Nicholas P. DiNatale, CPA -
Certified Public Accounting & Business Advisory

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Spin Or Spiral?(TM)

How to Influence Growth and Profits Through Strategic Innovation

STRATEGIC INNOVATION VS. STRATEGIC PLANNING

Innovation is the key characteristic of success because it enables your company to be better and different than anyone else. The process of strategic innovation requires thinking further ahead and acting sooner than your competitors to gain market advantage. It's what you instinctively did to launch your enterprise.

But as your company grows and becomes more complex, the question is, "How do you sustain and replicate earlier success?" This is an important question which often perplexes founders. Almost all companies stumble. It's easy to remember the big ones: New Coke, Digital Equipment's Rainbow PC, Wang Laboratories, General Motors, Apple Computer, Penn Central, People's Airline, and the list continues in every industry. It happens to small companies, too.

Lots of success comes from luck. Being in the right place at the right time. It has often been said that the most dangerous people are entrepreneurs whose first venture is a success. These people think anything they do will thrive. Their judgment is simplistic and they rarely listen to a breadth of views. They have a very high self-destruct track record.

But luck is not the way to grow a sustainable enterprise. Eventually you have to use good intelligence, good strategy, good process, and good people.

So, how does one sustain growth, profits, and all the good things we would like to have happen? Strategic innovation is a term we apply to a smart process of continual transformation. Along the way, specific plans are created and a process of ownership is established. Strategic innovation creates robust business outcomes and exciting work cultures.

Let's first look at strategic planning and the stereotypes of this activity. Everyone knows they should do strategic planning, but it still is the activity that most companies do last, if at all. What gets created in the disguise of strategic planning is a long voluminous binder of analysis and operating detail. The strategic plan too often is written by the CEO and maybe one other executive. Sometimes an outside consulting organization (with industry knowledge to peddle) will create the document. These are approaches that have given strategic planning a bad rap. They don't do it intentionally, but lacking cross-company involvement, they sow the seeds of failed implementation because of lack of commitment.

A written document in an impressive binder does not create sustained growth and profits. People and focused strategies create success. It is innovation in the dynamic of technological and marketplace change that enables companies to stay competitive and on the cutting edge.

It is good thinking, conducted by a large group of operational stakeholders who participate in creating the mission and vision, that results in ownership and execution. This is what is missing in those companies which fail to see that change has overtaken them. They never realize that their employees saw it coming but had no forum or voice to raise the issue.

Strategic innovation is the equivalent of continual improvement found in the quality domain. It is a proactive system for moving through the predictable stages of growth and staying in the lead. We will explore what CEOs can do to guide their organizations through strategic innovation and consciously create the controlled growth and consistent profits they deserve.

WHAT IS YOUR COMPANY'S STRATEGIC INNOVATION QUOTIENT?

Answer the following questions about your company:

1.) Is your company targeting the highest potential markets and constantly gathering intelligence about customers' future needs and goals?

2.) Are your company's current mission, goals, and strategy a product of the complete executive team in a group process setting?

3.) Are your mission, values, and strategy statements concise enough to be remembered? Are they used daily to focus decisions?

4.) Does your executive team take a comprehensive look at strengths, weaknesses, assets, and the competitive position of your company before raising any discussion about future opportunities?

5.) Is your strategy tested to see if it's based on valid assumptions?

6.) Do you consider your company's vulnerabilities as part of the strategy planning process?

7.) Does your company's organizational and decision-making structure push responsibility and accountability to the lowest possible levels?

8.) Is your company's culture a participatory and creative environment where new ideas flourish at every level?

9.) Are your executives united in a common vision and clear understanding of every functions' role to successfully execute the strategy?

10.) Does your company consciously inspire dedication and high performance so employees make good decisions and take effective action?

For your company to consistently grow and be profitable, you must be able to answer yes to the above questions. It's surprising how just one missed element can undermine growth potential and stifle profits.

HOW DO COMPANIES GROW?

Your company is always in a stage of its life cycle. Do you know what it is today? What are the pitfalls and traps of each stage? What do you need to be alert to?

Stage One: Formation

This is where you discover a direction based on customer need and your creation of a solution. This stage happens at startup and repeats when there is a merger, corporate structuring, a significant change in senior management, or the selection of a new mission.

In this stage you are close to customers, and your ability to partner with customers is key to success. As CEO, you encourage experimentation and discovery, establishing the right balance between unleashing imagination and checking reality. You can never tell where your next great idea is going to come from. You want everyone in your organization to think in new ways, try out risky ideas, and play "what if" with your company's future.

At the same time, you want to bounce ideas against the walls of reality: How would customers react? What would it take to accomplish the new goal? Is there a business model that supports it?

Because it is rare to find people who can think both future forward and operational control, an important role of the CEO is to create a structure and a culture that encourages idea exchange among diverse staff members. The leadership style must embody both a vivid enthusiasm for creativity and a solid ground in the realities of the business world.

This period can be chaotic. Systems may not yet be well-defined, or systems need to change because of a change in strategy. Glaring gaps may appear in the corporate structure within which ad hoc "solutions" take hold. Today's brilliant idea becomes tomorrow's boneheaded notion, or vice versa: What seems like a crazy idea today may be tomorrow's breakthrough. But take care not to confuse this state with weakness or failure. In an environment in which it's easy to make mistakes, it must also be easy to be forgiven. You're seeing the signs of a successful creative period—so long as you come out of it with a product/service customers want, a very clear mission, a sense of where you're going, and directions for how to get there.

