2007 Business Pulse©: Ceos: Innovation Imperative

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With the global economic environment becoming increasingly competitive, and with CEOs somewhat uncertain about the future, many CEOs and Business Owners are looking to Innovation as a key to success.

CEOs: Innovation Imperative

When Business Week (3.26.07) named “The Business Week Fifty,” (the 50 best performing companies), they indicated that the top companies were “...rewriting the rules in their industries.” In other words, Innovation. IBM Global Business Services released the results of its Global CEO Study and announced that the economic future depends on expanding the innovation horizon. The Nicolet Bank Business Pulse sought to determine the status of Innovation in NEWi in its most recent study of CEOs and Business Owners. From our results, it appears that Innovation is an Imperative in NEWi!

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Fifty-three percent of CEOs in NEWi say they are “cutting edge” leaders of innovation; 35% are followers; 12% do not do any innovation. When asked to what extent their organization had engaged in innovation in the past year, the most significant had taken place in internal operations/core processes (27% say Significant Innovation); followed by creating new services (25% Significant); creating new products (18% Significant) and changing the structure or financial model of their business (14% Significant). While it appears that a fair amount of innovation is happening in NEWi, it is also interesting to note that nearly a quarter (24%) of the organizations indicate that they have not done any innovation in the area of new product development.

Is your organization a cutting edge innovator, a follower in innovation or do no innovation?

Lead, Follow or get out of the Way CEOs were first asked how they would describe their organization. Did they see it as a “cutting edge” innovative organization; a leader in creating innovative products, services or processes? Or, are they more a “follower” of innovation letting others take the lead and then replicating the innovations that seem likely to be successful? Or, do they not do any innovation?

Follower 35% Cutting Edge 53%

Executive Summary Part One: From Data Taken in April/May 2007

“I’m not getting information; I'm not managing.” John Torinus, President & CEO — Serigraph, Inc

No Innovation 12%

Improving internal operations or core processes - is basically a competitive efficiency strategy. In the short run, greater efficiencies can significantly improve the bottom line for a business. In the long run, improved efficiencies enhance competitiveness and can be the foundation for strategically building the business in a highly competitive environment. In terms of specific Internal Operation and Core Process Innovation, 62% of the organizations have been engaged in innovation to improve core processes; 58% used information technology to automate some processes within their organization; 53% improved how they interact with customers; 45% applied a new technique or technology to a core process; 40% reduced the complexity of a core process. In some sectors of the economy, consumer goods in particular, product innovation is the lifeblood of an organization. Consumer product companies that don’t produce new, innovative products will be left in the dust by innovative companies that create demand with new products. CEOs were asked what types of innovations in new products/ services and marketing strategies they had initiated in the past year.

Sixty-nine percent made improvements to current product/ service; 57% utilized electronic channels to reach customers; 56% created a new marketing strategy; 41% created a new sales strategy; 38% have achieved greater penetration in current markets; 37% entered new geographic markets. As organizations become more efficient through operational innovation, new products and new services, they also need to consider changes in the basic business model. With business changing at breakneck speed, it is often the case that a substantial portion of a businesses revenue is being generated by a product or service that may not exist in one or two years. Witness the changes that Eastman Kodak had to adjust to, or that the recording industry is currently adjusting to as the world went digital! In NEWi, fewer organizations appear to be engaged in innovation to their business model. Fortynine percent changed their organizational structure; 45% entered into strategic partnerships; 27% used alternative financing models; 24% say they outsourced some aspect of their operations; 16% divested segments of their organization.

Organizations in NEWi compare favorably with organizations around the world on the subject of innovation. For its worldwide study on innovation, IBM interviewed 765 CEOs of all “stripes” across the globe. Organizations in NEWi appear to be somewhat more engaged in improving core processes (62% of NEWi CEOs compared to a little more than 40% for CEOs outside NEWi), and making improvements to current products/service (69% in NEWi and just under 40% outside). Organizations outside NEWi are more likely to be engaged in innovative changes to their business model (2/3rds compared to just under half here). Creativity and innovation are key elements for NEWi businesses to remain competitive in a global economy. It appears they are on the right Innovation track. Part Two of Innovation Imperative will follow in the next issue of The Business News.

Sources/Resources: “Forces Shaping the Business Environment” http://www.mckinseyquarterly.com/article_page.aspx?ar=1754 “Reinventing Innovation at Consumer Goods Companies” http://www.mckinseyquarterly.com/article_abstract.aspx?ar=1870&L2=21&L3=35 “Expanding the Innovation Horizon” http://www-900.ibm.com/cn/services/bcs/iibv/summarypdf/Global_CEO_Study_Executive_Summ_2006_EN.pdf

How the Survey is conducted The Nicolet Bank Business Pulse© is a Quarterly Study of CEOs in NE Wisconsin (Brown, Calumet, Door, Kewaunee, Manitowoc, Marinette, Oconto, Outagamie, Shawano, Winnebago Counties). It is designed and implemented by IntellectualMarketing, LLC. Participants include: 28% in manufacturing; 25% in services; 19% retail trade; 5% wholesale trade; 6% finance, real estate, insurance; 5% in transportation, communications, utilities; 6% in construction; 7% in other industries. 16% have fewer than 6 employees; 33% have 6-25; 19% have 26-50; 6% 51-100; 18% 101-250; 2% 251-500; 3% 501-1,000; 2% have 1,001 or more. Questions to Dr. David G. Wegge (920) 217-7738; [email protected]