Key Steps on the Path to Industrial Innovation
By Tom Meredith | Partner at Brightstar Capital Partners, The Frontier Conference Co-chair
Traditional industrial businesses around the world face a tidal wave of disruption. Across sectors, change is being propelled by data analytics, artificial intelligence, the internet of things (IoT), smart manufacturing solutions and other transformative technologies. Industrial innovation is forcing businesses to adjust to rapid changes in the competitive landscape, customer expectations, supplier and partner relationships, and the value creation process itself. The COVID-19 pandemic is accelerating these challenges. There is no choice; either adapt or be left behind.
It is my privilege to co-chair Frontier Conference 2021, convening virtually from Birmingham, Alabama, on April 12-14, at which 200+ leaders of businesses and other organizations will explore the topic of industrial innovation.
The need for innovation is not limited to large companies. To survive and thrive, small and medium-sized enterprises (SMEs) also must learn to apply new technologies to leverage business intelligence, enhance product and service offerings, connect with new clients and markets, and improve production processes.
My advice to businesses – large and small – is that the path to becoming more innovative and avoiding obsolescence starts with three steps:
Fostering a culture of change starting with leadership;
Focusing innovation on solving customers’ problems as well as your own; and
Learning from outside partners including vendors, suppliers and investors.
These are lessons that many industrial companies have yet to learn. A report from the World Economic Forum noted:
“The global manufacturing community is lagging behind in its adoption of Fourth Industrial Revolution technologies. More than 70% of companies are still stuck in ‘pilot purgatory’, while only a select group of leading manufacturers are able to deploy advanced manufacturing at scale, generating new value and customer experiences.”
A Culture of Change
In my work as an investor and advisor to industrial companies, I find the greatest obstacle to innovation is a “same as last year” mentality. A company’s top leadership must continually challenge that mentality by fostering a culture of change. To quote the legendary management consultant Peter Drucker “Culture eats strategy for breakfast.”
That process starts with asking the right questions of your team members. Asking tough questions leads to transparency, enables all key personnel to understand the issues facing the business, and is essential in finding a path towards the needed solutions. Key questions might include:
Are we delighting our customers by virtue of their experience with our company?
What do customers need from us that we aren’t providing now?
What barriers (internal and external) are preventing us from optimizing customer outcomes?
Where are the biggest opportunities for profitable growth?
What positive changes could we be making if we had the right resources, starting with talent, capital or technology?
Those questions – or others specific to your industry, customers and markets – should lead management to answers that the entire company can “own” and drive to implement.
“Innovation Problem” or “Technology Adoption Problem”?
Another important question to ask is: Does your company have an “innovation problem” or a “technology adoption” problem? That is, many companies recognize the need for innovation but, they are limited by their current systems and processes in adopting, deploying and optimizing technology to achieve their innovation priorities. At many SMEs, for example, the IT group spends most of its time and budget supporting legacy products and systems. As a result, it doesn’t have the capacity to pursue technologies that could enable the business to introduce new solutions for customers, or to operate more productively and cost-effectively.
To solve a technology adoption problem, one important (but often overlooked) element is to listen to customers, and respond to their needs even if it means changing the company’s products, solutions or systems. By doing that, the company can then focus on transforming the most important and highest-value business activities first, rather than attempting to fix all its innovation problems at once.
Leverage Partners’ Expertise and Experience
A critical lesson in embracing innovation is that not every solution must be built “from scratch” by the company. In many cases, a partner such as a vendor or technology provider already has developed a technology solution that can be adopted “off the shelf”. Such a ready-made solution may not be as customized as one developed internally – after months of analysis and extensive R&D dollars – but, it will likely be sufficient for the need, relatively cost-effective, and allows a quicker time-to-market.
Partnering with an investor, such as a private equity firm like Brightstar Capital Partners, is another way to access expertise, as well as essential capital. In particular, an investor with first-hand knowledge of a company’s industry will have relevant experience, a view of what does and doesn’t work in adopting new strategies or technologies, and an extensive relationship network that can help portfolio companies form valuable connections. Investors also can help a company to identify acquisitions that may add new capabilities, markets or customer relationships – as well as the capital to take advantage of such opportunities.
As challenging as it is to embrace innovation, industrial companies that do it successfully have an exciting opportunity to better serve customers, grow their businesses, stimulate economic activity, and create value for stakeholders and society. New technologies can enable industrial businesses to analyze data for better decision-making, operate more efficiently, and connect more closely with their networks and the broader business ecosystem. Smart industrial leaders who foster a culture of change, view technology as a problem-solver, and learn from their partners will be in the vanguard of the new wave of innovation-driven value.