Financial issues

Ericsson could learn innovation from Google. EQapital explore the financial developments of innovation and CSR and the implied requirements on corporate governance.

Tricky issues surrounding innovation. 
Ericsson could learn innovation from Google. EQapital explore the financial developments of innovation and CSR and the implied requirements on corporate governance..
Published 2009-09-03

Tricky issues surrounding innovation

Innovation is a central part of a successful corporate strategy. There are no companies that are active in a true stable market. The markets are changing with increasing speed and due to rapid information exchange customers and competitors are shifting shapes. Success demand multidiscipline change and development, not just with the companies but also from key aspects like corporate governance, legal structures and the labour market parties. The need for change is a paradigm shift.
    
Studying Google Corporation is a great start. The company has existed for 15 years and the market capitalisation is US$bn340. Another famous flagship company is Ericsson. An important difference is that Google in comparison exceeds that of Eriksson’s 8 times while Ericsson has been around eight times longer. One explanation may be corporate governance – While Google is in an innovation mode, managing by a clear culture, Ericsson is in an administering mode, managing by traditional business school principles. The Google culture includes innovation over earnings. They have the benefit of having made this clear from the days of the IPO. The financial targets are there and they are clear but there is a realisation that the rewards of innovation may take a while.
    
Can this shareholder friendly culture be transferred to a company like Ericsson? A way to go forward is to start at the top. The important changes in corporate governance should be:
    
Change start at the top

  • Financial targets. The owners need to redirect focus from growth and margins to total shareholder return. While growth is great margins is not. This kills innovation and innovation is the key in Ericsson strategy. The shareholders and the equity market need to visualize a great exponential growth and this will not come from a cost focus. Growth targets combined with margins also increases risk like flight to unpredictable markets.
  • Refocus the board selection. Being a director should not be a power game but based on finding the winning strategy. The majority of directors should be individuals with complementing skills and experiences and they should have a maximum of one other directorship. The transformation of a huge ship like Ericsson requires attention.
  • Refocus board attention. Audit and remuneration are relatively simple issues – innovation, intellectual property and corporate responsibility is not. Should the board need special committee work this is where it should happen. Ericsson has a great innovation pipeline and in this cruel world it need all the help it can get. Please let us see an innovation committee with individuals that have skills in managing an innovation pipeline and that may understand intellectual property rights.
  • Empower people and foster transparency. Great innovation requires the contribution of everybody, especially the trade unions that need to actively promote transferability.


Ericsson needs active shareholders to enable the transfer into great market values.
    

Ulf Löwenhav


This article is written by Ulf Löwenhav
Send an email to ulf.lowenhav(at)reaktionvalue.com
Twitter @ulflowenhav

 

EQapital.com

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