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It is a Company-eat-Company World
Everyday your rivals try to offer something better that will
attract more customers to their services or products. Everyday
you try to hold them off. You hope your offerings are better,
but that can only last so long. Eventually competitors can find
a way to surpass your current offerings unless you innovate and
further raise the challenges they must overcome.
Itıs a Darwinian game where the victors are allowed to continue
on to innovate again and move their industries forward. For the
losers, irrelevance, obsolescence and ultimately business
failure is all too common a fate. If you were to examine the
Fortune 500 list from 1955 (the first year it was published)
there would be some companies that you would recognize, but many
more (well over 25% of the list) that went the way of the
dinosaurs and became extinct- dying of changes in their
environment or being gobbled up by more aggressive carnivores.
This is frequently the fate of the largest organizations in the
business world, and the challenge for survival is even greater
for the small and mid-sized companies.
To survive, a company must be aware of its environment and alert
to change. Change - it is everywhere. It is the current of
business, sweeping over all like a flooding river. When it
rages, it is frightening: bumping, bruising and even drowning
those with its power. When it is calm, change is tolerable, and
we build structures - systems, models and policies - that try to
control and resist it. If we get a good thing going, instinct
tells us to lock in the gains - to keep doing more of the same
to capitalize on our success. But it is a fine line between
capitalizing on success, and getting stuck in a rut while
clinging to a dream of a past when business was easier.
But there are companies that get tired of clinging and embrace
change. They prefer the adventure of moving with the current of
business over clinging and dying of boredom. Letting go, they
embark on a voyage into an unknown future where they are often
tumbled and smashed into unknown obstacles. For some it is too
much and they stop and cling again. But for those who refuse to
hold on, they soar with the currents appearing to magically fly
above those who try to resist the current of change.
Which kind of company will you create? One that uses its energy
and resources to hold back the currents of change, or one that
risks the currents of change to create new value in business?
This is the challenge of innovation. The best strategies always
hinge on some form of innovation.
What is so Great about Innovation?
A dictionary defines
"innovation"
as the introduction of something new or different. According to
the eminent strategy professor, James Bryan Quinn, "Innovation
is the first reduction to practice of an idea in a culture."
Without innovation, all we can do is try to optimize what we
have, but in a world where competitors are constantly upping the
ante, this is not sufficient. Innovation is the thing that gets
you ahead of the pack, rather than chasing your rivals. It is
the source of mutation in the DNA of a company that is essential
to survival in a changing environment.
Innovation can take on many forms. Most often people think of
product innovation - the new idea that gives your offering an
advantage over a rival's. This is a good start, but it is a
rather narrow use of a powerful concept. What are new processes
you can use to transform the very way in which value is created
in your industry? Amazon.com latched on to the internet as a
whole new concept of retail selling. Are there services you
could offer which would be innovations in your industry? General
Electric strives to wrap services around every physical product
it sells. And at the highest level, can you invent and deploy a
strategy that changes the rules of the game for your business?
Wal-Mart has redefined customer service and relentlessly driven
down costs to build a company with "everyday low prices" that
has rocketed to the top of the Fortune 500 while rivals Sears
and K-mart struggle to shore up their strategies which brought
them success in the 1970's.
Innovation is at the heart of value creation. In each case,
someone or some group of people imagined a company different
from the status quo. A new idea was translated into a product,
service, concept or strategy that could be brought into practice
to create new value for the company. Not all innovations are
successful. While any particular innovation may succeed or fail,
any company that wants to be successful must be working on some
kind of innovation to build a sustainable advantage.
If Innovation is so Great why doesn't
Everyone do it?
Well, there are a small number of companies that either don't
understand the need to innovate or don't care to try. But among
those trying to get ahead, there seem to be two common reasons
companies fail to innovate.
The first reason is that they are successful. Mankind's instinct
is not to rock the boat when you have a good thing going. When a
company does innovate, they are proud of their success. They
want to capture full advantage of the good times and try to
control the environment to extend their winning streak. Rather
than investing in the next innovation, they get trapped into
preserving the advantage of their last innovation.
In the 1970's IBM developed the most successful business model
for building and selling large powerful computers to
corporations. Success made the "mainframe" division of IBM very
powerful, and they used this power to try to preserve their
dominance in the market. Rather than forging ahead with daring
new products built from the latest technology, the IBM mainframe
group became conservative, slowly adding emerging technology
onto their existing platform. Digital Equipment Corporation had
no existing platform. They were able to start from scratch and
design the best possible computer. From this innovative quest
the "mini computer" emerged and DEC rode to prominence on this
product during the 1980's. But like IBM, DEC allowed its success
to slip into arrogance as they reveled in the innovation, which
brought them success and turned a blind eye to the ongoing march
of technology into the PC market. Tasks that once needed a
mini-computer migrated to the PC and HP, Compaq, Dell and others
took share from DEC. In time, DEC was so weak that they were
unable to bring their innovations to market and Compaq acquired
them.
The second reason companies don't innovate is, like DEC in the
later years, they get caught in a competitive squeeze. It often
begins with a sudden competitive attack on a market. A rival
innovates and introduces a product of greater value, but prices
it equal to the incumbent, or they bring a product of similar
value, but offer it at a much lower price point. In either case
the quickest and most common response is a price cut on existing
product to preserve market share and cash flow.
Any arbitrary price cut has to be followed with cost reduction,
to get profitability back to acceptable levels. All too often,
this means downsizing and reining in investment, both of which
take resources away from innovation efforts. Companies get
fixated on improving ROI by managing the denominator
(investment) rather than pushing the innovation driven numerator
of the equation. This leaves a company less able to innovate and
more susceptible to the next competitive squeeze. Before long
they can find themselves on a downward spiral like the American
automakers or Pan Am Airlines in the 1980's. AT&T failed to
prevail against rivals in the early 1990's and found itself
squeezed and had to resort to breaking up the company to improve
its ROI
when it was unable to deliver a breakthrough innovation toward
the end of the decade.
