Blog - Innovation & Growth Leadership Summit

I&GL Challenge #3: Driving Shareholder Value

One of the toughest challenges – especially for mature companies — is driving shareholder value. Slow, steady growth is not enough in today’s disruptive world, and R&D executives are expected to step up their game.  If this is your situation, read The Shareholder Value Triple Play, by Tom Hansson and Abhijeet Shekdar of PwC.  The authors are clear: cost-cutting and portfolio rationalization are necessary but insufficient. The way to dramatically increase shareholder value is to “identify a portfolio of big ideas..that will likely double or triple the value of most advantaged units — while ensuring that the resulting corporation will be strategically coherent.”

This means building on current capabilities, not cutting them.  Rather than mandating across-the-board cost reduction, the shareholder value formula calls for an approach that preserves and enhances the distinctive capabilities that are critical to growth.

How is this done?

  1. Rationalize your portfolio through a shareholder value/capabilities lens.
  2. Stabilize the old core. Highly branded mature categories may not always get adequate returns from divesting (or spinning off) businesses; some will therefore remain in the portfolio. Find the balance between under- and over-investing. Don’t spend excessive time and resources on the old core at the expense of new growth avenues.
  3. Expand existing profit pools. Don’t underestimate the growth potential of your existing core. Identify and ‘surgically invest’ in your most attractive profit pools to maximize profitable growth. Distinctive capabilities provide superior returns and allow the company to gain share or tap into growth pockets. These investments may take many different forms, including focusing product innovations on specific channels, boosting promotional spending for specific customers, or devoting more R&D resources to specific product categories.
  4. Pursue step-out growth. Most companies don’t have enough attractive investment opportunities in their portfolios to create sustainable, profitable growth at an annual rate of 4 to 6 percent. The key is to focus on a few material initiatives that leverage and strengthen what the company does best, and to extend those by category or geography. These step-out plays can take a variety of forms, including: “Big bang” innovation (home runs versus singles), new approach to foreign markets , nuanced approach to on-trend businesses (ie purchasing smaller entrepreneurial businesses, grow by providing sales access and distribution resources to boost the targets’ sales, while preserving startup culture); roll up your sector (focus on a narrow range of products,  develop advantaged capabilities in that category); adjacent M&A “near-in” adjacencies are the most promising.

Executing the strategic triple play of aggressive cost reduction, portfolio simplification, and substantially new approaches to growth based on capabilities is not easy, but those that succeed will reap significant rewards.

This challenge has many variations and is a key topic to be discussed at the I&GL Summit.  Jean Spence was part of Mondelez cost reduction and growth initiatives, Shiv Iyer is one of the foremost experts on leading significant transformation of operating models to build capabilities and drive reinvestment for growth, and most of the other speakers have wrestled with this challenge as well.

I&GL Challenges: Topic #2 – Boosting Margins

Last week we discussed alignment, a critical component of organizational effectiveness and innovation success.  Perhaps even more critical is the impact of alignment on profit margins.

If senior leadership is not in agreement about where to focus R&D dollars, innovation managers will not know where to focus efforts.  Short-term projects rule the day, competing priorities confuse people, and results fall short. Large organizations seem to struggle the most. They push for growth and innovation, yet fear losing current business. So the message is mixed – take risks, but don’t forget the bread and butter.

What’s an innovation leader to do?  If misaligned tires slow down a car, how can misaligned companies move fast, steer straight, and get the best mileage?

According to a recent Accenture white paper, Increasing Agility to Fuel Growth and Competitiveness, there are several steps you can take:

  • First, know where growth is coming from
  • Make informed decisions and identify the right areas to funnel costs
  • Align cost reduction and reinvestment to the growth strategy
  • Foster a culture centered on continuous cost management with outcome-based measures and metrics
  • Weed out inefficiencies; leverage new technologies
  • Change how the company operates across the ecosystem

These steps are not simple, and organizational buy-in is everything. In an agile, aligned organization, knowledge workers become judgment workers, decisions are predictive vs. reactive, and people move together swiftly with confidence. New operating models and approaches like zero-based budgeting can yield millions of dollars in savings, which can then be used to fuel growth strategies.

The white paper discusses how to create cost-competitive operating models and make the necessary cultural shift. Shiv Iyer, who has helped many top companies build capabilities and drive reinvestment for growth, will share how-tos and examples at the Innovation & Growth Leadership Summit.  If your organization needs better alignment around R&D spend, this talk is not to be missed.

Your questions and comments are encouraged in advance.  Either email me Jackie@roundtable.com or post on our LinkedIn group.  Look forward to hearing from you and seeing you in Chicago!

I&GL Challenges: Topic #1 – Alignment

Looking ahead to the Innovation & Growth Leadership Summit (I&GL), we wanted to start discussion now about the biggest challenges many of you face.  One that stands out is alignment — how do you get everyone on the same page?

CIMdata recently conducted research with a group of chief innovation executives from Electrolux, Givaudan, GOJO Industries, Henkel, Honeywell, Procter & Gamble, and Sanofi.  For these executives, innovation alignment is a combination of strategy and tactics that generate new business value.  It means being “clear about where you want to grow, where you want to go, and how you want to get there.”

Ideally, short-term objectives (product improvements, line extensions, etc.) are balanced with the longer term horizon (new technologies, new markets, new business models).  Strategic and tactical roadmaps are harmonized. Portfolio choices generate measurable payback.  Leaders think beyond their own business and make decisions based on what’s best for the enterprise.

The reality?

As one executive put it, “people have become so focused on the internal processes, workflows, and administrative hurdles that they forget their primary mission is R&D, which is to be connected with innovation networks and what is going on their scientific field.”

Another said there are pockets of innovation but no ‘single source of truth,’ making portfolio management a challenge. Other struggles include poor visibility into financial commitments, unclear communication, and fragmented processes.

So, what approaches are helping?

  1. To drive change, first identify executive champions with the right qualities
  2. Train people through a network of innovation ambassadors – develop capabilities
  3. Establish governance structures and processes to help align on goals
  4. Bring in digital solutions that are agile and visual to support faster decisions
  5. Prioritize openness, configurability, flexibility, and adaptability
  6. Look for features that can connect to best-in-class functionality spanning research, design, sourcing, manufacturing, sales, marketing, service, etc.

Organizations that have addressed both cultural and digital capabilities are better aligned than those that have not. They are also achieving better results faster.

To learn more, download Enterprise Innovation Management: Solutions Landscape – Connecting the Dots.  Suna Polat, co-author of this study, will share more about the findings and answer your questions at the I&GL Summit on April 26.