EYInnovationA series about achieving growth

through innovation

Innovating for growthTechnological advances have created a level playing field for companies of all sizes and origins in the global market.

Through our research, we identified issues in the external environment, including the major market and economic circumstances that affect business. In this issue, we are exploring how technological advance offers major opportunities for companies, but also allows companies of all sizes to access world-class software and a global customer base.

Competitors of all sizes and originsThe internet and cloud services have radically changed the notion of size as an indicator of commercial potential. There is now a massive surge in intangible assets, with small players competing with a business model that maximizes the use of technology to gain competitive advantage. They are also much more flexible and adaptable to change, and they were born global.

The new technologies, with licensing alternatives such as software as a service, allow companies of all sizes to have access to all kinds of software and online management tools. The internet and social media have blurred some of the barriers of cost of entry. This has allowed small companies to rely less on capital to be able to expand.

Furthermore, the internet has created a massive opportunity for companies of all sizes and origins to develop relationships with their clients through social media, apps and websites. This allows them to access a global customer database, which is aided by global logistics suppliers that can support businesses no matter their size.

As Markus Heinen, Performance Improvement Advisory Leader for Germany, Switzerland and Austria at Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, says: “The relevance of intangible assets is huge, particularly in mature markets and increasingly emerging markets. A trend is emerging that shows companies breaking away from traditional patents to strategic IP, exploited by business models that enable the licensing of technology that is part of the core business.”

Competitors now come in all sizes and origins. The traditional view of analyzing the key players in terms of size, revenue and footprint is no longer enough. A small company has the tools and capabilities to challenge the position of large multinational corporations, at least in certain markets. Moreover, these small companies are likely to grow fast and move into other markets.

Ragna Bell, Strategic Market Intelligence Leader at Ernst & Young LLP, comments: “Tech-based disrupters come up withreally new and innovative ideas. They continue to grow and become mainstream players. The challenge for their long-term survival is to build innovation as a competency into the enterprise, which is quite different from innovation in the start-up stage.”

Issue 2, 3 October 2012

Markus HeinenPerformance Improvement Advisory Leader for Germany, Switzerland and Austria

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft

Case study: India’s Suzlon moves from textiles into clean energy

Suzlon’s textile business in India had one major problem. An unstable power supply left major productivity gaps in its factories, and it failed to meet customer commitments. The company therefore experimented with running the factories on wind power. After repeated efforts to resolve the issues they encountered, the company found it had created a sustainable solution to a problem affecting many parts of India.

By leveraging this solution and taking advantage of the opportunity to create a new business unit, Suzlon became the world’s fifth-largest wind turbine manufacturer, supplying wind power across a range of industries. The company has annual revenues of US$4 billion, 1,600 global customers and 13,000 employees in 33 countries.

Now in green energy, John O’Halloran, President of Technology at Suzlon, says, “For our company, now cost is the main driver because for wind to be truly sustainable, it has to be competitive with every other form of energy.”

This involves cost of sale and costs in continuing innovation. As technology advances, government subsidies or other forms of support are important to bridge the learning gap when bringing brand-new technology to market. It’s not a question of simply using the latest technology or best designs.

“We have seen tremendous advances in wind turbine technology,” says O’Halloran. “Our designs are not intended to be cutting edge, but we have innovated our own design strategies year-on-year to improve efficiency and drive down costs. For example, we have used advanced technologies to secure a strong return on investment specifically for customers in low wind speed areas.”

How has this issue evolved?

Small players have found innovative solutions to a challenging investment climate, supplementing limited financial capital with social capital, creating business relationships based more on trust, respect and a vested in interest in each other’s success. This is driving a trend of shared risk, shared reward across the business landscape.

Crowd funding across the internet has grown into an interesting tool to support small companies or individuals to develop their ideas into tangibles. This has completely changed the way investors relate to companies, allowing the latter to have enough resources to innovate and disrupt the market.

On the other hand, some multinationals are increasingly open to partnerships with small or large local players in developed and emerging markets, and this activity will spur more competitive change.

What insights can we draw?

1. The internet and cloud services are opportunities for companies of all sizes to leverage and capitalize in order to develop cost efficiency and global customer reach.

2. New business relationships are arising, including new forms of collaboration. Crowd funding and crowd sourcing are tools to leverage that will enable companies to better compete in the global market.

3. The strategy and business model has to allow companies to easily shift their direction. This includes considering new markets where opportunities may arise, or even a completely different sector.

4. Partnerships and networks of small and large organizations will increase over the next few years, changing radically the way companies compete.

