But it goes beyond product. He notes there are three other types of innovation: marketing, production process and financial. They occur – and become necessities – at the four different stages ( startup, growth, maturity and decline) of the organizational life cycle.
“Marketing starts to dictate the product changes it needs,” he emphasized in the interview.
And then, as the company reaches full maturity, with no other opportunities for the product and associated offerings, the fourth stage, decline, sets in and the firm needs financial innovation, figuring out how to put its funds to best use, which usually means beyond the current firm.
Behind this evolution is, of course, revenue, expenses and profits. In the early stages of the organization’s life, the entrepreneurs are trying to build the top line – revenue – faster than the competition.
“Nobody cares about margins,” Prof. Koplyay notes. That is done, he says, because revenue growth best correlates with stock price and investor interest. Build the product, sell it, find new groups to interest and refine the product as needed for what will be rapid expansion.
It’s around now that professional managers become important. Competitors are also trying to improve their margins and a shakeout looms as each figures the best way to cut margins is to buy the other.
Technology is no longer the key; financial strength will determine who wins. But of course, he notes, only 30 per cent of mergers and acquisitions – a hallmark of this phase – succeed. However, adding to their lustre is the fact, he says, that “executive compensation is totally correlated to corporate size – not profitability or whiz- bang innovation.”
awareness in the early stage; to brand development and price reductions to spike sales; to promoting customer loyalty and other methods to defend your market share; then in decline to either market rejuvenation or market exit.
Financial innovation evolves from lines of credit, angel investors and other financing to get off the ground; capital acquisition and handling cash flow as growth occurs; capital asset management in maturity; cost controls, reinvesting profits and portfolio management in decline.