Speaking to the Treasury Select Committee, Bank of England Governor, Sir Mervyn King said; “When this crisis began in 2007, most people did not believe we would still be here. I don’t think we’re yet half way through this. I’ve always said that and I’m still saying it. My estimate of how long it will take to recover is expanding all the time.” This difficult economic environment has caused much pessimism in terms of potential for growth.Despite the lack of optimism, some of the globe’s leading businesses have managed to thrive. The Sunday Times Profit Track 100, a table which ranks Britain’s top 100 fastest-growing private companies, demonstrated that despite the current climate it is possible to grow. Four fifths of the companies on the table increased sales in their latest results compared with the previous year. During the latest financial year combined sales grew seven per cent to £183bn, profits remained steady at £17bn and 27,000 jobs were created.4C Associates brought together several leading finance professionals to discuss how businesses can use innovation to fuel growth. Topics discussed included how to foster innovation in the workplace and in the public sector, examples of ideas driving businesses and why some companies need to focus on getting the basics right.Encouraging Innovation
In times of less, businesses need to be able to make the most of what resources they have at their disposal. “Jugaad” innovation, a Hindi word which refers to an improvised solution born from ingenuity and resourcefulness, is a concept which looks to maximise value in a frugal environment. One example of Jugaad in practice is encouraging all employees to come up with new ideas.“We’ve set strategic output goals of delivering 10 innovations and this drives our annual bonus plan”Companies mentioned as pioneers included 3M and Google, two businesses which dedicate 15 per cent of each employee’s time to innovative projects. 3M has taken this approach further still, and company policy states 30 per cent of revenues must come from new products introduced no more than five years ago. The key issue raised was getting people to think outside the box.
There was a general consensus that cutting marketing and advertising budgets was not innovative and would most likely hurt business in the long run. A large telecoms corporation was given as an example of a company which had not reeled in marketing spend but remained highly profitable. There is a real need for organisations to understand current demand and create an appropriate model and cost structure.“It’s not about cutting marketing spend, it’s about understanding ROI and investing in the right areas”One example of a company adapting to demand is Whitbread. The UK based organisation, which owns popular brands such as Costa Coffee and Premier Inn, has demonstrated that there is potential to do well despite the recession. By offering relatively inexpensive food and hotel prices, the group has managed to continue its expansion and saw its share value rise by more than a quarter in the past year.The Importance of Flexibility
Volatile markets have resulted in a high number of businesses being created and disbanded. A lack of flexibility has crippled many companies and opened up new markets for innovative start-ups. There is a real need for companies to adapt their strategies if they are to thrive in the current environment. Some sectors were singled out as performing better than others.
Food was highlighted as an area where businesses were responding well. This was down to organisations continuously questioning, reviewing and updating their standard practices. Tesco was given as an example of a company which never rested on its laurels and mechanically implemented new cutting edge, cost transformation strategies.“Innovating needs to be business as usual, people need to see the process as part of their day to day work”One participant questioned whether innovation was too intimidating a word. Some may shy away from the very concept as they associate it with revolutionary designs which they are not confident of being able to implement. Companies should emphasize that innovation does not only relate to drastic step changes but also more mundane actions such as combining two reports or changing supplier.When asked why organisations call on an external firm to carry out cost transformation programmes instead of doing it in-house, Rob Lees answered that people get stuck in a rut. Many lose sight of what the overall objective of the business is and simply carry out their day job without questioning their actions. An external view is often essential for a company to effectively carry out change and foster a new way of thinking.“The trap to avoid is forcing radical change on the company and ending up with employees simply ticking different boxes”Many attendees voiced their frustrations with trying to improve working practices within their organisations. The big challenge they faced was getting people to embrace a different mind-set. One participant gave an example of simply taking out entire departments which were not essential. The idea being if it takes 400 hours to produce a document, the challenge is not to reduce the time to 360 hours, but to eliminate the need for the document.
A parallel was drawn between the present need to cut all unnecessary expenditure and the situation in Japan after the Second World War. In the 1950s Japan suffered from a great technological gap compared with Western countries and was under enormous pressure to improve its situation. A campaign aimed at increasing the nation’s international competitiveness was launched. Key to the success of this programme was the development of new techniques and industries which dramatically increased the efficiency of Japan’s businesses.Benefits of Big vs. SmallInnovative and flexible SMEs are well placed to take advantage of the unstable commercial landscape. Low overheads and an agile approach to business allows small companies to effectively compete with much larger rivals. One example given was Green & Black’s, a premium chocolate manufacturer, founded by a husband and wife team in 1991. The company successfully produced premium, Fairtrade chocolate bars for 14 years before being acquired by Cadbury plc. The size of Green and Black’s had allowed the company to focus on a growing niche market in which Cadbury was unable to compete. A similar, more recent example is Innocent Drinks’ selling 58 per cent of its shares to The Coca-Cola Company. On the other hand there are also many examples of how large businesses are able to leverage their sheer size and purchasing power to maximise profit margins. Kraft, which now owns Green & Black’s, cannot compete with smaller companies in terms of flexibility but can ensure the best contracts are in place and implement the very latest in cutting edge production processes. There is, however, a danger that medium companies will inherit the worst of both worlds.“A small company which is absorbed by a large corporation needs to avoid taking on traits which will not benefit it”Small companies which experience rapid growth or large businesses which decrease their overall size, need to be wary of bearing the costs of a large organisation with none of the benefits of being small. It is essential, in times of growth or downsizing, that businesses reassess their situation and how to make the most of it. Whereas growing companies may find themselves creating liaison departments, businesses downsizing operations must ensure they leverage their newfound flexibility.Driving Innovation in the Public SectorThe discussion moved on to how innovative practices could be instilled on the public sector. The main difference between private and public sectors is the driving force behind each. Private companies focus on growth and profit whereas public institutions must consider social and political factors. One participant pointed out that whereas businesses are able to plan their approach to market; public institutions are often forced to react to unforeseen situations.“The environment is very different to that of the private sector, you can’t just draw lazy parallels with the business world”Another issue facing public bodies is the difficulty to implement the equivalent of company principles. As they are not financially driven, public organisations have little to galvanise them into making innovative changes. In the words of one of the attendees; “We are only innovators when we have to be.”
Despite these difficulties Westminster City Council, Hammersmith & Fulham Council and the Royal Borough of Kensington & Chelsea have recently formed a Tri-borough alliance. The project, which is already underway, will combine services in a move to protect the frontline by reducing overhead and management costs. At present services encompassed include social care for the elderly and children, as well as libraries.Thriving Amidst AdversityIn spite of recession hit economies and slow growth, there is always potential for innovative companies to prosper. The frugal landscape which many businesses in the west are evolving in represents a great opportunity to review, improve and revolutionise established industry practices. Stagnation in the workplace and the “day job” predicament, often dilute creativity in the office space. The current necessity for drastic changes can act as an engine to foster creative thinking and help drive growth within businesses.Event InformationOn the evening of the 28th June 2012, 4C assembled a group of finance leaders from different industries at Maze by Gordon Ramsay, Mayfair. The event was chaired by Ed Ainsworth, 4C’s Managing Director.Attendees included Teuta Bakalli, CFO at Pepper Europe, James Chisholm, CFO at British Glass, and Barbara Moorhouse, Chief Operating Officer at Westminster City Council.