The Year of Efficiency Part 4: Growth Through Innovation

JIM HOLMAN: Hello everyone, and thanks for tuning in to Cherry Bekaert's latest technology podcast. My name is Jim Hullman, and I am joined by my colleague Steve Holliday. We are directors in Cherry Bekaert's Digital Advisory practice, specifically focused on digital transformation, and we're pleased to round out this series talking about the year of efficiency.

STEVE HOLLIDAY: This is essentially what we focus on day in and day out: helping organizations transform their businesses and services to create efficiencies among people, process, technology, and culture. You may have heard it called the year of efficiency as technology companies seek solutions that save costs, drive faster innovation, and better manage processes.

JIM HOLMAN: Mark Zuckerberg, CEO of Facebook (Meta), declared 2023 the "year of efficiency." The goal was to cut costs, shake up company culture, and narrow focus in response to slower growth in the tech industry. Zuckerberg said the year of efficiency is about two goals: becoming a stronger technology company and improving financial results so they could invest in the long-term roadmap.

STEVE HOLLIDAY: Subsequently, Meta reported revenue rose 11% to $32 billion in its second quarter compared to the same period last year.

JIM HOLMAN: Steve, what's the relationship between cost-saving measures and innovation?

STEVE HOLLIDAY: Cost-saving measures can fuel innovation. They free up financial resources for research and development, allow more experimentation, enable investment in key areas of innovation, and encourage lean thinking focused on value creation and waste elimination.

JIM HOLMAN: How can operational teams contribute to innovation through cost savings? It seems like chasing pennies.

STEVE HOLLIDAY: Operational teams will rally around cost savings when those savings fund the future of the business. By cutting unnecessary expenses, the business can redirect resources toward innovation, which fosters a culture of creativity and growth.

JIM HOLMAN: How does streamlining processes enhance collaboration and innovation?

STEVE HOLLIDAY: Streamlining reduces bureaucracy, enabling quicker decision-making and more rapid development of innovative ideas. Simplifying workflows fosters collaboration between teams and leads to a more cohesive and innovative approach to problem solving.

JIM HOLMAN: What is the role of lean development processes in innovation? You are one of our subject matter experts in continuous improvement and Lean Six Sigma.

STEVE HOLLIDAY: Lean development processes focus on customer value and value creation, often through the concept of a minimum viable product. They aim to reach a product level that is minimally acceptable in the marketplace, delivering quick time to value. Innovation then builds on that product, responding to user stories and changing business conditions.

STEVE HOLLIDAY: Many technology companies use agile approaches rather than waterfall development, which can take a long time and miss market needs by the time projects conclude. Lean approaches to product development are more responsive to market changes and help get products out and cash recognized faster.

JIM HOLMAN: The rest of the business world really picked up agile, although lean has been used in industry for a long time. The minimum viable product concept—"just good enough"—seems contrary, but by going with a smaller approach you have more elbow room to innovate and be creative.

STEVE HOLLIDAY: Efficient resource allocation ensures resources are directed toward the most promising areas of innovation. This allows more focused and impactful creativity and enables calculated risks in experimentation without jeopardizing overall stability.

JIM HOLMAN: Can you provide a real-world example of a company that leverages efficient resource allocation for creativity?

STEVE HOLLIDAY: Google is a great example. They allow developers 20% of their time for creative thinking and experimentation. From that time, they incubate ideas for more formalized development. The right mindset, culture, and tools can help teams, especially distributed teams, reliably produce breakthroughs that advance the business.

JIM HOLMAN: It's interesting because innovation in a technology company often has a lower cost than innovation in automotive R&D or manufacturing. Technology can lead industry as a whole.

STEVE HOLLIDAY: When we think about Amazon, we think about super-efficient logistics and inventory management. That core competency has allowed them to invest in other areas of innovation, such as drone delivery and AI-driven customer service.

JIM HOLMAN: Earlier we talked about value creation within lean principles. How does focusing on value creation contribute to innovation?

STEVE HOLLIDAY: Focusing on value creation encourages the lean approach by eliminating waste and leading to more innovative solutions, such as simple, low-cost solutions that are transferable globally. In some markets, simpler designs reduced complexity and waste and better met customer needs, particularly in industries like power transmission, automotive, and medical devices.

JIM HOLMAN: You introduced the idea of dedicating time to innovation by creating elbow room through lean principles and streamlined processes. How can a streamlined process support failing fast, and what is failing fast?

STEVE HOLLIDAY: Failing fast means identifying unpromising ideas early and stopping investment in them. Without good control in development processes, organizations spend money on ideas that should have been killed earlier. By failing fast, you allow resources to focus on ideas with a higher probability of success, reducing waste. The key is having the discipline to kill bad ideas.

