TOP COMPANIES BUILT ON INNOVATION
Written on the 10 October 2012
TOP companies must continue to effectively manage and innovate themselves or risk losing their market-leading position, warns Deloitte partner Julian Dolby (pictured).
Achieving market-leading status in business requires operational efficiency and innovation.
Productivity is a price and can, in some ways, be considered a cost that needs to be kept under control. Companies need to understand what drivers are behind their business, how to prioritise waste and improve overall efficiency.
They also need to innovate and make improvements to get to where they need to be. Businesses need to understand what they can do to transform their operation and take it forward in a different way to others.
Information technology company Dell successfully changed its operating model to become made-to-order. They no longer manufacture a bulk amount of personal computers for people to buy, because they are now making them to order – a much more efficient business model.
Rio Tinto drove greater efficiencies by improving its iron ore supply chain from rail to port. The resources company built a remote operations centre in Perth, allowing it to take on-site operations offsite, improve employee value propositions and give truck drivers the power to operate autonomously.
Online store Amazon has reinvented the way people buy books. According to Deloitte partner Kevin Russo, it achieved this by understanding its customers and knowing what they like. Amazon also reinvented its business model by launching new cloud services.
However, the rapid growth of many companies has inadvertently led to a less-experienced workforce. The previous reliance on workers with 20 years’ experience has gradually been replaced with technology, leaving less experienced workers on the frontline.
The success of a business hangs on how robust its approaches are to management. There needs to be better frontline supervision to make things happen. There also needs to be a good understanding of how to manage major disruptions to workflow.
Dangers of failing to take these steps include possible financial loss, inefficient transfers or handovers of responsibility, poor management of supply chains, operating rates and poor frontline efficiency.
Complacency should be avoided at all costs. Business decision-makers cannot assume that achieving a market-leading position is the end of their journey. They need to continue innovating and reinventing themselves to driveup efficiencies and costs, understand areas of constraint and avoid strategies that stifle growth.
Lessons should be learned from the 2011 bankruptcy of bookstore giant Borders. It did not keep up with Amazon and what was happening in the literature retail sector. The company also failed to recognise how the world would change once competitors saw the potential for technology.
Businesses should think about what activities they can commoditise because, sooner or later, somebody else will come up with a more costeffective online solution.
Telecommunications technology maker Nokia rapidly lost mobile market share to Apple’s iPhone, because it failed to keep innovating itself. It also may be that they had identified the need to change, but did not move at the rate that was required of them.
There are other examples in the resources sector to learn from as well. A number of mining operations, which had relied on rising commodity prices to ensure profitability, have found their expenses are now greater than the market price.
Their high margins were actually used to mask their lack of productivity. These companies are underwater and will become increasingly exposed as time passes.
However, mining companies can recover lost ground by increasing productivity according to the decrease in margin. Superior services and products naturally attract more clients and positive publicity. This, in turn, improves company profitability.