In the wake of globalisation many companies have had a focus on efficiency and cost reduction, something that will get worse in a post Covid world. While this can increase profits in many cases efficiency comes at the expense of revenue growth and a stifling of innovation. A continual focus on efficiency breeds a culture that is risk averse and has a narrow rationalistic view of the world. However, there comes a point where we’ve wrung every last bit of efficiency out and revenues start to stall and eventually dry up. Without innovation success will always be short lived, we need to keep moving the goal posts or competitors will put us out of business. We need innovation for growth!
Too much focus on the numbers
Often this is the cause of the problem. Too many companies only look at the things they can prove numerically and yet some of the most iconic products came about as a result of a happy accident. If you only use the lens of economics and market research, you are missing great opportunities. Why? Because economics tries to produce a mathematical model of human behaviour and motivation and market research assumes people will do what they say. But humans are just not like that; we are not machines that can be programmed we have emotions; we perceive things, some of which don’t even exist in reality. What people perceive is as important as numbers, but many companies ignore this opting instead for the certainty they see in their finely crafted logic, but this is misplaced.
An innovation focus
If we are to have an innovation focus we have to accept that this does not come from spreadsheets, we have to get out in the market, we have to take risks that we cannot justify with numbers. This is a problem for many companies as the finance department won’t sanction expense without a “guaranteed” return on investment. When you’re innovating that’s not possible, you need to experiment. It’s about trial and error. After all it’s better to be vaguely right that precisely wrong. Yet companies are great at spending vast amounts of money fixing the wrong problem but very little to make sure it’s the right one. They have created a culture where if the solution is logical it must be right, but humans aren’t logical. So, it doesn’t matter why it works, only that it does and that has to be confirmed by testing. We can and will always rationalise after the event to justify why it worked.
Perception is everything
How people actually perceive what we do is what matters in the end. Whilst the numbers have to work, there’s no point in creating a logical reality that humans cannot perceive. We have to play with reality to create the perceptual and emotional outcomes we want to engage customers and at the same time make financial sense. To do this we cannot base all our decisions on logic to the exclusion of perception. If we do, we will struggle to grow and to stay ahead of competitors. We have to innovate to grow and to innovate we have to understand how people perceive what we do. Humans are living organisms not machines.