By: Paul Sloane
Setting moderate growth goals leads to incrementalism. To innovate, you need to set drastic goals that force employees to seek out new sources of revenues and to conceive new business models, according to Paul Sloane.
Most business leaders plan modest incremental growth each year. They set expectations that they are confident can be achieved. This way everyone can get a pat on the back when the plan is reached. Growth in revenue in line with the market at 5% and growth in profits of 6% is the sort of thing. Many directors would be delighted with this sort of result.
The trouble with this approach is that it reinforces incrementalism. The easiest way to get 5% growth is by pumping up the existing products or services. We can add some line extensions. The easiest way to wring out some extra profit is to improve the efficiency of the current model or to squeeze down on our suppliers. There is no incentive here to look for big opportunities, to find entirely new sources of revenue, to conceive new business models.
The second problem is that companies, just like children, tend to conform to the expectations that are set for them. If 5% growth is considered a good result and 7% is considered a demanding “stretch” target then few in company will believe that anything greater than 7% is possible. Just like children who are constrained by their parents’ lack of belief, the people in the business match their collective norms.
Outstanding companies set outstanding expectations. Businesses that want to break out of the pack demand more of themselves. This is what GE Capital says about expectations: “It is expected that we will grow our earnings by 20% per year or more. When you have objectives that are outlandish it forces you to think differently about your opportunities. If one guy has a 10% target and another has a 20% target the second guy is going to do different things.”
Drastic expectations reinforce the declaration of innovation and the innovation goals. If people realize that just doing what everyone else in the market is doing is not enough, then they will respond. Average expectations about the company encourage people to think and act averagely. Drastic expectations encourage people to think innovatively and act like entrepreneurs.
Paul Sloane is the author of The Innovative Leader, published by Kogan Page. His website is www.destination-innovation.com.