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The East African : Jan 12th 2015
42 The EastAfrican BUSINESS JANUARY 10-16,2015 MANAG E R Most innovative companies have long-te≥m leade≥ship C all 2014 the year of innovation. A Gartner survey of almost 500 executives at global corpo- rations revealed that growth was the year’s top priority. Analysis from Google Trends shows that interest in disruptive innovation crept up to peak levels this year. It seems that every time you hop on a quarterly earnings call, the CEO mentions innovation. The mergers and acquisitions markets are frothy, corporations are investing in Silicon Valley labs and even PhDs looking for jobs in business schools are finding it tough to find homes without “innovation” somewhere on their resumes. If innovation is the foundation on which we can build a better future, this focus should be reassuring. To overcome disruption and remain relevant far into the future, companies need to build the businesses that will replace their legacy offerings. The only problem: Being excit- ed about a new corporate commitment to innovation assumes corporate investments aren’t the equivalent of cash flushed down the toilet. And even with the best of intentions, most CEOs start off disadvantaged in building the next big thing. Many of the reasons for this are well documented: Executives have conflicting incentives, the wrong investment metrics and enormous margin pressure. And yet sometimes they manage to overcome these structural challenges and support the right ideas regardless of the barriers. Companies like Apple, Amazon.com, General Electric and IBM demonstrate how firms can continually reinvent themselves in pursuit of the next big idea. But it is more than a simple disregard for the quarterly pressures of the public markets that powers these industry behemoths. They also share another quality uncommon among their peers. All of their leaders have staying power. Regardless of market swings, Larry Page, Jeff Bezos, Jeffrey Immelt and Virginia Rometty expect to stay in their jobs for a long while. Staying power is vital for in- novation. Consider the industry I call home, enterprise software. The typical enterprise software start-up that survives long enough to hold an initial public offering is at least seven years old. Like most brand-new businesses, an enterprise software start-up is nothing more than an idea. But it is an idea that demands attention, investment and a long view of the market. Only with patience and perseverance will it flourish. And after these start-ups hit the public markets, they are still generally too small for the average CEO of a Fortune 500 company to care about. In the year before Google’s stock went public on August 19, 2004, it made about $962 million in revenue. That same year, Microsoft made $32.1 billion. Had Microsoft owned Google’s search engine at the time, it would have represented a tiny Amazon.com founder Jeff Bezos poses on a lorry in India. He is one of the CEOs expected to stay on the job for a long while, regardless of market swings. Picture: File COMMENTARY MAXWELL WESSEL “Tackling big problems takes time. That is why venture investors tend to be committed for the long haul.” piece of Microsoft’s larger revenue pie. Fast-forward 10 years and the revenue that Google derives from its online ads is now larger than the largest Microsoft business. How times change, right? And that’s the point. Tackling big audacious prob- lems takes time. That is why venture investors and entrepreneurs tend to be committed for the long haul. Big ideas start small. Everything requires a foundation of results before it can expand. Sure, the distribution and brand that big companies bring to the mix can be useful in accelerating the pace of change, but innovation still requires long timelines. And the vast majority of public company executives do not share those timelines. Most public company execu- tives do not last too long in their roles. Based on an annual survey conducted by The Conference Board, the average CEO departs her role with fewer than nine years under her belt. If it takes a decade to build a big business, that is not enough time for the CEO to become the “executive sponsor” of the project. And nine years is just the av- erage. Look at Hewlett-Packard for a horror story. Since 1999, HP has seen six CEOs and interim CEOs. Given the constant turnover, even the best of intentions can be made irrelevant. Corporations like HP simply cannot be trusted to invest in innovation over the long haul it requires. Consider what it has taken to push GE into the software business. For more than a decade, the firm has been adding sensors to its industrial devices and enabling central collection of the data they produce. Slowly, the company has built out proprietary software systems to allow its customers to get more out of its products. Today, GE is emerging as a leading solution provider for the “Internet of things.” But if the firm hadn’t executed against a decadelong plan, it would have all been for nothing. People often like to reference Apple as an example of a company that figured out how to use innovation to drive growth. And certainly it did. But staying power was a key part of the recipe. Apple’s executives spent years plotting their takeover of the mobile computing world and executing. They focused on a few enormous projects and did them incredibly well. And these executives lasted. From 1997 to 2014, nine of Apple’s 17 most senior executives lasted more than a decade on the team (with five of them lasting more than 15 years). With that kind of dedication, companies can achieve great things. But it is about more than enthusiasm — it is about staying power. The fact that 2014 was the year of corporate innovation is not surprising. We are in an up market and people are more excited about technology than ever before. But taking excitement and turning it into results requires more than investment. It requires staying power. Projects need to be funded, sponsored and protected for the long haul. Maxwell Wessel is a membe≥ of the Fo≥um fo≥ G≥owth and Innovation. Bewa≥e the dange≥ of touting a p≥oduct as ‘the best eve≥’ By JINGJING AND NEAL J ROESE The New York Times A COMPANY has a great product and naturally wants consumers to think of it as the best they can buy. So the marketing team rolls out an advertising campaign showing why the product is superior to the competition on features and price and is rewarded with robust sales. Instead of being able to bask in that success, however, the company starts to hear a lot of complaints and get a lot of returns. Clearly, the strategy backfired — but why? It turns out that comparative ads and “Ours is the best!” product positioning activate something known as the maximising mindset, which leads people to regard anything that is less than perfect as a waste of money. Our research has found that although some people are “maximisers” by nature, and others tend to be content with “good enough,” those attitudes are not fixed. The maximising mindset can be induced by situations that encourage people to make comparisons and to look for the very best. When marketing messages inadvertently induce it, the results may be post-purchase regret and brand switching at the slightest hint of disappointment. In a series of experiments, we used various activities to prime university students to adopt the maximising mindset, in an effort to mimic the effect that “best ever” ads can have on consumers. Then we tested how satisfied the participants were with a product. In one experiment, for instance, we asked a group of students to determine which was the best option from among several compensation packages, mortgage deals and the like. (A second group was simply asked whether the options differed.) “Maximising mindset leads people to regard anything that is less than perfect as a waste of money.” We then asked all the participants to choose a snack. Half of them received the one they had selected, and half were given a substitute on the grounds that the one they wanted had run out. Finally, we asked the participants to rate their snacks on several dimensions. The students who had been primed for the maximising mindset and then denied their choice of snack expressed significantly more dissatisfaction than people in the other groups; this in turn reduced the amount they would have been willing to pay for the snack and increased their desire to switch to a different brand. Other experiments in our study produced similar results when consumers evaluated products while they were in a maximising mindset. For marketing managers, this research provides clear guidance regarding advertising and in-store displays. Companies should think twice about comparative ads and assertions of “optimal” features, lest their products fall short in any way. And few brands are immune: Prior research has shown that just barely missing the best option can cause the most intense regret of all. Even managers who have high confidence in their products will avoid some headaches by refraining from comparisons and dialling back superlative claims.
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