Why Innovation Matters
Innovation matters not only at the level of the individual enterprise but also increasingly as the well spring for national economic growth. An Australian government website states that “Companies that do not invest in innovation put their future in doubt. Their business is unlikely to prosper, and they are unlikely to be able to compete if they do not seek innovative solutions to emerging problems”.
In fact research has identified the following factors which characterise successful sme’s
- Innovation is consistently found to be the most important characteristic associated with success
- Innovative enterprise typically achieve stronger growth or are more successful than those that do not innovate
- Enterprises that gain market share and increasing profitability are those that are innovative
Innovation, through new product or service development, can help capture and retain market share and increase profitability in these markets.
At the same time new product development is an important capability because the environment is constantly changing. Shifts in what people believe, expect, want and earn create opportunities and challenges. Legislation may open up or close opportunities and competitors may introduce new products which represent a major threat to existing market positions. In all these ways businesses need the capability to respond through innovation.
Importantly though we need to remember that advantages gained through innovation gradually get eroded away as others imitate. Unless an organisation is able to move into further innovation it risks being left behind as others take the lead in changing their offerings, their processes or the underlying models that drive their business.
So how can businesses seek strategic advantage through innovation:
| Mechanism | Strategic Advantage | Examples |
| Novelty in product or service offering | Offering something no one else can | Introducing the first MP3 player, DVD, Digital Camera |
| Novelty in process | Offering it in ways others cannot match – faster, cheaper, higher quality | Internet banking, online book selling |
| Complexity | Offering something which others find it difficult to master | Rolls Royce and aircraft engines. Only a handful of competitors can master the complexities of machining and metallurgy |
| Legal Protection of Intellectual Property | Offering something others cannot do unless they pay a fee for | Drugs like Prozac and Zantac. Many specific designs, eg. Dyson vacuum cleaner, Apple iphone |
| Add/extend range of competitive factors | Move basis of competition, e.g. from price of product to price and quality, or price, quality, choice | Japanese car manufacturing, which systematically moved the competitive agenda from price to quality, to flexibility and choice |
| Timing | First mover advantage
First follower advantage Sometimes being first means you encounter problems. It can make better sense to watch someone experience the problems and to move fast with a follow up product |
Amazon – others can follow but the advantage sticks to the early moversPalmPilot and other PDA’s benefitted from the failed Apple Newton which experienced technical difficulties |
| Robust platform design | Offering something which provides the platform on which other variations can be built | Intel and AMD with different variations of their processors |
| Rewriting the rules | Offering something which represents a completely new product or process concept and makes the old ones redundant | Typewriters vs computers |
| Reconfiguring parts of the process | Rethinking the way in which bits of the system work | Zara, Benetton in Clothing, Dell in computing |
| Transferring across different application contexts | Recombining established elements for different markets | Polycarbonate wheels from luggage into children’s toys |
| Others | Innovation is all about finding new ways to do things and to obtain strategic advantage | Spotify in musicNetflix in TV and filmSkype in communication |
