Innovation: The Path to Greater Profits, Part 3

By Ted Garrison

In Part 1 of this article in the July issue of Southeast Construction it was explained why innovation is critical to a company's success. During this and the next five issues, the author will explore 12 critical traits of the successful innovative company. These traits will allow readers to benchmark their company's innovative activities against what is needed.

3) Become a value-driven company because innovation is one of the essential values:

In any competitive industry the easiest way to differentiate your business, while delivering greater value to your customers, is by doing things differently. This concept is at the heart of innovation. Innovation is not the pursuit of change for change's sake, but instead is about finding ways to deliver greater value to the customer.

Unfortunately, too many people only think of innovation as new products. That perception is only the tip of the iceberg. As stated earlier, innovation can include new or improved services, better business processes, better marketing efforts and better management practices.

Value is a function of quality and scope divided by cost. Obviously, by reducing cost you can increase the value. The problem is that cost can only be reduced so far before scope and quality begin to decline. Worse, value often declines faster than the cost savings. The alternative is to find ways to increase quality and/or scope through innovation.

For example, an architectural firm that specialized in tenant fit-out work was struggling because a lot its prospects resisted the idea of moving because of the hassle. The architectural firm came up with an innovative new service for architects - a moving service. Now they tell their prospects they will handle the move. This architect tells his prospects, "You go home on a Friday and show up at your new office on Monday." Prospects love this new service and this architect's business is booming.

Innovation doesn't have to be as dramatic as the above example. One of my construction clients asked their customers what additional services they could provide. They were surprised when the companies offered a long list of new services. The contractor went back to its customers and said, 'If you want us to do all these extra things - we will need to charge an extra 1 percent fee.' The customers accepted the increase and this $20 million-a-year general contractor added $200,000 to gross income. The actual cost to provide these additional services was only $18,000. Therefore, this general contractor made over 1000 percent profit on these new services. How many of you are making a 1000 percent profit on your projects?

4) Consistent and incremental improvement is among the most effective kinds of innovation:

One of the easiest ways to increase your company's innovation is to take little steps every day as the result of dialogue with your customers. This gets back to the earlier question, "What have you done for the customer this week?"

Dr. Alan Weiss, a leading business consultant, talks about the 1 percent solution. Instead of trying to find major improvements, which are often difficult to find and then usually even more difficult to implement, Weiss advocates a different approach. He advises business to focus on making a 1 percent improvement every day. If this approach is followed the overall impact will exceed 100 percent in less than three months.

Part of the theory is that it is difficult to find major improvements. Sure we need to look for them and take advantage of them when they occur. However, the key to consistent improvement is focusing on the little things. This is no different than a football team that finds itself down by three touchdowns. To come back, the team must focus on the fundamentals and the goal of one touchdown at a time.

In Part 4 of this series, the author will discuss the traits of providing your entrepreneurial people with a measure of autonomy and the need to charge people with the responsibility for anticipating change.

Ted Garrison is a consultant, author and speaker who works with businesses in the construction industry. He can be reached at Growing@TedGarrison.com