Wednesday, October 28, 2009

Innovation as a competitive advantage

Over the last six or seven years, definitely since about 2003 or 2004, there has been an increased focus on innovation in many businesses. I think much of this was driven by several factors, including an increased rate of change in competition, especially the growing capabilities of India and China. I also think that information costs have fallen as the web has become more fully adopted, and consumers are demanding more. Finally, I think the focus on cost-cutting and outsourcing is reaching it's logical conclusion. Most of the things that could be cut, trimmed or outsourced have been. Many businesses in the US are relatively lean, and need to return to growth and differentiation.

All of these factors contribute to the need for innovation. However, there are a lot of trends that suggest innovation is important in the near future as well. The focus on global warming means new technologies are required to reduce emissions. In the US, health care reform will mean new demands on an antiquated health care system. The US Government is straining to provide services that the population expects and demands. The banking sector is ripe for change and disruption. All of these factors suggest a significant amount of change is in store for our government and for major businesses.

None of this is going unnoticed in the hallowed halls of major corporations. Booz and Company has just released its yearly Innovation survey, and more than ever, innovation is moving from an interesting sideshow in most organizations. Now, innovation is being recognized as offering a competitive advantage, perhaps one of the few sustainable advantages, and CEOs and executives are taking note. The survey points out that over 90% of the executives surveyed said innovation was critical to the success of their firms as they prepared for the market and economy to improve. One executive went so far as to say "the recession was a catalyst for increased innovation".

Booz listed three reasons why they felt companies have continued to invest in innovation during the economic downturn:

1. Innovation is becoming a core component of overall corporate strategy.
2. Recognition that product development cycles are longer than recessionary periods
3. Many see the recession as an opportunity to build advantages over their

One of the biggest impediments to innovation continues to be the "constraints of the product development lifecycle". The product development life cycle in many industries is simply too long and too cumbersome, and any opportunity to shorten the development life cycle could mean real rewards. Conversely, any slacking off could mean falling behind the competition.

My take: Innovation is gradually moving from an occasionally interesting sideshow that is not focused and not strategic, to becoming a key focus of senior executives as they realize that only innovation can help the firm continually grow and differentiate. Innovation is rapidly becoming a capability or enabler that strengthens and focuses the corporate strategies, and should over time become a key enabler to many corporate goals and strategies. Once more firms create a continuous capability for innovation and modify their cultures to embrace innovation, then we'll see the real transition occur. It is heartening to see that more and more firms are placing more emphasis on innovation at a strategic level.
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posted by Jeffrey Phillips at 5:41 AM


Anonymous Nancy Grossbart said...

Many of the designers I talk to are telling me that their companies are looking to innovate in the recession. Most are exploring the possibility of modifying materials used in their products as something new and unexpected, allowing them to differentiate themselves in their market. They ask lots of the standard questions about sustainability and enviroment and consumer protection issues but what they are really looking for is something new and special.

1:15 PM  
Anonymous Europien said...

Once again, let's not be confused by companies' communication campaigns. Some companies really consider innovation as an important success factor: the automotive industry would be the best example to my mind. But some companies call today "innovation" what they called yesterday "R&D", and this is just using a nice "buzz" word.

Yes, there has been some improvement, but we are still far away from the dream situation.

I wanted to ask you something though, differentiating innovation from pure R&D. We know how companies measure(d) R&D. What about innovation ? Any kind of best practices ? Everyone says that we should measure incomes and process ... but in facts, what does it mean ? Thank you to enlighten me.

9:37 AM  
Blogger Dee Gardner - Management Heretic said...

I think some people innovate in relaxed atmospheres. While others innovate in high stress situations. I think we all need to find out where we innovate best. I think companies need to help their people find out where they innovate best and then put them in those situations. infinitely easier said than done. We all need to make it a goal. I believe in being disruptively innovative.

8:24 PM  
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