INNOVATE OR DIE
Having become accustomed to rapid change and constant innovation, customers are increasingly demanding new products and services that deliver more value, quality, and reliability. Even in products that have changed little over time, customers expect additional value in terms of increased quality and service. Ongoing advances in technology-based products and services drive down the length of product life cycles, forcing firms to accelerate new product development (NPD) cycles while simultaneously improving the effectiveness of those processes. This trend can be illustrated by the fact that in 1990, on average, companies generated close to 40 percent of sales from products that were less than five years old.17 In contrast, by 2010 as much as 40 percent of revenues in a number of industries came from products introduced the previous year.18 Apple in particular reported that 60 percent of its sales came from products that were less than three years old.19
In addition to simply keeping up with new technologies and knowledge, history suggests that businesses that are first to market or "first movers" (FM) are generally able to capture around 50 percent of initial market share, the so called "pioneering advantage."20 Research also shows that speed to market is even more important than cost or budget considerations. For example, firms that introduced high-tech products that were six months past the projected release date but still within budget realized a 33 percent decrease in expected profits over the first five years. Conversely, firms that introduced products on time but as much as 50 percent over budget suffered only a 4 percent reduction in profits over the first five years.21 Firms with shorter NPD cycles also demonstrated better performance than those with longer NPD cycles.22
Innovation in management and manufacturing processes is also critical in creating and maintaining competitive advantage. According to John Kao, "We all have a tendency to look for creativity in products and forget about its importance in processes, practices, and perceptions. Such myopia can lead only to disaster. No business today can afford to neglect the need for continual renewal of its marketing, its recruiting, its accounting, its planning process, and so on."23 A number of trends continue to elevate the importance of internal process innovation in providing opportunities to create SCA. One of these is the increasing reliance on outside suppliers for products and services that contribute significant value to an organization's offerings. This trend means that suppliers are increasingly becoming major sources of product differentiation. As more knowledge lies outside of the firm, management of outsourcing relationships has provided a major opportunity for innovation and value creation, as well as an increasing risk for value deterioration if the wrong suppliers are chosen and/or the relationships mismanaged.24 Organizations that are able to manage outside relationships and obtain special or exclusive access to supplier-based innovations create substantial advantage for themselves. For example, when Boeing Corporation developed the Boeing 787 Dreamliner, which has become the fastest-selling commercial airplane in aviation history, they incorporated the knowledge and resources of over
50 partners in the product development process.25 In John Kao's creativity audit, presented later in this chapter, he specifically calls for the identification of the source of creativity as either "insiders" or "outsiders," and for credit to be given where credit is due in order to foster that source of creativity.26
The increasing rate of technology dispersion globally also means that firms are less and less able to obtain or maintain unique technology-based value. Moreover, the industry in which an organization competes can place limits on the ability to achieve SCA through technology, and a focus on achieving only breakthrough technological innovations can result in missing out on smaller incremental innovations or losing sight of what customer's really want.27 In some industries such as the tire and dry cleaning industries, there is little room for differentiation in basic products or services. The only means for innovation and creating unique value is often via innovative processes and unique combinations of products and services that synergistically enhance customer value. Innovation in these industries is more often the result of how products are delivered and packaged than unique aspects of the products or services themselves. Regardless of how innovations are achieved, one thing remains certain: the mantra "innovate or die" is quickly becoming the norm and a key strategic focus.