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What does Brexit mean for UK business innovation?

Tuesday, July 12th, 2016

London in fog picture

Alastair Ross, Director, Codexx Associates Ltd
Professor Jeremy Howells, Kellogg College, University of Oxford

 

Peering through thick clouds

The initial impact of the Brexit referendum result has been the start of a period of volatility in the UK exchange rate, stock market and political governance. It has also created uncertainty for business as the eventual relationship with the EU and the nature of access to the single market is not known and will not be known for several years. Business does not like uncertainty for it makes it hard to predict future conditions and thus difficult to plan with any certainty.

What does this mean for a UK-based business in the medium to longer term and specifically where and how it should refocus its innovation efforts? The short answer is no-one knows for certain. The more useful answer is it depends on a number of factors, specifically on how they develop over time and the conditions which they eventually stabilise at. Considering a number of potential scenarios based around the development of these key factors is a useful way to consider and develop business plans.

So what are those factors and how should an organisation’s innovation agenda be modified based on their development? In this short paper we are considering innovation at the individual business level and in its broadest sense – the improvement in customer value and internal efficiency resulting from the systematic capture, development and implementation of new ideas. The results could be new or modified products and services, new ways of working, new market positioning or indeed a new business model.

 

 Uncertain conditions favour agility

The current situation takes us back to the situation of late 2008 and early 2009 after the financial crash. Codexx worked with a large progressive engineering company which had been hit hard by the resulting recession and recognised the need to fundamentally change their cost structure to better align to market conditions. Thus the company sought to exchange fixed costs for variable costs, in their workforce and through the use of suppliers. Essentially they were seeking to improve their agility – their ability to respond quickly to a market or customers – to grow capacity in required areas when there was an increase in demand and to be able to trim it easily – and without touching their core employees or facilities – when demand dropped off.

The Brexit situation has some similarities in that both situations resulted in uncertainty. However the impact of Brexit will be particularly felt by UK-based companies due to the major changes that lie ahead in key areas such as:

  • The UK pound exchange rate
  • UK stock market level
  • The nature and degree of access to the single EU market
  • People movement between the UK and EU

Since these are the key drivers to the future form and nature of the UK business model and competitiveness – and their end points will not be known for between 2-5 years, what can businesses do now? Businesses need to establish the capability to respond quickly to whatever economic and market scenarios eventually become reality – and in the meantime continue to operate effectively.

 

A new innovation agenda

Innovation is effectively about building tomorrow’s business – through the development of new products and services, new ways of working and new business models. An organisation has a constant challenge in focusing time, energy and resources on innovation – as the daily business needs this attention now and management priorities and rewards favour this. With Brexit, management has to dedicate increased focus on innovation as it is highly unlikely that the business environment for UK firms in 5 years’ time will be the same as today.

In many ways Brexit is an opportunity for businesses – as it provides a clear ‘burning platform’ for change and innovation. ‘The world is changing’ – well at least the market and supply-side conditions certainly will – and this provides a clear spur for innovation. So what sort of items need to be considered for the innovation agenda for UK-based businesses?

