Market place innovation or disruption is driving you out of business, you don’t know it yet. Here is what you need to do to avoid this fate.
Your customers are much smarter than you imagine. They control businesses through the power of their purchasing decisions. They decide the direction of successful and failed products and services. With customers, the company flourishes, and without them, dies. So, if you expect to stay in business, you have to understand what customers need over time.
You want your business to thrive, and you have the long-term aim to eliminate or at least reduce competition. But you must realize that your competitors have the same aim; they are trying to get rid of you.
Improvements are not enough
We know that customer preferences are changing all the time. They want new and improved products that they can either show-off, use to increase their productivity, or buy at a much lower cost. If one firm does not offer new ideas, another firm can, and customers will switch. Your competitor knows this and probably has an improvement program focused on delivering what the customer wants. So the first step in staying alive, lies in improvements, which every firm should undertake.
Your company may be thriving, you may have a healthy set of improvement projects underway, but things will change in your marketplace. And when they do, if your improvement program is not up to the pace of change, or equal to the competition, your business will stagnate and shrink. Other firms will win your customers with their improved products and services.
Photographed By: avaragado
General Motors and the entire US Auto industry are good examples of the problem. After decades of a strategy focused on building scale, the American car manufacturers were on top of the world. By 1961 the held a combined 91% share of the USA auto market. As the international car makers at first improved their quality and reliability, the US automakers ignored the new upstarts. They did so even as their improvements began to win over small segments of the market. By 1970, market share had only declined 6%, but because the market was growing, they did not experience a reduction in the number of cars sold. Later as the international challengers continued improving, now focusing on design and style, the market shifted, and the decline accelerated. Over the years, though, General Motors never changed, continuing to focus on scale. They made improvements that at best kept them equal, and at worst sped up the shift of customers to the competitors. For the US automakers, their improvement efforts were not enough. Today, their joint market share is below 44%.
Declining Share of US Market held by US Auto manufacturers (1961-2012)
Small improvements can allow you to stay equal to competitors in your industry. With a focus on change, you may even increase profits as long as your ideas are better. But this strategy is risky as it assumes other firms will not improve exceptionally. In a worst case scenario, a competitor will differentiate their product or service immensely and can knock your business (and others) out of the market. To prevent extinction, your strategy should be to differentiate your improvements from competitors in ways that are valuable to customers. To be innovative.
Valuable Innovation is differentiating and hard to copy
An improvement is doing the same thing better. On the other hand, an innovation is doing something different. A large enough improvement can create crucial differentiation between competitors. This distinction will cause customers to notice and find the innovation worth their time and money. Your competitors will notice and if they feel threatened will increase their improvement efforts to respond. So an improvement will only drive real incremental benefits if it’s an innovation, differentiated and hard for competitors to match.
If it’s not differentiated and hard to copy, it’s not an innovation, it’s an improvement!
While many companies embraced the innovation agenda and are investing heavily in innovation, they didn’t deliver much differentiation. Sadly, they created fewer improvements that couldn’t be readily copied by their competitors. The result? Massive investments in programs that delivered little tangible improvement in profitability, at best. At worst, some companies spent massive amounts of money in acquisitions and research and development (e.g., Nokia) looking for innovations, and saw their business decline due to disruptive innovation.
Kodak is a great example of a company which invested in improvements and innovation, but could not avoid being out innovated and disrupted. Kodak was a leader in analog photography and spent large sums on improvements that they though were valuable to a professional photographer, their core customer. They began to meet difficulties with the increased competition as other firms emerged in the photography industry. Firms like Fuji Corporation, IBM, Apple and Sun shifted the industry away from the traditional analog mind-set of Kodak towards digital technology. At first, quality wasn’t good enough for professionals. So Kodak ignored the technology, just as the American car manufacturers ignored the Japanese in the 1960’s and 70’s. Digital cameras were heavy, slow, expensive and did not produce high quality images, but they were loved by amateur photographers because of their flexibility and reusability. They had the equivalent of Moore’s law working for them, that dramatic improvements could be achieved each year in size, power consumption and quality. Kodak continued to focus on making improvements to it’s products and by lowering prices. But by then it was too late, as digital began to rival analog quality and was embraced by the professional. Kodak innovation investments had created no differentiation, and was an enormous expense that was delivering no value. They lost so much revenue that Kodak was unable to stay competitive in the long-run.
Disruptions come from Innovations that are differentiating, hard to copy and ignored by your competitors
Your best strategy is creating an innovation that is differentiating, difficult to copy and ignored by the competition for any reason. This could drive a major disruption in the marketplace and severely limit competitors. But, creating an improvement that goes unnoticed by competitors is difficult, and requires creatively thinking outside your box. The product or service must have aspects that you discovered are important for the consumer, while your competitors in your industry think them useless.
When Apple’s iPhone was first released, competitors ignored many of the innovations. Blackberry and Nokia were the market leaders at the time. They believed that consumers would never want a product so expensive and which did not have a keyboard. They were wrong. The smartphone was radically differentiated, was ignored and was hard to copy. Once the evidence was clear that customers valued the new innovations, Blackberry and Nokia scrambled to produce similar smartphones, but the damage was done. Today, they are struggling in the market they once proudly led.
Photographed By: tropical.pete
It can be complicated to create any innovation that will be disregarded by competition. The main point is that to preserve interest, profits and business in general, it is critical to constantly improve products. But improvements are not enough. The consumer is the most important determinant in your ability to stay in business. And those consumers will always want innovation. If you are not innovating, your competitor is, and you stand the chance of losing your market position.
Your best bet is to focus on disruption, starting with your own products and services. If you can disrupt yourself, then do it before someone-else does. Finally, even after disrupting your market, remember it is pivotal to continue improvements. You have to improve in order to keep your customers in the long-run. Become comfortable knowing there is always someone out there innovating and thinking of a way to disrupt you.
Borders Store Photographed By: Andrew Griffith