INNOVATION might seem an odd topic to write about in the midst of this gathering economic gloom, especially as it was super-heated financial innovation that got us into this mess.
And since you may imagine that most companies are desperately concentrating on survival, trying to be innovative, you may think, is probably well down the list of priorities. But you would be wrong on all counts. Innovation is extremely important in
this climate, and there are lots of Scottish companies working hard at it.
I was reminded of this in two ways recently. The first was through reading The Great Crash by Selwyn Parker, a thoroughly readable book recommended to me by Bill Jamieson. In turn, I recommend it to anyone interested in knowing more about the causes, effects and cures for the world-wide depression that followed the 1929 Wall Street crash.
One of the many lessons to emerge from its pages is the importance of staying close to the market and improving products intended for that market. Three examples, appropriately, in this week of bail-outs for the car-makers, are from that industry.
In the 1930s, Morris Motors became Britain and Europe's biggest car manufacturer. The firm's founder, William Morris, achieved this in the middle of the depression, writes Parker, "through a determined strategy of innovation in every aspect of the business – steel-stamping, painting and bodywork among scores of other areas – that served to speed up production and improve quality."
In 1934, with sales of the highly successful Morris Minor on the decline, the Morris Eight was launched. Parker notes: "Priced from £120, it was a miracle of extempore automobile design." And it was an instant success. Nine months after its launch, more than 50,000 had been sold.
Across the Atlantic, Walter Chrysler was in the same mould. His company was hit hard by the depression and came perilously close to closure. But in late 1930, Chrysler launched the Plymouth, "a low-priced vehicle with mid-priced refinements such as the novelty of an electrical fuel gauge and the comfort of hydraulic shock absorbers".
Parker records: "Within two years, Chrysler's overall sales would be back to pre-Depression levels, four years ahead of General Motors, and 17 years ahead of an incompetent Ford."
Ford incompetent? Under Henry Ford, who, Parker records drily, was hated by everyone who worked for him and worshipped by everyone who had not, the Ford Motor Co was certainly incompetent in that period. Henry Ford insisted that big heavy cars with huge engines were what people wanted – in retrospect, it is astonishing that the company survived.
These three examples provide a pretty clear picture of the importance of innovation and staying close to the market. My second reminder of this lesson came from Crawford Gillies, the new and impressive chairman of Scottish Enterprise. I know it is fashionable to be derisively dismissive of consultants, but Gillies' years in senior positions at Bain and Co, a big consultancy firm, give him a vast amount of international knowledge across a big range of industrial sectors.
From the welcome he got from CBI Scotland and other business organisations, he looks to be an extremely good appointment, one for which the Scottish Government deserves credit.
I talked to him briefly and asked him what Scottish Enterprise could do to help the country get out of recession. He spoke about the importance of innovation and suggested that Scottish businesses needed to be outward-looking, citing a former boss of Proctor & Gamble, soap-makers, who said that 98 per cent of the innovations the company made had come from outside the firm. "He encouraged his organisation to look around the world for improvement and I think the same applies to Scottish businesses."
His other point was equally interesting: "Innovation is more than simply about technology research and development. A lot of innovation that goes on is about process and service improvement."
The experience of one of Scottish Enterprise's account managers, Christine Fyfe, who has been working with Balmoral Knitwear, a long-established family business in Galston, near Kilmarnock, bears this out. The firm employs 60 people, turning over £2.4 million a year making made-to-order corporate, school and sports knitted clothes.
While it has been technologically innovative, making stain-resistant garments and experimenting, rather excitingly, with MRSA-resistant yarns, its main innovations have been in process and service improvement. Fyfe assisted with the installation of a computer system that gathered information from all parts of the business, presenting management with a much clearer picture of what was happening.
As a result, she says, the company's on-time deliveries improved from about 75 per cent to 95 per cent and the machine operators were able to concentrate on quality rather than volume production, improving their and the company's earnings.
Scottish Enterprise works with about 2,000 companies in this way. A by-product was a survey of 1,100 companies which showed that 47 per cent expect turnover to grow over the next six months and only 16 per cent fearing it will fall.
This is in marked contrast to other surveys such as this month's Lloyds TSB business monitor which found that 57 per cent of firms expected business volumes to fall in the next six months with only 10 per cent anticipating an increase in trade. Obviously, the explanation for the difference is that the Scottish Enterprise sample is narrowly focused on innovative, forward-looking, export-orientated companies while the others survey Scotland's company population as a whole.
But there is also an obvious and glaring lesson here. If a company is innovative, it is much more likely to survive and may even prosper during a downturn. And innovation is not necessarily about inventing a new widget. It is much more likely to be about just doing things better.
Scotland's record in this respect is dismal. But at least Scottish Enterprise is on the case. We just need Crawford Gillies and his chief executive Jack Perry to become super salesmen and get the message through to more companies.
• Comments and criticisms welcomed at:
pjones@ednet.co.uk