During a conference not long ago, I listened to a panel of crane rental company owners talking about how crane rental rates have essentially stagnated. Equipment and labor costs have gone up, they said, as have just about every other business cost, but the primary driver of revenue for a crane company—the crane’s rental rate, which can be hourly, daily, weekly, or monthly—hasn’t.
My interest was piqued and I wanted to learn more, so I reached out to a few people and asked if they agreed—and, if so, what they thought the reason was. The answers were interesting.
Not everyone I spoke to shared the sentiment of the panelists. One person said that over the last ten years, they did indeed increase rates on most cranes, on average, about 12.5%. The exceptions were on the smallest and largest cranes in the fleet, which stayed fairly consistent. This rate consistency was attributed primarily to increased competition at both ends of the spectrum.
On the other hand, one person who did agree with the panelists said that they believed the stagnation was, at least in part, due to the fact that crane rental services are commodified, so specialization—and the higher rates that specialization commands—is hard to achieve.
Yet another person pointed out that crane renters aren’t actually interested in renting a crane; rather, they’re interested in lifting something from one place to another and the modality doesn’t matter to them. (This reminds me of legendary Harvard Business School marketing professor Theodore Levitt’s quote, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”)
Another respondent said that rental rates are low because higher rates turn away price-sensitive customers, and that all crane rental customers are price sensitive. Taking it one step further, this person said that a crane that’s working, even if it’s working at a lower rate, is still better than a crane that’s not working at all.
It’s hard to disagree with their logic.
To be as profitable as possible, crane rental companies have to be as efficient as possible. At least that’s the theory. But we know that efficiency can be both good and bad.
As one respondent told me, if a job that’s scheduled for two days is done too efficiently, the job may take only one day, thereby sacrificing the second day’s revenue. However, efficiency helps keep customers happy. After all, what customer doesn’t like work being completed early? It’s a double-edged sword in that efficiency is both something to strive for as a business, and something to avoid.
To complicate matters even more, what if the price we ultimately pay for a focus on efficiency is innovation? And what if this lack of innovation is the reason no one has proposed a better and lasting pricing strategy for renting cranes?
In an Inc. Magazine article titled, “Efficiency is the Enemy of Innovation,” business writer Geoffroy James asserts, “While innovation might (sometimes) create greater efficiency, efficiency itself makes innovation less likely…”
In “The High Price of Efficiency,” author Roger L. Martin writes that eliminating waste sounds like a reasonable goal, but it comes at a cost. “Why would we not want managers to strive for an ever-more-efficient use of resources?” he asks. “Yet… an excessive focus on efficiency can produce startlingly negative effects, to the extent that superefficient businesses create the potential for social disorder.”
To take this ever further, Blair Enns, consultant and founder of the training company Win Without Pitching, coined an entirely new term he called The Innoficiency Principle, which states that “innovation and efficiency are mutually opposable goals. In any reasonably functioning organization,” he writes, “one cannot be increased without decreasing the other.”
On a fundamental level, to innovate is to be less efficient. Innovation takes creativity and the very act of creation, of being creative, which involves iteration, is inherently wasteful. Creativity isn’t concerned with time. Or waste. Or efficiency. It’s concerned with creation, at the expense of just about everything else.
When companies prioritize efficiency, they’re simultaneously deprioritizing innovation. And maybe the cost of this deprioritization is, essentially, the rate stagnation that I heard those panelists talking about on that stage not all that long ago.
The reason large companies hire chief innovation officers at substantial salaries is because they understand the role that innovation plays in sustainable business success. The best example of this that I’ve read recently pointed out that in 2010, way before its current woes, computer-chip manufacturer Intel produced one hundred percent of its revenue from products that didn’t exist three years prior. That’s not innovation as a side project. That’s innovation as a first principle.
Perhaps it seems disconnected from reality to think that a crane rental company would hire someone concerned entirely with innovation, but imagine if every single day, someone in your organization came to work and tried to find new, better, more creative models for everything from pricing to scheduling to working. What if your company tracked innovation revenue and not just gross revenue? What if you could do what Intel did?
Just imagine the growth.
William S. Burroughs once said that when you stop growing, you start dying. I think he’s largely right. A business’s demise might not be apparently close, but the absence of growth means stagnation—and likely frustration as well.
Is efficiency the reason that crane rental rates have stagnated, if they’ve indeed stagnated? Maybe not entirely. But a lack of innovation almost certainly is. Which means it’s worth taking a moment to clarify your stance.
So ask yourself this: what will you prioritize—efficiency, or innovation?