Making risk pay
If Ferrari was listed in Australia it would be one of our top 20 companies.
In a fiercely competitive market its margins are double that of the closest competitor. Its stock sells on a PE of 25. It’s in a market where small car producers normally fail, it’s in an economy where luxury brands aren’t exactly sparkling and it’s in a niche where one bad model can turn a profit into a loss.
So when Ferrari design boss, Flavio Manzoni, pictured, talked in Sydney a few weeks ago, saying “if you don’t take risks you don’t invent anything”, serious business people listened. He might just as well have been giving Prime Minister Turnbull a good innovation line. These days if you don’t have innovation it’s like not having clothes on.
But if you run a public company of any size in Australia you would be mad to take risk. The media, at the urging of IPO profiteers and politicians looking to show how big business is stuck in a culture of complacency, have conditioned Australians to believe the only thing stopping CBA becoming the next Atlassian is inertia and the only thing stopping our biggest companies being disrupted is time.
Quite simply, the market and the media don’t reward companies that step out of the box. In the US, someone who has failed a few times is a hero. In Australia someone who has failed is a bankrupt and should never be allowed near the corporate steering wheel again. This uniquely great southern continent approach probably means we have been deprived of first-time failures like Bill Gates, Tom Edison, Soichiro Honda and Henry Ford.
Let’s look at what doesn’t work. Trips to Silicon Valley are great eye-openers, super for the Californian economy and good for showing shareholders you get it, but don’t cause real change. According to Harvard’s Beth Altringer, innovation projects in big companies fail 70 per cent of the time. This is sad, but even sadder for shareholders. Big companies have the advantage of being able to take risks. In a small company if you take a risk and it doesn’t work you’re out of the game. Big companies can afford to fail on a few risky initiatives.
And there are big companies such as Marriott International, Visa and Brown-Forman that make the top innovators list. So how do you create a culture of innovation? A good start is to think about what a video of a day in the life of your customer would look like. This is what Honda literally did when it successfully entered the US market: in a move that would today be denounced as creepy, execs set up cameras in shopping mall car parks to see how Americans loaded their cars.
One easy (in theory) piece of innovation is to see how hard it is to deal with your company. Try ringing your own company as a customer and see how long before you start swearing at your own systems and people. All in retail know that Amazon will rule the world, not because of price, but because dealing with them is frictionless.
If you’re the CEO, how often do you reward any sort of innovation, or celebrate genuine failure?
Finally, be careful of consultants. Michael Porter’s five forces model is an idea whose time has passed – his consulting firm went bankrupt. What’s to say your own people and your own customers can’t be better sources of renewal?