Currently everbody is talking about cost reduction. But what does that mean and what kind of impact will this have for the future development of a company. If we talk about to reduce cost normally what comes in mind are things like: licenced components, workforce, development tools, operations, fewer features or platform architectures.
on the other hand when we talk about to increase revenue, most of the time we have in mind words like: time to market, access to market, product portfolio, company positioning, multiple product opportunities, synergistic product sales, cross selling, new service offering or enhance operations. Its the question of >is the glass half full or half empty<. No doubt, to save cost these days is neccessary but until what point does that go.

Take logistic costs for example. Today the suppliers along the whole supply chains are checking every coin twice. Less orders and as consequence the inner stock becomes reduced to a minimum. But what happens when all of the sudden you receive a big order?? or even worst after the hugh order there is again nothing after in the order pipeline. To bring it to the point, to have a difference of 200 % between the a full loaded operation and today`s situation. Flexibiliy is in my opinion the solution to this up`s and down`s in operation. The company which is able to be highly flexible will have customer when the economy goes up at the end. All other companies might save cost to their total bankrupcy. Simply because the secret is though a highly felxible production you will garuatee delivery reliability. And that is what besides quality really counts.

Henry Ford was, as is widely acknowledged, a genius. He is well known for introducing mass production principles to the burgeoning horseless carriage market thereby effectively creating the automobile market as we know it today. Less well known is his attitude to innovation which accurately reflects the dilemma of many a company in the present economic climate.

Back in 1914 the world was in recession and car sales fell off the edge of a cliff. Henry Ford’s company, spoiled by success was experiencing something new – rapidly falling sales with no turnaround in sight. Faced with such a calamity, Henry Ford introduced a number of measures designed to ensure the future success of his company.

One of these measures was to double the salary of the employees. Yes, double it. From an average $2,34 per day to $5,00 per day. He also started involving his employees in improvement activities during the times that they would normally have been building cars. What sounds like pure communism actually made perfect sense. The good employees stayed at Ford and the company emerged from the crisis better positioned to build better cars. In other words, Ford had invested into the cyclic downturn in order to strengthen the company for the future. There was also the possibility of better using the employees’ skills during economic downturns in order to improve the products and give them a cutting edge for the next upturn. The expressions “R&D” and “Lean” hadn’t yet been invented, but the thinking and philosophy were clearly in place.

Reflecting these events of history onto the situation today raises the question of whether anything can be learned. Of course, just simply blindly increasing your innovation budget is probably not the way to go in today’s environment. However, blindly cutting your budget is also not the answer. Maybe it’s time to reevaluate your innovation activities, analyse exactly which activities are the ones that generate the value for you now and also where the value is going to come from in the future. These activities can then form the base of an investment plan to ensure that necessary cost cutting and efficiency increases take place, but using an instrument better suited than a lawnmower.

Funny enough it seems that now the mobile phone industry, the provider in particular, are facing the same problems. 2 weeks ago I was on a business trip to Japan and met with several mobile phone producers and managers from the semiconductor industry. In Japan  the providers are literally dictating the producers what the have to develop in order to stimulate the Japanese market.
However back here in Europe it seems that the providers as well are starting to tell the mobile phone producers what to put into the phones and what not. Probably you saw it this week on the news or Internet. T-Mobile does not want to sell Nokia phones which have Skype installed any more ( Skype is a software applications that allows users to make telephone calls over the Internet). The reason T-Mobile announced was that Skype could overload the mobile network. Probably not the real reason since you can make phone calls via the Internet for free with a wireless access point. So again pure protectionism from the providers instead of thinking what business opportunities are laying in front of them. Nokia and Skype just had an agreement in February to equip more phones with this software. For the providers a total alert. They have lost already customer who went for a cheaper prepaid service provider, they don`t want to loose even more. But this protectionism will not help because consumer will for sure move to cheaper phone calls if possible. Again this will have an extreme impact on the mobile phone market. And for the providers it`s about time to consider how to adapt to the new conditions or even find some business opportunities.

Ronald McDonald – as a rather pricier restaurant chain McDonalds has seen two million extra customers a month compared with last year and is intending to create 4,000 new jobs.

Reckitt Benckiser - the company has posted record profits of £373m for the last quarter. It seems that none of us can afford to leave the house to go to a restuarant any more. Instead people are staying home and fill up the fridge and stack the dishwasher.

Karl Marx - oh yes!!! In Germany bookstores have a 300 per cent increase in sales of “Das Kapital” in recent months, and that is not all. Visitors are marching to Marx’s birthplace in Trier.

WMF - cutlery and coffee machine manufacturer has increasing sales with products around the cooking. “food is becoming more and more celebrated” said company spokesman Thomas Dix.

IKEA/ H&M/ Aldi/ Lidl - people spend less money for consumer products. Therefore it is not a suprise to see that the sales of discounters is currently increasing above average.

