Why Companies Choose Not to Innovate

Agile Business Connect

You read that right, it’s a choice. Companies often make a conscious decision to not innovate. Why do companies choose to do this? Why is it so hard for their employees to innovate? Let me count the ways:

  1. Because it is easy, embarrassingly easy, to kill an idea –How often have you been in a meeting, when a coworker comes up with different approach to solve a problem or new idea? What is the reaction? “Oh wow! Great idea Jane! I’ve got some ideas on how we can implement that.” Or is it more like this: “That won’t work, and here’s why…” “We tried that before and it didn’t work, because… “ Why? Because it is part of our corporate culture. It is easy (and comfortable) to find reasons why an idea won’t work. It is easy to poke holes in a new idea or product, but hard to…

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The New Wal-Mart Cash in on THE ONE company profiting from the death of the mall

You know as well as I do that malls are obsolete… as relevant and useful today as telegraphs and buggy whips…

Once the de facto site for Christmas shopping… the hangout spot for high-school kids… where you’d buy your sweetheart an engagement ring — local malls are quickly being “reduced to largely vacant shells,” according to The Wall Street Journal.

The iconic American department stores anchoring the mall — names like Macy’sJ.C. Penney, and Sears — have also lost favor with shoppers and are on the brink of ruin. Even their debt is “junk.”

What’s forcing these malls to board up?

It’s simple: the ease and speed of Internet shopping.

And the clear leader of online retail spearheading this trend is Amazon.com [Nasdaq: AMZN].

Similar to Costco, Amazon’s strength begins with its innovative, visionary founder — CEO Jeff Bezos — who is focused on making smart and profitable long-term investments. As he told The New York Times, “You can’t do big, clean-sheet invention unless you are willing to invest for long periods of time.”

One example of this innovation is the Kindle. This revolutionary tool makes it possible to cheaply and wirelessly download books in seconds. Thanks to Amazon’s relationships with publishers, its dominance in e-book retailing will only continue.

But Amazon’s plans don’t end there…

Amazon is setting up a monumental digital store where you can purchase anything you want to read with a click of your mouse or a tap of your finger on a touch screen, and have the material in seconds on whichever device you want.

Amazon has also begun partnering with top universities. Recently, incoming freshmen at Princeton used Kindles to read textbooks — shaving off about one-third of the cost, according to the National Association of College Stores.

And they hope to soon be doing the same for elementary, middle, and high schools.

Profiting from “The King of E-Tail”…

Although it’s a familiar name, Amazon is still a smart choice for your money because analysts are utterly incapable of predicting revolutionary breakthroughs like the Kindle (in all its current forms) and how they’ll play out over the long term. This means they never accurately estimate future growth.

This is exacerbated by the fact that Amazon doesn’t cater to Wall Street analysts like other large companies do. In fact, BusinessWeek referred to Amazon analysis as “Internet-age Kremlinology.” Instead of open access, analysts “have to rely on [their] own ingenuity,” as a Bernstein Research analyst put it…

And they consistently fall short.  

What’s more, Amazon isn’t just a bookseller… it sells everything from music to DVDs, from furniture to cooking devices and beyond. Customers review items, serving as free testimonials for shoppers on the fence. 

One thing’s for certain: As malls continue to disappear, Amazon should grow more prominent and will likely compound shareholders’ investment over that time period.

And if you think you’re too late on this stock — you’re mistaken.

The Death of Wal-Mart The Real Cash Kings Changing the Face of Retail

For decades, it seemed as if consumers were on an all-out shopping spree, fueling massive growth in the retail sector.

But now that run is over.

The recession forced the nation’s biggest retailers, like Macy’s andJ.C. Penney, to shutter up stores and halt their plans for expansion. And many others, like Circuit City and Linens n’ Things, declared bankruptcy.

This news may sound grim… but Americans haven’t completely stopped spending. In fact, a handful of retailersactually grew revenues during this difficult retail environment.

Yet when most people think of recession-proof stocks, Wal-Mart is usually the first that comes to mind. It’s definitely a favorite of the financial media. Kiplinger’s and Forbes both point out Wal-Mart’s ability to hand investors steady gains throughout deep recessions.

But be warned! Wal-Mart is NOT the best stock you can buy right now.

That’s because it’s one of the most widely held stocks in the world. It would have to pack on another $250 billion in market cap to double your investment — a monumental feat, to be sure.

But imagine if you could invest in two businesses very similar to Wal-Mart — that attract more customers in tough economic times… That crank out cash no matter how bad things get… And that have market caps that are just a fraction of Wal-Mart’s…

One is a brick-and-mortar competitor… the other is an e-commerce business that Fast Company calls “The New Wal-Mart.”

So let’s dive in and find out what makes these companies so special. And why David and Tom Gardner — co-founders of The Motley Fool and co-advisors of the Motley Fool Stock Advisor investment newsletter — believe these are excellent long-term retail holdings.

