Recently, a couple of articles caught my eye. The first article describes how valuations are making acquisitions a less attractive form of growth – which means greater focus on innovation – and goes on to introduce methods for CFOs to get a better handle on how innovation investments can be measured and controlled. Fairly soon after I saw another article. The second article references the specific example of SAB Miller, a highly successful and mature business operating in a segment where the majority of acquisitions have already been made – and again notes that growth will have to come from innovation.
Even as economic good times are stumbling back into view, it seems that for some industries, the M&A bonanza is behind us. If businesses want to increase their earnings, organic growth must be a bigger driver than it has been in recent decades. Improving innovation will be the key to getting there and a need sharpened by a world of increasing commoditization. Innovation must not only be more productive, but the pace has rocketed too.
The challenge is to improve our ability to direct, control and track our innovation efforts, especially if we’re going to start pushing a lot more funding in that direction. As noted in the first article, we could start by trying to articulate an overall picture of innovation in the business – we need to get holistic about it. We also need to start to inject better process – the classic example being how to kill bad ideas before they kill you, so to speak.
If the road to growth really has reverted to good old organic as opposed to relying on the merchant bankers, improving the way we manage innovation has become a fundamental need.