Competitive advantage is as beautiful and as fleeting as a rose in bloom. And, just as a beautiful scent soon goes unnoticed, yesterday's competitive differentiators just become part of the price of doing business tomorrow. Rapid change, especially in the realm of information technology, spawns endless debates about the timing of innovation. Nicholas Carr captures the zeitgeist of today’s technology pessimism when he offered "new imperatives for IT investment and management" under the chapter title, "Managing the Money Pit." [i] His recommendation is "follow, don’t lead." Others argue that since competitive advantage evaporates quickly, the most value accrues to first movers. Some pundits evade the question with convoluted parsing, recommending instead that companies try to be first finishers.
Another debate rages about the appropriate aspiration of innovation. Should innovation be pursued as a series of incremental improvements, or in the form of transformational efforts that redefine the rules of competition? In a recent special issue of Harvard Business Review on top-line growth, two thoughtful consultants made opposing recommendations. Gary Hamel advised companies to “raise the ratio of radical innovation to incremental innovation,”[ii] while Michael Treacy argued, "breakthrough innovation should be the growth strategy of last resort."[iii] It is a heated argument, with strong views at both sides of the slippery slope that separates the two positions.
The unexciting answer to the questions of timing and aspiration is that there is no universal approach, and academic (or anti-academic) dogma should not dictate strategic choices. The right approach depends on the nature of the business situation, the characteristics of market, the life cycle of the products, the relative capability of organization, and the audacity of your competitors, just to name a few factors. Organizations can not, and should not, decide whether to go first, second, incrementally, in one big jump, or not at all, until they know the nature of the opportunities in front of them. As the historian, Ithiel de Sola Pool, wrote, “technology shapes the structure of the battle but not every outcome.”
The first step is to do the hard work of understanding the implications of new technological capabilities in the context of your business. Only then can you pinpoint specific opportunities, assess potential risks and rewards, and make choices about what to pursue. The danger of technology pessimism is that opportunities are never considered. The danger of unbridled optimism is that innovation always becomes an exercise akin to "a bridge too far."
Perhaps the best advice on this matter comes from Peter Drucker, who offered this principle: "Innovation begins with the analysis of opportunities. The search has to be organized, and must be done on a regular, systematic basis."[iv] Drucker urges companies not to subscribe to romantic theories of innovation that depend on "flashes of genius" or charismatic figures who are "touched by the muses." Instead, companies must strive to master the practice and discipline of innovation. That requires setting up the mechanisms for purposeful, systematic examination of innovative opportunities for companies. This of course is the start of a complex process. Innovation is a risky enterprise. But, in the end, as Drucker reminds us "defending yesterday—that is, not innovating—is far more risky than making tomorrow."
[i] Carr, Nicholas. Does IT Matter? Information Technology and the Corrosion of Competitive Advantage. Boston: Harvard Business School Press, 2004.
[ii] Hamel, Gary and Gary Getz. "Funding Growth in an Age of Austerity." Harvard Business Review, July-August 2004. Page 76.
[iii] Treacy, Michael. "Innovation as a Last Resort." Harvard Business Review, July-August 2004. Page 29.
[iv] Drucker, Peter. “Principles of Innovation.” The Essential Drucker. New York: HarperCollins, 2001. Page 270.
Comments