Imitation vs Innovation
Michael Lewis explores a mindset change imperative for today’s competitive world
If organisations are to achieve success in current market conditions they must begin to think about business strategy in a completely new way. Business is such a humdrum word for a revolutionary idea — the application of scientific management and critical thought to everyday economic and social activities. We become so enmeshed in business principles that sometimes only a review of the big picture reminds us of its power.
Social conditions did not change for the human race for thousands of years but human progress appears to have arisen largely from the application of sustained management attention to everyday enterprise. In a word — business. Countries today prosper or fail to the extent that they and the companies therein embrace basic business principles. Some say that prosperity is simply the result of improving technology. However companies do not become more productive simply by buying faster computers. They become more productive by having entrepreneurs and managers who know how to integrate investments, as in technology, with new business models to raise productivity. Some argue that focusing on science and technology is fighting the last war. The very basis of value creation is shifting to the intuitive processes of creativity and imagination. Technological advances will cease to confer much competitive advantage; they circle the world almost instantly. Ingenuity, not technology, may well be the new value creator.
I believe that business needs to be far more creative. Consider what we carry in our pockets today; 3G mobile phones with video capability, Blackberry’s (or as my accountant calls it a Crack berry — because he finds it so addictive). The development of new technology is actually speeding up. The best invention of the past 20 years is the internet. It is changing society fundamentally and will be seen to be as transforming as the wheel. Look at what you can do with the internet and at how fast new businesses have developed the skills to succeed in that environment.
What has changed is that we are now working in an ideas economy. In the past, the success of businesses was determined by what they could invest in terms of cash or physical assets such as in machinery or shops. It is not like that anymore. People have experienced unbelievable success through the internet. Google and eBay for example had very low overheads. All they had was a good idea, a minimal amount of capital and an extraordinary degree of creativity in marketing their ideas. We are now in a very exciting place; where generating wealth and success is a much more democratic process than possibly ever before. Traditional competitive approaches that rely on product and creative differentiation will no longer produce the best results. Nor will they take advantage of new sources of profitability driven by the networked economy. Too often new business projects are focused in the wrong place. Research that used to require human input can now be done by programmes. Such programmes have created immense value which can even factor in decisions that would previously, but no longer, require a human managerial process.
Business innovation is as much about new values as it is new things; values come in a variety of flavours and is nearly always systemic. One challenge is to consolidate the two faces of technology: to use it to offer increased benefits for customers without eroding the traditional values of human contact and personalised approaches. To survive and prosper organisations must shift their attention from products to consumers and create a new strategy based on:
- an innovative restructuring of customer relationships,
- segmenting customers more creatively,
- placing customers at the very heart of their strategy.
Simply creating new things is neither necessary or even sufficient — customers vote with their wallets; what matters is whether customers will pay.
Strategy has been defined as the means by which organisations can achieve sustainable competitive advantage. This is a dangerous definition: it concentrates so much attention on competitors that we may copy them. Imitation leads to sameness which rarely leads to greatness.
In today’s changing global business environment, new technologies have created a degree of interconnection that allows customers to be treated in a singularly individualized manner.
As business leaders and managers we should be asking some key questions:
1. What new steps can we take to achieve superior economic advantage?
2. How do we create value using unique and differentiated value propositions to bond more closely with customers?
3. How do we capture new customers through the collective capabilities of our extended network of suppliers, customers and complementors — companies that enhance our own products and services portfolio and lead us to new sources of profitability?
4. How do we use the core competencies we have as an organisation to help our customers achieve a better market position?
Managers constantly strive to increase efficiency, implement best practice and deliver increased shareholder value. They seek to improve cash flow through efficiencies of scale and cost reductions. But there are limits to cost saving and in a global economy competitors in lower-cost countries can easily beat you at that game.
The best way to create value is to innovate your way ahead of the competition. Innovation can be defined as putting valuable ideas into action as new products, services or business models. Organisations should be looking to create temporary monopolies where theirs is the only game in town.
To do this companies must harness the power of their greatest asset — their staff — but not with simplistic platitudes. The goal should be to turn as many of them as possible into opportunistic entrepreneurs who are constantly looking for new ways of doing business. To achieve this they must first build a truly innovative organisation — one that has vision combined with a pro-active culture and a process of value innovation.
There isn’t a business anywhere that doesn’t want to be more creative in its thinking. According to one recent study 75% of CEOs of the fastest growing companies claim their strongest competitive advantage is unique products and services and the distinct business processes that power them to market — innovation by another name. Another survey reported that 90% of organisations believe that innovation is a strategic priority and the importance of innovation in all sectors is growing significantly. Inventiveness has become a key factor influencing strategic planning. Here are some thoughts:
Peter Drucker commented:
‘An established company which in an age demanding innovation is not capable of innovation is doomed to decline and extinction.
Gary Hamel has a dire prediction:
‘You’ve got to out-innovate the innovators …Conventional thinking says get back to basics. Conventional wisdom says to cut costs. Conventional wisdom is doomed. Innovation is the fuel of growth. When an organ/sat/on runs out of innovation, it runs out of growth’!
Companies today must develop a reliable operating system for innovation, which is increasingly becoming a key indicator of corporate sustainability.
Innovation is constrained in many businesses because it is contradictory to corporate culture, compensation and existing business processes. Firms are too traditionally focused on the ‘sure thing’ and driving out ‘risk and cost’. Innovation requires taking more risk, but sustainable innovation also requires defined, repeatable business processes and tools that become part of the everyday business workings in a firm. Drucker and Hamel both agree that innovation is one of the few avenues left for many companies to generate organic growth. Many firms however treat innovation as if it were a black art or something to be left to small teams in what the Americans refer to as ‘skunk works’.
Innovation should be viewed as something that can be managed, sustained and organised as a business process. For most CEOs remaking a company to stay ahead of the curve often means overcoming a form of protectionism within their enterprise. Being comfortable with familiar ways of doing business is a formidable obstacle within well established firms. However you can’t adapt to the future if you are unwilling to let go of the past. Most successful processes are simple to understand — they have as few steps as possible to minimize complexity but with enough structure to ensure each step adds the appropriate value. Whatever your situation, your competition or your market, improving innovation is key for the success of any business. Innovation of products and services is one of the few sustainable methods for any firm to achieve differentiation and profits. To quote Peter Drucker again: ‘No matter what anybody else tells you: corporations achieve competitive advantage through deliberate acts of innovation.’ The present challenge is to inspire business leaders to answer and respond to real-world needs and generate cutting-edge ideas that bridge theory and practice. If you hope to launch a new product, process or service on an unsuspecting world I urge you to be truly innovative, and ingenious, in your approach, attitude and actions.
Prof. Michael Lewis is Chairman of several SME companies with interests in the UK, India, and USA.
- Written by:
- Michael Lewis