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LEAD Innovation Blog

Read our latest articles on innovation management and innovation in a wide range of industries.

Date: 05-Jun-2019
Posted by: Michael PUTZ
Category: Innovation methods

Why business success can often have a bad ending

 

Every company has a life cycle, which is surprisingly short on average. Companies stay fit longer if they don't lose their courage to change through business success. Read in this blog post why innovation management and external partners are a valuable help in the continuous renewal process.

Companies have a much shorter service life than generally expected. In Germany it is only between 8 and 10 years. This was discovered by the University of Rostock in 2016. By the way, this average short existence is not necessarily a question of size: half of all listed companies disappear within a decade, as book author and McKinsey partner Claudio Feser emphasizes in an interview with SwissLife. "Only one in seven reaches the age of 30 and only one in twenty makes it to the 50th anniversary," the expert calculates.
 

Every business has a life cycle

A closer look at a company's life cycle helps to determine the reasons for its short life. Just as products are subject to such a life cycle, so are companies. This cycle can first of all be divided into the start-up, growth and maturity phases. In the latter phase, the company is at its peak: it has sufficient market share and generates good earnings. In short, the company is experiencing its golden age. After this lucrative period, there are two common scenarios: The company stagnates, shrinks and eventually faces the end. Or else, the company manages to enter a so-called revitalization phase.

Innovation Check

 

Successful times are the most dangerous periods

The path taken by a company depends on the decisions made during the maturity phase. However, many organizations freeze in the periods of success: The good earnings make the vision of the foundation fade. Virtues such as creativity and courage are no longer as welcome as in the previous two phases. Both have to do with change. And what, if you please, should you do differently when your revenue sources are bubbling up? The attempt to manage success rather than to shape the future of the company is reflected in staff turnover. Team members with inventive talent either rest on the success of their good ideas from yesterday or leave the company if they have not yet lost the desire for change. As soon as turnover and profits fall, the management tries to find the culprits within its own ranks. The management does not question the successful business models so far. Now the company is in the middle of the degeneration phase, at the end of which the business is out.
 

External partners help you to see from the outside

Management can only avert this fate if it understands the maturity phase as a phase of upheaval. The managing directors must be able to see their own business through the eyes of an outsider. Only this perspective opens the view for new opportunities. On the other hand, successful but soon unsustainable business models become visible. This permanent renewal, which many companies forget about during the maturity phase, is integrated into an organization as a permanent process through innovation management. External experts and service providers are a great help - and in two ways.

 

1) Content-related

1) External experts can support companies that are looking for new successful ways into the future, because they can view a company and its environment from the outside.

 

2) Methodical

As specialists for innovation methods, external service providers ensure that a company's innovation management uses the tools that are precisely tailored to its individual needs. They also serve as a kind of sparring partner, preventing the innovation process from faltering and ensuring that the company always has an up-to-date roadmap for the future.

The formwork and scaffolding specialist Peri from Germany shows how helpful it is to involve external experts in innovation management as experts and as service providers who implement parts of it. Its founder, Artur Schwörer, died in 2009. It was he who, with his good ideas and good gut feeling, steered the company's innovation activities. In this situation, Peri drew up a roadmap with the help of external partners and outsourced parts of the innovation management: Today, Peri is regarded as the world market leader in its field and has been able to place its Austrian competitor Doka in second place.

 

Family businesses live longer

The "self-questioning" of family businesses is apparently more successful than that of listed companies: According to a report in the "Handelsblatt", the 550 largest family-owned companies are 88 years old on average. Founders who manage their own companies for many years develop a better view of the whole. While the management of listed companies focuses on short-term returns and only thinks in quarters, family businesses have several decades in view.

 

Innovation management helps to master generational change

When the business is handed down from one generation to the next, its existence is always at stake. Especially when the old guard does not want to leave the ship. Hans Riegel, son of the founder of the Haribo confectionery group, was still in the office almost every day when he was 90. Only shortly before he died in 2013 at the age of 91 did he hire a successor. As a result, the company is now in deep crisis because it is apparently unable to form a capable management team. Especially in such critical situations, innovation management can provide an important orientation basis with a roadmap. Because this roadmap to the future enables a longer-term perspective and thus a perspective that guarantees a better overview.

 

Long-term perspectives lead to interesting questions

A longer-term view always raises interesting questions that do not even arise in a short-term analysis. An example of this: Although cars have been powered by gasoline and diesel engines for many decades, this has not always been the case: during crises and times of war, for example, vehicles were powered by wood gas. The engine of the German inventor Frank Stelzer, surrounded by legends, could use methanol, ethanol and gas as fuel in addition to petrol and diesel. The history of the electric car began in the first half of the 19th century. The "Flocken Elektrowagen", built in 1888 by Maschinenfabrik A. Flocken in Coburg, was the first German electric car.

 

German automakers overslept e-mobility

The European automotive industry in particular shows how dangerous it is to focus solely on the present, where good business is done for decades without real breakthrough innovations. Because the established manufacturers have all overslept electric mobility: True to the Gartner hype cycle, the topic experienced a real boom about 10 years ago. Technical problems such as the short range caused the general public to lose sight of the electric drive again. But now the registration statistics also show that electric vehicles are a stable trend. The consequences of the procrastination of the established car manufacturers: It's not them, but new players like Tesla that are considered by the public to be topic leaders. And even more so with a technology that is not very complex in itself: Or how can it be explained that three brothers from Upper Austria (Kreisel Electric) are eclipsing everything that has existed so far in the archetypal heel of e-mobility - the battery system?

 

The reputation as an innovator is ruined

Instead of dealing with trends and the future, German car designers in particular have tried to prevent innovations through cheating (diesel scandal) and agreements (exhaust gas cleaning). The comparison from the Middle Ages, in which many a guild master had to swear not to invent anything new, is now being put up with by these companies. At any rate, they have ruined their reputation as innovators in the long term. As far as the life cycle is concerned, the major players in the German automotive industry are in the maturity phase. It remains to be seen whether, in view of the new competitors and the scandals, they will make far-reaching decisions that will allow them to enter the revitalization phase.

 

Conclusion: Why business success can often have a bad ending

Success can only be earned and not leased. Especially in periods when the sources of sales are bubbling, many companies forget to set the course for the future. One proof of this is the average short life cycle of companies. Family businesses, with their long-term thinking and actions, find it easier to move from maturity to a new revitalization phase. Every generation change, however, threatens the continued existence of the company. Innovation management and external partners make it easier for companies to implement permanent renewal as a process and, thanks to a roadmap, to keep their bearings even in difficult times.

Innovation Check

Image source Cover picture: https://www.pexels.com/photo/beach-ocean-sand-sea-261630/

Michael PUTZ

Born in the Salzkammergut. After working for Shell and Porsche, he concentrated on innovation management as a study assistant at the Innovation Department of the Vienna University of Economics and Business Administration. In 2003 he founded LEAD Innovation and manages the company as Managing Partner. Lectures at MIT, in front of companies like Google or NASA.

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