Addressing the challenges and opportunities facing many companies requires more imaginative and innovative responses than incremental improvement. Business leaders need to encourage and support free enquiry and creativity. While leadership is often associated with top-down initiation, creative thinking may be best enabled by standing back, inviting challenge, encouraging diversity and debate, and removing obstacles rather than determining individual outcomes.
Many people lead businesses which they did not create. They may have had little contact with founder entrepreneurs. In competitive markets their challenges might appear to be survival and defending established market positions against competitors and new entrants. The immediate priorities sometimes seem to be cost-cutting, retrenchment, improving efficiency and the renewal and/or transformation of an existing entity rather than the development of a new business model.
The need for product and/or service innovation may be accepted, but what about innovation in ways of operating, working, learning or doing business? Past growth may have seemed relatively steady but today windows of opportunity can quickly open and close. Many companies experience discontinuities. They hit steps that cause a reassessment of business models and approaches and/or have periods of exponential growth followed by rapid decline. Staying in the game may require repeated innovation in terms of offerings, markets and operating models.
In competitive sectors continual reassessment, renewal and reinvention may be needed. The alertness, creativity, flexibility and openness, sensitivity and perspective this requires cannot be assumed. Corporate leaders may need to provide people with the freedom to alter how they operate and organise and question and challenge assumptions. They should be allowed to work, learn and collaborate in ways, at times and places, and with support that best allows them to give of their best and be creative and productive (Coulson-Thomas, 1997).
Where more than incremental adjustment is required, corporate leaders and their teams should look for opportunities to create new options and choices and develop alternative enterprises (Coulson-Thomas, 2001). They should always be alert to better ways of meeting requirements, satisfying aspirations and enabling others to achieve their visions. When diminishing returns set in, what appears to be a big step may be easier to achieve than squeezing more out of current operations.
Can greater diversity encourage creativity, innovation and transformational thinking? At the Palo Alto Research Centre of Xerox Corporation in the 1980s it was found that introducing into research groups degree majors from disciplines that approached problems differently increased creativity. The experience of PARC also suggests that creativity in a research setting needs to be matched by receptiveness to innovation among corporate decision makers if ideas are to be commercialised.
Different business, organisational and operating models have existed for many years. Boards need to ensure that business models match corporate and customer aspirations and represent the quickest and most flexible and cost-effective way of responding to opportunities and delivering value. Directors should question whether existing models are competitive and likely to remain so, and if they are the most appropriate in the context of the markets a company is in and its circumstances.
Whether or not innovation is a “good thing” or a distraction depends upon what you are trying to be innovative in, or innovative at. For example, are you trying to perfect existing operations? What if tastes and requirements are changing, and if the innovation of others is creating new alternatives that people might prefer? When does improvement become unnecessary gold plating? Rather than improvement, should you be replacing what you are doing with something better?
Be prepared to challenge and focus. Are you and your colleagues trying to be outstanding at everything you do? If so, why should customers pay for this? Most customers just want their suppliers to be excellent at whatever represents value for them. Should businesses just aim to excel at critical success factors for key corporate activities and sources of differentiation and competitive advantage, and try to be good enough at everything else?
In some sectors, the life cycles of requirements, offerings, technologies and markets have dramatically shortened. One needs to understand the interaction between them and relate innovation to the life cycle of an industry (Filson, 2002). Will there be time to be anything other than just good enough to be relevant and quickly deliver while windows of opportunity exist between revolutions?
Are you hindering or helping creativity and innovation? Lets start with some questions relating to hindering innovation. Think about them in relation to your board and/or company: Is your strategy overly defensive? Do you try to protect past investments? Do you instinctively impose standard approaches and ways of working? Are you constrained by accounting conventions? Is your market intelligence focused on existing competitors?
Now lets turn to helping innovation. Do you invite challenge, promote freedom of thought and encourage diversity? Are you willing to reassess, reinvent and write off past investments and replace them with better alternatives? Does the company collaborate and set up new ventures with entrepreneurial staff? Does it scan the business environment for new possibilities and competitors?
The attitudes, instincts and perspectives of business leaders can either constrain people or liberate them, and their judgments can either hinder or help the companies for which they are responsible to survive and thrive. Courage may be required to challenge cherished beliefs, disturb a valued position or otherwise take a big step into the unknown.
There may be better ways of addressing customer requirements, a faster route to international expansion and new avenues for the creation of customer value. Directors should understand and question existing business models and decide when to refresh them and/or move on to a different one. Could the business community learn from the creative arts? Despite agreed musical rules and standard practices, interpretation is possible. In jazz, improvisation and creativity may be actively encouraged (Barrett, 1998). Might business improvisation allow personalised responses?
