The 2% Company: Excelling at Efficiency and Innovation
VERY FEW COMPANIES excel at innovation and efficiency at the same time. Of the 2,500 public companies we recently analyzed, just two per cent consistently outperform their peers on both growth and profitability during good and bad times. These ‘2% companies’, as we call them, are able to renew themselves in large part by driving exploration and exploitation simultaneously.
Being excellent at both exploration (the quest for new ideas and innovation) and exploitation (operational efficiency) is particularly challenging because these activities pull a company in different directions. They require different skills, different approaches to performance management, and an ability to drive success with different time perspectives. Each is also a potential trap in its own way: Pursuing too much innovation tempts companies to seek further change before they see the benefits of the initial change; and conversely, operational success makes it more difficult to make time to explore. Following are a few examples of how companies manifest their ‘2% status’ in very different ways:
• Fashion retailer Zara has developed ‘fast fashion’ DNA that combines adaptive innovation with speed-to-store. It consistently taps into unpredictable changes in taste through excellence in design agility and fosters continuous improvements in efficiency through a very tight supply chain.
• Amazon CEO Jeff Bezos constantly pushes for a culture of innovative thinking through his ‘day one’ mantra—stressing how the company should never stop behaving like a start-up. In parallel, the global retailer is able to drive efficiency by building an ever-tighter customer insight, logistics and delivery operation.
• has been on a long-term quest to develop new products (such as hybrid engines) and continuously improve its lean manufacturing system. By playing the long game, it has shown that gradual improvements in quality and manufacturing can be combined with breakthrough innovation and industry shaping.