Part three of this series looks at a failure of business owners to innovate and keep up to date. At times this failure could be a symptom of the common thread discussed last month – No one in charge. If there is no positive direction given by someone running the businesses, innovation is almost impossible to implement.
Most businesses innovate regularly, even if they do not realise it. They:
(i) change their product offering (stock or service) to meet the current requirements of their customers.
(ii) update their equipment to the latest technology (not many businesses use manual cash registers any more).
(iii) alter their marketing plan to follow where their customers are going.
To highlight this, many businesses have a presence on the internet – something they did not do 10 years ago – many have the latest technology in communication (Blackberry or iPhones), the latest computer technology, and the last electronic marketing techniques (like this e-Update), all of which were not available to small business 5 or 10 years ago.
Failing to innovate causes a few problems, best described by a bankruptcy that we handled a few years ago.
The business conducted a sawmill. Interestingly it was a partnership of family members that was controlled by the elderly father (who’s only succession plan was to keep working – common thread one) and he was at an age and temperament that he did not want to make any difficult decisions (common thread two – no one was really in charge).
This lead to a lack of innovation in all areas of the business.
1. The records were kept on a computer that was so old it would not run the latest software;
2. The saw milling equipment was so old it was no longer made and no one could service it anymore.
3. The product offering was out of date and because the machinery was out of date, the offering could not be altered without significant cost.
4. They kept using the one supplier who only supplied one type of wood.
This resulted in the business doing the same thing the same way as it had done for 40 years, at more than twice the cost of doing it in a more efficient way. The product that it was producing was no longer in great demand, the cost of producing that product meant that it could not be sold profitably, and the cost of updating the machinery to produce product in demand was large and could no longer be afforded.
Would constant innovation over the past 40 years to stay ‘in tune’ with the industry have saved the business? Probably. It could have met demand at a cost effective price as that demand and cost changed over the years. Certainly the lack of innovation was a major cause of the insolvency of the business and the bankruptcy of the partners.
Every business does not need the latest of everything, but business owners need to keep an eye on what they are doing and make sure that it is done in the most efficient and cost effective manner, and that they remain competitive.
More next month ..