The leading freight transportation publications continue to report on the record levels of bankruptcies in our industry. It has been a very difficult year. As you read the reports on the demise of these companies, you wonder if some of them could have changed their operating paradigms or if they had been more innovative in their thinking, whether they would be still with us today.

What can companies in the freight transportation industry do to become more innovative, to better meet the needs of existing clients and new prospects, to increase their opportunities for survival and prosperity? As I thought about this issue over the summer, some publications crossed my desk that contain some interesting thoughts on this important question. One book that I read while on vacation was “The Future of Management” by Gary Hamel and Bill Breen. In their book, Messrs. Hamel and Breen make the following argument.

“Innovation comes in many flavours: operational innovation, product innovation, strategy innovation and ... management innovation. Each genre makes its own contribution to success but if we were to array these various forms of innovation in a hierarchy, management innovation would come out on top...

At the base of the pyramid is operational innovation. In a world of hypercompetition, operational excellence is essential ... but seldom delivers a decisive long-term advantage.” The authors argue that the short-term advantage from operational innovation (e.g. ‘Velocity Network’) can be quickly replicated other companies in the industry.

“Next up the food chain is product innovation. There’s no doubt that an iconic product (or service) can lift a company from obscurity to cult status in short order... Yet in the absence of enforceable patent protection, most products are quickly knocked off...

Further up the stack is strategy innovation - - - bold new business models that put incumbents on the defensive... A killer business model can generate billions of dollars in market value for the innovator (think iPod / iTunes) - - - but on average, a distinctive business model is more easily decoded and counteracted than a heretical management system...” The authors argue that “only management innovation possesses a unique ability to create difficult-to-duplicate advantages.”

To instil a management innovation model in their companies, the authors argue that the following items need to rise to the top of management’s agenda.

1. Dramatically increasing the pace of strategic renewal in organizations large and small
2. Making innovation everyone’s job, every day
3. Creating a highly engaging work environment that inspires employees to give the very best of themselves

Messrs. Hamel and Breen point to companies that been successful innovators on a one time basis or in spurts (e.g. Kodak, Sony, Sears, G.M.). However, these companies have failed to reinvent themselves. This appears to be the case for some companies in our industry (e.g. Jevic) that have not been able to sustain the success of their original business model (e.g. irregular route large LTL shipment company) during changing times (e.g. high gas prices). They argue that “what distinguishes our age from every other is not the world flattening power of communications, not the economic ascendance of China and India, not the degradation of our climate... Rather it is a frantically accelerating pace of change... The goal then is to build organizations that are capable of continual, trauma-free renewal... And therein lies the challenge: to make deep change more of an autonomic process - - - to build organizations that are capable of continuous self-renewal in the absence of a crisis.”

The book then highlights three companies, Google, Whole Foods Market and W.L. Gore that have embraced this model of continuous self-renewal and innovation. The authors conclude their book with some suggestions on how to become a “Management Innovator.” This is a good read with some interesting and important ideas.

What impact does being innovative have on a company's financial results? The BusinessWeek Innovation Index (businessweek.com/innovate/global_index/) tracks 25 corporations known for their forward-thinking products, processes, consumer experience, or business models. The companies with innovative business models tend to have the highest stock returns and highest average revenue growth of all of the companies in the index. In the next blog I will look at some other avenues that companies are pursuing to become more innovative and successful.