  • In the short term, trim waste to free up resources and reduce costs to offset increases in costs of imported parts and services due to the fall in the UK pound. This calls for a refocus on Lean thinking and process innovation. In the medium term, there may be opportunities for switching to UK suppliers.
  • Seize short term market opportunities in the single market that currently prevail with a cheaper pound making exports cheaper. This calls for a specific focus over the next 2+ years whilst the current single market access remains. There is a strong relationship between innovativeness and export performance and growth so there are opportunities here in the longer term for businesses that are seeking to sell innovative products and services.
  • Improve the codification of expert knowledge so that services and processes can be effectively delivered with less-skilled personnel. This is to recognise, in the short to medium term, that some of the skilled personnel available from EU countries outside the UK may not be available after the UK formally exits the EU. In the longer term, with, for example, an Australian based points immigration system, it may call for wider global search and recruitment practices. Even if the skills loss scenario is not realised, such codification will improve business efficiency and better leverage higher skilled personnel for higher value work.
  • Investigate the potential for new international markets that you have no presence in, looking at how you can reduce your costs and risks of entry by using partnership. This is in preparation for taking opportunities with the UK having the ability to negotiate new international trade deals but also potentially to offset any reduced access to the EU single market.
  • Prepare for a potential  restricted single market where the UK is faced with tariff barriers and thus products and services will be more expensive to EU buyers. This means an increased focus on value – developing new innovative offerings which can command a higher price – and preparing for increased price pressure by reducing non value-adding costs. In certain instances, certain products and materials, such as food products, may become cheaper in the medium term outside the EU. In the longer term accepting trading terms to, the European Economic Area (EEA), would mean continued access and compliance to EU trade rules. Outside the EEA, would mean trading on WTO general tariff rules and what access could be gained to individual countries or trading blocs, such as the Trans Pacific Partnership.
  • Don’t lose sight of the home market, where post EU exit there will likely be price advantages for UK-based businesses and also a likely period of goodwill to ‘home’ producers with a focus on ‘Buy British’, particularly if there is restricted access to the EU single market.
  • Review your requirements and sources of research funding. In the medium term if the UK remains in the wider EEA it can access current EU Horizon 2020 funds and other research and innovation funding. However, this will depend on the UK agreeing to continue to allow free immigration access to EU passport holders.  If this is not accepted by the UK government, then much will depend on how the UK shapes its own UK innovation policy and at what funding levels. Alternative sources of research funding may well be needed.

A silver lining?

Overall the next few years will be turbulent and challenging for UK-based businesses. However, there may well be a silver lining in this cloud – where the tough conditions drive businesses to increase their focus and level of innovation – to effectively improve their competitive health and thus better prepare them for market success – whatever challenges the future business environment will hold.

Director’s blog: Can you really train people to be innovators?

Wednesday, May 25th, 2016

the director's blog on innovation - logo with text

More innovation please

Raising the level of innovation is becoming a critical need for businesses as they face increasing competitive pressures. A fundamental requirement for making businesses more innovative – in what they provide to their customers and how they do so – is to get their managers and employees engaged and able to effectively participate in innovation activities. This requires an internal system for innovation that establishes key elements of enabling innovation infrastructure such as strategy, processes, tools and supporting resources. And part of this work involves training managers and employees in innovation.

But can you really train people to be innovators?

I ask this question, as there is a view – and not an uncommon one – that innovators are born not made: “Just look at Steve Jobs, James Dyson or Jeff Bezos – they weren’t trained to make them the innovators they are!” Implicit in this view is the belief that when it comes to innovation ‘you’ve either got it or you haven’t’. If that’s the case then what hope is there for businesses trying to innovate if they don’t happen to have a Jobs, Dyson, Bezos or the like in their midst….?

Innovation is not just creativity

Let’s step back and review a few innovation basics: Firstly, people often mix up innovation and creativity. Creativity is about generating ideas. Innovation is about creating value from ideas. Ideas on their own have no value – only potential value which has to be realised. Certainly some people are naturally more creative than others and thus more likely to generate potentially valuable ideas. But being creative alone is not enough – we also need the skills to realise the ideas and transform them into value. That requires skills in idea exploration and analysis, development of new offerings and methods, project management, marketing and selling (internally and externally) for example. And ideas can be effectively generated by (less creative) people working systematically anyway (through effective brainstorming and other ideation methods). So innovation requires a mix of capabilities, not just creativity.

Not only a lone genius required

When talking about improving innovation in an organisation it’s important to remember that the goal should be to ‘institutionalise’ innovation – to enable regular and sustained innovation through widespread and integrated efforts – rather than the occasional spark of innovation enabled by a few individuals (who can have off days or can leave). People forget that Apple’s innovation success with its iPod, iPhone and iPad was the result of multiple innovations by many individuals with Steve Jobs being the orchestrator and very much the public face, but by no means the sole innovator – and indeed his orchestration was ineffective and inefficient at times (read the excellent biography ‘Steve Jobs’ by Walter Isaacson for details).

