Scott Jeffrey » innovation

The Value of Innovation

Scott Jeffrey — Tue, 01 Sep 2009 11:30:59 +0000

How much does your business value innovation? Is innovation a once-in-a-while occurrence or a continual business objective?

Peter Drucker noted that innovation is one of the only two drivers of business (the other is marketing), yet innovation-driven efforts often get swept into obscurity in an effort to meet the demands of the moment.

To better understand the value of innovation, take a look at one of Wall Street’s most coveted metrics: the Price-to-Earnings Ratio (or P/E Ratio or just “the multiple”).

A publicly-traded company’s P/E ratio is calculated by dividing the stock price (market value per share) by earning per share (EPS). For example, Apple’s current stock price is $168 and its EPS is $5.72 yielding a P/E ratio of 29.41.

The P/E ratio shows how much investors are willing to pay per dollar of earnings. With a multiple of 29.41 investors are willing to pay $29.41 for every $1 of Apple’s earnings.

Higher multiples imply a higher expectation of future growth. While Apple’s multiple is 29.41, multiples for Dell, Microsoft, and Hewlett-Packard all hover around 15. This means that the market expects Apple to grow twice as fast as its competitors.

Apple, Amazon.com, Google and Netflix all have staggeringly high P/E ratios as a consequence of their customer-centric, innovation-driven businesses. Their higher multiples increase the perceived value of their business today, providing them with a larger pool of capital to continue to fuel innovation efforts tomorrow.

Notice also how these innovation-driven businesses dominate within their respective markets.

It pays to be innovative.

Value Productivity More Than Time

Scott Jeffrey — Mon, 20 Jul 2009 10:00:01 +0000

Why should you track how many hours employees spend at their desks when what you are really interested in is their success at innovating, making customers happy and growing the business?

In a fragmented, global marketplace, the concept of the nine-to-five job continues to become less relevant. You need to be interested in outcomes, not time clocks—in results, not efficiency. One can be efficiently busy yet ineffective at achieving results. Only results drive a business forward. The contribution of time alone does not necessarily help create a new customer or better serve an existing one.

Each person needs different conditions for creating. Some people prefer working from home; others prefer working at night. Realizing that some guidelines are needed, how flexible are you willing to become in the pursuit of a stronger, more profitable business? Financial service provider The Motley Fools offers unlimited vacation time as long as employees “do an amazing job” and meet deadlines.

The lesson: Track performance by innovative contribution rather than time on the clock.

The Capital of Creativity

Scott Jeffrey — Fri, 12 Jun 2009 13:48:29 +0000

The source of all wealth isn’t found in mega corporations, financial markets or even your local bank. The source of all wealth springs forth from the creative impulse.

What else but creativity can be responsible for such inventions as the car, computer, airplane or electricity?

Intelligence and business acumen are necessary to transform a creative idea into a financial empire. The origin of any financial empire, however, is a novel idea.

Walt Disney reflected, “It all started when my daughters were very young and I took them to amusement parks on Sunday … I sat on a bench eating peanuts and looking all around me. I said to myself, dammit, why can’t there be a better place to take your children, where you can have fun together?”

From this single idea, the Disney Empire was born. (Current market capitalization: $46.5 Billion)

A creative idea—powered by human ingenuity—can produce the miraculous. This is true in any time period—especially in economic downturns.

George Gilder of the Discovery Institute writes, “The crucial conflict … is not between rich and poor, Main Street and Wall Street, or even government and the private sector. It is between the established system and the new forms of wealth rising up to displace it—all the entrenched knowledge of the past and the insurrections of futuristic enterprise and invention.”

Wealth is the natural consequence of fully aligning to the creative impulse. Cherish the capital of creativity, nurture it and witness the fruits of ingenuity.

Allowing Ideas to Enter Your Mind

Scott Jeffrey — Mon, 08 Jun 2009 11:00:47 +0000

Our Western culture is busy. In fact, corporate America has mistaken busyness with business. With an onslaught of e-mails, text messages, phone calls and meetings, there’s no shortage of busyness. There is always something to do.

Little of our daily communication supports the creative process, which tends to favor allowing over doing. You’ve probably experienced a great idea popping into mind as you’ve aimlessly walked through the woods, showered or cruised the highway. It’s the power of allowing at work.

Consider giving your employees space to wander, play and create—even on non-work-related activities. Reverie and play are often the precursor to breakthrough ideas.

Google engineers, for example, spend 20 percent of their time working on whatever they want. Google trusts their talented employees to build useful and innovative things—some of which will become new projects in Google Labs.

The lesson: Sometimes it’s best to focus on allowing instead of just doing.

The Secret Behind Innovation

Scott Jeffrey — Wed, 03 Jun 2009 11:00:53 +0000

The secret behind innovation is the power of questions. To discover innovative ideas, ask innovative questions. To realize imaginative solutions, ask imaginative questions. To revolutionize your industry, ask questions your competitors haven’t even dreamed of yet.

Consciously or not, you are constantly asking yourself questions, and it is the quality of these questions that defines your ability to think and act creatively.

Your business is destined for mediocrity if your main question is What is my competitor doing today? or How can I cut costs or better manage inventory? These questions are important, but they are secondary to the bigger questions that drive your business forward such as:

What do our customers want more from us than anything else?
What is the primary problem we’re solving for our customers today? How can we totally eradicate that problem in the next generation of our products/services?
What will our customers want tomorrow (even if they don’t know it today)?

