Innovation
and shareholder value
I was recently at a forum for CEOs where the CEO of SriLankan Airlines
spoke of his company's success story and how innovation had played
a role in it. SriLankan had recently launched an air taxi service
to transport its tourists quickly from the airport to their destination
hotels.
I
write today on innovation, which is an essential ingredient of sustainable
shareholder value. Innovation could be simply defined as improving
from the existing state of affairs by doing things in new or different
ways. It can be a continuous process unlike inventions, which are
often one off.
The
modern world is very competitive with thousands of firms trying
to attract the attention of the consumer. The only way a firm can
achieve a competitive advantage or an edge over its rivals is through
innovation. When a firm builds a culture of sustainable innovation
like Microsoft or Toyota it will be respected and admired by its
loyal customers as well as the wider stakeholder community. This
confidence will lead to sustainable shareholder value since the
business will be guaranteed a longer successful life unlike other
firms who do not innovate.
Where
can innovation be possible?
Innovation can be possible in a number of areas. It can
be in terms of products or services, such as Commercial Bank's holiday
banking. It can be in terms of operations such as free pizzas offered
by Domino's internationally for late deliveries. It can be in terms
of layout such as the spacious layout of Apollo or in terms of marketing
or promotional campaigns such as the fairy tales campaign carried
out by Odel during Christmas 2003.
Being
innovative is about being creative and willing to change. This is
not often easy in large organisations. Some of the typical problems
that companies in Sri Lanka face from the perspective of innovation
are:
*Short term mentality
*Isolated top management
*Lack of young blood
*Bureaucracy
*Lack of idea sharing
Short-term
mentality
Sri Lankan listed corporates are often under pressure to perform
well in the short run. The next quarter's earnings are the priority
of the CEO and the top management.
Even
though this mentality is very good from the shareholders' perspective
one has to note that long-term value is based on investments in
innovations as well as Research and Development. Private companies
such as Dialog, Odel or MJF are able to innovate since they do not
face such pressures.
Isolated
top management
Unlike US, Germany or even India, Sri Lanka has a culture of finance
related top management.
This leads to the top level's isolation from operations. The CEO
of TVS India spends 60 percent of his time in his factory. In Sri
Lanka I wonder how many manufacturing CEOs do that. Innovations
arise when the top management are closely involved in operations
Lack
of young blood
Most Sri Lankan corporates still lack youth and vitality at the
top tier. Many still have the culture of promotions based on seniority
rather than merit. I have often heard many young executives complaining
about their older bosses not giving them opportunities or using
them well. Young management teams are ingredients of innovation
as they have fresh ideas and are willing to take risks
Bureaucracy
While bureaucracy is essential for stability, when it is excessive
it kills innovation. I once worked for a boss who made every new
idea difficult by insisting that a paper should be put to the board
and to wait till the next board meeting. What Sri Lankan corporates
need are leaders who have a passion for innovation rather than bureaucrats
who fight to preserve the existing order.
Idea
sharing
Good ideas are often not shared thereby losing the innovation potential
in the organisation. Procter and Gamble promotes idea sharing among
its employees through message boards and intranets.
Message
to the investor
Invest in companies, which make innovation a priority. Actively
lobby for new methods of reporting such as the Balanced Scorecard
where measures such as innovation are reported in addition to financial
results.
This
is the only way to preserve your investment in the long run and
preventing it from becoming an extinct dinosaur. |
