Defining innovation

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Just a few months after CityLink’s closure, what does the recent news about Whistl (TNT) say about the UK logistics market?

Taken at face value it’s easy to be convinced that these two stories are not connected. CityLink operated in an e-commerce parcels market awash with growth and great opportunities for the right business model and management, whereas Whistl’s market – letters – is the polar opposite, with mail volumes in a chronic and irreversible decline since 2004. While it is true that CityLink and Whistl operate in different markets with different business models, the cause of their downfall is the same: a failure to innovate effectively.

Of course, that is an easy accusation to level at any business failure. It is easy to sit back, stroke your chin and wag a finger wisely at the inability of a management team to build the next generation of magic that their market wouldn’t be able to live without. Similarly, innovation has probably become the most over-used word in today’s business lexicon, which in itself causes a subtle but devastating problem of its own. Everybody talks about the importance of innovation. Everybody knows they need to do it. Not many people know what it really means, but that doesn’t stop everybody claiming to be good at it. Need to innovate? Set up an internal innovation task force, a think tank, think outside the box, brainstorm, write a report – job done. Just to be doubly-sure, launch a new web site. And if you’re really serious about it – a new brand as well.

But then ask the difficult questions: has any of it made the blindest bit of difference to how we serve our market? Has any of our innovative energy amounted to anything that our customers really care about? Has it enabled us to reduce our price through a lower-cost base? Has it enabled us to enter new markets faster? Has it created a completely new and better way of solving an age-old problem, to the extent that it has rendered the incumbent solution obsolete?

When you apply these questions to Whistl, it is hard to conclude that its proposition was based on any fundamental market innovation. You could argue that investing in your own postmen to actually post the letters (rather than simply using Royal Mail’s downstream access) is unique and, at a stretch, innovative. Even if that is true, it doesn’t look like the market saw things the same way.

So two firms in the logistics space suffer due to a lack of any purposeful innovation. Can we conclude that logistics is a lost cause? An innovation desert? Thankfully, no. One only has to glance to a different corner of the logistics landscape – newspapers – to see a parallel to Whistl, but with a markedly different outcome.

Like Whistl, Smiths News was formed during the break-up of a bigger group. For Whistl, this was TNT; for Smiths News it was WHSmith. Like Whistl, Smiths News is in a chronically declining market – delivering newspapers and magazines to retailers. To complete the parallel, the decline in both markets was caused by the same market disruption – the digitization of media.

Arguably, both companies invested in re-branding. Whistl was forced into it immediately as a result of the TNT split; Smiths News acted more recently with the launch of the Connect News and Media Group. But unlike Whistl, Smiths News embarked on an acquisition program aimed at leveraging its core strengths to support successful entries into new and growing markets. Put simply, it didn’t just wipe a new brand over an existing solution and expect success.

Of course, there are many other examples of successful innovation in logistics. Shutl’s dynamic approach to affordable same day delivery resulted in a sale to eBay last year. Hermes and Yodel’s investment in click and collect is a refreshing alternative to the problems of the final mile. So innovation is clearly alive and well in logistics. But we shouldn’t confuse innovation with re-branding. As Whistl says in one of its own adverts, “We have changed our name but not our services!” Yes – and that simply isn’t enough.

May 27, 2015 

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