Stage Two: Growth—The Ramp with Red Flags

The result of the first stage is not a plan that you execute to the letter. The world changes too rapidly for that—especially for innovative entrepreneurial-based companies. Instead, the result of a successful period of Formation is a plan that works and is constantly modified and improved.

Your job as CEO is to keep people on track and continuously improving—getting better, faster and more productive. You experience the satisfaction of rapid growth. You fine-tune it. And, as you succeed, you replicate it in order to grow even more rapidly. You may hire more employees, develop a wider range of products/services, or cultivate a loyal and growing customer base. Your organization is as close to a "well-oiled machine" as it's ever likely to be.

A dangerous time, indeed. When things are proceeding so smoothly, it's tempting to resist any change. But signs of trouble are brewing.

Pitfalls and Traps in the Growth Stage:

• Functional departments grow and begin to move in separate directions. Fiefdoms develop. Departmental loyalties increase in ferocity as even their reason for being decreases.
• Your people lose touch with the corporate focus, complain that they have too many priorities, and spend all their time fighting fires.
• As internal issues demand more attention, you and your people lose the close sense of partnership with your customers. As CEO, you spend more of your time with financial, legal, and regulatory concerns. And you seem to be at the Board's beck and call to prepare Board presentations, meet quarterly objectives, do the IPO, etc., etc.
• You're so busy keeping things moving in the original direction that your products or services begin to look a little tired, and competitors begin to circle.
• Your organization's breakneck pace affords you precious little time to step back and look ahead, rendering you reactive instead of proactive.
• Other companies may be interested in doing a merger, acquisition or joint venture with you. And they distract you.
• lndustry and technological changes may be moving faster than your company can follow.
• Satisfied customers want to be satisfied further, seeking more and better solutions from you.
• Your potential for growth needs funding, but market conditions for offerings are volatile and unpredictable.
• As the CEO, it's your job to deal forcefully with external issues—if only internal matters weren't pulling you away from them, engendering tension and frustration.

These symptoms indicate a state of Turbulence which signal a need for an immediate and dramatic change. Within the company, individuals or small groups may try to "fix" these symptoms, but without coordinated effort, their chances for success are minimal.

Do nothing and focus only on incremental improvements and you'll fall into the Spin Cycle, an unwelcome yet deceptively easy trap. The Spin Cycle is a vortex in which frantic activity increases as the company begins to stall, causing further confusion and splintering, and hastening decline. People work hard but just don't achieve the results you know are possible. Countless companies get stuck here, experiencing delays and reverses. Precious time is lost, and exceptional windows of opportunity slam shut. What's worse, the longer you're stuck here, the harder it is to pull out.

Strategic Innovation—Transform or Die

At times like these, two facts are worth remembering. First, you reached this pass not by failing—but by succeeding. This is what growth and fast-paced change do to a company. Second, you can only work through it by choosing to transform. Problems may "just happen," but sustainable solutions don't.

Your whole company needs to participate in a transformation process. Tomorrow is no longer business as usual. Let's see how innovation can be a valuable tool to this transformational process.

How to Recognize Band-Aids versus Transformation

Typically companies merely react—even when they think they're being proactive. Here are some of the more popular actions that are mistaken as proactive:

• Reorganize—and reorganize—and reorganize.
• Hire more VPs with specialized skills, without considering how their presence is going to affect your team and culture.
• Change the parts of the business model that are the easiest to change: alter pricing, re-instruct the sales force, repackage existing products, come up with a new corporate message, sell the products you hope to build some day, design a new logo.
• Give everyone on the management team a personal copy of this week's business self-help best seller.
• Change the communications structure.
• Start a training program on employee communications, empowerment, and/or how to give better performance reviews.
• Blame someone . . . anyone.

Stage Three: True Transformation Links Innovation to Planning

First, you need to avoid the above simplistic reactions. There are deeper problems that face your company at this point in its lifecycle. It takes a thorough and collaborative analysis from all quarters of your organization to plan for an upward spiral instead of a downward spin. The process of transformation means entering into a participatory, enterprise-wide effort that challenges assumptions, gains totally new perspectives, uncovers the company's potential and defines an entirely new system and success formula to move it towards its next level of growth.

We like to start with a reaffirmation of the talents and skills on the executive team. Your company is comprised of people with diverse management styles. You need intuition and creativity, as well as control and structure, to harness a period of turbulence. Your executive team should reflect both dimensions. It is suggested that you put your executive team through a type-indicator exercise like the Gregorc Style Delineator or Brain Dominance Profiles. This will help the executive team to see the breadth of styles and natural strengths of each functional head. The CEO will gain insight into the balance of creative versus control orientations on his/her team.

It is not good if the team is heavily dominated by control freaks or boundaryless creative zealots. There is a place for both but either extreme can hurt if not destroy a company. It requires a mix of styles to achieve real innovation, i.e., creative plans implemented profitably. You need to be aware of how others work and think. This will enable everyone to adjust their communications and expectations to better fit the styles of the team members.

The strategic innovation process then moves to a discovery stage. The executive team challenges the assumptions of current strategy by:

• In-depth discussions about the challenges, obstacles, and frustrations currently facing the company.
• Canvassing all levels of management to uncover different perceptions about the company's status, direction and best possibilities.
• Learning what your customers and employees think can contribute surprising insights to your transformation.
• Gathering perspectives on the desired future state of the company. Then create a specific picture of what is new, different and better two to three years from now.

This process of discovery will focus on six simple strategic innovation issues. The CEO should always be focused on these six issues—and everyone in the organization ought to be able to answer them:

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