Well, first I can tell you that it’s not the kind of innovation that has made the term little more than a buzzword for many of us. In this article we will explore a common sense process for understanding exactly what type of innovation is prescribed for this new economy, and some proven strategies to get it done.
In the past, the term innovation has most commonly described new products or services that create new markets or leverage untapped opportunity in existing markets. The innovation needed to thrive in the new economy will likely go well beyond new offerings to involve changes to your entire business model in order to be effective.
In a recent edition of Trends Magazine an article featured a list of questions that every business should ask about their business model in order to insure they succeed in this new economy. While discussing that concept with a colleague, we began to put together a similar list for small and medium sized wood products manufacturing businesses. Here are five key questions we came up with:
- First, what is main thing your business must do in the new economy to assure that you are paid the highest price in a timely manner for your products and services?
- Second, is there anything about how you produce your products that a customer can understand that would justify paying you more than your competition?
- Third, what can be done to reduce the cost of producing your products that will not reduce quality, value, competitiveness or profit?
- Fourth, what can be done to reduce the costs of keeping, managing and training employees?
- Fifth, if your primary customer base were reduced by half next month what would you do immediately to replace that lost revenue?
If you can confidently provide the answers to those questions you are well on your way to grooming your business model to insure growth and stability in the next decade. If you cannot answer some or all of those questions… well, you are probably already well aware that some changes need to be made. So how do you begin the process of improving your business model so it can thrive in the new economy?
Let’s consider the best or at least the most profitable answers to the five questions above. You might even consider each one as a category by which to evaluate your business model for possible innovation that is compatible with the new economy.
- First, the best way to be paid a fair amount in a timely manner for your products and services is to deliver a flawless product consistently and more quickly than your competitors, or at least in line with the customer’s best expectations. If this is not currently possible for you to accomplish then you will constantly be chasing market share in the new economy.
- Second, unless you are in a very unique market, there is virtually nothing about how you produce your product that most customers would understand, that would compel them to pay you more than one of your competitors that is offering a product that is similar in functionality and appearance.
- Cabinetry and wood products have been trending in this direction for years but in the new economy it will be a given. In many cases previously rigid architectural specifications have conceded to this reality in most parts of the country and on many jobs, resulting in stapled cabinets hanging right down the hall from cabinets with traditional high quality dowel construction.
- Third, the most effective ways to reduce production costs without suffering any negative impact on your products or market share can be divided into two categories: automation and standardization of all processes that are high value or high profit and elimination or outsourcing of all processes that are not. If any of the processes that your business model requires to move a job from contract to final payment are not adding significant value or effectively expediting completion you have a weakness that is either reducing your profit or your ability to compete in the new economy.
- Fourth, the only practical way to reduce employee related costs is to reduce the number of employees and the overall skill levels required. This can factor heavily into the decisions you make with respect to the third category of innovation above. As badly as this country needs more high paying jobs, most wood products manufacturers are not going to be able to provide them and remain competitive in the next decade.
It is truly sad for me to accept this reality, being a lifelong woodworker and cabinetmaker that started as an apprentice at the age of 14, but this is now an inescapable truth. Between the unknown costs that are being created by new laws, insurance requirements, etc, the decline of skilled craftsmen in the workforce combined with low interest in the skilled trades among young people, your ability to retain quality employees and control related costs is decreasing at an alarming rate. Ironically, your best shot at being able to create new jobs in the future may depend on how effectively you can reduce these costs now in order to adapt to the new economy.
- The fifth and final answer is perhaps the most dynamic. What would you do if there is a second bump in the economy for your niche market or what if a large high-volume competitor decides to expand market share and cuts your prices in order to get your customers? The answer to survival in such situations is often not about where to look for the new customers but how quickly you can adapt to service them competitively and profitably when you find them.
The key is having a business model behind your products and services that can shift into another gear quickly so you can secure that new business by delivering flawless products on time when you get a shot at a new opportunity. That requires a finely tuned chain of processes that can take a job from contract through design and into production for a wide variety of products without major rework on a first run.