Cultivating Business Innovation

On a recent afternoon, a delivery driver at Lake Tahoe Supply Co. approached his boss with a daring idea. Why not maximize the potential of the company’s delivery-vehicle fleet by creating a weekends-only moving company? The side business would generate additional income and help offset the vehicles’ cost.

Rather than dismiss this odd proposal, general manager Nick Spallone thanked his employee and promised to give the concept careful consideration. Tacking a part-time moving business onto a busy jan/san distributorship may seem out of left field or, at the least, very risky, but Spallone is considering giving the idea a trial run. That’s because this Carson City, Nev., distributor is always on the lookout for “The Next Big Thing” — an original idea that will set it apart from the competition and keep the company moving forward.

Lake Tahoe Supply’s willingness to take big risks is representative of a paradigm shift happening in today’s competitive business environment. The old-school notion that slow and steady wins the race is giving way to a more creative approach. Rather than simply reacting to market pressures, modern companies are becoming proactive, seeking forward-looking concepts to better serve customers and build on the bottom line. They’re also cultivating those ideas within every facet of their businesses, from the warehouse to the customer service department. The best ideas might come from anywhere within an organization.

Innovation in today’s competitive business environment is essential.

“Innovation is the only source of long-term competitive advantage,” says Lloyd Switzer, a director at Strategos, a Chicago-based consultant firm that helps businesses be more innovative. “Other companies can copy your products and hire your people. The only thing you can do is keep innovating to stay ahead of the competition.”

The Need For Change
Just what is innovation? Put simply, it is the act of starting something new. Although the word is often linked with technology, it is applicable to any industry. Business innovation obviously includes the invention of new products, but it also encompasses any change to the business model or “how you sell the boxes, not just the boxes themselves,” Switzer says.

Although distributors can affect the development of products, they are more likely to change their internal processes for selling them. For example, Lake Tahoe Supply switched to a non-commissioned sales force more than a decade ago. This ahead-of-the-pack change improved customer service and set the company apart from the competition, according to Spallone.

As Lake Tahoe Supply has discovered, a truly innovative company has a long-term commitment to change and is always evolving. “Innovation is a moving target — it’s not something you get to and say you found it,” Spallone says. “You have to constantly think of a better way to build the mousetrap.”

Many businesses are on the hunt for the big, profitable ideas. Innovative companies, however, are constantly tweaking their business processes with ideas both big and small. For example, Royal Paper Corp., Santa Fe Springs, Calif., regularly upgrades its computer systems to stay ahead of the pack, and the company purchased GPS systems for its drivers long before it was popular.

Most recently, the company changed how it fuels its fleet. Following a trend it witnessed in another industry, the distributor has decided to pay a gas company to come to the warehouse and fill the trucks each evening. This change will reduce or eliminate drivers’ time at the pump, freeing up more time for them to focus on the customer.

“This is not a high-tech or brilliant element, but it is something basic that adds to what we do,” says George Abiaad, president of Royal Paper.

An innovative company is also more than a CEO spouting off his or her amazing ideas. Instead, everyone from the receptionist to the president is encouraged to actively participate in the company’s development.

“Ideally, everyone in the company should have an innovative attitude,” says Winston J. Brill, an innovation consultant based in Redmond, Wash. “A company isn’t innovative, its people are.”

Innovators Are Leaders
Nearly every CEO will say his company is innovative, but often the words are not backed up by facts. If the business were truly trendsetting, it would have excited employees, top to bottom, causing them to constantly submit worthy ideas for improving the company.

“A lot of people talk about it, but it is typically empty words,” Spallone says. “Ask them what [innovation] means and they don’t know how to answer that. It’s something that’s part of our core values. I think it starts with the person who’s running the company, and it goes from the top down and the bottom up.”

It’s not surprising that many businesses fear innovation. Change is inherently risky; it requires taking a chance on a new, untested idea.

“Innovation is hard,” Switzer says. “I wish ideas fell out of the sky, but innovation is a lot harder than that. It’s difficult to come up with breakthrough ideas.”

It’s much easier to sit back, let the competition experiment and then, when something sticks, adapt their results to fit your business. Unfortunately, this old-fashioned approach is out of step with the pace of modern life.

