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Monthly Archives: June 2016

Explore or Exploit?

“Growth requires an exploratory mindset,” according to the linked report by Boston Consulting Group. “[O]ver successive ten-year periods, ‘explorers’—companies that struck a proper balance between exploitation and exploration—outperformed ‘exploiters’ by 3.9 percentage points on sales growth and 2.1 percentage points on total shareholder return.”

Companies that focus exclusively on organic growth, cost control and efficiency consistently underperform their competitors. Growth leaders explore new opportunities, and they reap the rewards.

Examine the beliefs that underlie these two positions. Exploiters believe that they should stick to what they do best. Success for them lies in doing the same thing, better and better. They focus on their existing markets and customers.

Explorers believe that they must learn to do new things. They keep their eyes open for new insights and new opportunities. They are focused on new markets and customers.

World-class innovators are explorers. They know that the world is changing, and that new horizons and frontiers are always opening. As BCG wrote, “The most successful innovators are investing to become faster, leaner, and more digital—and are expanding their focus beyond the core.”

Explorers are ambitious. They know that rapid growth lies in emerging and expanding spaces, while mature markets rarely deliver rapid growth. In fact, mature technologies and even mature companies are frequently disrupted and displaced by innovators with an exploratory approach.

What is your company exploring these days? Will you be content to exploit your current market, or do you aspire to earn the higher margins and speedier top-line growth that come from doing something new?

Related reading: Innovating for Global Growth

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Innovation in Your Industry

Corporate innovation in India must be different from corporate innovation in wealthier regions. Multinationals have enough money to invest in pure and applied science on a proprietary basis, whereas most Indian firms do not.

However, despite differing capabilities, our approaches to innovation should be similar. The greatest gap I’ve observed between the typical Indian and foreign approaches is in the first stage. I call it Discovery. Others call it the Fuzzy Front End of Innovation (FFE). In this first step, we search for insights.

The Tata Nano demonstrates the gap. Tata Motors did an outstanding job of technical innovation. Nano was a true marvel of frugal engineering. Tata went wrong, however, when it did not discover the same level of customer insights to assure that the market would welcome the new model.

Different industries will have different priorities for the Discovery stage. A car company should seek both technological and customer insights. A process company may look mostly for insights about operations management. A consumer products company should focus largely on customer insights. A firm in the defense sector might concentrate primarily on insights about politics and government procurement procedures.

I suspect that two factors limit our work in Discovery. First, there is the view that managers are supposed to know everything. A voyage of discovery requires the boss to admit that there are things he doesn’t know, and that can be uncomfortable.

Second, there is the “fuzziness” of discovery. Managers like certainty, but innovation is inherently uncertain. So, relatively few managers are willing to invest significant resources in exploration and discovery for the sake of innovation.

I hope that more Indian firms will embark on voyages of discovery that will lead to great innovations.

Related reading: Six Levers for Solving the Corporate Innovation Problem-Part 1

 
 

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