But what is happening actually. The fact that people have less money in their pockets and therefore have to go for cheaper products is obvious. At a closer look however there is a second development that might be not so clear. Cocooning - the desire to perform the majority of social and cultural interactions (working, entertaining, relaxing, etc.) from home, rather than by going outside the home. Just compare the latest numbers from the gastronomy business or travel agencies. On the other hand however companies in consumer electronics facing an increase of sales.
Again it is not all about cost saving, cost reduction, risk management or suchlike. Some companies will benefit from this development and some won`t but companies which are able and willing to adapt quickly according to those trends will make the way out of the crisis.

Conventional way:
with the products you address a broad base – not too expensive, not too cheap and interesting for most of the customers

Innovation Excellence way:
leave the death middle and find a new position – utilize opposite markets (premium vs. discount)

+++Sample+++
Luxury convenience
Nothing gets the creative juices flowing like combining two leading trends. So, how about upgrading convenience stores? For inspiration on how to do it, check out Harrods 102 in London, a recently opened luxury convenience store across the street from its famous Food Halls.

Besides selling groceries and wine, Harrods 102 also houses a Yo! Sushi bar, a Krispy Kreme stand, florist, pharmacist, dry cleaning service, and oxygen bar. Adding to the convenience, Harrods 102 features a concierge service that will hand-deliver goods to local residents. According to Gulf Marketing Review Magazine, a Dubai-based Harrods 102 may already be in the works. Paris, New York and Berlin are also on the to-do list.

Meanwhile, in California, Famima (owned by FamilyMart, a Japanese franchise chain that operates 6,000 convenience stores in Japan, and 6,000 in Thailand, South Korea, Taiwan, Vancouver, and Shanghai) is bringing Japanese style to the convenience arena. Five recently opened stores in the Los Angeles area are the first of 250 planned Famima stores in the US. Catering to busy, affluent urbanites, the stores offer premium versions of regular convenience store goods. Drip coffee has been replaced by espresso, and microwaved hotdogs by fresh sushi and bento boxes. Famima sells a variety of premium groceries and prepared foods, alongside anime comics, European notepads and other stylish goodies.

As long as the design doesn’t grow stale, and the food stays fresh, premium convenience stores like Famima and Harrods 102 will appeal to customers in cities across the globe. Sooner or later, a global chain will do for convenience what Starbucks did for coffee!

However strong activities in Innovation don`t guarantee new business opportunities and profitable growth. Also ingenious ideas, great inventions or patents are not sufficient, in order to keep up internationally. Particularly in matured and declining markets, where German companies are active, it might happen that the innovative pipeline runs dry: The pressure to secure the economic success for the upcoming years with new products, processes and businesses are here particularly strong. The efford to answer this pressure with appropriate innovative activities however is rather small. There are too few innovations and inventions in Germany.

Companies are still concentrating on “Lean Activities” in the manufactoring process to keep the costs in the grasp. In other words they pursue a defensive strategy. In addition most impulses are coming out of their own rows like: Management, coworker and customer. The Innovation Leaders are rather focused on external know-how. An Innovative Culture with an “Outside-in Process” is essetial for those companies.  And that is the way how ideas become alive. Developments and inventions are the basic condition and essential for future market growth and to become the market leader.
In their innovative activities the majority of companies want to focus mainly at customers and competitors. Sounds good but does it really help to come up with something new? Because too often this means that new product adaptions and new production technologies are simply imitated. Top Innovators however are active within Networks & Clusters. An additional outcome is to benefit from public support for innovations as a result of these networking activities. Innovation follower don`t have this advantage since they are not working that often in Networks. Therefore they have no access to subsidieses.

These days according to Nefiodow we are now within cycle number 5 – the information technology. And if you noticed, the productivity of a computer is reaching its end. As a fact computer doesn’t make the office worker faster in his daily work any more. The demand for consumption goods is filled (CD/DVD player, digital cameras, mobile phones, computers,…).

What are the indicators to recognize a slowdown of productivity or in other words how is it possible to see the change coming? Again a look into the past is helpful in this matter.

Governmental Distribution wars – who gets what?
1930’s: Weimarer Republic bursts in the fight of unemployment insurance.
1980’s: Social liberal coalition in Germany is breaking because of the new indebtedness.
Today’s: Social insurance as a general and health care insurance in detail are the challenges of societies.
Minorities (handicapped,…) are always losers in this war.

Tariff war
The behavior is all times the same. When productivity increase is missing, companies tend to force politicians to close the domestic market against goods from abroad. Look at China – Europe – USA… any questions?

Society
In difficult times the dress code changes towards classical clothes. Because to stand out with your style might cost you the job. More women are wearing today again conservative fashion like pantsuit or costume. Coincidence or intention…?

Unemployment rate
Probably the easiest signal to notice. In booming times Companies are increasing their workforce since the market is growing and they need any worker they can find out there. But if in a long term boom the productivity decreases, costs cutting methods reaching its end and at the same time the market price is becoming more competitive, what happens… companies produce less. But less production needs less workforce and companies are releasing people.
- Handcraft – 300.000 releases
- Banks – 10.000 releases
- Semiconductor – 17.000 releases and this only in Germany.