Put customers first and success will follow

That’s what motivated the founder of our first company — and as you’ll realize, it’s what has its stock price set to soar. Although the founder recently retired, we expect his successor to do the same. With bulldog tenacity, this company keeps prices low — making sure customers come back time after time.

The company is so focused on creating bargains, markups never exceed 15% on any product — pressuring suppliers to sell for cheap. It’s not easy, but “that’s why they call it work,” he says.

Call it what you will, but it almost guarantees healthy cash generation and consistent growth! In just 30 years it’s become the seventh-largest retailer in the world.

In fact, this company brought in more than $103 billion in sales — in the past 12 months alone!

These kinds of results led to a No.1 “Specialty Retailer” ranking in Fortune magazine. It was also recently named the “20th most admired company in the world.”

You’re probably familiar with this company and maybe even its founder, Jim Sinegal. You may even be among his stores’ 67.4 million members. But you might not realize just how big the stock’s upside is.

Frankly, we’ve long considered Costco Wholesale [Nasdaq: COST] one of the best-run companies around. Its stock hasn’t always been cheap, but the company is still a long-term favorite.

Because what Costco sells is big value. Each of the club warehouse retailer’s 627 no-frills stores is as big as two and a half football fields with the end zones — enabling each location to carry about 4,000 items. Many of those are in bulk. So if you need a 48-pack of toilet paper or 15 pounds of rib eye, Costco has you covered. Its wide variety of merchandise includes laundry detergent, tires, diamond rings, electronics, and tubs of trail mix big enough to sustain a Boy Scout camp for a week.

Costco makes sure shelves are stocked with big items carrying small price tags. Though this limits the profit it can make off merchandise, the primary focus is providing Costco’s members with great value. And the company keeps things interesting for them by constantly stocking the shelves with new items, a concept Sinegal called the “treasure hunt.”

More than 67 million people in 37 million households belong to Costco. And its membership base is a big part of its success. About 75% of Costco’s operating income comes from the $55 annual household membership fee, which allows members to shop at any of Costco’s stores or on its website.

And customers keep coming back for more. The renewal rate for membership approaches 90%, no doubt thanks to the company’s refusal to substantially mark up merchandise. Costco is working on expanding its membership base and hopes to open hundreds more warehouses — many in international markets, where value shoppers abound.

For some companies, new stores put a dent in the bottom line. Not so with Costco. With almost no exceptions, every store the company opens is immediately profitable. And each has a track record of becoming more profitable every year of operation.

How is this possible?

In part, it’s because Costco has an exceptional cash conversion cycle. That’s a little formula that measures, in days, how quickly a company can buy inventory, get it on the shelves, and sell it, thus converting it to cash. Costco turns over its entire inventory 12 times a year (roughly once a month!) — allowing it to sell merchandise even before it has to pay its suppliers for it.

This enables the company to buy some of its inventory on the vendors’ payment terms instead of using its working capital. Costco’s outstanding cash conversion cycle is less than three days. By comparison, a more traditional retailer like Macy’s usually takes at least 30 days to convert its inventory to cash.

This business model produces significant free cash flow — about $1.5 billion during the past twelve months. And this has enabled Costco to build a solid balance sheet, with $5.7 billion in cash and only $4.9 billion in debt.

Even though it’s now trading above $100 a share, we’re still convinced it could be worth more. Meaning investors who snap up shares now will continue to be rewarded.

No matter how we run the numbers, now is time to make a Costco run!

LG: IPS Flat Panel Monitors – Marketing Dollars Hard at Work


David Freyman

What a clever advertisement by LG to show how lifelike its new IPS flat panel monitors are.

The LG crew sets up monitors to appear as the floor of an elevator. When the unsuspecting elevator user selects their floor, the elevator starts to move. As the elevator is moving, the LG IPS flat panel monitor shows an image of the floor breaking away. The crew set up a camera to view the reaction of unsuspecting elevator users as the TV’s show the floor of the elevator breaking off.

This is a pretty clever campaign by LG, and receives my pick of the week for good advertising dollars spent.

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Wear the Shirt / Ponte la camiseta

John Harold Belalcazar Lozano

Wear the shirt by the company means that when the company requires some additional efforts from us, we are willing to provide them. Even if it means theoretically degrade our position. But who better to demonstrate that our experience can be shared to help maintain the professionalism of the company. We can not be blind if we see catastrophic situations happening, those we can help solve or better prevent from happening.

If a situation will get us out of our comfort in order to solve it, should be seen as a new experience instead of running away and witness how it affects our environment in a bad way, of course it is more likely that if we really love our work always we are willing to help.

Having the shirt means that we will not let the company fall for something that we can fix.

The moment you decide to take…

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