The Wall Street Journal on May 15, 2001, reported a significant 43% drop in corporate profits for the first quarter of the year. The report highlighted that the nation's 1700 largest corporations had one of their worst profit performances in a decade. This was attributed to a slowdown in volume, which led to increased unit costs and reduced profitability. In response, many companies are resorting to massive cost-cutting measures to regain profitability in an uncertain economy. However, this approach may have detrimental effects on employee morale and job security, especially for top-performing employees. This article explores a more sustainable approach to overcoming this cycle of profit decline and growth contraction.
The traditional approach of cost-cutting sends a clear message to employees that job security is not guaranteed, regardless of their performance. This can have a significant impact on morale and may lead to a talent drain, especially in a tight labor market. If the economy improves, it may be challenging to replace laid-off workers, and current employees may seek more secure employment opportunities. This begs the question, is there a better approach to managing corporate profitability in an uncertain economy?
The key to breaking this cycle, particularly in an economy that may experience several periods of growth and contraction, is to adopt synergistic innovation as a model for continuous expansion. Most corporate leaders understand that productivity increases are the quickest way to boost profits without raising prices. However, it is less understood that continuous innovation is the most effective way to improve productivity in the long term. Internally generated innovation in products, services, processes, and methods provides endless opportunities for rapid productivity increases.
Innovation harnesses the creativity of an organization's greatest asset - its people. It applies this creativity in practical ways that are driven by real-world market demands. Often, companies look externally for new solutions, especially during economic downturns. However, internal opportunities often exist to enhance market offerings, streamline operations, and save money through creative approaches. By unlocking these assets, companies can grow their productivity and profitability in ways they may not have imagined.
Once a culture of innovation is established, it is the leadership's primary responsibility to ensure synergistic outcomes. The power of synergy, although simple in concept, is often overlooked by today's senior executive corporate leaders. Large organizations are like campfires that periodically burn down until mainly embers remain. The initial reaction is to seek new fuel, new resources, and new investments to build the fire back up. However, by integrating existing resources, the flame can be reignited without the need for additional resources. This is the organizational equivalent of stoking the fire. The synergistic result of stoking is immediate and does not require capital investment in additional resources. Synergy is the ultimate multiplier, opening the door to exponential results time and again.
Wall Street Journal Synergistic Innovation
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