Report 103

Your newsletter on applied creativity, imagination, ideas and innovation in business – delivered to your e-mail box on the first and third Tuesday of every month.

Tuesday, 21 October 2008
Issue 137

Hello and welcome to another issue of Report 103, your fortnightly newsletter on creativity, imagination, ideas and innovation in business.

As always, if you have news about creativity, imagination, ideas, or innovation please feel free to forward it to me for potential inclusion in Report103. Your comments and feedback are also always welcome.

Information on unsubscribing, archives, reprinting articles, etc can be found at the end of this newsletter.

CUTTING YOUR CUSTOMERS' COSTS

With global economies slowing rapidly and many falling into recession, more and more businesses are understandably focusing their innovation activities on cost cutting. And that is a good thing. Innovative ideas have helped global leaders like Dell, Toyota and Amazon slash operational costs in order to deliver high quality products to the customers at comparatively low cost while still retaining handsome profit margins by their industry standards.

Nevertheless, it is important to bear in mind that your customers are very likely also trying to cut their costs. Whether they are consumers whose household budgets must become tighter -- owing to reduced income or simple uncertainty about the future -- or businesses that need to slash costs in order to remain profitable, your customers almost certainly would be delighted if you could help them reduce their operational or living costs.

Best of all, if you can achieve that, you stand to increase your sales and hence profitability. It is truly a win-win innovation scenario.

There are several ways you can help your customers reduce costs. In this article, we will focus mostly on business to business sales. But these methods are largely applicable to business to consumer sales as well.

Method 1: Reduce the Cost of Your Product

An obvious method of reducing costs for you customers is by making your products less expensive to buy. This need not be limited to slashing prices -- which may not be a viable approach in any event. You might also look into simplifying your product in order to make it less costly to produce and deliver.

If you product is a service, perhaps there are ways you can break your service into smaller, less expensive packages which your clients can purchase as needed.

Wrapping your product together with additional value added services, even if they add to the cost of our product, can sometimes cut the total cost to your customers. For example, if your company produces help desk software, you could offer a complete outsourced help desk solution combining your software, hardware and even a help desk team. For many of your customers, buying the entire package from you could be less costly than building their own help-desk department from scratch and then using your software. For you, of course, it means added income.

Another way to reduce the cost of your product may be to change the manner in which it is purchased. In the software industry, more and more companies are offering Software as a Service (Saas). In the SaaS model, the software provider installs the software on their own server and customers access it over the internet. SaaS usually includes additional services such as upgrades, maintenance and support for a monthly fee based on the number of users, level of usage or other factors. Clients pay a monthly or annual subscription fee for the entire package. Compare this to the traditional software sales model in which customers pay a hefty license fee to use the software and an installation fee to put it on their computers before they can even begin using the software.

This model is not particularly innovative in the software industry any more. But might it be adopted to your industry?

Method 2: Reduce the Cost of Using Your Product

This is something that the auto industry has focused much innovation on thanks to rising fuel prices as well as government regulations about pollution and fuel consumption. As cars become ever more fuel efficient and reliable, it costs ever less to use them. Add leasing and financing packages that allow buyers to spread the cost of their purchases over several years and almost anyone in the developed world can afford to own and run a car.

Other industries can do the same. More efficient electronic goods consume less electricity and are cheaper to use than similar goods of a decade ago. Factory machinery that is more efficient and durable (so less likely to break down or need frequent servicing) can substantially reduce manufacturers' long term operational costs.

More efficient lightbulbs need replacing less often and consume less electricity.

A consulting service that focuses more on training than consulting -- so enabling the clients to perform the actions of the consultant -- can reduce the number of hours the client pays the consultant. The danger here, of course, is not putting yourself out of business!

Method 3: Offer a Product that Helps Customers Reduce Costs

If you cannot make your own product cheaper to use, you might look at how your product or service can help your customers reduce costs in other innovative ways. Here in the innovation industry we, and many of our partner companies, are now focusing more on helping clients develop innovative ways to improve efficiency and reduce operational costs. Whereas a year ago, the focus was more on new product development, new packaging concepts and research and development. Nevertheless, we advise our clients not to neglect new product innovation in order to retain their competitive leads.

As businesses and households look to save money on their rising fuel costs, we can expect to see a lot of innovative new products designed to help them accomplish this.

Likewise products that help businesses reduce the amount of labour required to accomplish tasks almost inevitably results in reduced operational costs.

Method 4: Offer Your Product in a New Way to Save Costs

Offering your product in smaller packages so that it can be purchased at a lower cost or offering it in a bigger more economical package can save your clients money. Offering your consulting services as a training package or renting your products instead of selling them can all potentially reduce what your customers pay in order to use your product.