“In the past, if someone had a successful formula you had enough time to copy it and be successful,” Abiaad says. “Today, because of globalization of the economy, you don’t have that luxury.”

Innovative businesses are in the driver’s seat, steering the industry in a particular direction. While companies are busy trying to emulate innovators’ successes, the latter may be stealing the former’s customers. Taking an innovative approach allows business owners to stay one step ahead.

“It gives you the head start,” says Louis Salazar, CEO of American Chemical in Anaheim, Calif. “Entrepreneurs take a chance. It’s the guy who gets there first who makes a name for himself. If you don’t take those chances, then you will just be a me-too guy.”

Innovation can come at a price, but it can also lead to big rewards, including a boost to the bottom line.

“You’ll have great successes and failures but you write the rules of the game versus following the rules that others have written,” Switzer says. “That almost always translates into a competitive advantage and higher profits.”

Democracy Rules
Making the shift from reactionary to innovative takes more than an edict from the CEO. It requires a top-to-bottom attitude adjustment. Management must walk the walk, not just talk the talk.

“Every executive will say they are committed to innovation but their actions aren’t consistent with it,” Switzer says. “You have to be willing to fund ideas and create a process for innovation. Unless leadership is really committed to those things, innovation always loses out to the tyranny of the bureaucracy.”

It is crucial to create a system for collecting and developing ideas. Whether the program is formal or casual, all employees must be aware of it and be encouraged to participate. Every submission must be reviewed and responded to.

“Just hoping your entrepreneurs will step up and doing something with a good idea isn’t enough,” Switzer says. “Unless the leadership is committed to it, things won’t happen.”

American Chemical’s Salazar tells his employees on the day they are hired that their ideas are necessary for the company’s continued success. His open-door policy has resulted in a number of positive changes, big and small.

When a driver visited Salazar’s office to complain about how long it takes to deliver to businesses located on third and fourth floors, the duo brainstormed and decided to add delivery charges to those cases. When a forklift driver noticed the company’s expanding product line was causing the warehouse to bulge at the seams, he suggested a new system of organization that created an additional four aisles of storage space.

“Even if it is the guy who sweeps the warehouse floors, no one will be ridiculed and their input is going to be considered,” Salazar says. “That is what will make my company better. We’ve changed a lot and I’ll take no credit for it. Whatever has happened here has been through the input of my employees.”

Make It Worth Their While
To get his employees excited about innovation, Spallone created a cash incentive. If an employee’s idea ends up saving the company money, Spallone shares the savings with that employee.

For example, a territory manager suggested buying out a competitor in a market that his company wasn’t able to successfully penetrate. After the purchase last March, Lake Tahoe Supply was able to improve the margin at the new office by 8 percent, and the employee has shared in that return.

“There’s a sense of ownership,” Spallone says. “They truly make a difference on a daily basis because their ideas are heard. I’m amazed at drivers who get excited about getting new customers. They are getting paid the same amount for doing more work, but they realize their bonuses are based on that growth. They are not the type of person you would expect to have an entrepreneurial attitude.”

In an environment where employees feel comfortable sharing their ideas, there inevitably will be times when a submission is off target or isn’t economically feasible. Instead of ignoring these missteps, distributors can use them as an opportunity for growth. Have a one-on-one meeting with the employee to review the idea.

“Give them a chance to express their thoughts and then explain why you won’t pursue it,” Brill says. “The person who had the idea put a lot of effort into it and he or she needs to be recognized for it.”

This conversation may also lead to revisions that make the idea feasible or it may lead employees to brainstorm together to come up with a new and better idea. When executives come up with something that sounds promising, be sure to experiment with it before making a major investment.

“We have a saying here,” Spallone says. “We like to ‘fail fast.’ If we make a mistake, we need to pick up on it and make the changes quickly so they don’t affect us.”

It’s not clear yet whether Lake Tahoe Supply’s moving company will be a success or failure. Either way, Spallone promises to find out quickly and then move on to The Next Big Thing.

Becky Mollenkamp is a Des Moines, Iowa-based freelance writer, and a frequent contributor to SM.