You Can’t Cost-Cut Your Way To Innovation

Business is hard. And there are many widely held beliefs about what leads to success. One of them is “Increase sales, reduce costs”. Do both, and you’re gold. Reducing costs is where the focus goes to when increasing sales becomes a challenge.

There’s nothing wrong with finding ways to reduce costs, the problems is ONLY focusing on that.

I was reminded of this tension recently after submitting a proposal. The prospect wanted to know how our proposed solution would lower their costs, a short-term worry, rather than create a future growth engine for their company. The Director, explicitly said their company was in cost-cutting mode; not in new growth engine mode.

This is very common, and a clear sign of playing not to lose rather than to win. For all the talk about innovation most companies are simply paying lip service to the term, a closer look at how they operate tells the true story. For example, leadership and priorities determine if you’re committed to innovation; this means exploiting the core business while also exploring new growth engines.

Those that are truly committed to innovation understand the innovation equation:

Reduce errors + Increase insight = innovation.

Established organizations focus one the first element, reducing errors; because doing so reduces costs. Incresing insights means exploring new growth engines, ones that could disrupt the core business. Innovative leaders understand that you either drive disruption or are outpaced by it; those that don’t are usually focused on optimizing their core business by cost-cutting.

But there’s only so much optimization you can do. That’s why you cannot cost cut yourself into the future!

Established companies are super-talented at cost-cutting, it’s time they become exceptional at creating growth engines too!