Method 5: Combination of the Above

With a lot of creative thinking, you can surely come up with a number of ideas that combine various methods listed above in order to help your customers cut costs. In so doing, you help your customers through a difficult time, increase your revenue stream -- or at least ensure it does not fall as much as it would otherwise -- and retain goodwill that will ensure long term relationships with your customers.

So remember: it's not just your company that needs to cut costs. Your customers need to do the same. You can help!

GET PASSIONATE AT WORK!

It is no secret that small start ups are, in general, far more innovative than larger established businesses in the same sector. The reasons for this are manifold and often cited: start-ups are less bureaucratic, they start with an innovative idea, they are less entrenched in established ways of doing business and so on. What is often not sited, but just as important, is passion.

Entrepreneurial individuals and teams need to be passionate about their dreams. Otherwise, they would never manage the long hours, hard work and usually reduced income that comes with launching a new business. More than anything else, it is passion that keeps those businesses going in their first years.

As the start-up takes on employees, they too are often gripped by the passion and enthusiasm demonstrated by their managers. The excitement of being a part of something new, innovative and special helps bring out the passion of those new employees.

Moreover, it is a lot easier to be innovative when you are passionate about a product, service or ideal. The passion provides energy and keeps the mind excited. And an excited mind is a lot more creative than a bored mind!

In the mid 1990s, it was hard not to be inspired by Jeff Bezos, founder of Amazon, as he talked up his innovative new on-line bookshop concept. Indeed, even though Amazon lost spectacular amounts of money in its early years, Jeff's passion for the business kept it going and kept it innovating. It also allowed him to employee lots of enthusiastic young people at below market rates: his passion was contagious.

Easy for Start-Ups, Not so Easy for Old-Timers

On the other hand, one cannot imagine the presidents of Borders or Barnes & Nobel (established US book retailers) demonstrating such passion about their companies. And it would be even harder to imagine an employee in one of these companies having the passion for her employer that an Amazon employee displayed -- even though the former most likely had a higher salary and greater job security than the latter did in the mind 1990s.

Likewise, compare an overworked and underpaid employee of any of Silicon Valley's technology start-ups during the dot-com boom. They inevitably had greater passion for their work than their more highly paid associates in established technology companies like IBM, HP Unisys and others.

Passionate for Teams

Indeed, when the president of an established global company jumps up and down, gets passionate about her company and asks her employees to do the same, she comes across as being daft and inspires little jumping. "It's easy for her to jump up and down when she's getting US$10 million a year," is a far more likely response than passionate jumping for the company.

Nevertheless, employees in even the biggest, most bureaucratic organisations can often be encouraged to be passionate. Not about their employers, however, but about their teams. This is particularly true for teams which are responsible for projects.

If the team leader is passionate about the team and the project, team members can also be made to feel passionate. The trick, of course, is getting team leaders and team members to feel passionate. Asking employees to start up passionate teams is unlikely to be enough.

Creativity and Innovation Rewards

In our experience, we have seen that in organisations with strong team cultures, rewarding team performance for creativity and innovation tends to bring more effective results than rewarding individuals.

This is because when you reward the entire team equally for results, you give each individual an incentive to share her ideas and collaborate in order to build bigger, better ideas. Doing so maximises her team's reward potential and hence her own reward potential.

On the other hand, when you reward individuals for their performance, you are establishing motivation for each individual to keep her best ideas to herself and not to collaborate. After all, if the individual can show that she has had the best idea, she gets the reward. If she shares it with her team, there is a danger that a colleague might claim the idea as his own or that others will develop her idea and thus make it someone else's.

As a result, if you reward each team collectively for its overall performance, you motivate individuals to perform in the team's best interest. Moreover, if other teams could potentially claim the best rewards, you establish a competitive environment which further motivates team spirit: each team member understands that to maximise her rewards she needs to ensure her team outperforms the other teams.

Once you have established such a rewards based environment, team members become increasingly likely to become passionate about their projects, their teams and their opportunities to achieve rewards for their entire teams.

But Avoid Threats

It is important to note that I have emphasised a rewards based environment. This motivates teams positively and provides positive reinforcement for good performance. The bad manager, on the other hand, might think that threatening the poorest performing teams with punishment for poor performance might further encourage passionate work. This is not true. People always perform better and more positively when they know such performance will benefit them. However, knowing that poor performance will result in unpleasant consequences results in fear, uncertainty and doubt. People no longer perform in order to win, but merely in order to avoid punishment. They avoid risks because taking risks could result in consequences. But, of course, innovation requires taking risks.

This is true both in the case of teams and individuals. Positive reinforcement for good performance motivates better performance. Negative reinforcement against poor performance only motives people to perform well enough to avoid the negative actions.

Passion for Teams not for Companies

The conclusion: if you, like most people in the world, are a manager in a well established company for which most employees have little passion, your best approach for passion and innovation may well be to build passionate teams through a rewards based system. Have you already done so? I'd love to hear your results!