What does it take to be Innovative?
An innovator is never satisfied. There is always something
better around the corner, and he is determined to break from the
pack and find it. An innovator seeks not only to beat the
competition, but also to better his own inventions. In company
terms, an innovative company needs to try to put itself out of
business (with new ideas) before someone else does it to them.
Suppose you were in the port-a-potty business. It is not a
business that most people want to stick their nose in. I don't
recall ever meeting someone who was really satisfied with their
experience using a port-a-potty, so it would seem there is
plenty of demand for a breakthrough innovation. So far the
industry leaders seem to have made improvements that help them
lower their costs-easy to clean plastic, rugged commercial
design. But other than more powerful deodorizers, there has not
been much innovation to improve the consumer's experience.
So how would you innovate to try to put the industry leaders out
of business??
Well Potty Palooza asked and answered the question with a
determination to change the basis of competition in the
industry. Their approach, install 27 private bathrooms with
modern porcelain flush toilets, running water, air conditioning
and luxury hardwood floors in an 18-wheeler trailer. Not only do
they provide the basic facilities, but also each of their
trailers has a full time attendant to periodically clean and
stock the rest rooms. Will it work? I don't know, but it is the
type of redefinition of an industry that has the possibility of
being a transformational breakthrough. Rather than following the
leaders with incremental improvements, they have attempted to
fundamentally change the rules of the game and set a new basis
for competition in their industry. They are engaged in the
imagination game, not the imitation game. What about you? How
will you change the rules of your industry?
Increase your Innovation Quotient (IQ)
Okay, so you get the idea... when we speak of innovation we are
talking about introducing significant new ideas that redefine
the basis of competition. But how does a mid-size or smaller
company do that? You can't afford a think tank like Bell Labs.
The good news is that innovation is not dependent on dollars.
Sure some money will help bring things to market, but the
fundamental building blocks of innovation are IDEAS, KNOWLEDGE
and A PROCESS for translating these into tangible services and
products in the market. Every person in your company has the
ability to contribute regardless of function, title or salary,
IF you establish a culture and an environment to encourage
innovation.
Once you have a suitable environment, you need to fill it with
creative and qualified people. The most innovative companies
like 3M and Microsoft often interview 100 qualified candidates
to find the one that will fit with the culture and become a
contributor to their value creation process. In addition to the
people and the environment, you need to organize for the type of
innovation you are trying to encourage. Incremental innovation
has a 1-2 year time horizon and is often driven by strong egos,
bonus compensation and a small quick acting team. Where as
breakthrough innovations have a 7-20 year time horizon and are
best facilitated by creating a stable large team that is a
collegial peer group who respect each other and will stay
together over the duration of the program. In all cases,
innovation comes from the coupling of a breakthrough idea with a
disciplined process to refine and improve the idea to make it
commercially viable.
To inspire innovation in your business, there are three types of
knowledge you want to encourage and capture:
Know What....cognitive knowledge
Know How.....advanced skills
Know Why.....systems understanding
These are the raw materials of innovation. By the way, they are
also the building blocks of your strategic competencies. The
best companies develop and institutionalize knowledge in the
company. So if you have been developing strategic competencies,
you should be well on your way to having the elements of an
innovation.
But these are just the raw materials. The real genius of
innovation comes when someone dips into this collection of ideas
with a net and draws a select group together for a particular
purpose. At Canon they drew together their knowledge of optics,
electromechanical systems and mass production to launch the
innovative personal photocopier when Xerox and its competitors
were still thinking the market was about big, high speed, fully
featured machines.
The inspiration for innovation happens in an instant. It is
impossible to predict the exact moment or elements required for
genius to strike. There are, however, some common places to look
for inspiration. You should examine:
needs/demands of market place (customers provide some of the
best ideas)
value chain analysis (define linkages and where value is
created)
figures of merit (define what it takes to win)
theoretical limits, bounds
trends (extrapolation of pacing parameters)
models (interaction of a number of factors)
attack ourselves (define how we could beat our best today)
But inspiration is just the start. Good companies have a
disciplined process to transform the genius of a moment into a
refined product or service that is ready for the market. This
often requires several rounds of development with creative
inputs at each stage. The culture of the company has to not only
support the free thinking geniuses that seed the innovation
process with ideas, but also the more linear development folks
who reduce the idea into practice. The best companies find ways
to link their innovation process with their strategy process so
the two define and support a single vision for the organization.
They also find ways to measure innovation so they can
objectively monitor their progress and strive for ever higher
performance.
Keep Yourself in Business
The best way to keep yourself in business is to try to put
yourself out of business. If you are always on edge, never
complacent, then you will challenge your team for continuous
improvement. Innovation requires vision, inspiration and the
patience to support a relatively long time horizon. You can
encourage it by creating a productive environment and
organizational structure that you fill with the best people.
Change is a constant in business. We need to continually change
and evolve if we are to survive. Static barriers don't keep out
the barbarians who want our business. Winners embrace change and
create moving barriers that keep their rivals off balance. True
barriers to entry are created not by one thing, but by the RATE
at which you innovate and keep your competitors struggling to
catch up.
Winners learn to play the imagination game that leads to
innovation. They learn to have their cake, and eat it before
someone else does. Winners assume that others are trying to take
their customers at every turn and that their very survival is at
stake. They figure out time and time again how to put themselves
out of business before their rivals do. That is the challenge of
not just a strategy, but a renewable and sustainable strategic
basis for a successful business.
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