There was a time, not that long ago, when companies didn’t necessarily have an innovation-related objective on their strategic agenda. Instead, they would, for example, be focused on reducing costs, expanding geographically or creating operational excellence. It wasn’t that product or service development wasn’t important, it was just that the level of detailed executive and organisational focus on this area of the business varied in line with its perceived relevance to the company’s growth ambitions.
As Bob Dylan once sang, though, things have changed. Innovation is no longer a strategic alternative; it is a strategic imperative. It is impossible to gain and sustain a leading position in your market without a systematic and comprehensive commitment to innovation.
Innovation is, of course, far more than product and service development. In corporate terms, it can be seen as the delivery of an important and original idea that provides you with new competitive advantages. When you take this wider view of innovation, you can identify four different types of innovation:
Product and service innovation.
This is what most people mean when they talk about innovation. Dyson’s bag-less vacuum cleaner, Apple’s iPad and Nespresso coffee capsules are all examples of product innovations that have fundamentally shifted the dynamics of their market. Even with patent, trademark and brand protection, however, the competitive advantages offered by these products are eroded over time through competition. In other words, even with game-changing innovations, entropy will inevitably take over and your advantages, revenues and cash flows will decline. What’s more, relying on single-hit innovations, rather than a stream – or even a torrent – of new innovations, will not create sustainable success.
Some companies drive innovations through their operating model, often led by investment in technology. During the 1980s and 1990s, for example, WalMart gained huge advantages against Kmart and its other rivals through the company’s massive and sophisticated investment in supply chain systems and technologies. Again, as your rivals catch up you will be required to find the next stage innovation if you wish to maintain or extend your operational advantage.
Business model innovation.
It’s possible to innovate at an even higher level than product or operations. Ryanair and other low-fare airlines, for instance, have transformed the air travel market by creating and deploying an entirely new business model that traditional carriers find difficult to compete against. Product innovation can also go hand-in-hand with business model innovation. Nespresso, for instance, not only sells a range of coffee capsules, but also does so through a system that the company either controls or strongly influences. The coffee machines can only use Nespresso capsules and the capsules can only be bought through company’s on-line portal or from its small chain of boutique stores. Innovations focused around entire business models are harder to copy than product or operational innovations, but are equally harder to develop and deliver.
Organisational and cultural innovation.
Finally, companies can innovate around their culture and organisation. In the 1980s, for example, ABB created a high-growth business by breaking the huge engineering company into a series of smaller and entrepreneurial business units. More recently, the rise of Zappos was driven by the relentless focus of its leadership team on customer service, and the development of an organisational culture that provides a great experience for its workers, encouraging them to go the extra mile for their customers. In other words, it is possible to create a serious competitive advantage through your organisation, management approach and culture that other companies can find hard to match.
Using this broader view, you can immediately see that the potential for bigger, better and faster innovation in many businesses is huge. Which of these types of innovation could your business pursue to create meaningful and sustainable advantages and to drive your future success?
© Stuart Cross 2016. All rights reserved.