotics Modulated Strategies enables companies to accomplish.
Where does innovation fits in? It fits in everywhere.
-Where does innovation fits in? It fits in everywhere. The first place where it fits in is in peoples´ thinking, and their attitude. Because as an individual, whether you are leading a corporation or a government agency, or whether you are buried somewhere within it, your mindset has to be changed first, before the behavior changes and then before it becomes an operation reality.
What would your advice be to a management team that wanted to improve their innovation capabilities to stay ahead of the competition in these turbulent times?
So my advice would be more innovative thinking and the thinking has to come first, before you act.
- Turbulent times reveal both vulnerabilities in organizations, and more important, it reveals opportunities. Whenever we encounter turbulence, it means that something is being shaken up that may have in the past been more predictable. In essence, the status quo that is being shaken, sometimes shaken to its core. And how you manage that depends on the preparedness of the organization; have they engaged in scenario planning, are they evolving their strategies more quickly, do they have fast action response teams, have they expanded their stakeholder base and the “touch points” for their stakeholder base to get a continuous flow of information, in order to be able to spot the soft cures even before as they start happening? If companies have done this, then they are going to be in a much better position to exploit the opportunities that the turbulence in the new normality will yield to them. So my advice would be more innovative thinking and the thinking has to come first, before you act.
By Karin Wall, Chief Editor