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| NEW CONSTRUCTION
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| Southeast
Construction Magazine: September 2004 Issue |
Innovation: The Path to Greater
Profits - Part 3
By Ted Garrison |
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The
first two parts of this series in Southeast Construction
explained why innovation is so important to a company’s
success, and also the first two of the 12 critical traits
of a successful innovative company. Here, the author
identifies the third and fourth traits of the successful
innovative company.
3)Become
a value-driven company because innovation is one of
the essential values:
In any competitive industry
the easiest way to differentiate your business, while
delivering greater value to your customers, is by doing
things differently. This concept is at the very heart
of innovation. Innovation is not the pursuit of change
for change’s sake, but instead it about finding
ways to deliver greater value to the customer.
Unfortunately, too many people only think of innovation
as new products. That perception is only the tip of
the iceberg. As stated earlier, innovation can include
new services or improved services, better business processes,
better marketing efforts and better management practices.
Value is a function of quality and scope divided by
cost. Obviously, by reducing cost you can increase the
value. The problem is that cost can only be reduced
so far before scope and quality begin to decline. Worse,
value often declines faster than the cost savings. The
alternative is to find ways to increase quality and/or
scope through innovation.
For example, an architectural firm that specialized
in tenant fit-out work was struggling because a lot
its prospects resisted the idea of moving because of
the hassle. The architectural firm came up with an innovative
new service for architects – a moving service.
Now they tell their prospects they will handle the move.
This architect tells his prospects, “You go home
on a Friday and show up at your new office on Monday.”
Prospects love this new service and this architect’s
business is booming.
Innovation doesn’t have to be as dramatic as the
above example. One of my construction clients asked
their customers what additional services they could
provide. They were surprised when the companies offered
a long list of new services. The contractor went back
to its customers and said, if you want us to do all
these extra things – we will need to charge an
extra 1 percent fee. The customers accepted the increase
and this $20 million-dollar-a-year general contractor
added $200,000 to gross income. The actual cost to provides
these additional services was only $18,000. Therefore,
this general contractor made over 1000 percent profit
on these new services. How many of you are making a
1000 percent profit on your projects?
4) Consistent
and incremental improvement is among the most effective
kinds of innovation:
One of the easiest ways to
increase your company’s innovation is to take
little steps every day as the result of dialogue with
your customers. This gets back to the earlier question,
“What have you done for the customer this week?”
Dr. Alan Weiss, a leading business consultant, talks
about the 1 percent solution. Instead of trying to find
major improvements, which are often difficult to find
and then usually even more difficult to implement, Weiss
advocates a different approach. He advises business
to focus on making a 1 percent improvement every day.
If this approach is followed the overall impact will
exceed a 100 percent in less than three months.
Part of the theory is that it is difficult to find major
improvements. Sure we need to look for them and take
advantage of them when they occur. However, the key
to consistent improvement is focusing on the little
things. This is no different than a football team that
finds itself down by three touchdowns. To come back
the team must focus on the fundamentals and goal of
one touchdown at a time.
In Part 4 of this series, the author will discuss traits
of providing your entrepreneurial people with a measure
of autonomy and the need to charge people with the responsibility
for anticipating change.
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THE END *
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Ted
Garrison, the author ofStrategic Planning
for Contractors, works with businesses
in the construction industry. He can be reached
at
Growing@TedGarrison.com
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