5. Social networks enable companies to interact and build relationships with all the stakeholders, giving access to global networks and expanding the opportunities across borders.

Emerging market innovation

In emerging markets, innovation tends to be the solution to a fundamental problem. Consequently, companies can innovate themselves into a completely new industry. Nevertheless, the corporate tradition and structures in developed markets make companies lless flexible in adapting to change.

Markus Heinen, of Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, says, “For business leaders in emerging markets, innovation is typically part of their DNA, driven by the need to solve major problems through a resourcefulness that creates something new and of value to society.”

Between 2005 and 2011, the number of companies in the Fortune 500 grew in emerging economies and decreased in developed economies, with a net gain in emerging economies of 13%. What does the strength of emerging market innovation mean for companies in the West?

Case study: scale of social networks is the true measure

Size is increasingly irrelevant for tech-based companies that leverage the internet. Berg, named in Fast Company as “one of the world’s 50 most innovative companies in 2012,” is a strong company based in East London with clients such as Intel, Google and the BBC.

A design consultancy that works with companies to research and develop their technology and strategy, Berg finds opportunities in the interactions of social networks.

Matt Webb, CEO of Berg, explains: “We don’t have an agency model with account managers, which means we work more closely with our clients and we extend our reach through a network of different design and technology companies in the same location.

“A lot of our work involves using technology to strengthen existing social relationships, for instance tracking the online buzz around a TV program or capturing diverse online communications in formats that can be shared digitally or on paper. A lot of our work naturally connects us to large-scale social networks, although we are, by design, a small outfit. This means we can be flexible with the business model and pursue our goal of seeing our ideas out in the world, complemented by incidental profits.”

“Our work involves using technology to strengthen existing social relationships.” — Matt Webb, CEO, Berg

Furthermore, crowd sourcing has enabled talent across the world to collaborate based on skills and the specific needs of projects. And small companies are leveraging this as a source of not only efficient investment but also effective results.

Navi Radjou, leading independent innovation expert and co-author of Jugaad Innovation says: “Partnerships are harder in mature markets since the competitive boundaries are well established. But in emerging markets the same big multinationals are more open to partnerships because they don’t have well-established business there yet. This will change global competition over the next few years.”

Why is this relevant?

The internet, the cloud and social networks have changed not only consumers’ lives, but also business. They have allowed companies of all sizes to compete in the same conditions toward the customer in the web, with no distinction of size, footprint or financial capabilities. Furthermore, any company can become global within their country of origin by simply leveraging the global online tools available.

Therefore, companies need to be ready to face new competitors from all geographies, industries and sizes. If leveraged effectively, available tools can cause a disruption in the marketplace. However, this disruption presents many opportunities by creating paths to new industries as well as markets that may not previously have been possible. This can result in a larger market for even the most well established players.

Companies will need to capitalize on the opportunities that the new technological tools give them. No matter their size, companies can develop initiatives to better use services such as the cloud, internet, crowd funding, crowd sourcing and social networks. This includes having a strategy and business model that allows the company to adapt and reconfigure according to the opportunities identified through these tools.

Our recommendations

• Leverage the new technological tools that are more cost-effective and high-delivery (i.e., cloud and internet services) as enablers in your business models

• Build financial capital through crowd funding using extensive networks based on shared risk and reward, develop new relationships using social networks, and take advantage of crowd sourcing to access specific skilled talent globally

• Reshape your market and competitive intelligence function to adapt and respond very quickly to external developments and new competitors

• Maximize your participation in emerging markets by exploring new partnership opportunities to capitalize on market gaps and access innovation capabilities

• Analyze your business model in terms of flexibility and adaptability, and explore how to leverage intangible assets while protecting your strategic IP

• Build innovation as a competency across your entire organization, and build a value proposition into the organization’s growth plans

Ernst & Young

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© 2012 EYGM LimitedAll Rights Reserved.

EYG no. EX0137

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

The opinions of third parties set out in this publication are not necessarily the opinions of the global Ernst & Young organization or its member firms. Moreover, they should be viewed in the context of the time they were expressed.

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Growing Beyond

In these challenging economic times, opportunities still exist for growth. In Growing Beyond, we’re exploring how companies can best exploit these opportunities — by expanding into new markets, finding new ways to innovate and taking new approaches to talent. You’ll gain practical insights into what you need to do to grow. Join the debate at www.ey.com/growingbeyond.

To learn more and join the global business innovation debate, please visit www.ey.com/innovatingforgrowth