Can Innovation Create Competitive Advantage?

by Jeffrey Phillips

Innovation as Competitive AdvantageOver the last six or seven years, definitely since about 2003 or 2004, there has been an increased focus on innovation in many businesses. I think much of this was driven by several factors, including an increased rate of change in competition, especially the growing capabilities of India and China. I also think that information costs have fallen as the web has become more fully adopted, and consumers are demanding more. Finally, I think the focus on cost-cutting and outsourcing is reaching it’s logical conclusion. Most of the things that could be cut, trimmed or outsourced have been. Many businesses in the US are relatively lean, and need to return to growth and differentiation.

All of these factors contribute to the need for innovation. However, there are a lot of trends that suggest innovation is important in the near future as well. The focus on global warming means new technologies are required to reduce emissions. In the US, health care reform will mean new demands on an antiquated health care system. The US Government is straining to provide services that the population expects and demands. The banking sector is ripe for change and disruption. All of these factors suggest a significant amount of change is in store for our government and for major businesses.

None of this is going unnoticed in the hallowed halls of major corporations. Booz and Company has just released its yearly Innovation survey, and more than ever, innovation is moving from an interesting sideshow in most organizations. Now, innovation is being recognized as offering a competitive advantage, perhaps one of the few sustainable advantages, and CEOs and executives are taking note. The survey points out that over 90% of the executives surveyed said innovation was critical to the success of their firms as they prepared for the market and economy to improve. One executive went so far as to say “the recession was a catalyst for increased innovation”.

Booz and Company listed three reasons why they felt companies have continued to invest in innovation during the economic downturn:

  1. Innovation is becoming a core component of overall corporate strategy
  2. Recognition that product development cycles are longer than recessionary periods
  3. Many see the recession as an opportunity to build advantages over their
    competitors

One of the biggest impediments to innovation continues to be the “constraints of the product development lifecycle”. The product development life cycle in many industries is simply too long and too cumbersome, and any opportunity to shorten the development life cycle could mean real rewards. Conversely, any slacking off could mean falling behind the competition.

My take: Innovation is gradually moving from an occasionally interesting sideshow that is not focused and not strategic, to becoming a key focus of senior executives as they realize that only innovation can help the firm continually grow and differentiate. Innovation is rapidly becoming a capability or enabler that strengthens and focuses the corporate strategies, and should over time become a key enabler to many corporate goals and strategies. Once more firms create a continuous capability for innovation and modify their cultures to embrace innovation, then we’ll see the real transition occur. It is heartening to see that more and more firms are placing more emphasis on innovation at a strategic level.


Jeffrey PhillipsJeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of “Make us more Innovative”, and innovateonpurpose.blogspot.com.

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