It’s All About Profit

It's All About ProfitIn the end, every business has the same goal: to make a profit. If a business fails to do this it will have to shrink. If it fails for too long, it will die.

This means that any business action, such as innovation, that a business adopts of its own will must contribute directly or indirectly towards profitability. If it does the opposite, it is less than useless. It is dangerous to the continued existence of the company!

This is all painfully obvious, I know. Nevertheless, in our enthusiasm about innovation or any business trend, it is easy to forget that it is not about the trend. It is not about the activity. In business, it is about profitability.

In Theory, Business Innovation Is Good for Profitability

In theory, of course, business innovation is good for profitability. It is the creation of new products that your customers want to buy — thereby increasing income. It is the improvement of operational efficiency — thereby reducing costs. It is the invention of new business models thereby increasing revenue streams. It is the creation of new marketing communications plans that drive new customers to buy your products — again, increasing income.

But Not Always

But not always. Some presumed innovative new products have proven to be expensive, profit-hurting disasters.The EdselNew Coke and the Apple Newton are but a few examples. Moreover, employees generally do not like creativity and innovation — in spite of what they say. This dislike can result in employees resisting the implementation of creative ideas, particularly when those ideas might affect their job descriptions or futures. Thus, new ideas that might improve operational efficiency are often harder to implement than they should be. People may fear that such ideas will at best reduce their importance to the company and, at worse, cost them their jobs.

In short, for the decision maker, innovation is always a gamble. The greater the potential innovation, the higher the odds. If the manager wins, she wins big. The company wins big. If she loses, there are consequences to profitability and to the company.

Incremental Improvement

Not surprisingly, this results in feeble innovation programmes designed to encourage incremental improvements under the guise of serious innovation. Incremental improvements are low risk. Sure, managers will not win big if their incremental innovation works. But they will not screw the company or themselves if their ideas do not work out. And most humans — including managers – fear risk more than they value gain. All the more reason to stick with incremental improvement as innovation.

In fact, there are two approaches to this challenge. You can either talk a lot about innovation, but limit activity to safe, incremental improvement. Or you can acknowledge that no matter how elegantly worded your company’s mission statement might be, business needs profit just like humans need food. Analysing innovation in terms of profitability — or value add — is a good way to look at big, potential breakthrough ideas. Devising ways to minimise risk to profitability is a good way to avoid damage to the company.

Death From Disruptive Innovation

Of course there is another risk. Some small, upstart company with far less to lose than is the case with your company, could come up with a breakthrough innovation that threatens to make your product or business model obsolete in no time. That, of course, is wickedly bad for profitability!To avoid this scenario, a little “insurance creativity” is wise. Insurance creativity is playing with scenarios in which your main products, services or business model becomes obsolete owing to a disruptive innovation by an upstart start up. Then you develop ideas that might enable you to cope with a competitor’s disruptive innovation.

Now, that’s enough of reading this article. Get back to work and do your part in making your company profitable!

image credit: chart growth image from bigstock

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    Jeffrey BaumgartnerJeffrey Baumgartner is the author of the book, The Way of the Innovation Master; the author/editor of Report 103, a popular newsletter on creativity and innovation in business. He is currently developing and running workshops around the world on Anticonventional Thinking, a radical new approach to achieving goals through creativity — and an alternative to brainstorming.

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