Banking / Finance

Innovation is an act of leadership

23rd May `16, 08:38 PM in Banking / Finance

The average lifespan atop any corporate leaderboard, whether it’s the Fortune 500 or any other peer group listing,…

JP Nicols
JP Nicols Contributor
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The average lifespan atop any corporate leaderboard, whether it’s the Fortune 500 or any other peer group listing, is getting shorter and shorter. Business cycles are growing increasingly brief and volatile. Yesterday’s top companies are soon long forgotten, and today’s leaders are already watching out for tomorrow’s darlings in their rearview mirror.

Success is unfortunately a poor teacher. We become so focused on perfecting all of the things that made us successful in the first place that we don’t notice when those things become less relevant in a changing environment.

How is that some companies seem to defy the gravitational pull of these forces? How do some companies always find new ways to keep the growth engine going? How do they transition their company’s focus from low growth products to high growth products?

Innovation for Growth

The short answer, in a word, is innovation.

Innovation is what enables companies to “jump the S-Curve“; to catch the wave of a high growth business before their existing waves lose too much momentum. This is what Apple has done so well for so long (until now maybe, although I am not one to count them out just yet after failing to extend their 13 years of record quarterly earnings). Steve Jobs returned to a largely irrelevant Apple in 1997, with a fast eroding single digit market share in personal computers. His first act of leadership was to slash the product portfolio to focus on doing fewer things better.

This theme resonates with leaders of financial institutions. “Focus on our core business” they say, “we don’t want to be out on the bleeding edge, but we’ll be fast followers” (or not…). The problem with this strategy over the long run is that eventually the core business slows down as a category, and then the only way to drive continual growth is to take more market share, which calls for massive scale to offset thinning profit margins. By definition, there are very few winners in a shrinking market.

Jobs’ hunker down strategy was clearly the right one for the time of his return to Apple, but it was not how he built it into the world’s most valuable company. His lasting legacy is how he created new products at the right times to capture market share in the growing categories of digital music, smartphones and tablets. It remains to be seen if Tim Cook can do it again in smartwatches, in-home entertainment, or even the Apple Car, but innovation is a valued and expected act of leadership in the company’s culture.

One of a Leader’s Most Important Roles

Of course leaders must ensure that ongoing operations are efficient, compliant and profitable this very quarter, but this ‘Tyranny of the Urgent‘ too often creates a tunnel vision that ignores external threats and opportunities.

One of a leader’s most important roles is the effective allocation of resources– financial resources, human resources, managerial attention– and the best leaders allocate resources not to optimize for current returns, but over the long run. (Sometimes easier said than done for publicly traded companies, but Amazon’s Jeff Bezos has done this exceedingly well.)

The Japanese principle of Kaizen is most often associated with lean manufacturing and continuous improvement, and perhaps most famously at Toyota. Kaizen (“change for better”) expects everyone at every level to contribute to continuous improvement, in addition to meeting the standards as currently defined. That expectation rises for more senior leaders and begins to include not just continuous improvement, but also the expectation for innovation and the implementation of completely new ideas.

The leader’s role in driving and supporting innovation is clear in Kaizen. Simply hitting this quarter’s numbers is not enough.

Whether new ideas are created from the front lines, in an internal lab or by external entrepreneurs, they only become valuable when they are implemented. That takes a leader willing to dedicate the right resources– and that usually means directing them fromsomething else– in order create a new source of value for the company.

Originally appeared on JPNicols.

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