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The Mother of all Economic Hangovers

29/04/2014 12:27 | Updated 29 June 2014

The last week has seen a run of positive economic news - from retail sales to GDP. Yet more reasons to believe the recession is really over. More reasons to believe we can all invest, innovate and grow. But all this good news has a sting in its tail.

During a recession priorities are clear: drive costs down, minimise risk and just carry on. Now the economic sun is rising on a landscape of unprecedented disruption - changed customer behaviours, new technologies, ease of market entry and increased globalisation. Business leaders need to innovate harder than ever to grow and even to survive.

At ?What If! we have been investigated how UK corporates are meeting the challenges of growth, new competition and disruptive market forces. We interviewed leaders of 400 of the nation's largest businesses in ten industries: banking, energy, FMCG, healthcare, insurance, manufacturing, media, professional services, retail and telecoms.

Our study, Eyes Wide Shut: Leading for innovation in post-recession Britain found CEOs and directors acutely aware of the dangers they face. Three-quarters (74 per cent) say fast-changing market conditions are forcing companies to reinvent themselves quicker than ever before. Seven in ten (72 per cent) fear their company is over-reliant on fading revenue streams. Most strikingly of all, in the current environment more than a quarter (28 per cent) of leaders believe their business model will become entirely unsustainable within just three years.

No industry in Britain is immune to the challenges of growth and each sector has its own demons - from the collapse of trust in banks and energy providers, to patent limitations facing pharmaceutical companies and the accelerating shift from the shop on the high street to the shop in your pocket.

Worse still, British business is suffering from the mother of all economic hangovers. Many months after the official end of the recession, most of our major companies are only now on the brink of changing strategy to focus on growth rather than efficiency. Almost two-thirds (61 per cent) are about to make the switch.

With their growth prospects dependent on innovation, more than two-thirds (69 per cent) of UK corporates name innovation within their top three priorities.

Despite the vital importance of innovation to leaders and the firms they steer, there is a widespread undercurrent of complacency. An extraordinary 94 per cent of CEOs are content with their current innovation pipeline. This flies in the face of data revealing the slow progress of innovation initiatives. The same businesses are taking on average more than 19 months to get an idea to market and a sizeable minority (38 per cent) of leaders admit they do not know where a significant proportion of their company's 2014/5 revenue will come from.

Where innovation is concerned there is a strange detachment. The UK's business leaders recognise the troubling realities of the commercial landscape and the need to change fast. Yet three key barriers are preventing the transformation of great ideas into tomorrow's revenue streams, and with it diminishing the nation's prospects of an innovation-led recovery:

Leadership: Built to operate not innovate

More than two-thirds (68 per cent) of directors think their leadership team is better at delivering efficiency than growth. Many leaders have grown up in a world where process re-engineering and geographic expansion have produced increased efficiencies and growth. But today, faced with a brutal and disruptive commercial environment, a new pioneering spirit is needed.

Structure: Damaged by disconnection

Large companies that deliver steady growth and incremental improvements are particularly vulnerable to market disruption through the very efficiency of their structures, which allow little room for manoeuvre. Most are failing to support the cross-departmental collaboration needed to launch successful innovations and two-thirds (62 per cent) of directors claim it is "almost impossible" to gain support to test and develop ideas. While a level of bureaucracy is inevitable, silos can be broken and shortcuts carved to create true collaboration.

Execution: Process paralysis

As the change around us has accelerated, few companies have sped up their innovation processes. More than two-thirds (68 per cent) of companies now take just as long or even longer to launch a new product or service than they did five years ago. Escaping a mindset that demands proof and certainty and entering a world of experimentation and iteration will build better ideas that get to market faster.

The genuinely good news is that even large organisations with entrenched operating models can make a positive choice to be an active disruptor, rather than simply riding the waves of disruptive forces. Reversing unhelpful recession-mode behaviours means shaking up inflexible structures, taking a bolder approach to risk, accelerating development processes and creating the conditions for new ideas to thrive. This will take a great deal of determination from leaders, but today's corporates were nimble start-ups once and that spirit lies waiting to be reignited.