Competitive innovation (AKA Incremental innovation)

Good bye Web 1.0…Hello Web 2.0! … and what is next?

Well, the timing is important conforming to a substantial mass of people ready for the technology & product change. Be it any industry, it is time to infer the maximum out of unstructured data, scenarios, hypothesis and more. It is much more than manageability now; with the emerging and dynamic information boom and complex data scenarios, we have moved on to the platform of sharing information and continuous learning. In almost every industry segment we are seeing more and more product differentiation and corresponding target segmentation. A product’s birth is a germination of a new permutation, combination, unnerving determination, invention and innovation. Above all, an amicable and macabre catalyst to innovation led growth has been competition!

Competition for the marketer is either fierce or subtle, and in essence it leads to a healthy change, which can also be a paradigm shift. When it is fierce it leads to radical innovation and when subtle or gradual, it is an incremental innovation. So, at the receiving end the consumer, who is very demanding, sometimes very intelligent, is the most significant dominant force to determine the pace and delivery of innovation. Here the distinction between different offerings matters a lot in consumer decisions. To make a value offering distinctive, companies therefore resort to incremental innovations.

 Whenever you innovate on a product, service or process to get competitively better than your competitors, you are making an incremental innovation. Often this task is achieved by adding some value by incorporating more features to a product, reducing the cost and thus its price or offering something better or improved to customers. For instance when you add more RAM and GB to your PC and sell it at a lower price or a higher price, you are making an incremental innovation. By improving upon your competitive advantage and thus creating distinctions, companies do incremental innovations.

Some companies look at incremental innovation to outdo their competition. For some incremental innovation is about building a premium brand. Minor improvements that add value to customers can emphasize on the USP of the product and as well as serve a different market segment. But for some companies even if the competition is not present, incremental innovation is an on-going process to differentiate their previous version of the product with a new one.

Incremental innovation is the result of a continuous improvement strategy. It is the Japanese kaizen way of improving the quality through constant and never ending improvement methods. During the sixties through eighties the Japanese Auto Makers were playing the catch up game to beat the American car manufacturers. Dr. Edward Deming’s quality principles worked and the Japanese took a lead through various continuous improvements. The series of small improvements over a time compound to larger product distinctions like fuel efficiency and compact design. It was a perfect innovation strategy for the industrial era. In the industrial society continuous improvement was a solution due to the longer life cycle of products and slower advancements in technology.

Perhaps the most famous incremental innovator is the Toyota Motor Corporation.

The ‘Toyota Way’ model has been one of a kind to have introduced kaizens (ideas for improvement).  The Toyota Motor Company pioneered short lived cycles of innovation conforming to longer life cycle of product development. Surely, this was an extremely powerful industry standard and an incremental innovator approach when it comes to reliability and quality. By the 1980s Toyota was consistently ranked higher than any other manufacturer in owner satisfaction surveys. Attention to detail, and making small changes to create lasting improvements, led the company to become the largest automotive manufacturer in the world by 2007.

Even Apple, which frequently tops lists for the most-innovative companies, profits from incremental innovation. Sure, Apple has launched more game changers than any other company in recent times. But after the initial release Apple sees huge returns from incremental innovations. In his article “Incremental Change Wins Apple Big Gains” tech commentator Glenn Fleishmann describes Apple’s incremental approach:

“Apple is consistently criticized by pundits, bloggers, other firms, and market analysts for either innovating too much with initial releases (the MacBook Air, the iPhone, and the iPad, notably) or too little in subsequent product revisions. There’s a reason for that. I want to defend Apple’s incremental improvements as the basis of its success in the market, something its competitors seem baffled by, because they apparently don’t understand the difference between revenue and profit, and between delighting customers with products that can be used for several years and those that are obsolete before they’re even sold.”

 Indeed customers expect quantum leap innovations from Apple. But you can’t just give quantum leap every time you take a leap. You can’t make earth shattering radical innovations every time you launch a new version of the same iPhone or iPad. Instead Apple maintains their continuous improvement with every new edition. Apple will not get the same excitement and accolades from its diehard fans and hard core customers from the new version’s launch of iPod, iPhone, iPad, unlike the first edition. Apple integrates radical innovation of iPod, iPhone and iPad with a continuous and on-going incremental innovation by its regular upgrade both in its new hardware editions and software upgrades. Even though it does not please everyone, considering the life cycle of the products even the incremental practice of Samsung mobile phones justifies the same.

