2 Types of Innovation Growth

source: timfoundation.org

source: timfoundation.org

In evaluating the performance of the company in our investment portfolio, growth is definitely part of the equation that we want to include. This growth can be attributed by new markets penetration (inorganic growth) or simply improving certain service or product (organic growth) that the company is currently having, so as to increase value in turns hopefully lead to increasing revenue.

To put it simply, innovation is the key essential for a change. Be it reflected in the work processes of the company or in the product/services the company is providing.

However, a change doesn’t always have to be good. I like the way how Clayton M. Christensen describe the 2 types of innovations. Let’s us first understand the 2 types of innovation:

1. Sustaining innovation
2. Disruptive innovation

1. Sustaining Innovation

Sustaining innovation seeks to improve the current state of performance and value in products, processes and services.

Do not have the wrong impression that sustaining connotes boring growth, it can be radical at times. For example, with the Retina display on phones and tablet, Apple successfully improve our viewing experience, and created a brand new standard where pixelated words are ugly.

But of course, sustaining growth can also take place in incremental steps, progressively. For example from a 2gb RAM to a 3gb RAM. It improves speed and performance, but nothing to call it a new standard, more of catching up to meet the needs of consumer demands.

No matter radical or incremental, sustaining growth aims to improve performance of a product that the markets values. Most of the technological advances falls under the sustaining growth

2. Disruptive Innovations

Disruptive innovations create a different value existing products, services and processes can provide.

As described by Clayton Christensen, generally products of disruptive innovation will underperform established products in mainstream markets. But they have other features that a few fringe that customers valued.

Ideally the end product should be cheaper and simpler to use. For example, a notebook computer versus hand-held digital devices such as tablets.

This type of innovation is less often employ by companies as it might result in worse product performance at least in the near term. However, companies with established product serving the mainstream market should take note of disruptive innovation that could affect the company position in the market.

Conclusion

It might be interesting to note that although promising it might sounds for disruptive growth – to be a game changer, it is disruptive technologies that account for most companies failure. Many companies lose their stand as market leaders due to disruptive innovation.

On the other hand, even the most radical sustaining innovation rarely account for failure of leading company.

I hope this short article serve you as a food for thought, be it in your workplace or when you are evaluating your invested company. Make a thought on what is the type of innovation is the management team placing the most resources in? What are the upcoming disruptive technologies which will affect the standing of your company? As this might equates to the future success or even survivability of your company.

Cheers~

Expectation Vs Reality

Today I witnessed a conversation between my boss and a colleague. The topic is about expectation vs reality. It really makes a lot of sense to me and I have the urge to share with you readers.

Everyone, including your boss, parents, spouse and friends will have certain expectation from you. Having expectation is not a bad thing. In fact, if you take it positively, people will only have high expectation of you when they have high regard of you. But what if the expectation from a someone is too much to take or on the other hand, you are disappointed with someone who never meet with your expectation?

I think one particular sentence from her just strike hard into me, “People are born differently, with different strength and weaknesses. We have to accommodate the fall short of one another.”

Let’s face the fact, we are living in an imperfect world. I agreed with her that we will be too much if we ask for the ultimate perfection from someone, it is impossible. Even we can blame others for their mistakes, we must always be conscious that we are no better than the person we are blaming. We also cannot expect everyone to be just like us, as we have the tendency to place ourself on a perch.  Everyone will have their working style and thinking. That’s what make us human, aren’t we?

So, in my opinion, there is no need to please everyone or expect everyone to please you, it is not possible. There bound to be friction, expectation gap and mis-alighnment of goals at some point of time. These gaps if to be treated positively, are actually a good tool to spur us and the team onto greater heights. We shouldn’t put all blame onto ourself or others.

The key lesson here is communication. We have to communicate to calibrate to each other’s expectation and needs. If you want or need to work in a team, then you will have to digest this adage:

If You Want To Go Fast, Go Alone. If You Want To Go Far, Go Together

5 Questions You Should Ask When Buying A “Business”

In the previous post on Buying Stocks Equal Buying Business, I urged you to have a business-driven mindset whenever you are making selections in the stock market. You shouldn’t go ahead and buy a stock that you have no idea what the company business is. Just like you would not buy a TV without knowing what’s the brand, the quality, the reasonable price to take and are there any other better options from its competitors.

