Friday, August 13, 2010

The efficient use of ideas

Every significant "leap forward" in the span of human consciousness has coincided with a significant change in the efficient use of a significant resource.  For example - the transition from nomadic life to farming.  This transition came about because people learned to till the ground and grow food that was dependable and sustaining.  The fact that people could stay in one place and have a consistent food source meant that they could take on other tasks.  The more efficiently they used the soil, the more crops they could grow, and the more time available for other activities. 

Other "leaps" forward include the efficient use of labor (thanks Frederick Taylor) and the efficient use of capital, which has eventually brought us to the problems with financial engineering that we've encountered recently.  All Taylor cared about was understanding how to get the most, best, productivity out of the labor of individuals, while bankers, financiers and CFOs have their own metrics about the efficient use of capital - return on invested capital as an example.

We're at a cusp of a completely new competitive phenomenon I believe - I'll call it the efficient use of ideas and insights.  The fact is that product lifecycles are rapidly declining, and firms in any geography can complete for their home markets as well as export markets.  This means everyone is competing for global market share, and the current "leader" in any category is really only as good as his or her next product or service.  In this environment, a firm must be efficient with its use of labor, and its use of capital, but ultimately those are in service to the efficient use of ideas and insights. 

The reason is that once a particular "efficiency" frontier is reached, additional investment doesn't add much value - in fact, as evidenced by some of the financial instruments, it may detract from the market place.  Eventually every competitive firm is relatively equal in terms of its use of labor and capital - although some have less expensive labor, which allows them to be less efficient with capital or vice versa.  However, at some point, more and more investment in a frontier that is highly efficient across the competitors doesn't add value.  So a new differentiator or frontier must be identified.

I believe that new frontier is the efficient use of ideas.  In the near future, firms that are very efficient at creating, developing and implementing new ideas as products and services will be the winners, because they'll be the ones consistently creating the newest and best products, services and business models.  In a world of global competition and ever shortening product life cycles, becoming very very good at spotting opportunities and creating new products and services to meet those needs will be the competitive differentiator.

What will it take to be a firm that has efficient use of ideas?  A culture that encourages and embraces the identification of new needs and opportunities, that is willing to sacrifice the "sacred cow" before another firm takes that market and that share.  A firm that encourages close examination of customer needs and expectations and that takes risks to create new products and services consistently.  A firm that has a defined innovation process that everyone understands.  Compensation and evaluation models that emphasize innovation, nimbleness and speed to market.

Soon, it won't be enough to have an innovation capability - to be competitive a firm will have to have a focus on the efficient use of ideas within its boundaries, or it will rapidly fall into obsolescence.
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posted by Jeffrey Phillips at 11:21 AM


Blogger better ck said...

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