Innovation vs Commoditization
by Steve McKee
You can hardly turn around these days without running into some sort of reference to innovation. Dozens of books about the topic line the shelves at Borders and Barnes & Noble, from "The Art of Innovation" to "The Myths of Innovation." Innovation is rapidly becoming the latest business buzzword.
But before you dump 'innovation' into the jargon dustbin along with 'reengineering', 'rightsizing' and 'paradigm shift', consider this: the need for innovation has never been greater than it is today.
Doug Hall is founder and CEO of Eureka! Ranch, an organization that helps companies define, refine and improve their new ideas. In an interview with SmallBiz magazine, Hall defined innovation as that which:
"moves companies and their offerings along a continuum from providing commodity products or services to having a monopoly that is extremely difficult to combat."
Hall's definition is spot-on, and made even more significant by the fact that no company's position along that continuum is static. If you're not actively moving your company away from commoditization, it's destined for it. The extent to which any business proposition or value equation is achieving success in the marketplace is the extent to which it will attract competitors who want what it's got. There's simply no free pass to sustainable success.
If you're making money you're making noise, and competitors are bound to notice. They'll deconstruct your products, mimic your pricing structure, duplicate your distribution system, infiltrate your customer relationships, and do anything else they can to take your margin and market share. In so doing, they'll be creating acceptable substitutes for your products and services, which without intervention will inevitably lead to a price war in which no one wins. Unless you can stay ahead of the game through continuous renewal and change (i.e. innovation), your competitors will commoditize you right out of business.
As frightening as this prospect might be, many companies are intimidated by the concept of innovation. They somehow think it's the purview only of organizations with massive R&D departments funded by equally massive budgets, not the typical small- or medium-sized business. But this reflects an incomplete and unrealistic understanding of what innovation is really all about.
One of the reasons executives think this way is because we tend to associate innovation with breakthrough leaps forward - advances that change the playing field, shift competitive dynamics, make the covers of Forbes and Business Week and end up as business school case studies. Certainly, big innovations can be big news, and for good reason (Doug Hall's research shows that major breakthroughs are worth four times as much as minor innovations). Naturally, they're the ones that get the most press.
But the systematic introduction of even small improvements along the commodity-monopoly continuum can compound to deliver just as much (if not more) impact as a single big breakthrough. Popular Science says of innovations:
"The objects don't necessarily need to be beautiful. They don't have to be eco-friendly. They don't even have to be difficult to build. They just have to push past what we thought was possible just twelve months ago."
To that I would add that they don't have to be big. They just have to be consistent.
If you spend just a few hours critically analyzing your industry from a customer's perspective (perhaps even involving customers themselves), you'll identify dozens of pain points about which somebody ought to do something. Airline seats should be comfortable. Take-out orders shouldn't be wrong. Physician's handwriting should be legible. The better you can anticipate what customers will be wanting/needing/expecting down the road, the more likely you can be the leader that first addresses the issue. No one, as they say, ever asked for a microwave oven. Or even a curved shower rod.
Want to keep commoditization at bay? Focus on innovation. No matter what size, shape or form your company is.
Enjoy this post? Subscribe to our RSS feed and join our Continuous Innovation group!
Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.
You can hardly turn around these days without running into some sort of reference to innovation. Dozens of books about the topic line the shelves at Borders and Barnes & Noble, from "The Art of Innovation" to "The Myths of Innovation." Innovation is rapidly becoming the latest business buzzword. But before you dump 'innovation' into the jargon dustbin along with 'reengineering', 'rightsizing' and 'paradigm shift', consider this: the need for innovation has never been greater than it is today.
Doug Hall is founder and CEO of Eureka! Ranch, an organization that helps companies define, refine and improve their new ideas. In an interview with SmallBiz magazine, Hall defined innovation as that which:
"moves companies and their offerings along a continuum from providing commodity products or services to having a monopoly that is extremely difficult to combat."
Hall's definition is spot-on, and made even more significant by the fact that no company's position along that continuum is static. If you're not actively moving your company away from commoditization, it's destined for it. The extent to which any business proposition or value equation is achieving success in the marketplace is the extent to which it will attract competitors who want what it's got. There's simply no free pass to sustainable success.
If you're making money you're making noise, and competitors are bound to notice. They'll deconstruct your products, mimic your pricing structure, duplicate your distribution system, infiltrate your customer relationships, and do anything else they can to take your margin and market share. In so doing, they'll be creating acceptable substitutes for your products and services, which without intervention will inevitably lead to a price war in which no one wins. Unless you can stay ahead of the game through continuous renewal and change (i.e. innovation), your competitors will commoditize you right out of business.
As frightening as this prospect might be, many companies are intimidated by the concept of innovation. They somehow think it's the purview only of organizations with massive R&D departments funded by equally massive budgets, not the typical small- or medium-sized business. But this reflects an incomplete and unrealistic understanding of what innovation is really all about.
One of the reasons executives think this way is because we tend to associate innovation with breakthrough leaps forward - advances that change the playing field, shift competitive dynamics, make the covers of Forbes and Business Week and end up as business school case studies. Certainly, big innovations can be big news, and for good reason (Doug Hall's research shows that major breakthroughs are worth four times as much as minor innovations). Naturally, they're the ones that get the most press.
But the systematic introduction of even small improvements along the commodity-monopoly continuum can compound to deliver just as much (if not more) impact as a single big breakthrough. Popular Science says of innovations:
"The objects don't necessarily need to be beautiful. They don't have to be eco-friendly. They don't even have to be difficult to build. They just have to push past what we thought was possible just twelve months ago."
To that I would add that they don't have to be big. They just have to be consistent.
If you spend just a few hours critically analyzing your industry from a customer's perspective (perhaps even involving customers themselves), you'll identify dozens of pain points about which somebody ought to do something. Airline seats should be comfortable. Take-out orders shouldn't be wrong. Physician's handwriting should be legible. The better you can anticipate what customers will be wanting/needing/expecting down the road, the more likely you can be the leader that first addresses the issue. No one, as they say, ever asked for a microwave oven. Or even a curved shower rod.
Want to keep commoditization at bay? Focus on innovation. No matter what size, shape or form your company is.
Enjoy this post? Subscribe to our RSS feed and join our Continuous Innovation group!
Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.Labels: culture, Innovation, Steve McKee, Strategy
posted by Blogging Innovation at 1:01 AM
1 Comments:
The road to commoditization is not quite as flat as you are saying.
Relative to market leadership, there are two types of market leaders: fixed and fluid. The first has a fixed near-monopoly from birth to death of a category, or their exit from the category. Think Intel. The latter has a collection of competitors that shift into the market leader position for a time based on their promo spend. Complementors and vendors of commodity goods compete in the latter situation.
The situation you are describing in the latter. Something else happens in the former.
As soon as a market leader, of the former kind, is chosen by a market, the other competitors begin price-based competition. The market leader can maintain a price premium, because they and they alone are the standard. The market leader also has more time and money to develop strategies against price-based competition.
Ultimately, you are absolutely correct that we must innovate to escape commoditization. Commoditiztion is where cost minimization, globalism, and job loss lives. Managerial focus must be spent on creating a new world if we are not to play globalism as a zero-sum game. Yet, managers are wasting their focus on other things, so our economy disappears and will continue to do so.
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