CEO’s Conundrum – Profit Now or Later
December 1 2009 by Bob Donnelly
Innovation is the lifeblood of every company. To maintain that delicate balance between keeping the firms overall value proposition relevant while enhancing it with neat new innovations is the challenge for all CEOs.
While we all wish that we had that rare innovative talent of Steve Jobs that perpetuates the continuum of cool new life changing devices from Apple that make us “blink” with surprise and then “tremble” with desire to have them, the typical CEO struggles with the more mundane aspects of just keeping innovation alive within their organizations.
It’s easy to get lulled into the comfort zone of complacency as a result of the profitability of some earlier unique solution to consumers problems. However, as we have seen time and time again, yesterday’s innovation is quickly surpassed by today’s enhancement and the hubris of success has been the demise of many well known CEOs.
While change is inevitable the majority of managers are by nature not comfortable with change, especially when current operations are profitable. Instead of looking for ways to enhance the company’s value proposition to insure future profitability they are busy exploring ways to increase existing profitability by cutting costs, watering down the brand identity with more expensive varieties, and generally confusing their customers with their behavior.
Planning anticipates the inevitable – change, but if you aren’t studying the changing requirements of your customers they will get to the future before you do and will leave you behind. A great example of what is required of every CEO is what AG Lafley did when he took over as CEO of P&G in 2000 and found that the company was slowing down, becoming insular and management enamored with their own publicity.
His strategy was to get his team refocused on the customer and their needs and on innovations to enhance their lives. He even went so far as to personally visit a housewife in her small apartment in Venezuela to see what she had developed in the form of creams, lotions, and shampoos for herself. She had created two lotions for her feet, one for her body, one for her hands, and another for her face because she could not find what she was looking for.
Lafley’s message from his personal visit to a typical homemaker was that “these creams and lotions are what she says they are, not what we would create for her”. His powerful conclusion from this experience is “it’s not about us, it’s about her”.
Lafley captured this and other experiences in his book (co-authored with Ram Charon), “ The Game Changer.”
If the CEO of a company the size of P&G can visit a homemaker in her apartment in Venezuela to see firsthand what she created because she couldn’t find what she needed – why can’t you visit with some of your customers who are just around the corner?
Likewise, don’t let your company get into the “death by committee” syndrome where the complacent naysayers and bean counters snuff the life out of every new idea that comes along. Without new ideas and innovations emanating from customers changing requirements it is easy to become a victim of your past success.
Another lesson can be learned from another classic innovator – Frank Perdue. He took a dull lifeless commodity and by talking to housewives in supermarkets about their desires and requirements turned it into a quality product. Like the homemaker in Venezuela they had unsatisfied requirements for simple things like “no pinfeathers” and a “plumper yellower chicken”, for example. He went on to solve another problem by creating the innovative “pop-up thermometer” so that housewives would know for sure when their chicken was done. Perdue also developed “oven stuffer roasters”, recipe cards stuffed into Perdue chickens, and a variety of other simple innovations that certainly resonated with consumers.
So my question to you is if Perdue did what he did with a dead chicken – imagine what you can do with your technology?
Growth is a business imperative, and the lifeblood of any growing business is great ideas that can be converted into cool new product innovations a la Apple’s life changing i extensions.
It’s a known fact that as time moves on your propensity to grow or improve declines. And the longer a company stands still or only moderately extends its current business, the less chance it has to continue to grow the value of its customer base. Once a company unconsciously morphs into a bureaucracy innovation evaporates.
Likewise, the larger a firm becomes the harder it is to create new initiatives that are big enough to significantly alter the law of diminishing returns.
However, when annual planning is done properly, it ensures your short term profit goals as well as your long term potential for greater profits.
If you are struggling to keep innovation alive in your company or have “hit the wall” and don’t know what to do about it, let’s start a dialogue on how to get back in touch with the changing dynamics of your marketplace.
Bob Donnelly, is CEO of VAAS Americas, the U.S. unit of the Chennai, India based maker and distributor of industrial valves. A coach, educator, and advisor to founders/CEOs of growing firms, he is a serial entrepreneur, having started, grown and sold several technology based businesses. Earlier in his career he held senior management positions with IBM, Pfizer, and Exxon.
He has developed an online MBA program in Entrepreneurship for Rushmore University with managers from global firms enrolled in the program. Since 1998 he has served as a venture mentor at New York University’s Stern School of Business Berkeley Center for Entrepreneurial Studies, where he advises start-ups on business plan development, marketing strategy, and presentation skills.
He writes the online Entrepreneurial CEO column for Chief Executive.