A strategic innovative move was that Cemex integrated horizontally and vertically with new operations to attain economies of scale and to diversify its business. Additionally it increased it market-share through targeting the ‘do-it-yourself’ building market segment. The introduction of a micro-credit system allowed these people to procure building products that they could otherwise not afford.
Huenk (1996) and many other researchers contend that innovation fosters growth. This statement assumes that learning and innovation are sufficient to create successful growth in business. However, Smallbone, Leig & North (1995) and Clayton and Christensen (2007) contend that high growth firms are distinguished more by the strategies and actions of their leaders than by their profile characteristics of the firm. They conclude that innovative firms seem to be greater investors in innovation and that their decisions are lead less by production targets. This would imply that the leader of the business is crucial.
Innovation can only exist if it is being facilitated within the business. Loewe et al (2006) considered four keys that would facilitate effective innovation: leadership and organisation, people and skills, culture and value and processes and tools. In this case the leader is considered to be one of the four keys to facilitate effective innovation. However, the leader is actually accommodating the other keys by his decisions. The functioning of the other keys is directly influenced by the decisions that the leader of the business makes.
Culture and values can encourage innovation by allowing experimenting and not sanctioning failure of ideas. Organisational behaviour theories like Schein (1983) indicate that the ultimate source of the organisational culture is the leader of the organisation. The leadership of Cemex created a learning culture to be able to address the challenges on emerging economy markets by capitalization of new products and processes.
People will use their skills to the full if they are challenged to do so. The involvement of staff in the innovation plays an important role to successful implementation (Siegal et al, 2006).Involving people in the organisation by encouraging contribution to innovation with their skills (collectively and individually) will create motivation and ownership.
The leadership of Cemex hired Gelacio Iniguez and gave him the mandate to develop Cemex’s then primitive information technology department. Furthermore, the firm encouraged participation of its staff when they were identifying new methods to innovate their dispatching process.
People need the right tools and processes to innovate. Freeman (1994) showed the significance of access to external information for innovation. Cemex’s leader attributes a great deal of its growth to their sophisticated information systems. Additionally processes that enable experimenting with innovations are essential. At Cemex, innovation processes were facilitated through pilots of increasing size. They claimed that these pilots maximized their learning experience.
The manners in which the above mentioned keys are facilitated depend on the decisions of the leader. This leads to the conclusion that leaders play a crucial role in facilitating innovation within the organisation.
Organisational behaviour theories have done extensive research on the traits that characterize successful leaders. These traits have such a significant impact that companies like GE are selecting their leaders on traits rather than technical expertise. Expertise is only considered an added bonus. Mogollon (2005), GE Global Commercial Vice President for Equipment Services, contends that GE’s success in competing in a global market depends on building growth leaders. Describing personal characteristics of growth leaders, Mogollon (2005) mentioned that they should be ‘imaginative and courageous -essentially, self-confident’. Heunk (2005) found in his research that leaders of innovative firms had in common to be self-confident, risk taking, persistent, independent, flexible, dynamic, and optimistic.
To set new trends, it is important to be imaginative. Yet, the leader also has to possess sufficient persistence and self-confidence to facilitate any innovation.
Knoope (1997) described the twelve different stages during creation. He emphasises the importance of persistence in the different stages in which opposition and constraints needs to be addressed. The leader needs to be able to be self-confident to believe in the idea, and persist despite opposition to taking a risk of implementing it. Successful leaders like Branson and Walsh were confronted with opposition and people that would ridicule their innovative ideas yet they persisted to believe in their ideas. Had they not taken this risk, they would never be as successful today. Cemex leader supported Iniguez idea of linking Cemex's geographically dispersed operations via satellite even though it was considered an unusual move for a modest “low-tech” enterprise, or a Mexican cement company.
The following diagram depicts that growth can only exist if the organisation is lead by self confident, imaginative and risk taking person who facilitates innovation in the firm.
Stage one of the diagram shows that if the organisation was lead by another type of leader, the keys for innovation would not or insufficiently exist. Stage two indicates that the leader needs to be risk taking to implement the innovation.
Additionally it is shown in stage two that even though the right leaders would be in place and the right conditions would be facilitated, there would still exist a risk that innovation would be unsuccessful and thus not result in growth.
Failure is an inevitable part of the innovation process. Researches indicate fifty to even ninety percent of innovations fail. Risk to failures should be identified as early in the process as possible. There are several instruments that identify the crucial success factors of an innovation. It facilitates to estimate the risk of failure of the innovation.
The impact of an innovation can be measured by considering the support that is needed to implement the innovation, the scope (number, demography and geographic location of people affected) of the innovation, its sustainability and the scale of the innovation (Farr-Wharton 2008). Cemex is operating in 50 countries, and pursues the concept to ‘realize the benefits of integration and efficiency’ (Case_p.1). Each innovation starts off as a pilot project but will be applied to a large and global scale where possible affecting many different people in the organisation and in the external environment. Only innovations that are sustainable and efficient will eventually be implemented.
The four dimension framework (Farr-Wharton, 2008) measures the added value of the innovation on the organisation and the environment by measuring its effectiveness, efficiency, accuracy and reliability.
The effectiveness of the innovation entails the ability to reach a certain target with the innovation. The innovations of Cemex (Satellite communication system and the cement delivery system) have been effective. Both systems increased the productivity. Moreover, the cement delivery system actually exceeded its target and had positive consequences than anticipated. In addition to higher productivity, it generated more customers. The new products introduced by Cemex were very effective to reach new market segments.
Efficiency means the time and costs that have to be used to implement the innovation. Whereas the cement delivery system has relatively low costs and generates considerable profit due to increased productivity, the satellite system is efficient. Satellite has high user-cost and lower capacity of information transmission. It is likely that its capacity of information transmission is insufficient within 5 to 10 years and need to be replaced.
The micro-credit system that CEMEX introduced excells in efficiency since it had relatively low implementation costs and increased the demand for cement significantly.
Accuracy means the efficiency with which the innovation matches the core target. For example, the micro-credit system is very accurate since it matched perfectly the needs of the potential target group. Additionally this system can be applied to other emerging markets where Cemex is operating.
Reliability refers to the effectiveness of the innovation over a longer period of time. Cemex is operating on emerging economy markets and poverty is not expected to be alleviated in this millennium. The micro-credit system for the ‘do-it-yourself’ building market segment can be applied to emerging economy markets to encourage consumer behaviour globally.
There are many alternative instruments to estimate the risk including financial valuation methodologies and opportunity evaluations measuring the risk on market, competition and strategy.
Ultimately it is the leader who influences the success of the implementation by taking a calculated risk decision to implement the invention. Failure of innovation varies between organisations but O'Sullivan (2002) identified that poor leadership is the most common reason of failure of implementation of innovation.
The leadership of Cemex embraces and facilitates innovation within the company and the successful innovations had a considerable added value and impact on the organization and its environment. This has lead to a growth from one cement plant to an operating income of US$ 3.1 billion.
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It can be summarized that growth is fostered by innovation. However, innovation needs to be facilitated through an appropriate culture, suitable processes and tools and involvement of its people and utilization of their skills. Whether innovation is facilitated within an organisation depends ultimately on the decisions of the leader. Research has concluded that a leader that is likely to create an innovative environment is self-confident, imaginative, risk-taking and persistent. These traits are necessary to initiate and to implement innovation successfully.
Not all innovations have the same impact on the organisation and the external environment. The risk of failure relates to the impact that an innovation has on the organization and its environment. The decision whether to take the risk can be supported by using several valuation frameworks. Ultimately, the leader will have the most crucial affect on the level of innovation within its business thus enabling considerable growth.
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