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Table of Contents
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The Importance of Pace
Any significant innovation alters the competitive environment in some way or another. Whether that change is modest or disruptive depends on circumstances. Any firm that invests in innovation will want a strategy that maximizes return and minimizes risk.
Staying synchronized with customers and business partners is one aspect of pace-based strategy. Assessing, and adjusting for, the innovation pace of competitors is another. Intel offers a classic example of a successful pace-based innovation strategy. Intel’s R&D, investment, production, marketing, and other functions are all aligned to support the introduction of new microprocessors at a predetermined pace. Due to its internal resources, partner relationships, and competitive position, Intel can afford to set a pace that competitors are unable to match. Accordingly, it is able to enjoy a continuing price premium for new products, a premium that is eroded as competitors introduce equivalent products while Intel introduces the next generation. A similar model can be observed in the pharmaceutical industry.
Another pace-based strategy is to seek "first mover advantage." It differs from the Intel example, in that first mover strategies implicitly assume a one-shot competition – once the company has captured a market, it has a sustainable advantage over more tardy competitors. Successful first-mover strategies require that the innovator be able to "lock in" some significant strategic advantage. A classic example is a software program that becomes the "industry standard." Once users are locked in and face significant conversion costs, the first mover has an advantage that can be sustained for some time. (This advantage doesn’t necessarily continue indefinitely. In the spreadsheet market, Visicalc and Lotus 123 both benefited from significant numbers of locked-in customers, but only for limited time periods.)
If the first mover cannot lock in some barriers to competition, first mover strategies become less attractive. Why invest the time and money to build a market, educate consumers, and develop a network of capable suppliers, if the prize must be shared with the next interlopers to come along? One of the lessons of the dot-com bust is that first-mover advantage has been proven to be elusive at best.
One counterpart to first mover strategies is the fast follower, or what Peter Drucker calls creative imitation (Innovation and Entrepreneurship, Harper & Row). Where first movers are unable to build sustainable barriers, followers can enjoy significant advantages. A follower has the advantage of a market that is already prepared for the innovation, the ability to learn from the pioneer’s mistakes, and in the case of technology-based innovations, a potentially lower cost structure. Disadvantages include having to overcome whatever brand recognition or lock-in the first mover has managed to achieve, the risk that the first mover won’t stumble, plus the near-certainty that other fast followers are a half-step behind.
Fast follower strategies can succeed because being first doesn’t always pay. If analysis of the Innovation Triangle indicates that a firm isn’t positioned to capture the benefits of being the leader, the logical strategy is to direct investment and management attention to other areas where the firm can enjoy a strategic advantage. Rather than running a race you can’t win, it’s probably smarter to redirect your efforts to finding a competition you can win.
Setting the right pace requires integrating all three dimensions of the Innovation Triangle. Determine how fast you can innovate, how fast your competitors can move, and how quickly your customers can assimilate your innovations. What can you do to change the pace? Compare the costs and benefits of leading versus following. Finally, determine what pace and position is consistent with the firm's larger capabilities and strategic objectives.
Dimensions of Innovation
Unlike shareholder return or market cap, innovation has many dimensions. Although many people associate innovation with technology, that is but one aspect. Cyrus McCormick’s great innovation wasn’t building a reaper machine. His innovation was developing a business model enabling farmers to buy it. Likewise, Edison’s great innovation wasn’t inventing the electric light bulb, nor Alexander Graham Bell’s the telephone. The real innovations were the business models that made those inventions successful. (Drucker, Innovation and Entrepreneurship)
Consider the many types of innovation your organization can pursue. If technological leadership isn't feasible, can the firm introduce innovative production or sourcing techniques to become the low-cost producer? Can the firm identify new markets where its particular strengths give it a competitive advantage? Are there opportunities to develop new ways of marketing the product, bundling complementary offerings, or building stronger ties with customers? Is it possible to build a competitive advantage by forming innovative partnerships or other creative business arrangements? Does the firm's financial or ownership structure allow it to move in ways that competitors can't? Start by thinking outside the box, but don't forget the box either. Remember that innovation is but one part of a firm's overall strategic positioning. Make sure that innovation strategy makes sense within the broader business strategy.
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Innovation's Illusion, A Fable A long time ago in a valley far, far away… Life was good. It may have been the climate, or the soil, or just "something in the air," but the valley was a thriving, bustling bundle of energy and life that was admired throughout the civilized world. The orchards produced sweet and nutritious fruits, the sheep provided high-quality wool, and the gardens contained the most beautiful flowers. No one remembers how, or exactly when it started, but one day a modest spring in the center of the valley started to gush forth profusely. The valley had always been dry, so the easy availability of water had a dramatic effect throughout. Farmers dug irrigation canals for their fields and orchards, shepherds watered their flocks on its banks, and wildlife gathered from near and far to drink from its refreshing waters. Some strange alchemy between the favorable climate and the abundance of cool, fresh, spring water seemed to stimulate the very life force throughout the valley. Flowers blossomed in shapes and colors never before seen, birds developed varieties of plumage that had never been imagined. Trees in the orchards started to bear novel varieties of fruit, and every seed that sprouted or egg hatched seemed to reveal some new variety of life's innovation. While the products of the valley had always been prized in surrounding regions, this new diversity of almost magical proportions stimulated a frenzy of commerce. Merchants and traders, desperate to acquire the novel flowers, unique fruits, or fine birds bid prices to exorbitant levels. Then one day the spring dried up. No one was quite sure why. Soon the results were apparent everywhere. Gardens wilted. Orchards withered. The carcasses of birds with the wondrous plumage started to litter the streets. As it turned out, this vast flowering of life's innovation had been largely superficial. The trees that produced such enticing fruits had failed to develop roots deep enough to sustain them in more arid times. The birds had devoted their energy to colorful plumage, rather than developing unique capabilities that would allow them to compete for food when the good times ended. The marvelous flowers in all colors and varieties were hit particularly hard. Their very adaptability ultimately proved to be their undoing, for the voracious metabolism they had evolved to produce such elaborate blossoms also required copious amounts of spring water for basic sustenance. In evolving to exploit their new environment, they had lost the ability to survive in the old. Amid this carnage were a few species that had adapted to new food sources, developed unique defense mechanisms, or found new niches to which they were better suited. These were the species that survived, and they ultimately grew to dominate this new, less opulent landscape. Local legends predict that the spring will one day bubble up again and that the good times will return. What the legends don't say is whether things will be any different the next time around. |
Conclusion
Innovation isn’t a race where everyone runs the same course. In fact, if innovation is a race at all, it’s a race where many of the participants are pursuing totally different objectives, a race where being first doesn't necessarily mean being the winner. Success requires picking those races a firm is best equipped to win, and a disciplined framework provides a way for firms to make such choices intelligently. Successful innovation is rooted in a firm’s long-run strategic positioning, and ultimately reinforces that positioning. So don’t just innovate for the sake of innovating. Innovate where it counts.