Disruption is the new Innovation

Posted: September 3, 2011 in Uncategorized

We live in a world today, where every organization is constantly on the lookout for means to differentiate itself from the others that comprise its industry; for ways to achieve sustainable competitive advantage; and in very, very simple terms, for ways to survive. In this milieu, one often comes across strokes of genius, which in the blink of an eye, set a particular market player apart from the crowd; and in the process, rede-fine the way business is done, and even looked at in that industry. An event of such a scale and scope, is often what one would call a disruptive innovation.

A disruptive innovation is one which breaks the continuing stream of incremental improvements and changes, to radically alter the development, and very conception of said product/service/industry. And as is the case with any mine that strikes gold, this newly irresistible area be-comes the hotspot for all firms considered worth their salt. In industries unlike Pharmaceuticals, where a concrete protection mechanism (read Patents and the like) is absent, the competitors are quick to replicate the product/service/model, with augmentations inherent to their respective firms. Thus, what had been a breath of fresh air to consumers a week back, is suddenly spreading all around, and halfway to becoming the next homogeneous commodity. And with that of course, over time the idea loses its initial sheen, wearing itself off from over-use and exploitation.

Economists and game theorists would refer to this phenomenon of decaying valuation as “Tragedy of the commons” or “Decreasing marginal profitability”, both of which symptomize the winding trails of commoditization. And it is here, that we endeavour to step in, and if not devise a way out of this piece of oft repeated history, then at least sit down with it, and get to know it better.

Marketing as a function plays a key role in the effective delivery of any value proposition, be it a product, service or in any form for that mat-ter. After the core operation, it is marketing that ensures that the tar-get consumer segments are reached; and that the external gaps in value delivery are minimized. Given the significance of marketing, we would look at the core issue through two viewpoints:

1) Managing innovations in the marketing domain, so as to be able to de-rive sustainable competitive advantage from them.

2) Capitalizing on core innovations by leveraging upon a sound, directed marketing campaign.

Coming first to marketing innovations, one can readily observe that the marketing strategies adopted by a firm should be determined to a great extent by the existing brand perception that it enjoys. Discounting cases of deliberate image makeovers (which entail a separate, dedicated campaign altogether), one can see that a gauche mismatch between the brand’s identity and the new offering portrayal can lead to undesired confusion and ambiguity in the impressionable consumer psyche. Thus, due consideration to this factor, and adequate preparedness for the same is necessary to ensure that an ingenious innovation does not backfire, and then to make matters worse, play straight into the hands of the more suave competitors.

Coming to the issue of commoditization with respect to disruptive innovations, we can see from the very outset, that such a mass replication is possible only when the entry barriers for such an introduction are either too low, or easy to transcend. Thus if a retail chain were to offer a drastic 70% off Sale once a month, then it alone would not serve the purpose of truly differentiating it in a sector growing at a frenetic pace.

Put another way, if such an initiative is not backed with the requisite supply chain and sourcing efficiencies, it won’t be long before the firm starts to bleed. And to make matters worse, other more lean competitors could then launch a similar programme, only more aggressively and credibly positioned to deliver.

To take the previous example one level higher, there might be a phase where all industry players are more or less in similar phases of maturity and efficiency. In such a case, a soundly backed discount sale initiative would be easily replicable, and this could over time lead to a flood of such offerings, and even to the consumer growing increasingly indifferent to them. When such a stage is reached, it is the beginning of the end of the value for what had once been a unique innovation; the commoditization has kicked in.

Thus, to counter the forces that lead to a collective exploitation of an idea that an enterprising firm brings to the market, the firm in question must ensure that there is more going for it than just the “first-movers ad-vantage”. That is, the innovation must be rooted in something that is quintessential to the firm, like its unique work culture, leadership vision or even something more tangible like restricted access to sources/suppliers.

Further, it must be noted that if such a commoditization were to indeed take place, then it is not only a loss for the firm that introduced the concept, but more significantly it is an opportunity lost for the industry as a whole. And the solution to this problem is not to form a cartel and fleece the pennies out of a society slowly starting to walk on its aspiring, middle class feet; rather, firms would need to constantly innovate in a manner that accords to each one of them a niche pocket through which to grow, overlap and compete. With time, consolidation is inevitable in a fragmented industry, and in the case of one that is concentrated, one can then look forward to epic marketing battles, a la the Cola wars. In either case, firms would be required to dig deep and come up with some one thing that is unique in them.

In this regard, when it comes to differentiating yourself, especially in an industry where the core product/service is easily commoditized (low cost airlines, retail etc.), one essential resource comes to the fore, as a point for potential differentiation: the people in the firm. Thus, it may be seen, that often it is the firm’s human resources that form the core of its marketing strategy, highlighting how the people contribute to adding unique value to the particular firm. Examples of this strategy abound, from Intel’s “Superstars”, to Google’s famed “20% time” policy. And with this, strategically aligned HR processes enter the fray for sources of sustainable competitive advantage.

Thus, to conclude, one may note that disruptive innovations by themselves, developed on an unsustainable model can never be of use to a firm. On the contrary, such an effort shall more often than not end up being in the firm’s detriment. Further, such endeavours must be based on fundamentals that are intrinsically hard to replicate for others. Finally, the marketing strategies should be designed in a way that does not conflict with the image of the firm, and if it is aimed at a repositioning, then it needs to be adequately armed.

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