JIM HOLMAN: It isn't intuitive for a traditional mindset that avoids failure. How do you pressure test ideas?

STEVE HOLLIDAY: You simulate ideas in a lab environment and use a process- and data-driven culture to rapidly test ideas. Technology companies bring this approach to the forefront, enabling rapid idea testing and innovation. Cross-functional collaboration, where different areas cooperate, also supports this approach.

JIM HOLMAN: How does cross-functional collaboration contribute to innovation?

STEVE HOLLIDAY: Cross-functional collaboration breaks down silos and encourages diverse thinking, which leads to more creative solutions. Different parts of the business provide valuable inputs from customer interactions, complaints, returns, and manufacturing concerns like design for manufacturability. When these groups collaborate, you drive better results and a stronger innovation process.

JIM HOLMAN: Some classic technology companies have had to reinvent themselves. How has IBM focused on process efficiency, and how has that led to innovation?

STEVE HOLLIDAY: IBM has worked to reposition itself with innovations in cloud computing and quantum computing. Those efforts have positioned the company as a leader in emerging technology fields. Innovate or die has been a theme for companies like IBM.

JIM HOLMAN: What is the role of risk management in fostering creativity and experimentation?

STEVE HOLLIDAY: Risk management acts as bumper guards; it keeps things moving in a direction valuable to the business. Risk management provides guardrails, checkpoints, and processes that allow the company to take calculated risks in creativity without jeopardizing stability.

JIM HOLMAN: You can be efficient purely for cost control, removing all waste without encouraging innovation. How can efficiency act as a catalyst for innovation?

STEVE HOLLIDAY: Efficiency, cost savings, process streamlining, and focused resource allocation act as catalysts for innovation. When you eliminate waste, you often reach a wall that requires more innovative approaches to break through. Collaboration, continuous improvement, and calculated risk-taking enable that breakthrough.

JIM HOLMAN: Meta restructured and laid off 21,000 employees. How did that restructuring impact their financial results?

STEVE HOLLIDAY: The restructuring incurred costs estimated between $3 billion and $5 billion aimed at cutting expenses. Fast forward, the company reported an 11% rise in revenue to $32 billion in the second quarter compared to the previous year. Those restructuring costs were significant, but the company shook things up.

JIM HOLMAN: It's counterintuitive that layoffs and restructuring could precede increased revenue. The true test is over time and depends on how savings are reinvested and how development is focused.

STEVE HOLLIDAY: Organizations without Meta's deep cash pockets face harder choices. To avoid spreading resources too thin, focus on the best opportunities and have the discipline to kill or deprioritize noncritical efforts. Development resources stretched across too many projects slow progress.

JIM HOLMAN: So focus and specialization beat multitasking when it comes to innovation.

STEVE HOLLIDAY: Yes. Spending focused time on an innovation opportunity yields better results than splitting time across many small projects. In a multitasking world, concentration supports creativity.

JIM HOLMAN: Can you talk about the importance of the minimum viable product in innovation?

STEVE HOLLIDAY: The minimum viable product emphasizes time to value and getting products to market fast. It pairs with failing fast and makes organizations more nimble, enabling rapid enhancements based on market feedback and changing conditions.

JIM HOLMAN: How can efficiency in resource allocation encourage cross-functional collaboration rather than hinder it, especially in competitive, high-growth technology companies?

STEVE HOLLIDAY: When challenged to achieve improvements, organizations become more open to collaborating and sourcing ideas from anywhere. Stretch goals, which are slightly beyond known capabilities, force teams to think differently and encourage collaboration. Removing "not invented here" barriers and focusing on critical priorities promotes learning and cross-functional innovation.

JIM HOLMAN: One final question: How do real-world examples from tech leaders illustrate principles of efficiency-driven innovation, and how does this apply to mid-market organizations?

STEVE HOLLIDAY: Companies like Amazon, Toyota, Google, and IBM have applied efficiency, cost saving, and process streamlining to focus resources and drive innovation and growth. These practices demonstrate how efficiency acts as a catalyst for creativity and experimentation. Across our clients and the marketplace, waste elimination and a focus on customer value drive better innovation results. Mid-market organizations can adopt these principles by identifying and eliminating waste and optimizing processes to get more impact from their innovation investments.

JIM HOLMAN: If any listeners are interested in improving their ability to identify and eliminate waste or optimize processes, reach out to Cherry Bekaert. We appreciate you joining and tuning in to this podcast. We hope you've enjoyed this series on the year of efficiency and that you're inspired to implement some of these strategies within your organization.

JIM HOLMAN: You can visit cb.com/technology for any of the information we mentioned today or on previous podcasts, and you can find our contact information in the show notes wherever you're listening. Thanks again.