Innovation in retailing is relentless. High streets have had to discover a new purpose or die as customers desert specialist shops in favour of edge-of-town supermarkets whose markets have in turn been eroded by discount retailers and on-line shopping. Fulfilment of sales not already won by players such as Amazon may now be outsourced to them. Owners of many physical shops search for alternative uses of their premises. On occasion, assets can quickly become liabilities.
Some internet entrepreneurs operate from home, or a mobile device in a back pack as they travel to the next wireless hot spot to update their websites and check for sales and outstanding orders. Many on-line businesses are operated by small teams and have a modest physical footprint. WhatsApp employed only 55 people in 2014 when Facebook paid some $19 billion to acquire it.
The UK’s Companies Act 2006 requires a description of a company’s business model and strategy within it’s Annual Report. The Financial Reporting Council’s corporate governance code describes the required business model as “an explanation of the basis on which the company generates or preserves value over the longer term” and reiterates that it needs to be reported along with the strategy for delivering the company’s objectives (FRC, 2014).
To describe a business model directors need first to understand it. When considering if it is appropriate and whether better models exist, they may experience some tension between generating and preserving value, but the clue as to what a response should be lies in the words “over the longer term”. Preserving value does not necessarily mean protecting an existing model. Remaining relevant and continuing as a valued supplier may require a succession of models over time.
Having just invested in an existing business model, a board could find itself presented with an alternative that offers significant advantages for the customer. Delaying a response might result in a competitor or new player acting quickly to secure first mover advantage. Sometimes directors need to be courageous and proactive when innovating and engage in the “creative destruction” Joseph Schumpeter described in his 1942 book Capitalism, Socialism and Democracy.
How does one encourage creative discussion across a network of communities that may be diverse in nationality, religion and political views? Some groups are relatively open, while others are more closed. In some countries, circles and communities, challenging a prevailing view, orthodoxy or established assumption might cause offence. One may need to actively ensure freedom of enquiry where conformity is, or is becoming, the norm (Williams, 2016).
As connectivity continues to improve, relative costs change and further innovations occur, how and when and in what ways should business leaders respond? Should a company fight back through an existing business model or embrace a new one? Airlines faced this dilemma when confronted with “no frills” or budget rivals. Established carriers looked for new ways of segmenting the market and differentiating their more expensive offerings. Some set up their own budget operations.
Where a new way of operating is materially different from a currently model, should one try to adapt it, or would it be better to set up a greenfield operation and offer it through a new business unit or legal entity? Many financial institutions faced this issue in relation to internet banking. Should one offer on-line and/or mobile device access to customers via an existing structure, or establish a dedicated entity that would just offer internet banking facilities?
People may be willing to buy or transact on-line without visiting a physical location or a face-to-face meeting. Lower cost structures can enable internet offers to be made at reduced prices. Book shops have had to re-think their offer to customers to compete with on-line stores and the special offers on high volume titles of other retailers. Some music stores have struggled for survival as more music is downloaded. One response is to devote extra shelf space to higher margin headsets.
As some consumers switch to a new business model, while others remain loyal to existing channels, a company may incur the higher costs of multiple ways of purchasing its offerings. Publishers faced the dilemma of whether or not to fund multiple channels to market as more people sought electronic alternatives to print media. Many customers now expect multiple options for receiving content, including when on the move via mobile devices.
Some innovations can have a drastic impact upon existing activities, roles and relationships. People may be concerned about the consequences of their decisions for others and their future prospects. Tolerating risk, well intentioned failure and uncertainty; providing reassurance when imaginative exploration fails to bear fruit; and avoiding a blame culture can all help (Klein & Knight, 2005).
Just as sales teams monitor the life cycles of key products and services, so directors should keep an eye on business model life cycles and remain alert to alternatives. As with products, innovation can sharply reduce expectations of a relatively long plateau stage and slow decline phase. As the life-time of a generation of technology shortens, one may need to move on before laggards catch up and launch a succession of new options for early adopters (Rogers, 1983).
The speeding up or termination of life cycles can be challenging for bureaucratic organisations with high crawl out costs. A company’s ability to restructure, redesign processes and adopt new technology may not keep pace with shorter business model life cycles and windows of opportunity, changing customer requirements and competitive moves.
New entrants and entrepreneurs with less invested in current operations may be more inclined to introduce a new business model. Too often competitive intelligence monitors established competitors and improvements to existing business models rather than scanning for new entrants and alternative ways of operating. The innovation that turns assets and strengths into liabilities and crawl-out costs may be triggered by a new player with a more effective and flexible business model.
Do you stay close to alert and demanding customers and open-minded and imaginative employees, and work with them and supply chain partners to identify and implement business model improvements and/or innovations? Where there is a risk of creative employees leaving to set up their own operation based upon a new business model and thus becoming competitors, a company should consider working with them and sharing an equity stake in new collaborative ventures.
