Innovation: Neither fancy nor expensive

This article first appeared in Enterprise, The Edge Malaysia Weekly, on February 12, 2018 - February 18, 2018.
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When one talks about innovation, most small and medium enterprises (SMEs) tend to blanch. As many of them are still concerned about survival issues, they say they neither have the time, talent nor money to be worrying about something like innovation, says InnovationLabs senior partner Langdon Morris.

Morris, who was in Malaysia last year to conduct a Certified Innovation Professional programme (organised by K-Pintar Sdn Bhd in collaboration with the Human Resources Development Fund), points out that this represents a fundamental misunderstanding of what innovation actually is. “They say they are too busy with day-to-day operations, sweeping the floor, washing the dishes or whatever. So, the question or the challenge for us teaching innovation to SMEs is, how can they do it with no time and no resources?” he jokes.

The solution is simple. SMEs have to change how they think about innovation. “For a small business, innovation can be very simple: find a way to provide a better experience to a customer or make the operation more efficient,” says Morris.

How do they go about doing this? “Ask the right questions,” he replies.

Morris says Innovation Labs teaches skills such as observation, asking the right questions and recognising opportunities. “You want to ask your customers about their experience. If it is good, what makes it good? If it is bad, what makes it bad?”

He points out that this kind of information, simple as it is, is incredibly valuable to a small business. “Using this, you can make little or big improvements. Most people are not accustomed to asking these types of questions and exploring what the answers mean or what they imply or suggest.”

Morris provides an example of this process. “We did a workshop with SMEs and one of the companies was a retail pharmacy with multiple locations in Singapore.”

Through the use of photographs and simple questions, he got the company to shift its perspective and look at its stores from a customer’s point of view. “So, they walked into their own store and were shocked because they had never really seen it from the perspective of the customer. They discovered that the lighting was all wrong because the store looked like a hospital. It shouldn’t look like a hospital, it should like a store. It needs to be friendly,” says Morris.

“And the pharmacy was in the wrong part of the store. You have to walk past all the cosmetics to get to the pharmacy. But most people come for the pharmacy. So, why do they do that? Why make it harder for customers?”

Having taken a good hard look at its stores, the company came up with a list of improvements. “They had to change the lighting, colours, merchandising and layout of the stores,” says Morris.

How quickly could a company accomplish this? “Some things, they can move very quickly. Others take a long time. But now, they have a long list of things that they can do,” he says.

“They will have to do them carefully because each change is an experiment. So maybe it works, maybe it doesn’t. It is risky to do everything at once. But it is smart to make little changes at a time and test them out.”

Morris points out that the retail pharmacy is now practising innovation the way tech juggernaut Google practises innovation. “Google is constantly making little tests. On the Google search page, if one little thing has moved, they see if the change works or whether it was better the original way. And after a day or two, they change other things.”

He says a small business can do the same thing, that is, constantly make little changes to improve the business. “But for a small business it all comes back to one thing — the customer experience. Can we provide a better customer experience and how can we do that?”

Morris says small businesses need to get out of the mindset that innovation necessarily involves technology. “For a small business, it is mostly about the business model. How do we create or provide a better business model than our competitors? What is required for us to do that?”

He gives another example. “We worked with a wholesale kitchen that supplies food to hotels. It is a very competitive business and the margins are low. It is a very challenging business model because, in a sense, they have to compete with their customers.”

Compete with their customers? “Let’s say I operate a wholesale kitchen. I produce food and send it to your restaurant so you don’t have to produce it yourself and you can focus on the restaurant’s specialities. But that, in a sense, puts us in competition because if you are head chef and your boss discovers that you are basically getting food outsourced, he will ask, ‘Then why do I need a chef?’ It creates an awkward dynamic.

“We really explored the issues to see how we could reframe the business model and where we could find other types of customers that we wouldn’t be competing directly with. We found that a lot of restaurant chains have central kitchens that supply to their outlets. So, one of the ideas is to take over the management of central kitchens used by restaurant chains. Another is to do private label products, that is, branded cooked products for companies, or to create our own branded products for distribution in retail outlets.”

Morris says InnovationLabs worked through the possibilities with the wholesale kitchen and now the latter is in the process of exploring to see what actually makes the most sense.

Basically, innovation is a shift, he says. “And three shifts have to happen.”

The first is a mindset shift. “There needs to be a shift in the mindset of the leadership that innovation is neessary. Most small businesses think, ‘I won’t innovate. I will just keep doing what I have always been doing’. And that is fine as long as the world does not change. But the world does change, right? There is new technology, new competition and so on. So, we have to open our minds to the possibility that the world is changing. Which means that if we want to grow, we have to adapt,” says Morris.

The second is a perspective shift. “How do we get a new perspective on our business so we can discover innovation opportunities? Take the retail pharmacy I talked about earlier. It never occured to them to try to replicate the experience of the customer, and when they did, it was quite surprising for them, which is great. In innovation, we are always looking for surprises. Because it means you are learning something about how to make the business better,” he says.

The third is the skills shift. “We need to learn new skills to innovate. We have a lot of tools. So, a lot of what I do in the workshop is talk about mindset and perspective. Then I introduce a tool participants can use to think about how they can do things differently,” says Morris.

One tool is called the market map. “The goal of this tool is for you to locate your company and your competitor on the market map. So, the map says, ‘You can either make your business less expensive or you can make it more luxurious or differentiated’,” he says.

First, a company will have to decide what direction it wants to move in strategically, whether it is the mass market or the luxury market. “Then, automatically, you have eliminated the 100 things that you needn’t do and you know the four or five things you should really do. This is really helpful for companies to narrow down the choices they have and think about where they can find opportunities. It helps to simplify and clarify things,” says Morris.

How will Industry 4.0 affect small businesses? “In the short term, it is out of the scope of small businesses. But in the medium term, they will have to consider it. When we talk about pioneering technologies, then the cost is not appropriate for small businesses,” says Morris.

But costs come down as many of these technologies become more mainstream. “One of the issues that small businesses will have to deal with soon is robotics. For instance, what will the impact of self-driving cars be on the taxi or delivery industry? It could be huge. If you are running a company in that industry, you have to start thinking about what it means for you,” he says.

Morris’ other example is the food industry. “Pretty soon we will see robotic chefs. You can already buy them if you are rich and soon they will be less expensive. There are products where you install the chef in your kitchen and it watches what you do when you make a dish, and it can do what you did. It probably doesn’t work too well right now and it is way too expensive. But you know how it is with technology — every two years, it costs half as much and does twice as much.”

If everything stayed the same, nobody would have to innovate. “But in our view, the changes are starting to accelerate. The digitalisation of everything is the main change. Everything about consumer behaviour is now digital. We are getting more and more accustomed to interacting with businesses through some kind of digital medium. We order digitally, delivery may be digital, we pay digitally, we expect information instantly,” says Morris.

“We have seen the first step of digitalisation with Amazon, Uber and all of those businesses — the apps and entertainment on the phone. And now with artificial intelligence, machine learning and Industry 4.0, 10 times more change is coming in another five years and so on.”

One suggestion Morris has for small businesses is to read more and to keep abreast (or even ahead) of the trends. “Most small business owners are not readers. They have the mindset of doing and not of thinking about things. It is a very reactive way to be and you lose the ability to have a lot of foresight about change. You are simply responding to inputs and not really thinking strategically,” he says.

“In my experience, strategic thinkers are readers and reactive thinkers are not. They say Warren Buffett reads eight hours a day.”