Personally, I would prefer not to buy any business that I do not understand. As I know without adequate knowledge, I would not be able to make a sound judgement. I just do not like the feeling of not having control over my portfolio. As adage always said, ” If you do not have control over the external forces,  the external forces will have control over you.”

So to help you evaluate yourself and the company: I present the 5 questions that you should ask yourself before buying a stock:

1. What products or services are the company providing? 

This is the very first question you should ask yourself. You could be using the product yourself and thus already knew about the company’s product ranges. If not google it or walk on the streets (visit supermarkets, shopping centres, etc) to do a market research.

If you can’t even answer this fundamental question, then I will be puzzled that why did you even consider this company in the first place? Because of the uprising trend? Please remember that trend is driven by market sentiment, people like to flock in when there is an upbeat in a particular stock but when things go wrong, everyone will run doubly quick. In the end, we, retail investors, suffered the most. Remember the recent massacre happened in SGX with regards to the trio penny stock? It really break my heart to read about people losing their entire saving in just a day.

2. Are the product and services able to found elsewhere?

In other words, you are trying to identify your company competitors. You would like to buy a monopoly business if not limited entry to the same business. If you do have a couple of competitors, you should proceed with the following question, no. 3.

3. As a consumer, will you buy the product from this company or from others?

This will identify the strength of the company or some financial analyst like to term it as competitive advantage/economic moat.  There should be a strong reason for you and other consumers to stick to the company product, if not, then this company position in the industry is weak and tend to be challenged very easily.

The strength could be in terms of branding (think of coca cola for drink, Osim for Massaging Chairs), quality (Apple for innovative gadgets, Toyota for durable cars) or even price (Sheng Siong for supermarkets). Although personally I would less prefer the price for being a strength as it will tend to eat into profit margin or worst still, involved in price wars with competitors.

4. Are the reason for the company to stay at top position, sustainable?

This question will help you to identify the company’s ability to survive in this harsh business environment.

That’s also because one of the reason why I don’t like the price to be the only competitive advantage a company has – It is not sustainable! In order for your portfolio to grow long-term, you will need to seek for a long-lasting advantage. The value the company is providing ideally should be able to last for many generations to come. For example, people will need food and drink no matter how badly does the economy is performing. Oil is definitely needed to fuel our cars, power up our generators etc.

5. Are there any potential growth or catalyst that push its business to greater height?

The world is changing everyday and rapidly.

This question is important as it will not only ensure the company’s survival but also growth! It acts as a filter to separate an outstanding company from an average company. In this time of economy where inflation is like on ecstasy, without growth potential, the company will be on its way to death. The reason? The company cannot find any good reason to increase price

The growth can be measured by either revenue growth or in an intangible aspect, is there any potential innovation ideas spawning in the company that could be the next big thing?

Conclusion

These 5 questions will only aid you to identify the business the company having together with its strengths and weaknesses. However, before you jump into any stock and put in all your money. You will have to look into other aspects such as the health of the company. A good company might not be in good health now. Health can refer to cash flow and its debt gearing.

So readers, do follow spectra of life for more insights into investing. I would try my best to share as much as possible. So do stay tuned!

Buying Stocks Equal Buying Business

Yes! I hope Spectra of Life’s readers can think like a ‘business owner’ when you are buying stocks from the stock market.  Whenever people discuss about stock market, usually the topic will revolves around the price of the stock. For example,  What is the price for AA stock now? Do you think AA stock will gain a 20% in price this year blah blah blah. To me this is more of a speculator or simply, a gambler mindset.

Why should you think like a business owner?

Although frankly speaking, you don’t really literally own the whole company when you buy its stock, but you are still a minority shareholder. You share the company success or failure. By having a business owner mindset, you buy a stock for a reason, less of a gambling intuitive. You analyse the company health and weigh it against its pro and cons before putting your hard earned cash in it. Just like how you will look into various brands of handphones and its specification before deciding on your final purchase.

You tend to rely less on greed and fear when buying or selling. You have your reason to enter at a predetermine price because of fundamental reason and would only sell if the company no longer financially sound or you can have better return elsewhere.

For the next post, I will share on the 5 questions you should ask when buying a stock as a business owner. For now I would like to leave you with a quote by Warren Buffett:

“Price is what you pay, value is what you get”

So stay tuned~