16/06/2012
CEOs Cite Innovation as a Key to Business Models -- and Even Our Energy Future:
Peter Drucker once said, “Innovation is the specific instrument of entrepreneurship … the act that endows resources with a new capacity to create wealth.” Clearly, without innovation, businesses stagnate. They develop a comfort zone, avoid risk-taking, and rely upon the same business models. To gain insight into business models, on May 22, 2012, I facilitated a discussion among business leaders: Joe Petrowski, CEO of The Cumberland Gulf Group; Johan de Nysschen, President of Audi of America; Bob Shapard, CEO of Oncor Electric Delivery and Chairman of The GridWise Alliance; and Stephen Hasselmann, Managing Partner, Strategy and Transformation, IBM Global Services. They emphasized how innovation is the key to overcome business challenges, and the importance of building innovation into the organization. And since the businesses were related to energy, we discussed the future of energy as well. The consensus was we already have many of the natural resources and tools, and just need innovative solutions on how to use them. Following are insights.
What’s your perspective on overcoming business challenges?
Joe Petrowski,CumberlandGulf: “Both of our businesses have strong external forces impacting success which has led us to innovate. On the Gulf side, we are focused on being fuel agnostic to find the most cost effective solutions for consumers. For Cumberland Farms, we have grown by revitalizing the old general store concept of customer service, food and serving in the community. And structurally, while both organizations are different, they reinforce each other through a corporate umbrella that combines IT, human resources and finance across the organization. And with these innovations, we’ve had double digit earnings growth over the last seven years.”
Johan de Nysschen, Audi: “The auto business is very capital intensive generally very centralized and hierarchical. Audi is number one in Germany with a dozen consecutive years of all-time record sales, all time record profits, all time record brand metrics, strong leadership in Asia driven primarily by an early entry into the market in China. In stark contrast to that global success was the somewhat checkered history of the brand here in the US with five years of consecutive volume loss in market share, erosion in the US. And that is the challenge I was confronted with when I arrived in this market.
So what we did is turned the way we do business upside down. Our innovation is probably best wrapped up in one word and that is empowerment. We relooked at the relationship with our dealer partners. Personal integrity and honor triumph nine times out of ten. We created a common vision for the brands, got everybody aligned. They all knew their own goals. We gave the people the necessary training. We flattened the hierarchy. We empowered people to make decisions, encouraged them to take risks. We set up variable compensation at the lowest level starting at 40% of overall compensation provided we all hit our targets and began to work very hard on creating a high performance culture around the company. We ordered record metrics in customer perceptions of the brand. And this really has led to a total turnaround of our business. And I will tell you that here we are six years down the road, we’ve doubled our market share.”
Bob Shapard, Oncor: “Solving problems is often about providing solutions that preempt future customer needs. For example, our nation’s electricity grids have barely advanced over the last 30 to 40 years. And now we realize with technology, telecommunications and micro processing we can really revolutionize the grid in this country and change the delivery of services to consumers. We’re in a position now where we should make planning changes to the grid to support the future society. We need forward thinking about where customers will be in the future.”
Steve Hasselmann, IBM: “A key to overcoming business challenges is creating the right business model. There’s something big happening in the marketplace now that is really the convergence of the digital social, mobile spheres of influence that are allowing employees and partners and customers to connect in many new ways and create a tremendous set of opportunities for innovating the business model and finding new relationships and new partnerships to create value for customers. From our 2012 CEO study, companies that outperform their peer group have embraced openness as a way to exploit and take advantage of all this interconnectedness.”
How can you build innovation into the fabric of an organization?
Bob Shapard, Oncor: “It is important to be open to innovation throughout the organization. I’ve been in environments where leadership has really come down hard on innovators for not having all of their thoughts completely thought or ideas completely fleshed out, and you can completely kill innovation if you beat it out of people.”
Johan de Nysschen, Audi: “An essential ingredient for innovation is not only to announce the willingness of the organization to take risks, but to actively encourage them to do so and push the boundaries. This is where it’s really necessary for management to be disciplined. When you are always pushing boundaries, you will make mistakes and those need to be turned into learning opportunities.”
Steve Hasselmann, IBM: “All of this new interconnectedness creates opportunities for innovating around the business model. If a company can create the right culture, the right kind of shared beliefs then they can use those values as guideposts for business model design decisions. The opportunities for employees and partners to come together in innovative ways to create value for customers are too complex to control from the top down. Rather we think, and our data shows that companies can out-perform by promoting more openness and promoting innovation and experiment of the business model. As a rule of thumb, companies that experiment with business model alternatives often are the companies that have created a culture that fosters innovation and creativity. The right motto should be, ‘fail early, fail often, fail cheap’ - this reflects the mindset required to learn from failure.”
Joe Petrowski, Cumberland Gulf: “Human nature often resists change to stay in a comfort zone. So it’s important to get the facts, lay out a map and communicate. When understanding a situation, a great deal can be learned by understanding the outliers, both positive and negative. The culture matters because you can have the nicest store in the world and spend $2 million to put in the latest equipment, but if it’s staffed improperly, it just doesn’t do the numbers. Innovation opens doors. We have a million and a half customers going through Cumberland Farms and Gulf every day, so investing in areas such as social media, for example, can create significant opportunities for us.”