Notice how all of these questions are customer-centric. Do you think Apple’s Steve Jobs or Proctor & Gamble’s A.G. Lafley try to innovate for the sake of innovation? Without a crystal ball (although Jobs does seem to have one), they create new products in anticipation of the customers’ needs.

With the power of superior questions, there are no boundaries to what you can create.

Think differently. Ask the questions others are afraid to ask.

What if you were one question away from a major breakthrough in your business? What might that question be?

Create an Inspiring Work Environment

Scott Jeffrey — Fri, 08 May 2009 11:19:22 +0000

Do conditions in your workplace support positive, creative thinking?

Most office space feels dead and lifeless. If you don’t create an environment where people enjoy working, how can you expect them to perform at their best?

eBay’s headquarters houses a dedicated meditation room. Google offers healthy, organic cuisine prepared by a gourmet chef. Check out high-rated companies from Fortune magazine’s 100 Best Companies to Work For and model their successful environments.

Research has demonstrated that fluorescent lighting collapses the body’s acupuncture meridians and hampers the brain’s ability to think clearly. Replacing fluorescent lighting with full-spectrum, natural bulbs can actually affect the bottom line.

Surround the workspace with plants to infuse more life into the environment. Be aware of wall colors, mounted pictures and paintings, and the use of floor space. All of these factors affect the environment’s appeal.

For more inspiration, check out the “About Us” pages of your favorite innovative companies’ Web sites.

The Lesson: Create an environment that lifts your employee’s spirits rather than drains their energy.

The Freedom to Fail

Scott Jeffrey — Sun, 26 Apr 2009 22:48:42 +0000

Failure is a necessary aspect of invention (just ask Thomas Edison), but the fear of failure blocks the creative impulse. If employees are afraid of making mistakes, you can be sure that creativity will be stifled.

In a fearful state, the brain toggles to the more primitive limbic system (responsible for basic emotions and coordination of movement) for functioning, impairing access to the more evolved cerebral cortex (responsible for memory, problem-solving, communication and creativity). In a state of fear, we operate on “autopilot.”

Founder of humanistic psychology Abraham Maslow observed that creativity arises as a consequence of a positive mental state. When employees are happy and secure, you’re more likely to see an increase in creative contribution. Amy Edmondson, Novartis professor of leadership and management at Harvard Business School, found that the optimal learning environment combines a high degree of psychological safety with accountability for meeting demanding goals. When employees feel safe, they are more likely to collaborate and learn on the job.

Creative business cultures cultivate environments that embrace failure as the precursor to success. Fail, but fail quickly and move on. One of Southwest Airlines’ secrets to more than 30 years of profitability is memorialized by their motto, “Risk More, Fail Faster.”

Failure is often the gateway to a breakthrough idea. Instead of sweeping failure under the rug, realize its value.

The lesson: Create an atmosphere where people are inspired to succeed rather than afraid to fail.

Foster Creative Collaboration

Scott Jeffrey — Thu, 23 Apr 2009 11:30:47 +0000

Innovative companies understand that optimal business growth is directly connected to harmonious teams.

If you’re focusing on policies, mechanics or systems and not on your people and the customers you serve, you’re bypassing the heart and soul of your business. Without positive emotion and heartfelt connection, the power of creativity is stifled.

Innovative businesses support group collaboration and the free exchange of ideas.

Consider creating an “idea room” with whiteboards, comfortable chairs, fun music, healthy snacks, creative décor, even juggling balls.

Team members use the brain room to hold brainstorming sessions or problem-solving collaborations. The highly innovative Brazilian company Semco, run by maverick Ricardo Semler, has an “Out of Your Mind!” committee that meets periodically to consider unusual ideas that aren’t relevant to their existing business. Providing a safe forum for employees to share their “crazy ideas” in an open and supportive environment can pave the way to extraordinary innovations.

Have fun, be creative, innovate, and watch your business grow!

The lesson: Foster creative collaboration rather than “just getting things done.”

Is Your Business Killing Creativity?

Scott Jeffrey — Tue, 21 Apr 2009 11:00:39 +0000

In today’s hyper-connected, ludicrously-fast-moving global marketplace, businesses are racing to grow big—and fast. Wall Street and private investors alike demand double-digit growth year after year and track it month after month.

Many business owners and executives fail to realize growth results when they set up the right conditions. Profitability and customer loyalty are consequences of a business’s commitment to evolve, innovate and exceed their customers’ expectations.

Ironically, a focus on obsessive growth can often stifle innovation, the lifeblood of a business’s growth and expansion. Just ask companies like Apple, Google, Netflix or any company that thrives in a competitive landscape. Or talk to Microsoft, Yahoo! and Blockbuster to learn how the aforementioned competitors have trampled their market share.

Consider Proctor & Gamble: In 2000, the company issued several profit warnings, sending the stock tumbling to half its value. A.G. Lafley arrives as the new chairman and CEO and shifts their focus to customer-centered innovations. Profits tripled and P&G is now one of the most valued companies in America.

Conducting “business as usual” is a surefire way to make your business obsolete. Innovation and growth requires unbridled creativity to ask questions, solve problems and create an extraordinary customer experience, which in turn requires the proper inner and outer conditions to manifest.

Learn to eliminate the barriers to rapid creative innovation, but first learn to appreciate the Capital of Creativity as the source of your business success.