Communication key to innovation

Innovations in the shipping industry need to be communicated better to the relevant decision-makers, says shipping strategist and business academic Peter Lorange.

Speaking at the Lorange Institute of Business in Zurich, of which he is owner and president, he tells Generations that it is worth looking at the “basic treatment of innovations.”

The author of Shipping Strategy - Innovating for Success, Lorange says, “It’s important to understand who your target group is – in this case, the shipowner.” He adds that while “owner” is a broad category, investors in shipping companies and vessels can also be regarded as owners.

“These owners basically ask one question: How can I come up with more competitive ships? And more competitive today means more fuel-efficient. Five years ago, it would have been higher speed and ten years ago, safer ships.”

So, how does an equipment manufacturer communicate a fuel-saving innovation to an owner? According to Lorange, winners in the market place tend to have a larger focus on their customers’ needs than on the beauty of their own solutions.

“Many of the equipment suppliers who should be driving innovation like to talk to their counterparts within the shipowning organizations. So they talk technical to technical.

“They may want to talk about the technical features of such-and-such a gadget, instead of telling the shipowner what really matters: how much fuel the gadget will help to save.”

One-to-one communication better

Lorange, who ran his own shipping company for 19 years, says, “I’m not so sure that these things are well communicated via technical fact sheets either, which is one-to-many communication. That’s not what decision-makers read. One-to-one discussions and communication via the internet work much better,” he says.

On the age-old problem of resistance to new ideas, Lorange says, “It’s important to understand there will always be a certain hesitance to go for new things but, again, if people become convinced there is a pay-off, they will do it.”

Another dimension to this resistance, he says, is that “shipyards make money out of long, relatively standardized series. So, for them it could be bad news to change a long series into a shorter one.
“So, for instance, we have studied shipyards who say ‘great innovation, great ideas’ but they proceed to give you basically an old design with a bit of cosmetics here and there. 

“The business cycle makes it difficult to have steady innovation. It’s only when the cycles are down that there seems to be an eager acceptance for innovation.” Right now the market is ripe for innovation.

“If you talk economic cycles in general, things are going slightly better. If you look at shipping cycles, things are certainly close to the bottom,” says Lorange. “The shipping industry has been relatively conservative up to now, but over the last few years there have been dramatic innovations. All of this started with the need for more environmentally friendly and fuel-efficient ships.

“It’s extremely important for anyone thinking about ordering new ships today to make sure they are highly energy and cost efficient. I don’t see how you can sell old equipment today.”

But why buy new ships in an already over-supplied market?

Older ships may be technically sound but economically obsolete, says Lorange. He cites the example of bulk carrier fleets, where “the optimization of the entire fleet benefits from the more variable speed flexibility features of the new modern ecoships.”

“If you are a container liner and you compete in the so-called East-West trades, you’ve got to have the latest big, fuel-efficient ships. They also have to have a variable speed so that they arrive on time. 

“Maersk, for instance, discontinued its daily service between China and Europe because of the technology issue. You simply have to have the latest ships out there. That’s what your customers expect. The same is true for cruise lines.”

The speed of innovation is “everything today”, says Lorange. And it is the big customers of shipping companies who appreciate these fast innovations. “Companies like Nestlé, Adidas, Unilever take fast innovations as a given because this is what they give their customers. Automotive and other manufacturers are also under heavy innovative pressure. Why shouldn’t they require the same from their suppliers?”

But, while developers may have the best, most innovative technology going, Lorange’s message is that this is not enough. “It has to be seen by the decision-maker and it has to be seen as relevant,” says Lorange.

He sums up the innovation process as one moving from customer needs to innovation to communication.

Part of the communication process is branding. Having a big brand name behind one’s innovation is a huge advantage in getting it onto the market, says Lorange. “Innovation means, by definition, something new. It means buyers take a certain risk, but if you have a big brand name behind you, that risk is easier to bear.”

But, as he says, “Innovations should be communicated to the relevant decision-makers.”

It is only when the cycles are down that there seems to be an eager acceptance for innovation.

Peter Lorange

– President and owner of the Lorange Institute of Business in Zurich (former GSBA) 
– Previously President of the International Institute for Management Development (IMD) in Lausanne and the BI Norwegian Business School
– Taught at the Wharton School, University of Pennsylvania and at the MIT Sloan School of Management
– Received his undergraduate education from the Norwegian School of Economics
– Awarded an MA in operations management from Yale University and Doctor of Business Administration from Harvard University 
– Holds six honorary doctorates
– Owned and ran S. Ugelstad Rederi shipping company for 19 years

Why he went  into shipping

“I am basically an academic. I have written 21 books and more than 130 articles, I have six honorary doctorates. But I asked myself: ‘Why should I talk about business like a sociologist and not do business like an anthropologist?’ One of the things I ended up thinking about was shipping. So I inherited part of this little shipping company in 1988 and subsequently bought more and built it up. It turned out great. It was great to have to deal with cycles and innovations within this shipping reality. I sold it in 2007 and did very well. Now I’m heavily into shipping in that I buy shares in ships.”

In 2007 Lorange sold the Norwegian offshore services shipping company, S. Ugelstads Rederi, to Athens-based Aries Group for a reported €90.4 million (at March 2010 prices)

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