How scale-ups can balance innovation with profitability

The list of companies that came undone because they stopped innovating is long and storied. From video rental behemoths to makers of photographic film, their continued success—at one stage—seemed assured. Their demise shows the ease with which even the most established businesses can succumb to inertia.

Innovation can be challenging to sustain, because the initial spark of creativity that fired up the company may have emerged spontaneously. “When resources are limited, rekindling and sustaining this through investment may threaten profitability,” says James Cundy, Managing Director, Head of Corporate Banking and Leveraged Finance at HSBC UK, Commercial Banking. “But with the right innovation strategy, the potential rewards can be truly transformative."

So how best to innovate within those constraints? We sought advice from two CEOs who are threading the needle...

Instead, recognise that innovation can mean something smaller and incremental, such as tweaking a process or upgrading a feature. This is something that every company can benefit from, and is eminently achievable. “It has been central to Gophr’s strategy,” says Robert. For example: Based on customer feedback, the business recently simplified its app. “We made it more inclusive for less experienced couriers,” he says. Over time, small changes add up.

Foster the right culture

Companies can make the mistake of seeing innovation as a special project that is somehow distinct from the rest of the business. They can buy start-ups, set up “labs” or put an expensive VP of Innovation on their books but a great many innovative ideas will arise naturally and continually as part of the day-to-day, as long as the culture is right.

There are lots of different versions of what a good “innovation culture” looks like, but at the heart of most definitions is autonomy. If goals are communicated clearly, and staff at every level are empowered to try new things to achieve those goals, it fosters a mindset that tends to shun inertia and take the company in a productive direction. “For innovation at Gophr, broadly I think it’s best to let the product teams decide what needs to be done next,” agrees Robert.

Matthews says that this diversity of thought should reach all the way up to the leadership team. In recent months, he has hired multiple senior people from other industries to bring their experience to Tokamak. “My advice on making that work well is to make sure that you have the right culture around the table, where people are able to speak up if they think ‘that’s actually a poor idea,’” says Matthews. “That will create an environment where you get all the views on the table.”

Financial resilience promotes creativity because it lets you make mistakes. For businesses that depend on more expensive, tech-led innovation, that’s especially important.

Matthews has organised Tokamak around discrete verticals that serve different customer bases. The company’s high-temperature superconducting magnets have applications beyond fusion: They are relevant across everything from space to medicine. The teams working on these different use cases have different dynamics, business approaches, and time scales, all of which further mitigates risk.

“If one project doesn’t work out, you don’t find you’re in trouble financially,” says Matthews. “Some projects might be absolute winners, others might be duds. But it’s about having choices and building resilience.”

Set innovation KPIs

Creativity may be nebulous, but as a scaling business you need to measure it. Common innovation KPIs include tracking the number of new ideas generated, measuring the rate of these ideas’ implementation, and tracking the profitability of a new product or service once it makes it to market.

Some of these metrics will be case-specific. For a deep tech company like Tokamak, its main innovation KPI is patents, of which it currently holds 286. “The company is in a technological race against competitors worldwide,” says Matthews. “For a business like ours, patents are the best way to track how we measure up.”

If an innovation fails to deliver on key KPIs, be ruthless about its fate—and learn from why it didn’t work. If it succeeds, however, identify what went well so you can repeat it. The world will keep changing, and you’ll need to keep changing too.

What we learned

Five one-line takeaways...

1. Recognise that innovation can be small and incremental, like tweaking a process or upgrading a feature.
2. Foster a culture where innovation is integrated into everyday business, not seen as separate projects.
3. Encourage team collaboration and open discussions to generate and evaluate ideas.
4. Run multiple projects simultaneously to spread risk and avoid reliance on a single success.
5. Set innovation KPIs to monitor progress and ensure continuous improvement.