As companies struggle with growth in the core of their business, clients ask all the time: What unleashes growth, year after year? Thanks to research and analysis, Deloitte Consulting has identified just how critical growth and market differentiation is to industry leadership. So how do you achieve it? Simple… innovation and it must be supported with meaningful investment, says Jim Moffatt, Chairman & CEO, Deloitte Consulting. Innovation is one of the surest ways for any organization to disrupt the core of their marketplace and to change the game, he says. "It's critical to building future businesses that will sustain the entire organization in future years," Moffatt says. "Innovation alone doesn't guarantee growth; but growth is impossible without it." Moffatt will expand on these thoughts as part of "Innovation and the Three Rules at Deloitte Consulting" presentation at the Consulting Summit in New York on Oct. 24.
Consulting: Why is innovation so important?
Moffatt: This is still a really difficult environment to operate in. The economy is still an issue and it is improving gradually in the U.S., it's still an issue because of the interconnectedness of the global economy. When you look at what's happening in Europe, China and the Americas makes the model complex. Then you add the pace of change with technology and what's happening and how it's driving disruption in a number of industries. The regulatory environment is definitely getting more challenging. It's a complicated environment and coming out of the downturn a lot of companies did a very good job of driving corporate earnings and profits by, basically, downsizing. And now they are faced with how to grow and the number one issue for companies, aside from those in the public sector, has been growth.
And that's where the three rules come into play. The three rules gets at the heart at what it is that drives exceptional financial performance over time. We did extensive research over four or five years and they looked at 25,000 companies over 50 years and what started to emerge was what underlies companies with exceptional financial performance is the three rules.
Consulting: What are the three rules and how are they applicable?
Moffatt: The first rule is better before cheaper, which is really all about differentiation. For companies to have sustainable profitability they need to have a differentiated value proposition in the marketplace relative to their competitors. They need to compete on something other than price. The second is revenue over cost. You have to focus on growing the top line. You can't cost-cut your way to long-term sustainable performance. The third rule is that there are no other rules.
It all comes down to you have to figure out a way to grow, and you have to differentiate yourself from the competition. And that's where the focus on innovation comes in. It was one of the things we looked at when we set our strategy a few years ago and decided to focus on innovation. One, we knew we'd be talking to our clients about it but also for ourselves. We wanted to create different business model and hybrid different models, different collaborations with other parties, but most importantly we wanted to drive into the DNA of how we thought. To drive that differentiation, you have to drive a culture of innovation throughout your organization. It's not about the R&D folks going off into a corner and developing new ideas and products. You really have to build it into the fabric of what you do. It's not about coming up with a good idea but rather actually being able to apply that idea and take it to market and make it commercial.
Consulting: How do you create that culture of innovation?
Moffatt: It has to be enabled from the top. The CEO has to say that this is a priority and it's important. For me, I know I made it one of our top three initiative. I put a senior leader in our practice and employed him to lead innovation for us. I created a small group that was connected to our practice but was separate enough so they wouldn't be encumbered by our core business. I funded it separately and gave it a priority on investments. The people that were recruited into it were our best people. Those types of things tell the entire practice that it's important. Some of our acquisition and some of the people we started to recruit around it were also the best. If the leadership doesn't endorse it, it'll never happen.
But then you also have to go bottom up, as well. Early on we had one of our on-hands meeting were the whole meeting was focused on innovation. We actually brought in some artists to talk about the whole creative process and we ran some case examples around that. There was a bottom-up piece we worked on some of the training and methodology.
Consulting: How is innovation measured? How do you know if it's successful?
Moffatt: We'll measure it to both top line and bottom line. I've given the leader in this area a growth challenge. I want it to be 20 percent of our business driven from innovation. This is serious. It'll be a $100 million business next year up from zero. It's already on a pretty good growth trajectory. The margins are quite good. Take healthcare, for instance, as the world gets more into measuring outcomes and quality of care measurements, having deep analytical products that you can bring to market is going to be key to staying established as the pre-eminent consulting provider to the healthcare industry.
Consulting: How do you know the proper innovation investment for a given firm?
Moffatt: There's no easy answer; there's a delicate balance here, but there is some risk involved, too. You have to continue to invest into your core business, but at the same time you have to be able and willing to give innovation enough air and oxygen so it can survive and thrive. It's too easy for CEOs to continue to just build the core business, but it can also be something that squashes, unintentionally, the innovative potential you're trying to unleash.
To hear more from Jim Moffatt and additional insights from his "Innovation and the Three Rules at Deloitte Consulting" presentation, or for additional information about the Consulting Summit, please visit www.consultingsummit.com.
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