Fusion, Merger, Amalgamation
Enterprises need to make profit – as simple as that. Without profit they need to cover the cost with assets or at the end private capital. Market competition are pushing profits almost down to “0″. What is the way out of this dilemma…? Kondratieff contractions are standing out through merger and acquisitions (M&A). Either enterprises (primarily smaller once) become overtaken or going bankrupt. Otherwise the merge together to powerful units in the hope of synergy effects and cost sharing. But those cost effects are questionable. Fights about market share are the consequence at the final end.

But how to escape this trap..? How the title says – productivity is the key to Innovation and to profitable growth. Companies need to try new things, invest more money, encourage R&D departments in order to find that thing what increases productivity. This productivity increase will lead to a break trough innovation.
Several rumors are out there… from environment protection, recycling, energy supply until a more effective way to share information (a Just in Time Information flow). What it will be at the end, we all will find out in the “near” future.

As with all things, there are different aspects to this and the central question is really, with what risks is the business confronted as a result of legislative changes and, turning the whole thing around, what opportunities can we generate as a result of this. One thing is clear, it is becoming ever more important to take environmental aspects into consideration, this of course assumes it is clear which environmental aspects are important and what needs to be done. In addition to laws regarding product recycling, there is legislation forthcoming regarding energy consumption, such as the Energy using Products directive. To be fair, similar legislation is also being considered in the USA, Japan and China. Clearly this will have a dramatic effect on future product design.

At IMIG we have developed a model which is shown graphically in the picture below and already adopted by some of our clients. Environmental aspects are included as a key part of the overall innovation strategy. As environmental awareness grows, the importance of such a holistic approach will increase as companies seek to maintain their competitive edge in spite, of because of, new legislation. If you don’t believe me, look what’s happened to light bulbs.

Almost everybody has heard of it or got already in touch with the word “Podcast”. As an artificial connection of Apple’s iPod and Broadcast is the modern Podcast a new form of media and information. Recently the number especially of Video podcast has increased because of higher internet speed and the new adjusted products out there in the market. With a bigger storage than usual mp3 player in the past, these gadgets can not only play music but also store a large amount of videos and other informations.
And exactly here is the connection to the internet television – the future of TV. Of course you won’t probably watch a 2 hrs movie with a screen that has the size of a sticker. But for news, short information, fun stuff it works quite well.
A couple of years ago the print media was complaining a lot that they were loosing market share and their clients towards the internet. The answer was something like the e-paper or similar approaches – like Napster and the music business a battle hard to win. I call those reactions “chaotic repair actions” cp. picture .

But instead of trying to compete with the internet, publishers could focus on their own core value – trustable news for “on the go”. That what is a newspaper or magazine all about – isn’t it. A reliable source which people count on in order to make their own decisions.
Maybe it is just nonsense but what would happen if e.g. newspapers bring up their specialized video podcast. Private video broadcast like YouTube is all over the place – even at the presidential election in the United States. Just connect a + b and you have the solution – the customized internet television. By the way… do you remember the launch of CNN and how many people said “nonsense – news television”???

To learn from the best
Successful entrepreneurs are not a product of accident or just lucky in their actions. Learning from the best means to see and to understand one entrepreneurs approaches and ways how to do things. Because all of them have more or less 4 strategies in common which they heed. And those strategies enables those companies to compete even in the highly competitive global market.

Strategy 1: Sense of responsibility among employees
More or less 20 % of the daily time an entrepreneur spend for his employees because they build the basis for success at the company. Also the size of workforce simplifies the personal contact.
Growing companies follow a cooperative leadership. In other words employees are integrated in strategic questions concerning the company. Besides managing by objectives, project management is a key to increase the sense of responsibility and motivate employees. Another side effect with project management is the exchange of information in cross functional teams (CFT’s) inside and outside companies.

Strategy 2: Proximity to customers
Entrepreneurs spend even more time for the customers than for their own employees. Each 3rd hour they share with clients or potential customers. Successful companies are concentrated and focused on less but very profitable clients in already existing markets. Also new product ideas or solutions are coming most of the time from customer side. Those products are very customized and allow companies to stay in the high price market.

Strategy 3: High specialization
Profitable growth is happening and possible either at profitable niche segments, high technology or with unique services. In those fields the competitive advantage is comparably high because of the very difficult market access. Entrepreneurs are enlarging high innovative products in their segments and products are normally not older than 3 years. Research and development is still important but customized solutions initiated through existing clients help to build a new customer. And those have a high share of turnover.

Strategy 4: Internationalization – new chances abroad
Not since yesterday are German companies strong in export. But even small and medium size companies are recognizing chances in foreign countries. And for all of them is clear that this is the future profitable market – abroad. Mainly Europe is goal for German companies but also China and USA becoming more important and might be the next future step towards profitable growth.