Innovation serves multiple purposes within organisations and in a market economy.  These range from the relatively low profile but important role of sustaining organisations to more radical role of creative destruction, enabling challengers to disrupt incumbents and creating new markets that drives wealth creation for organisations and economies. 

Sustaining or incremental innovation helps organisations to fight-off imitation or commoditization of their offerings and protects market share.  Regardless of the sector or industry, an organisation that designs a product, service or business model that gives it a competitive advantage today will find that advantage completely eroded in the not too distant future (either through imitation or an improved value proposition into the same market), unless it continually makes modfications and improvements through incremental innovation and keep itself a step or two ahead of its competitors. 

Creative destruction or disruptive innovation changes the competitive landscape of markets and industries by introducing discontinuities to value propositions, product, services or business models.  We have ample examples of this occurring across almost every industry.  It is typically the result of one organisation developing industry foresight, forming bold hypotheses about the future of value propositions, products or services and then backing up their hypotheses by generating ideas and developing concepts to create new value that majority of consumers are willing and happy to switch to.  This scenario leaves the innovating organisation walking away with the cheese of targeted industry incumbent. 

Despite the above, we find that the need for innovation is still not perceived in some organisations. Some of the more fatal premises are; our business model is simple (hence there isn’t scope for innovation), our industry has high entry barriers and low margins (thus not appealing or susceptible to innovation), our brand is recognised and our customers trust us.  These are not only wrong but they have proven near fatal or even fatal for some organisations.  The below 3 examples of organisations in the area of innovation and competition serves as proof points for why the above thinking should be avoided by every organisation and every organisation that is not innovating today should set out on that journey. 

Smartphone vs Nokia.  Nokia was the Finnish company that had industry foresight and was good at adapting to change. Using its industry foresight and backing it up with innovation, the then small Finnish company took the world by surprise in 1992 with its pioneering of GSM mobile phones and subsequently reached a record 41% market share in 2007.  However, within the space of a decade from its 2007 peak, Nokia went from being the proof point for the benefit of pioneering and innovating, to the proof point that innovation must be sustained for organisations to remain relevant.  At the height of its success, the company lost sight of the attributes that brought that success – Industry Foresight backed up with innovation. Consequently, Nokia didn’t spot the signals as the value proposition shifted away from voice and keypad to data, location systems and touch screen. It didn't matter that the consumer had grown to like and trust Nokia phones. Its inability to sustain its innovation or respond quickly enough as the mobile phone market transitioned to be dominated by smartphones led to the demise of the company.

 

Netflix vs. Blockbuster.  Blockbuster’s business model was pretty simple.  Fill up bricks and mortar stores with thousands of DVD, customers leave their home, get to the store and rent a movie – job done.  It wasn’t complicated, surely there is nothing here that innovation could change, simplify or make cheaper. The company also had scale economies with the size and numbers of it stores. From the inside, these factors would have given the organisation a sense of security. Also, considering that their business was a rental business rather than outright purchase, they even dismissed signals coming from adjacent markets, such as retail, where online shopping was gaining traction.  This type of thinking still prevails in many organisations, where they convince themselves that their business is not susceptible to innovation or disruption for one reason or the other.  However, as shown by Netflix, any business model, even one as simple as that of blockbuster can be re-invented through innovation, and incumbents ignore innovation at their own peril.  What Netflix did was to effectively alter the supply chain and value proposition of the movie rental business, by developing a platform that leverage existing technologies, such that physical stores became redundant and customers did not need to leave their homes or in some cases, their beds.

Canon vs Xerox.  In the mid-1900s, Xerox dominated the copier market for decades, despite questionable quality and reliability of its photocopiers, enjoying a near monopoly that photocopying was referred to as “xeroxing”.  Without serious competition and any sign of a serious challenger, especially after IBM had tried and failed in its challenge, Xerox did not improve its copiers and continued to prosper.  This was until the mid-1970s when Canon, then a small Japanese firm (and only 10% the size of Xerox at the time), produced copiers that made better copies at lower cost.  Through product innovation, Canon altered both elements of the price-performance dimension of copiers, enough to make majority of the market that had previously relied and depended on Xerox to switch to Canon copiers.  As a result, Canon displaced Xerox as the world’s most prolific copier manufacturer and the effect on market share became so devastating that Xerox’s very survival came into question at the time.

None of the above cases are by no means isolated. There are many more cases where an organisation either decided that they don’t need to innovate or once thrived through innovation but couldn’t sustain it.  These organisations later understand both the importance and threat of innovation in hindsight, when their cheese is moved into new avenues of value proposition.

Whilst hindsight might be wonderful, where innovation is concerned, foresight proves to be even better.