GUEST: STEVE HOLLIDAY: This is essentially what we focus on day in and day out: helping organizations transform their businesses and services, ultimately creating efficiencies among people, process, technology, and culture. You may have heard it called the year of efficiency as technology companies seek solutions that save on costs, drive faster innovation, and better manage processes.

HOST: JIM HULLMAN: Mark Zuckerberg, CEO of Facebook/Meta, declared that 2023 would be the year of efficiency. The goal was to cut costs, shake up company culture, and narrow focus in response to slower growth in the tech industry.

GUEST: STEVE HOLLIDAY: Zuckerberg said the year of efficiency is about two goals: becoming a stronger technology company and improving financial results so they could invest in the long-term roadmap. Subsequent to this, Meta said its revenue rose 11% to $32 billion in its second quarter compared to the same period last year.

HOST: JIM HULLMAN: Steve, what's the relationship between cost-saving measures and innovation?

GUEST: STEVE HOLLIDAY: Cost-saving measures can fuel innovation. They free up financial resources to be used for research and development, allow for more experimentation, enable investment in key areas of innovation, and encourage lean thinking that focuses on value creation and waste elimination.

HOST: JIM HULLMAN: How can operational teams contribute to innovation through cost savings? It seems like chasing pennies.

GUEST: STEVE HOLLIDAY: Operational teams will rally around cost savings, especially when those savings are funding the future of the business. By cutting unnecessary expenses, the business can redirect resources toward innovation, which fosters a culture of creativity and growth.

HOST: JIM HULLMAN: How does streamlining processes enhance collaboration and innovation?

GUEST: STEVE HOLLIDAY: Streamlining processes reduces bureaucracy, which enables quicker decision-making and more rapid development of innovative ideas. Simplifying workflows fosters collaboration between teams, leading to a more cohesive and innovative approach to problem solving.

HOST: JIM HULLMAN: What is the role of lean development processes in innovation? I know that within Cherry Bekaert we have subject matter experts in continuous improvement and Lean Six Sigma.

GUEST: STEVE HOLLIDAY: Lean development processes focus on customer value and value creation. This is often accomplished through the concept of a minimum viable product, aiming to reach a product level that is minimally acceptable in the marketplace with a quick time to value.

GUEST: STEVE HOLLIDAY: Innovation then responds to user stories and changing business conditions. Many technology companies now use agile approaches rather than waterfall, which can take too long and miss market needs. Lean approaches are more responsive to market changes and get products out faster, allowing cash to be recognized sooner.

HOST: JIM HULLMAN: The rest of the business world picked up agile, though lean has long been in industrial contexts. The concept of minimum viable product — getting to "just good enough" — gives more elbow room to innovate. How can efficient resource allocation lead to focused innovation?

GUEST: STEVE HOLLIDAY: Efficient resource allocation ensures resources are directed toward the most promising areas of innovation. That allows for more focused and impactful creativity and enables calculated risks in experimentation without jeopardizing overall stability.

HOST: JIM HULLMAN: Can you provide an example of a company that leverages efficient resource allocation for creativity?

GUEST: STEVE HOLLIDAY: Google is a great example. They allow developers 20% of their time for creative thinking and experimentation. From that time, they incubate ideas for formal development. The right mindset, culture, and tools help teams, especially distributed teams, reliably produce breakthroughs that advance the business.

HOST: JIM HULLMAN: Technology companies can innovate at a lower incremental cost compared to, say, automotive R&D. That can lead other industries. How has Amazon leveraged efficiency for innovation?

GUEST: STEVE HOLLIDAY: Amazon is known for super efficient logistics and inventory management. Leveraging that core competency has allowed investment in other areas like drone delivery and AI-driven customer service.

HOST: JIM HULLMAN: Earlier we talked about value creation in lean principles. How does focusing on value creation contribute to innovation?

GUEST: STEVE HOLLIDAY: Focusing on value creation encourages the lean approach by illuminating waste and leading to innovative solutions such as simple, low-cost solutions that are transferable globally. In some multinational contexts, simplifying designs and removing unnecessary complexity improved global applicability.

GUEST: STEVE HOLLIDAY: For example, in engineered products like automotive or medical devices, ideas from global markets taught teams a leaner approach to product development. That focused approach helped meet customer needs more effectively.

HOST: JIM HULLMAN: You mentioned the importance of dedicated time to innovate, which requires elbow room created by lean principles. How can streamlined processes help with "failing fast," and can you define that?

GUEST: STEVE HOLLIDAY: Failing fast refers to recognizing unpromising ideas early and stopping investment so resources can focus on higher-probability opportunities. Without good control in development processes, organizations waste money developing ideas that should have been killed earlier.

GUEST: STEVE HOLLIDAY: Driving structure and discipline into development processes enables teams to kill bad ideas and reallocate resources. A process- and data-driven culture allows rapid idea testing and innovation.

