A Relentless Focus On Efficiency Can Kill Innovation

This week I did a slot with Ian Wright on innovation and failure as part of Digital Leaders Week.

Ian posed a killer question during the chat:

Why do organisations who say they are innovative fail to put their money where their mouth is and invest in innovation in the same way Amazon, Google etc do?

I’m not sure I answered the question brilliantly, but this comes down to the choice between efficiency and investing in the future.

Right now – there cannot be a board in the country who is not looking to cut costs. Offices stand empty, a second (and possibly third, fourth and fifth) lockdown looms and the medium term outlook is , at best, problematic. We all have to accept that we’ll be dealing with increasingly limited resources.

None of us can compare ourselves to Amazon – a company who are single minded in their dedication to owning the future. In 2019 their spending on R+D was $35billion which has increased year on year since they spent a paltry £12billion in 2012.

But if Amazon have an R+D to Revenue ratio of say 30%, how much should you spend?

0.5%? 1%? 5%?

As I said to Ian, the answer is you probably don’t know how much you spend at the moment, never mind what spend is right for your organisation.

When Cost Cutting Goes Bad

Right now accountants are running through organisations looking to eliminate every bit of slack they can.  It’s all about getting costs off the books and the swift abandonment of any capabilities not regarded as ‘core’.

The problem is:

Slack can be good.

Under utilised but latent capabilities can be good.

In the book When More Is Not Better , Prof Roger Martin argues that that efficiency needs to be balanced by resilience. He says we need to recognise that slack is not the enemy. In the right amounts, slack contributes to greater resilience. We should stop thinking of “no slack” as an achievable goal. By way of example he says that retailers such as Costco build slack into their staffing to allow employees to provide extra attention to customers.

Cutting slack out of your organisation can severely limit your internal capability for innovation and put you increasingly in the need of something potentially more costly: management consultants.

A piece for the Guardian contains some choice quotes about over reliance on consulting from Lord Agnew, the Cabinet Office and Treasury minister. “We are too reliant on consultants. Aside from providing poor value for money, this infantilises the civil service by depriving our brightest people of opportunities to work on some of the most challenging, fulfilling and crunchy issues. We seem to be ineffectual at harnessing our fast-streamers to do work that is then outsourced to consultants using similar people at a vastly inflated cost. This is unacceptable.”

The news this week that some consultants are being paid £7,000 per day to work on Test and Trace is an extreme example of what happens when you outsource all your capability. Weren’t we once a leader in the development of public digital technologies?

Unacceptable (and crazy maths) , but it’s sadly common practice within Government and our own organisations. I’ve had several younger colleagues say the same thing to me about our own sector.

Outsourcing capabilities defined as ‘non-core’ can lead to a reduction in your overall capacity for innovation. It can also lead to workplace dissatisfaction with career development options and can – in your determination to get cost off the books NOW – increase your costs in the medium term.

As I said in the session this week, a better approach would be to assess what slack you have at the moment and optimise it.

  1. How many people have you got working in roles that have an R+D element?
  2. What value are you getting from these?
  3. How could they be better connected?
  4. How could they help you tackle some of ‘the most challenging, fulfilling and crunchy issues’ that you face?

You cannot match Amazon for R+D spend , but you can emulate a lot of their behaviours.

Innovation and efficiency: It is possible to have it all.

Header Image by Pete Linforth from Pixabay


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