NOSTALGIA AND INNOVATION DON'T MIX

In times of economic downturn, people tend to become nostalgic. They often mistakenly remember the old times as being better, safer and more comfortable. In spite of the many horrors of the old Soviet Union (USSR), older people in the countries that once comprised the USSR often become nostalgic for the past when the economy slows down -- even when research and logic shows that their situation is now better than it was in Soviet days.

Likewise, racism tends to rear its ugly head when the economy slows down and people believe that their communities were somehow better before foreigners came in and took their jobs. This is in spite of the fact that typically foreigners from poorer countries tend to take the jobs that natives disdain. This is why there are so many Mexican farm labourers, gardeners and servants in the USA. American born and bred citizens simply do not want such jobs.

Nostalgia Is Nothing New

Of course business innovation is not a matter of reliving the past. Indeed, it is quite the opposite: breaking away from notions of the past in order to develop new products, services and efficiencies that either better serve customers or improve your operations.

However, getting employees to accept and adopt new ways of working can be difficult in the best of times. Most people are uncomfortable with change -- particularly if they perceive it to be a threat. Getting employees to adopt new ways of working during economic downturn, in which they may be worried about job security, savings, their houses and their families is much more difficult.

Indeed, it is in times like this, when creative thinkers in medium and large companies are all the more likely to find their ideas met with criticisms from colleagues. It's not that colleagues don't like the ideas. Rather, they are scared of the changes those ideas may bring about.

To Make Matters Worse

To make matters worse, it is in times of economic downturn that businesses most need to innovate. When the times are good and customers are buying your products, you can often afford to coast along building the same products in the same way without fear of losing market share -- especially if your competitors are doing the same.

However, when the economy slows, you clients are likely to be buying fewer of your products and every inefficiency in your operations takes a further cut out of your margin. As a result, you need to out-innovate your competitors in order to steal their market-share before they steal yours! You need to innovate to improve your operations so as to streamline running costs and ensure you get maximum margin on every sale, especially when there are fewer sales.

In other words: you absolutely, positively need to innovate in order to beat the economic downturn. But your employees may well not want to co-operate.

Communications Is the Key

There is no simple solution to this problem. It is human nature to become nostalgic for a perceived better past when the present seems dark. And you cannot change human nature.

But you can communicate and educate your employees. You need to help them to understand that the economic downturn hurts everyone and that the only way to succeed as a company -- and thus ensure that every employee also succeeds -- is to innovate your way through the downturn.

When innovative new methods require that people change the way the work, do not simply order employees to follow the new way. Rather communicate why you are making the changes, the benefits these changes will bring the company and the benefits that will come to the employees.

Most likely, your company has many innovations in its past. Remind people of the changes these innovations wrought and how the company grew as a result. In other words, help make them nostalgic for the changes that accompanied past innovations.

Last but not Least

Finally, get employees involved in your creativity and innovation process through idea management, collaborative idea development and other activities. As has been written in Report 103 in the past, once employees become involved in the innovation process, they become stakeholders in new ideas. And this motives them to want to see their ideas implemented and succeed.

JENNI IDEA MANAGEMENT

If you run a medium to large business and you need to capture, evaluate, develop and IMPLEMENT innovative ideas that...

• Reduce operational costs

• Reduce your customers' operational costs

• Generate profitable new products and services

• Enable you to repackage existing products for new markets

• Increase your sales

• Help you communicate more effectively to your shareholders, employees and customers

You should take a look at Jenni idea management, a software service that streamlines your innovation process making it easy to capture focused business ideas, develop the best ideas and turn them into profitable innovations.

Jenni is not a software, rather a comprehensive innovation service centred around an easy to use web based software. Jenni also includes lightening fast support, innovation coaching and regular upgrades as a part of our standard package. In addition, we can provide customised in-house training to help you implement a comprehensive innovation strategy based around Jenni.

Find out more: check out www.jpb.com/jenni/ . We're helping more and more companies around the world increase their innovation profit margins through idea management.

LATEST IN BUSINESS INNOVATION

If you want to keep up with the latest news in business innovation, I recommend Chuck Frey's INNOVATIONweek (http://www.innovationtools.com/News/subscribe.asp). It's the only e-newsletter that keeps you up-to-date on all of the latest innovation news, research, trends, case histories of leading companies and more. And it's the perfect complement to Report 103!

Happy thinking!

Jeffrey Baumgartner

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Report 103 is a complimentary weekly electronic newsletter from Bwiti bvba of Belgium (a jpb.com company: http://www.jpb.com). Archives and subscription information can be found at http://www.jpb.com/report103/

Report 103 is edited by Jeffrey Baumgartner and is published on the first and third Tuesday of every month.

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