One of the earliest examples of effective institutional innovation was the Menlo Park laboratories established by Thomas Edison in 1876. This was one of the first large-scale research establishments and formed the template for R&D organisations for the next fifty years. Edison brought together more than 200 talented scientists, engineers and craftsman and overlaid a system of innovation that harnessed their skills in a structured and productive way with defined teams, extensive experimentation and record keeping. It was a highly productive operation and created more than 400 patents. Whilst Edison was very much the public face of innovation, it was very much an institutional rather than individual approach to innovation, with defined targets such as ‘a minor innovation every 10 days and a big thing every six months or so’.

Most innovation is doing existing things better

A more modern example in a services firm is that of AXA Insurance in Ireland which started up an innovation programme in 2000. Theirs was very much an experimental approach, learning as they went along. They found that they could generate lots of new ideas from their employees but they needed to apply a process to effectively screen and select the best ideas. One key insight was when they analysed the ideas implemented in their first few years of the programme they found that 80% of them were concerned with removing waste or improving existing services or ways of working. Only 10% were ideas for new innovative services. This finding helped demystify innovation in the business – employees realised that most innovation was in doing existing things better – incremental innovation – which they could certainly do in their daily work. That is a powerful message for all businesses: Don’t just look for the ‘silver bullets’ of radical innovation, spend most of your time removing the ‘rust and grime’ from your existing methods and processes and then ‘polish them’ to make them more effective. Industrial experience of Continuous Improvement, making use of basic techniques for measurement, analysis and waste elimination – often within a Lean programme – has shown the power of such ‘do better’ innovation. Training employees in these core techniques can make them more structured and effective in their work on process innovation.

So you can train people to become innovators?

You can indeed train people to be effective in ‘do better’ or incremental innovation – which accounts for the vast majority of innovation. But what about ‘do different’ radical innovation? This type of innovation is needed if a firm wants to leap ahead of rivals. And firms would certainly want a few silver bullets as part of their innovation armoury…

To help answer this question I’m going to use the example of the UK legal sector. Most observers would not consider law to be a natural environment for innovation and rather unkindly might jest that ‘lawyer’ and ‘innovative’ are two words never found in the same sentence… That might well have been true(ish) twenty years ago, but it’s a viewpoint that is increasingly out of date today. For the UK legal sector has been in a state of major change for the last decade, driven by a combination of deregulation, tougher market conditions driven by the economic fallout from the 2008 financial crash, and the increasing impact of the internet. The result is clients ‘wanting more for less’, new rivals, internet-enabled entrants and law firms recognising the need for major changes in both their offerings and their working methods. Many have embraced innovation in their services – often with a primary goal of efficiency and cost improvement.

Through Codexx I have worked with a good number of major UK law firms helping them to respond to these major challenges by applying innovation. This has taken the form of two different types of interventions:

  • Specific service innovation (aka ‘re-engineering’)
  • Improving a firm’s innovation capabilities

Service innovation – a focused environment for innovation

In my work with law firms since 2006 I have helped law firms re-engineer a total of 20 legal services using a Codexx approach called ‘Smarter Working’. This approach uses a small core team of fee earners and support staff to perform the re-engineering with the support of the Codexx consultant. We effectively establish a ‘micro innovation environment’ using collaborative workshops and with training in team-working, some basic Lean principles and creative idea generation methods. This has resulted in major redesign of services such as Commercial Due Diligence, Inquest and Clinical Negligence, to reduce costs by as much as 75% whilst improving service quality. It has also resulted in the development of new internet-enabled services. Looking back at this work over the last decade I can unequivocally say that you can train lawyers – or indeed any other employees – to be very effective innovators within a supportive environment for innovation.