HOST: JIM HULLMAN: Cross-functional collaboration also seems important. How does that contribute to innovation?

GUEST: STEVE HOLLIDAY: Cross-functional collaboration breaks down silos and encourages diverse thinking, which leads to more creative solutions. Different parts of the business bring customer feedback and operational insights that are valuable inputs.

GUEST: STEVE HOLLIDAY: For example, design engineers may create something difficult to manufacture. Collaborating across groups and using lean processes improves efficiency, drives better results, and strengthens the innovation process.

HOST: JIM HULLMAN: We often focus on newer tech companies, but classics like IBM have had to reinvent themselves. How has IBM focused on process efficiency and innovation?

GUEST: STEVE HOLLIDAY: IBM has repositioned itself by embracing innovations in cloud computing and quantum computing. Those emerging technology fields position the company as a leader and illustrate the "innovate or die" mindset.

HOST: JIM HULLMAN: What's the role of risk management in fostering creativity and experimentation, given the counterbalance that risk approaches typically provide?

GUEST: STEVE HOLLIDAY: Risk management serves as bumper guards, keeping initiatives moving in a direction valuable to the business. Risk management provides guardrails and checkpoints so the company can take calculated risks in creativity without jeopardizing stability.

HOST: JIM HULLMAN: Efficiency for cost control alone can strip out waste without encouraging innovation. How can efficiency act as a catalyst for innovation instead?

GUEST: STEVE HOLLIDAY: Efficiency, cost savings, process streamlining, and focused resource allocation act as catalysts for innovation. When faced with improvement challenges, organizations often hit knowledge walls and need innovation to break through.

GUEST: STEVE HOLLIDAY: Collaboration, waste elimination, and a continuous improvement focus allow calculated risks needed for creativity and experimentation, which helps drive breakthroughs.

HOST: JIM HULLMAN: Meta restructured and laid off 21,000 employees. Can you talk about how that restructuring impacted their financial results?

GUEST: STEVE HOLLIDAY: Meta laid off 21,000 employees and incurred costs between $3 billion and $5 billion aimed at cutting expenses. That restructuring came with a cost, but later the company reported an 11% rise in revenue to $32 billion in its second quarter compared to the previous year.

GUEST: STEVE HOLLIDAY: Those costs are below the line, but the important question is how they invested the savings and where they focused development. If they invested in the right areas, revenue growth can continue over time.

HOST: JIM HULLMAN: Smaller organizations may not have the cash reserves of Meta. How can companies avoid spreading resources too thin in innovation?

GUEST: STEVE HOLLIDAY: Focus on the best opportunities and have the discipline to kill or deprioritize efforts that are not prioritized. When development resources are stretched across too many projects, progress slows. Keeping resources focused on the best ideas speeds delivery and maximizes impact.

HOST: JIM HULLMAN: So specialization and focus matter. Spending concentrated time on a single innovation opportunity is more effective than multitasking across many.

GUEST: STEVE HOLLIDAY: Correct. Focused effort yields deeper concentration and better results, whereas multitasking dilutes effectiveness.

HOST: JIM HULLMAN: Can you talk about the importance of minimum viable products in innovation?

GUEST: STEVE HOLLIDAY: Minimum viable products emphasize time to value and getting products to market quickly. Along with minimum viable products comes the concept of failing fast. These practices make organizations more nimble and better able to respond to marketplace changes by incrementally enhancing the product.

HOST: JIM HULLMAN: How can efficiency in resource allocation encourage cross-functional collaboration rather than hinder it, given internal competition for scarce resources?

GUEST: STEVE HOLLIDAY: When teams face challenging goals, they become more open to collaborating and getting ideas from anywhere. Techniques like stretch goals push teams to think differently and seek solutions beyond their usual scope, fostering collaboration and continuous learning.

HOST: JIM HULLMAN: One final question. How do real-world examples from tech leaders illustrate principles of efficiency-driven innovation, and how do those principles apply to smaller organizations?

GUEST: STEVE HOLLIDAY: Companies like Amazon, Toyota, Google, and IBM have applied efficiency, cost saving, and process streamlining to focus resources and drive innovation and growth. These practices demonstrate how efficiency acts as a catalyst for creativity and experimentation.

GUEST: STEVE HOLLIDAY: For mid-market organizations, focusing on waste elimination and customer value can improve innovation outcomes. Identifying and optimizing processes helps get better results from innovation investments.

HOST: JIM HULLMAN: If any listeners are interested in improving their ability to identify and eliminate waste or optimize processes, you can reach out to Cherry Bekaert for support. Visit cb.com/technology for information mentioned today or on previous podcasts, and find our contact information in the show notes of wherever you're listening.