Dennis N. Aust

Web design and development by:

Page 2

Competitors

Every business has competitors. Consultants, strategists, and academics have, over the years, developed countless tools and techniques for competitive analysis. Although these are beyond the scope of this article, many of them can be applied to assessing competitors’ innovation strategies and capabilities. Questions to ask include:

• What are the capabilities of key players?
  
• What opportunities and threats does innovation provide to each of them? What are their incentives for maintaining the status quo?
  
• Where does innovation fit within each competitor’s overall strategy? Are they leaders or followers in innovation? How fast do they move? Do they concentrate their innovation efforts in certain areas? If so, where?
  
• How fast is the overall pace of innovation within the industry?
  
• Who are the hidden competitors? What are the companies or technologies that may not pose a threat today, but are poised to disrupt your markets in the future?

Remember, no action takes place in isolation. Each innovation, large or small, by any company affects the other companies within that industry. More than likely, they will respond in one form or another. When considering innovations, it is imperative to assess key competitors, industry structure, and likely responses.

Is the industry likely to engage in a competitive "innovation war," with each player rushing to introduce new offerings and capabilities, while the only party that really benefits is the consumer? One need only consider recent experience in the technology field to realize that unfettered innovation isn’t necessarily beneficial for the innovators. Are competitors able to respond effectively, or will be they left behind? There’s nothing wrong with engaging in a race one knows one will win, especially if the prize is worthwhile. (Likewise, it is obviously undesirable to start an innovation war one is destined to lose, or one that leads to the destruction or devaluation of the prize everyone covets). Much of Intel’s success over the past two decades stems from its ability to innovate at a pace competitors can’t match.

Or will the competition even care? A stable industry, where each player follows a unique strategy targeting a specific market segment, will often have ample room for innovators. One example is the consumer electronics industry, where ultra-high-end players have consistently extended the "state-of-the-art" envelope, disciplined large-scale innovators like Sony have won (and lost) a series of mass-market battles, and low-cost producers continue to fight in the low-end commodities segment.

When evaluating competition, it’s important to remain alert to non-traditional competitors, such as the "disruptive technologies" Clayton Christensen describes in "The Innovator’s Dilemma." Those who quote the book without reading it usually miss one of the key points. Disruptive technologies don’t just appear out of nowhere. Many of the cases he describes involve innovations, such as discount retailing or the PC, that were underestimated because they didn’t seem to threaten the status quo. Managers failed to extrapolate their continually increasing competitiveness. They didn’t realize that an innovation which is inadequate today can very well evolve into a disruptive and cost-effective competitor tomorrow.

Each industry has its own metrics. Collecting and plotting these metrics can clarify the pace of innovation within the industry. Extrapolating the trends can help identify future threats from "disruptive technologies."

Internal Capabilities and Partners

The final corner of the Innovation Triangle refers to internal capabilities. In today’s networked world, this effectively includes the capabilities of business partners, such as suppliers, as well. A critical and obvious part of developing your own innovation strategy is determining what you and your partners can actually deliver. As in any strategy development, this means assessing a company’s strengths, weaknesses, capabilities, risk tolerance, culture, conflicting demands, and how these all fit with the company’s strategic objectives. This also means assessing these factors for a company’s key business partners, and evaluating opportunities and potential benefits from enhanced cooperation. Such cooperative initiatives range from integrated systems and supply chain management, to shared learning, collaborative design, and joint marketing efforts. Is a supplier willing to commit significant capital to design and manufacture a key component needed for an innovative new product? What kinds of supply chain management or systems integration efforts are necessary to support the desired innovation? Wal-mart could never have achieved its success as a supply-chain innovator without the support and cooperation of its suppliers.

The concept of alliances and complements (products/services used in conjunction with each other) also applies. Intel and Microsoft are critically dependent on each other for their mutual success, although the dynamics of that relationship could change significantly if, say, a third-party operating system won widespread acceptance. A one-to-one relationship with Intel certainly gives Microsoft advantages it wouldn’t have if Windows were just one of several common operating systems. Yet those very advantages also provide the incentive to collaborate with Intel to foster continuing innovation and a healthy market for both firms’ products.

The Importance of Timing

Successful innovation depends on getting the timing right. Being too early can be as bad as being too late. To embrace innovations usually requires some adjustment, whether on the part of consumers, business partners, suppliers, or internal staff. It may require the simultaneous introduction of complementary products. Just as automobiles have limited utility in the absence of roads, many innovations require "the stars to be in alignment" for success. The innovative aerodynamic experiments of the Wright brothers would have failed dismally (as did attempts by others) had they attempted to power their aircraft with steam engines, instead of the newly developed gasoline engines.

In Competing on the Edge (Harvard Business School Press), Shona Brown and Kathleen Eisenhardt describe the process of "growing" a prairie. It’s not as simple as clearing the ground, planting the seeds, and watching the prairie flower. A prairie is a complex system, like a living thing; it’s not something that can be "assembled." So it is with demand for innovation. Geoffrey Moore’s work popularizing the adoption curve provides examples of the difficulty of bringing innovation to market, along with a set of strategies for doing so. Still, having a strategy doesn’t mean it will happen quickly or easily.

Supply chain integration has been a particularly successful innovation during the past decade, but achieving success has required significant investments of both money and time. Computer systems must be installed and configured to communicate among partner companies. Procurement, re-ordering, manufacturing, and shipping processes must be reconfigured. In many cases, these reconfigurations represent fundamental changes to the way a company does business. Such changes don’t happen overnight. Even if a given company has the resources and determination to implement such changes quickly, it is constrained by the ability of business partners to keep up. Consumers, likewise, need time to adjust to innovation. While consumer processes are almost never as formal as industrial or business processes, changing them is no trivial proposition. An innovative product that records television programs at user-designated times has limited utility if consumers can’t figure out how to set the clock. (The ready availability of pre-recorded videotapes for rental or purchase has mitigated this problem.)

When considering introducing any new innovation, be sure to ask whether the timing is right. Is the customer ready? Are all other necessary pieces in place? If not, what can be done to fix that? Finally, recognize that change takes time and can't always be controlled. If your customers or business partners aren't yet ready for your next innovation, consider what steps can be taken to prepare them, and allow realistic timeframes for such changes to unfold.