The Internet has produced new channels of communication, customers, and competitors with new business models. Where competitors appear from and their impact on your business is becoming increasingly unpredictable. And the Internet has vastly accelerated the rate at which information about innovations is disseminated.
Strategy convergence
Historically, the fruits of innovative thinking focused on maintaining growth, improving existing products and business processes, cost cutting and reducing inefficiencies. However, everyone looked to the same case studies for best practice and benchmarking. The result? Strategy convergence. No-one does anything truly novel to make an impact on top or bottom line growth and the slope to price wars and advertising battles is slippery and steep. In the meantime, nimble competitors are ready to address customer expectations in your market.
There is still an important role for product and marketing innovation to ensure that value creation is maximised from products and services. For example, Tetley’s seemingly pointless round tea bags played an important role in differentiating a highly commoditised product in a crowded market.
Fuelled by the networked economy, the business environment now demands innovative thinking at the level of corporate strategy. It is no longer the comfortable domain of R&D or marketing. New business models and organisational alignment to strategic objectives are a board level concern. The ease of information and knowledge transfer and customer proximity enabled by the Internet has compressed the lifecycle of products and services. Organisations need to learn to innovate more quickly and continually.
Intel was one of the first to realise an opportunity when its chips were becoming a commodity. Marketing innovation through the creation of the “Intel Inside” brand identity created a demand for Intel chips (essentially a commodity product) and transformed Intel into a household name.
Amazon.com provides another excellent example of a networked economy market innovator. Amazon has become the gold standard of pure play retail brands. It continues to innovate and reinvent itself through the introduction of new features and customer service elements, such as the creation of a wish list and the second-hand book selling service. A combination of innovation, great database marketing and a dedication to excellence in customer service gives Amazon its competitive advantage and brand loyalty from its customers. It knows the profiles of its customers intimately and markets to them accordingly.
The networked economy has set new standards for innovation. Producing a groundbreaking product every few years is no longer enough to satisfy your shareholders or customers. In addition, the accessibility of information databases, industry knowledge and customers has made innovation less proprietary. The barriers to entry are low and physical assets almost a disadvantage. Amazon may have taken a lead but it has yet to make a profit and needs to continually stay ahead of followers ready to replicate the model and steal a share of the market.
There are now fewer opportunities to create intellectual property through patents and trademarks, and the policing of IP infringement is a tough task. Licences, IP and distribution rights have been totally disregarded by Napster’s music sharing network. Napster realised that no-one will argue with “free” and built an immense peer-to-peer network that bypassed the entire music industry and caused a furore among the incumbents. The music industry has attempted to close Napster down but other sites offering similar capabilities have sprung up to take its place. Wolfgang Grulke in his book, The 10 lessons from the Future, argues that once broadband technology becomes widely available, people will buy digital information directly from their creators and intermediaries such as the record companies, leaving broadcasters out of the loop.
The value and source of innovative concepts now resides in an organisation’s people, systems and networks. With knowledge so widely dispersed and variably expressed, the challenge for the organisation is in recognising this knowledge and converting it into commercially viable business models, products and services.
Innovators reside in every company and can be characterised by their ability to listen, probe, ask questions, identify problems, develop alternatives and maintain open and fluid co-operation within teams. Identifying innovators, building teams and progressing ideas to market is the challenge for organisations.
Stimulating innovation
From a consultant’s perspective there are some measures that companies can implement to stimulate innovation from within:-
– Understand the value of a solid business model – this requires a deep understanding of core strategy, resources, customers and networks (partners, suppliers etc). Comparing the business model with competitors’ enables you to identify where there is scope for differentiation, novelty and improvement.
– Strategy convergence – avoid looking like your competitors. Your strategy should be distinct from their missions. Strategy is not a planning exercise, it should be creative, active and involve an element of serendipity. Look for non-linear steps along the curve of continuous improvement.
– Lead, don’t follow – by the time you have implemented best practice and gold standard methods your market and industry will be looking for future opportunities and business models.
– Efficiency trade off – squeezing out costs and increasing efficiency in processes may be a costly exercise in terms of time and effort. Optimisation is short lived and effort focused on creating radical innovations will buy plenty of time to optimise business processes and systems.
– Expand your personal network – productive strategic thinking will come from speaking to people outside of strategy – your customers, staff, competitors. Look outside your industry for examples of success and failure, understand these and build on experiences. The creative process is not stimulated by routine or interacting with networks of like minded people.
There are paradoxes here. Large organisations need to be process driven and structured for business success, yet innovative ideas are often the product of an individual’s creativity, leading to a desire to disrupt existing methods and processes. There is a need to maintain a framework of best practice for the fostering of innovation, although strategic value creation will often materialise when current practices are questioned.
Many managers see the spinning off of innovative parts of their organisation as a solution. The Technology Partnership (TTP), a Cambridge-based specialist in product development in the mobile communications, printing and pharmaceuticals sectors, set out to develop a culture that encourages innovation. This resulted in the spin-off of a “golden fruit”, TTPCom, a developer of technology for wireless devices.
However, this approach can cause conflict as it encourages a “them and us” culture, where the core organisation feels excluded through the creation of an elite division. It remains a challenge for many management teams to create a truly entrepreneurial culture that permeates the entire organisation.
Most organisations do not have the necessary bandwidth to deal with innovation overload, so they look to their advisers to help them. The key challenges for corporates in this era of innovation overload is to make the right choices and then capitalise on them through accelerating their time to market. To help clients achieve this, consultants need not necessarily be great innovators themselves, but should be great evaluators of innovation and highly effective at determining how these innovations can be applied to clients’ businesses and industries and then work with them to exploit the innovation rapidly.
The networked economy has altered the pace at which the business environment changes. Incremental innovation is now too easily copied. Radical thinking and greater leaps of innovation are now required to keep organisations ahead of their competitors. It is time to start thinking in terms of return on innovation.