Stop talking about innovation

A hundred years ago, it was a big deal when an aeroplane flew across the English Channel. Who would have believed then that we would be watching a live camera feed from the surface of Mars – and picking up data from a man-made satellite as it left our solar system?

Thirty years ago, who would have believed you could take a picture without film? Or make a phone call from the top of a mountain?

Even today, how many of us really believe you can manufacture objects in your own home with a 3D printer?

Yet it’s happening.

The pace of technological change is so fast nowadays that even visionaries like Bill Gates struggle to keep up (although he now denies making the regularly-quoted assertion that ‘640k of memory ought to be enough for anybody’). Today’s science fiction is tomorrow’s fact. And the corporate graveyards are littered with the corpses of big companies that didn’t adapt in time.

In 2009, Nokia was the world’s fifth-largest brand, worth $35bn. Two years later, it was a Microsoft footnote, swept aside by a smartphone Tsunami that it hadn’t seen coming.

In January 2008, Woolworths was one of the UK’s oldest and best-known retail names, with a swaggering Christmas advertising campaign and stores in every high street in the country. By January 2009, it had vanished.

That’s how fast fortunes turn.

An Innosight report suggests that more than 75% of the companies on today’s S&P 500 index will not be on the list 15 years from now. In most cases, this is because they will be overtaken or acquired by fleeter-footed rivals.

So it’s hardly surprising that innovation – in products, in services, in behaviour, in ways of working – is something almost every CEO regards as a priority. But recognising innovation as a priority and creating an innovative business are two very different things.

If you look around your own business (and be absolutely honest with yourself here), how much do you see that’s genuinely new?

There’s probably plenty of superficial innovation going on: an extra blade on your razor, a new flavour in your ice cream range, a one-hour delivery option.

But doesn’t it all feel a bit safe? A bit like what everyone else is doing? Where are the game-changers? Where’s the disruptive behaviour? Why do the big ideas always seem to come from somewhere else – from younger, hungrier rivals?

The depressing truth is that most companies are so scared of failure that they won’t do anything that isn’t guaranteed to succeed.

And that reluctance to make mistakes, as the Innosight research shows, is exactly why most of them won’t be here in 15 years.

 

Why nobody thinks long term

‘Rotten corporate culture’. ‘A relentless dash for cash’. ‘Recklessness, hubris and greed’.

Just three of the phrases (and by no means the most scathing) used by the Parliamentary Business Committee in their report about the demise of Carillion, the UK construction and facilities giant that went into liquidation in January.

There’s no doubt who the MPs regard as the villains of the piece. Carillion’s former directors make an easy target: unlikeable, unrepentant – and relatively unscathed by the catastrophic collapse that cost thousands of employees and suppliers their jobs and livelihoods.

But let’s pause for a moment and imagine that they weren’t such pantomime villains.

Let’s imagine they were trying to run a complex public business in a difficult market, with pressure from investors to deliver growth, at the same time their margins were being relentlessly squeezed.

That is, after all, what happens in most PLC boardrooms every day (especially in tricky markets like construction and retail). Senior executives under pressure have to make difficult decisions.

Very often, those decisions boil down to a choice between ‘what’s best for the business in the long term’ and ‘what will help us hit our targets for the quarter’.

Given that there’s likely to be a lot more scrutiny of their short-term results (and that most of their bonus is likely to be pegged to them), should we really be surprised that the balance doesn’t very often come down in favour of what’s best for the business in the long term?

In my experience, this is invariably what’s at the heart of a ‘rotten culture’.

Carillion’s collapse is not a story of a few bad executives making rogue decisions in their own best interests. It’s a story of what’s wrong with a depressingly large number of public corporations.

They’re so busy focusing on the six to twelve months in front of them that they never lift their heads up to look further ahead.

Which means they never see the cliff edge they’re about to fall off.

During the several years that Carillion was building up the £7bn in liabilities that eventually pushed it over that cliff, it never once stopped paying out handsome dividends to its investors.

The board could have used those dividend payments to reduce the debt, or streamline the business, or balance the pension fund. But they probably would have been fired for doing that. Instead, they did what the investors wanted them to do and they got a big, fat bonus for it.

Which leaves me wondering who the real villains are here.

The executives who prioritise short-term targets over long-term sustainability?

Or the investors who reward them for doing it?