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Successful companies recognise that innovation is a competitive necessity to drive value and accelerate growth.
A PWC report tracked the three-year revenue growth of businesses who put innovation as their priority, against those that didn’t. The results showed that the most innovative group had grown their revenues at a rate 16% higher than the least innovative, which equated to almost $0.25bn of additional revenue.
Regardless of an organisation’s size, there is no doubt that innovation has become a fundamental element of business success. The challenge for management teams is how to create, embrace and foster a culture of innovation, to keep their business at the top of their game.
Cubic Motion, an award-winning facial animation studio, developer of advanced computer vision technologies and portfolio company from 2017 to 2020, developed ‘Persona’, a new set of hardware and software solutions, which allowed them to translate an artist’s performance and bring digital characters to life in real-time. This ultimately led to the acquisition of Cubic Motion by strategic acquirer Epic Games in March 2020.
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Utiligroup is a leading data management software and managed services provider to UK energy market participants and was a portfolio company from 2014 to 2017. Through our investment, Utiligroup were able to develop their new smart meter connectivity software and take advantage of further growth opportunities during a time of significant change in the energy market.
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TKC is a specialist distributor of doors and other components to the fitted furniture industry.
A key part of their value creation plan has been to widen the target addressable market – to do this they have developed a unique software tool to sell kitchens, providing differentiation in a commoditised space.
Kitchen Fitters Mate is their market-disruptive technology solution, making it easier to design, sell and order kitchens for their consumers. The software allows:
Consumers to have complete choice on the kitchen design, with access to a digital catalogue containing thousands of products, ranges and colours, which can be saved and amended at any time.
The ability for customers to visualise a 360 render of the design at any point and have images sent directly to their smart phone or email.
The opportunity to compare equivalent products in seconds from national brands, which further demonstrates TKC’s outstanding product quality.
A seamless integrated end to end process for their customers to place orders, removing the need for paperwork.
Since launch TKC have made further improvements including the ability to transform 2D plans into a 3D view instantly, the creation of a new lead management function to view the order pipeline and designer actions, and providing full service integration to manage orders and report any issues directly.
This innovation has enabled TKC to win additional new business, capitalise on their existing business and widen the target addressable market.
DW3 is a market leading, tech-enabled manufacturer of premium composite doors and windows for the UK home improvement sector and was a portfolio company from 2014 to 2018.
Working alongside the CEO, Gareth Mobley, we supported the business through investment into several areas, including the development of an innovative online door designer portal.
The online portal allows customers to have full control of the customisation of their door, from the door style and frame, right through to the colour and locks used.
Once designed, customers can then launch the visualiser, which shows how their personalised door looks on their own home, and then receive a quote from an approved local installer.
This new innovation revolutionised DW3’s approach, allowing them to explore new opportunities to engage with their customers and grow the business. This, alongside their tech-enabled manufacturing capabilities, led to the acquisition of DW3 to Masonite International – a business listed on the New York Stock Exchange.
After our four-year partnership with DW3, the business had reported revenue growth of over 200% and had created over 150 jobs for the local community.
The essentials of innovation
Maintaining a clear and coherent strategic vision is vital for growing a business and laying the foundations for innovation to occur. It can be as simple as starting with an ambition of where you want your business to get to, but it forms the bedrock for future success in everything from employee attraction and retention, to customer success and the bottom line. Setting a compelling vision, backed up by clear targets and timelines, can inspire people into action, galvanise innovative thoughts and maximise shareholder value.
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Prioritising and then selecting the right ideas is a step that is often overlooked in the process. A common myth is that there is a scarcity of ideas when innovating, but the truth is businesses often fail when they’re unable to choose which ideas to move forward with. Once a set of ideas have been developed, management teams must identify the opportunities each one presents and be confident in walking away from projects that prove less promising.
Once management teams have refined this list and identified the projects that are going to create the most value, they need to build a plan around it to help drive the business forwards. A successful ‘Value Creation Plan’ focuses on four to five ideas that ultimately maximises value for all stakeholders.
The plan is used to quantify and prioritise initiatives, align KPIs to track and measure performance and links to the organisational capability and capacity. With this plan in place, organisations avoid spreading themselves too thinly across multiple projects, instead focusing on those with the highest potential for success and resourcing them to win.
When innovating it can be easy to get caught up in a blizzard of ideas, however management teams must consider the end user at all times, otherwise the original value proposition can get blurred.
Everybody must take the responsibility to champion the end user, to ensure the final result is what everyone first envisioned.
Finally, businesses must be prepared to fail. The reality is that failure is a natural part of the innovation process and one that businesses need to accept. Businesses that commit to innovation understand that failure will happen at some point, often more frequently than first thought. It’s how you measure, track and learn from these failures that will ensure future projects have a better chance of success.
When you're trying to be innovative, you're going to end up with a lot of failures. And if you don't, you're really not trying hard enough.Teresa M. Amabile, Harvard Business Professor
Hurdles to innovation
Naturally almost every company will find some aspect of innovation challenging, but it can help to look at the way innovation is currently managed, to identify areas that might be hindering the creative process.
There’s no doubt that people are at the heart of driving successful innovation within businesses.
In the PWC report ‘Achieving Business Growth’, attracting and retaining the best talent was cited as one of the major challenges to innovation. Management teams should strive to continually evolve their approach to people and develop a strong leadership culture within their business – whether that’s by defining their vision and core values, offering initiatives and support services for employee wellbeing, or introducing programmes for personal development. Getting this right creates an environment that attracts the best talent, empowers people within the organisation and develops a strong pipeline of talent for the future.
However, bringing in the right people is only half the challenge. To truly encourage diverse thinking, businesses need a set of diverse people. A report by McKinsey found that companies in the top quartile for both gender and ethnic diversity are 12% more likely to outperform all other companies.
Management teams that proactively take positive steps towards diversity and inclusion will not only attract the best talent, but also continue to engage and empower their people.
Whether it’s proactively engaging with a diverse set of talent, encouraging active listening and personal development, or cultivating cultures of trust and support, management teams that champion diversity and inclusion inevitably experience faster growth, productivity and innovation.
When thinking about people, it’s also necessary to consider the leaders at the top, as they’re responsible for setting the tone and attitude towards innovation within the business. In the PWC report ‘Unleashing the Power of Innovation’, respondents held the business leader as the primary person responsible for driving and delivering innovation within the organisation.
In the same report, respondents prioritised a culture to foster and support innovation as the key ingredient for success. Whilst it’s important to promote collaboration, learning and experimentation between teams to establish a culture of innovation, it’s equally necessary to review current structures to ensure they are not stifling the process. Removing blockers, such as slow approval processes, ensures innovation can continually flow throughout a business.
Finally, it’s important for businesses to practice what they preach. If innovation really is a priority, then it needs to reflected in KPIs, objectives and other metrics. This gives people meaning behind their work, provides direction on what needs to be achieved and enables you to evidence how a culture of innovation has helped your business grow to maximise shareholder value.
Click here to learn more about developing a strong leadership culture.
Click here to learn more about our approach to diversity and inclusion.
The role of Private Equity
Private equity can play a key role in promoting innovation by providing businesses with the investment, resources and structure to allow new ideas to thrive. For example, investment can lead to new industry defining technologies and processes being developed, or it can help to bring in the right people to support a culture of innovation.
Alongside that, new opportunities can be spotted to support innovation – whether that’s during the investment process through due diligence, or whether innovation forms a key pillar of the value creation plan, private equity supports management teams to understand and harness the power of innovation to grow their business.
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