Improving innovation capabilities

Other law firms have wanted to take a broader approach, not just focused on selected services, but to make their firms ‘more innovative’. Their goal was a firm that used sustained innovation to improve its services, its efficiency and thus its competitive differentiation and its attraction as a place to work for progressive lawyers. To help them do this I have applied Codexx methods and tools to help them establish a systematic approach to innovation and use this to drive innovation of new and improved services and working methods. This work included strategy development, an innovation process & support structure, change management and of course training for selected personnel.

From my experience a key strategic approach to establishing innovation on a firm-wide basis is to run two parallel missions: the first to build the required innovation system and the second to deliver innovation outcomes (e.g. improvements, enhanced services etc.). The first mission is key to long term innovation success; the second is key to delivering benefits early and to help gain buy-in through demonstrable early success. I have delivered training on innovation to selected personnel in a number of firms (often innovation ‘champions’ whose role is to spearhead innovation activities) and typically found lawyers receptive and able to effectively apply the new methods – generating both incremental and more radical ideas. Based on this, there is no doubt in my mind that these lawyers and support personnel can be very effective in catalysing and supporting innovation within their firm.

That is of course if they are given the ‘space’ for innovation.

The one proviso – space for innovation

So you can indeed train people to be capable of innovation. But they can only subsequently realise that capability and successfully innovate if the organisation allows them space to do so. ‘Space for innovation’ covers a number of key attributes:

  • Leadership supportive of innovation – not just focusing on today’s business
  • Time available for work on innovation – always a challenge for people busy running the daily business
  • A wide, but defined, frame to seek innovation in – innovation in a vacuum is rarely effective…
  • A supportive culture for innovation – valuing effort and recognising some failures as inevitable
  • Resources to support innovation (such as other personnel, methods, tools and budget)

Unfortunately these are not always put in place or sustained to accompany training for innovation – and then all the teaching in the world on innovation will have as much effect as trying to light a fire on boggy ground….

Alastair Ross

Director
Codexx Associates Ltd

Further reading

To read further about Thomas Edison’s approach to innovation and the Menlo Park research organisation, see a delightful and informative book on innovation: ‘Innovation – a very short introduction’ by Mark Dodgson and David Gann, published by Oxford University Press.

For more information on the AXA Ireland case study and effective approaches to innovation in knowledge intensive service firms  see ‘Innovating professional services – transforming value and efficiency’ published by Gower. https://www.routledge.com/products/9781472427915

For a case study on law firm re-engineering see: http://www.codexx.com/2015/a-story-of-law-firm-re-engineering-people-processes-profit/

 

Director’s blog: Using practice sharing to catalyse innovation

Thursday, May 12th, 2016

the director's blog on innovation - logo with text

 

Catalysing innovation by showing a better way

One effective approach to triggering innovation is seeing ‘a better way’ – that is a superior way of working (aka business practice) that is relevant to your business. Benchmarking has been a long-established approach for doing this by comparing your business against another in a structured way. Indeed, as part of Codexx – and previously when I worked at IBM – I have led multiple benchmarking-type assessments in business areas such as production, R&D, supply chain and innovation. These benchmarking assessments were effective approaches to comparing business areas based on models of best practice and performance and thus identifying practice shortfalls – thus driving focused improvements.

However, benchmarking comparisons cannot be so easily applied to more focused business areas as there may not be a relevant best practice model in place or a database to compare against. In this case a more tailored approach is required, that I will refer to as ‘practice sharing’. This approach is less focused on numeric performance comparison – and more on key practices. However unlike an unstructured visit to view another company – ‘industrial tourism’ – this is a structured approach.

 Benchmarking continuum

Introducing practice sharing

I recently led a practice sharing programme between two major industrial businesses – one based in Denmark, the other in Germany, focusing on the development of specialist production equipment. This was by definition a niche area that was key to both businesses’ competitiveness. This programme had its beginnings in 2009 as part of a re-engineering programme that Codexx was supporting for the Danish company’s production maintenance organisation covering eight factories. To help in overcoming resistance to change and to ‘open the eyes’ of the maintenance managers to the opportunities for improvement we included a ‘benchmarking’ element as part of the re-engineering programme. Because maintenance benchmarking tools in the market were overly focused in specific areas (such as cost or lean) and did not provide the wide enough view that was needed, we developed a best practices framework based on the ISO 8 Management Principles.

