The Top 4 Reasons to Innovate

While preparing a talk recently, I needed to set the scene and make the point as to why innovation is important. Why should companies innovate?

I found there was not a lot of material readily available on this topic (at least through the avenues I searched at the time). And this topic, naturally, is quite an important one.

I propose that the top 4 reasons why a company should innovate are that:

  1. Efficiency improvements and cost reductions are no longer enough.
  2. A company can gain competitive advantage by improving their processes and reducing their cost base to improve margins.

    However, the first problem with relying on this approach is: the major means to accomplish these ends are well understood. Companies know how to apply Six Sigma, Business Process Mapping and Redesign, and other tools and have been doing so for 20 years. If you attempt to gain competitive advantage in a competitive space by relying on these tools alone, it is not too difficult for your competitors to make similar moves, eroding your advantage.

    The second problem with just following a cost reduction and process improvement approach is that the market is not static. While your company may be optimising its processes and reducing its costs, your competitors may be designing and bringing to market the next game changing innovation which redefines the boundaries of the market and renders your highly optimised and low cost products and services irrelevant. Which brings us to the second point.

  3. Your company needs to be innovating to stay in the game.
  4. Other companies in your industry are innovating. Companies that may not be in your particular product space but who offer alternatives and substitutes for consumers may change the market in a way that erodes or eliminates your business. Your organisation must be constantly on the lookout for new opportunities – and lead the way and get there first. Which brings us to the third point.

  5. It is not enough ‘just’ to be an innovator.
  6. You must innovate well, and innovate in a way that differentiates you in the market from your competitors and offers extra value.

    If you innovate a new product, service or business model, and your competitor innovates a better alternative and brings it to market before you do, your innovation is not delivering the business value that is needed. As noted previously on this blog, innovation is ‘like an arms race.’ You need to be constantly investing in it and be constantly ahead of your constantly moving competition.

    A corollary of the third point is that you need to be able to execute your innovation fast. A fast development cycle enabling you to position yourself as an agile competitor in the innovation landscape and to respond quickly and effectively to market changes positions you to identify and capitalise on opportunities. As posted previously, perhaps 40 or 50 years ago a company may have been able to introduce a new product to market and expect to benefit from the value of the product in the marketplace for a good 10 to 15 years. Now with improved rapid prototyping, customer focus groups, new development methodologies and other aspects of radically accelerated product launch cycles, unless there is significant legal protection for example in the form of patents a competitor may well have an effective product competing on the market within a year or two of launch.

    The fourth point is that:

  7. Innovation is often essential to achieving business growth targets.
  8. Small companies need to innovate to identify and develop niches and to position themselves in an agile way to identify and realise opportunities. While mid sized companies can grow by pursuing and achieving more market share, mature companies may already have achieved significant market share. Mature companies need to grow by bringing new products to market or by finding new markets for products, and in either case innovation needs to be a core part of this strategy. For both small companies and mature companies with a significant market share, innovation is necessary to achieve significant growth targets.

Perhaps you may see some other reasons why innovation is important. For example, innovation is one of the few drivers for change in which employees drive the change rather than resist it. Perhaps innovation is important from the point of view of organisational development and culture. Let me know your thoughts.

Sorry, comments are closed for this post.

The Top 4 Reasons to Innovate

While preparing a talk recently, I needed to set the scene and make the point as to why innovation is important. Why should companies innovate?

I found there was not a lot of material readily available on this topic (at least through the avenues I searched at the time). And this topic, naturally, is quite an important one.

I propose that the top 4 reasons why a company should innovate are that:

  1. Efficiency improvements and cost reductions are no longer enough.
  2. A company can gain competitive advantage by improving their processes and reducing their cost base to improve margins.

    However, the first problem with relying on this approach is: the major means to accomplish these ends are well understood. Companies know how to apply Six Sigma, Business Process Mapping and Redesign, and other tools and have been doing so for 20 years. If you attempt to gain competitive advantage in a competitive space by relying on these tools alone, it is not too difficult for your competitors to make similar moves, eroding your advantage.

    The second problem with just following a cost reduction and process improvement approach is that the market is not static. While your company may be optimising its processes and reducing its costs, your competitors may be designing and bringing to market the next game changing innovation which redefines the boundaries of the market and renders your highly optimised and low cost products and services irrelevant. Which brings us to the second point.

  3. Your company needs to be innovating to stay in the game.
  4. Other companies in your industry are innovating. Companies that may not be in your particular product space but who offer alternatives and substitutes for consumers may change the market in a way that erodes or eliminates your business. Your organisation must be constantly on the lookout for new opportunities – and lead the way and get there first. Which brings us to the third point.

  5. It is not enough ‘just’ to be an innovator.
  6. You must innovate well, and innovate in a way that differentiates you in the market from your competitors and offers extra value.

    If you innovate a new product, service or business model, and your competitor innovates a better alternative and brings it to market before you do, your innovation is not delivering the business value that is needed. As noted previously on this blog, innovation is ‘like an arms race.’ You need to be constantly investing in it and be constantly ahead of your constantly moving competition.

    A corollary of the third point is that you need to be able to execute your innovation fast. A fast development cycle enabling you to position yourself as an agile competitor in the innovation landscape and to respond quickly and effectively to market changes positions you to identify and capitalise on opportunities. As posted previously, perhaps 40 or 50 years ago a company may have been able to introduce a new product to market and expect to benefit from the value of the product in the marketplace for a good 10 to 15 years. Now with improved rapid prototyping, customer focus groups, new development methodologies and other aspects of radically accelerated product launch cycles, unless there is significant legal protection for example in the form of patents a competitor may well have an effective product competing on the market within a year or two of launch.

    The fourth point is that:

  7. Innovation is often essential to achieving business growth targets.
  8. Small companies need to innovate to identify and develop niches and to position themselves in an agile way to identify and realise opportunities. While mid sized companies can grow by pursuing and achieving more market share, mature companies may already have achieved significant market share. Mature companies need to grow by bringing new products to market or by finding new markets for products, and in either case innovation needs to be a core part of this strategy. For both small companies and mature companies with a significant market share, innovation is necessary to achieve significant growth targets.

Perhaps you may see some other reasons why innovation is important. For example, innovation is one of the few drivers for change in which employees drive the change rather than resist it. Perhaps innovation is important from the point of view of organisational development and culture. Let me know your thoughts.

Sorry, comments are closed for this post.