On occasion, one may be forced to react to change. As key customers transition to new business models, suppliers may need to follow suit if they are to maintain a business relationship. Thought may also need to be given to how best to help others to adjust. The provision of support and successful adjustment may increase willingness to make further changes.
Sometimes technological changes and other innovations create a variety of possibilities. New business models of strategic and key customers may evolve in different directions. A single model may not be the best solution for all business units, markets or corporate operations. It might be advantageous, advisable and/or necessary to operate through a portfolio of business models. Will people accommodate the different perspectives and ways of looking at situations involved?
Alternative business models can have very different support requirements. Existing people, capabilities and facilities may be more suited to some models than others. Certain models may coexist more readily than others. Should a company develop new capabilities or subcontract to external suppliers? Should it pursue options alone or in collaboration with complementary partners? Should a separate entity be set up for on-line sales and fulfilment arrangements be contracted out?
A change of business model can impact upon some more than others. One may need to take steps to understand and address resistance to change (Ford and Ford, 2009). Some directors are reluctant to abandon what has worked well in the past. They resist turning their backs on expensively acquired capabilities that have been a source of competitive advantage. If better alternatives are available past expenditures should be viewed as sunk costs. In fast moving environments it may be better to think in terms of incremental costs and revenues.
The adoption of a new business model can give rise to governance, management and relationship issues. Few if any of the existing directors and senior management team may have experience of operating one or more new business models. How one manages different business models can vary according to their characteristics and the situation and context.
Where an existing team is struggling to innovate and reinvent one may need to look elsewhere for inspiration. How many of them have experience of other sectors? Is the board open to external and unorthodox ideas? Throughout history significant breakthroughs in thinking have been caused by relative outsiders who have challenged established views (Kuhn, 1962).
In competitive markets the transition to a new business model may need to take place more quickly than relevant experience and capabilities can be acquired. Do new roles and responsibilities need to be delegated to a refreshed management team? Does the role of head office units need to be re-thought in relation to a new business model, or a portfolio of new business models?
A new business models can create diversification opportunities. What other products, services and customers might it suit? Are there new roles that a company could play within a supply chain or the changing business models of major customers or business partners? In relation to collective responses, co-creation and multiple and virtual networks what steps should directors take to encourage more creative collaboration (Bennis and Ward, 1997)?
Some corporate leaders may have to rethink the nature of contemporary leadership, the relative importance of different qualities, the composition of their teams and how these are managed. They may need to ensure diversity, a mix of internal and external experiences and perspectives, and access to the lateral thinking skills required to develop better alternatives (Sloane, 2003).
Some business leaders require new skills. Hitherto they have spent much of their time instructing, guiding, monitoring and controlling subordinates, yet in some business models there are few people to command, new key players such as developers of essential algorithms, apps and automated responses, while many professionals could be replaced by expert systems (Kaplan, 2015).
When companies and their customers, suppliers or business partners change a business model, business leaders should consider the implications. Will different models be compatible? What new challenges and opportunities might be created? What might a company be able to do differently? What additional capabilities and relationships will be required?
Leadership is becoming less about the executive team and internal employees, and more about new possibilities, external interests, developments and trends, and relationships with key customers, strategically important users, institutional investors and regulators? Leaders need to engage, listen and understand before responding and contributing to the co-creation of value. They must be open to new business models and options for organising, operating, working and learning, and able to select the options that enable new challenges and opportunities to be addressed as they emerge.
This article draws upon a paper and speech prepared by Prof. Colin Coulson-Thomas for a plenary session on the first day of the Dubai Global Convention 2016 and 26th World Congress on Leadership for Business Excellence and Innovation organised by India’s Institute of Directors.
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Published in the Summer 2016 issue of Management Services (Vol. 60 No. 2, pp 36-43) the quarterly journal of the Institute of Management Services. The citation is:
Coulson-Thomas, Colin (2016), Leadership, Innovation and Business Growth, Management Services, Vol. 60 No. 2, Summer, pp 36-43
Prof. Colin Coulson-Thomas has helped entrepreneurs, companies and public and professional bodies in over 40 countries to harness more of the potential of directors, boards, management teams and corporate organisations in order to build a business or deliver better services, improve performance and simultaneously deliver multiple objectives. In addition to board and academic roles, he is Director-General, IOD India, UK and Europe, leads the International Governance Initiative of the Order of St Lazarus and is Chancellor of the School for the Creative Arts and chair of the Audit and Risk Committee of United Learning. Colin has served on public sector boards at national and local level. Author of over 60 books and reports he has held professorial appointments in Europe, North and South America, Africa, the Middle East, India and China. He was educated at the London School of Economics, the London Business School, UNISA and the Universities of Aston, Chicago and Southern California. A fellow of seven chartered bodies he secured first place prizes in the final examinations of three professions. He can be contacted at email@example.com. His latest books and reports are available from www.policypublications.com.