We used this to perform assessment visits to the maintenance organisations in aerospace, automotive, plastics and white goods manufacturers across Europe. These visits provided benefits for both our client and the companies being visited who received a comparative report and the opportunity to visit our client. Importantly the assessment team comprised the maintenance managers who used the framework to perform the assessment, supported by Codexx. This structured approach ensured that key relevant practices were reviewed and compared and the comparative practice scoring was used to define an improvement path and monitor progress using a number of subsequent self-assessments. The programme achieved its objectives of catalysing the maintenance managers to seek opportunities for applying new practices as part of the re-engineering programme.

 

Developing the approach

This success led to the Danish company deciding to utilise a similar approach, with the support of Codexx, to review their development of production systems, working with a major German company in 2013, with whom they has an existing commercial relationship – but who were not a competitor. We called this approach ‘practice sharing’, rather than ‘benchmarking’ to make the approach less formal and more in the spirit of learning rather than an audit – which helped in gaining the support and involvement of the German company. Codexx developed a practice sharing framework, again based around the ISO Management principles, using a similar structure and assessment approach to the maintenance programme.

This framework was tested with the China-based operations of both companies and then finalised. We then performed a practice sharing assessment in 2014. This was considered valuable by both parties and a subsequent practice sharing programme focusing on another area of production systems was performed with the same Germany company in 2015-16. The approach in these practice sharing programmes was similar:

1. A business area of interest to both parties was identified and a commitment to perform a practice sharing assessment was made.

2. A practice sharing framework was developed.

3. Each partner self-assessed itself against the practice sharing framework.

4. A 1-day practice sharing visit was made to each company, facilitated by Codexx. This included presentations on the development of the company, a tour of its operations and then a review of the self-assessment. The agenda was allowed to flex substantially to take account of interest areas that emerged.

5. A report of the practice sharing findings and outcomes was produced by Codexx and shared with both parties.

6. Each company took forward specific follow-up internal actions and agreed collaborations.

What are the benefits from practice sharing?

Based on my experience of working with this approach since 2009, I have seen the following benefits:

  • The approach provides a structure missing from an ad hoc visit that helps align and focus the discussion on relevant practice areas.
  • The self-assessment provides a clear and objective picture of current practices including areas for improvement which helps in focusing the discussion.
  • The programme provides a catalyst for improvement for each party.
  • It’s a time-effective and cost-effective process.
  • It’s not complex and is transparent to the participants and other users.

What’s needed for effective practice sharing?

  • Win – Win: Unlike benchmarking where your company is being compared to a model of best practice, with the comparison performed by an external assessor, practice-sharing requires a partner. To engage the partner, there needs to be the potential for benefits for both parties: the practice area to be examined needs to be relevant and each party needs to consider that they can learn something from the other.
  • A structure: A practice sharing framework is needed to provide a structured comparison and independent facilitation to ‘run the process’ with the goal of maximising and capturing the outcomes from the practice sharing. Both companies also need to agree to respect confidential information that might be shared in the programme.
  • Flexibility: The assessment visits need to be flexible and adapt to the interests of the participants. As a facilitator, I had to strike a balance between directing the discussion back to relevant areas whilst allowing deviations from the agenda that were clearly creating value. This is key, as the framework is in effect a ‘working hypothesis’ of what are the important practices. The reality will undoubtedly be somewhat different and thus the session has to seek to accommodate potentially valuable emergent discussions.
  • The right people: Both parties need to assemble a team of specialists in the area of interest that can participate effectively both technically, inter-personally and language-wise (for international comparisons, it is likely that English will be the common language).
  • The right attitude: Both parties need to be open and ready to ‘tell it as it is’, covering both strengths and weaknesses in their own practices. This is not a competition – it’s a collaboration.

I’d be interested in readers’ own experiences in this area – contact me here.

Alastair Ross

Director
Codexx Associates Ltd

 

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