 What can get you noticed is a new category, it can be a radical innovation or disruptive innovation, but what keeps you going is the incremental innovation until a new radical innovation challenges your position. Incremental innovation works within an established innovation framework. Unlike radical or breakthrough innovations, incremental innovation enhances the core competencies through milder technological shifts, and they are less risky. It can respond to customer needs immediately make minor changes and conceal the previous innovation flaws. Incremental innovation reduces the downside of the previous breakthrough innovation and improves on the innovation by eliminating maximum downsides of a radical innovation. For example the pharmaceutical innovation is an evolutionary process by reducing its side effects through a constant improvement process through testing, safety measures, efficacy and utility processes. Here the innovation becomes a continuous process as it is getting tweaked as per the market requirements and changes.

 Considering the evolutionary nature of the incremental innovation, this type of innovation has a predicable continuity above all else. Since the success rate of radical innovations or breakthroughs are amazingly small, incremental innovation helps firms with their on-going progress with the least risk involved in the process. Moreover small improvements can add up to significant changes over time, and represents continuous learning by researchers, managers, developers, suppliers and customers. Here the change is not earth shattering and thus it commands less resistance from other team members.

 One of the most important aspects of incremental innovation is its capacity to maintain the equilibrium in volatile change environment. When you can’t afford to bet in high risky innovation initiatives, during volatile times, to endure the market fluctuations, smaller changes can come as a relief to attract and retain customers. Over the period of time incremental innovation has prescribed a variety of practices like the Six Sigma qualities in manufacturing, concurrent engineering, reduced cycle time, Just-In-Time inventory management, and phase-gate product development systems, to name just a few. These prescriptions were widely adopted and helped many western companies regain their competitive positions in the world marketplace. Even though most of its focus was on the process rather than outcome, it did indeed help firms to gain its competitive advantage in reducing cost and increasing the margins. This worked more like the maintenance of a machine rather than building a different machine altogether.

 The tragedy of incremental innovation is when companies look at incremental innovations as mere cosmetic changes on the periphery and they tend to ignore the vitals.We live in a high velocity market place. Here everything is changing drastically. The speed at which firms develop and roll out new products has become an increasingly critical competitive issue today. Companies can’t afford to make cosmetic changes and expects the consumer market to stay warm for their offerings. Customers expect small changes and big changes. Moreover incremental innovation does not guarantee in opening up new markets. It is only maintaining the continuity by defending a product with minor improvements rather than disrupting it. But in the highly evolving technological landscape discontinuous improvements are playing the solution giving products and services shorter life cycles and higher divergence.

 In a time when everyone talks about high competition and game changing strategies, the average incremental innovation will not do much good either. Since most companies focus on beating their competition, their competing strategies tend to be similar as their rivals. When firms compete on similar grounds with similar assumptions and advantages, their incremental innovations become a mirror reflection of the competitor’s strategy. Consequently it becomes a very short-lived affair. Value added innovations can last only till its value is accepted by its customers in comparison to the competitor’s offer in the market place. Incremental innovation takes what is already being done in some way and improves it. Due to a continuous focus on incremental innovation most of the enterprises can add up only small solutions, ideas and innovations rather than waiting for one big bang. And very often the companies who focus too much on the incremental innovation miss out on the possibilities of the radical innovation. Moreover companies who are engaged strongly on incremental changes get the illusion that they are moving forward faster than competitors, because they are constantly innovating. In actuality obsessing over incremental changes no one is changing any game.

 For almost a decade, BlackBerry kept the innovation around its products slightly incremental without any radical changes.  A key reason to buy a Black Berry was the magic of BlackBerry Messenger - the free message service from BlackBerry. In the first innings BlackBerry took the lead through divergence by introducing a new category of a business phone. In the second innings several other the smart phones emerged with wider features and applications that trumped the features of the BlackBerry. BlackBerry focused primarily on the incremental innovation paradigm, and could not apply their counter intuitiveness to see the disruption technology of touch screen smart phones with wider software applications. Moreoever they could not sustain their captive customers with their BBM service. Because ‘Whatsup’ democratised the exclusivity of insta messaging. It was clearly the triumph of software over hardware.  Entrants of superior software platforms of iApps from Apple and Android from Google have marred the predominance of BlackBerry. Hence market inattentiveness and insensitivity to the future became prime reasons for the decline of many conglomerates like Kodak and Sears too.

 Products based on one technology can be undermined by radically new ones. Doing incremental improvement to the old technology can’t save the day, instead doing incremental changes to the new ones might. You can rely on incremental innovation for a short term tactic but not as a long term strategy. It should always be remembered that improvement alone is not true innovation. Only true innovation creates an outcome so unique that competitors are either unable or unwilling to match up to your offering. Remember, incremental innovation can keep you competitive with current product platforms. But only a radical or breakthrough innovation can change the game. Looking at both the upside and the downside of incremental innovation it can be observed that a harmonic model is best suited: Engage in radical innovation supported by incremental innovation.

 Since incremental innovation is mostly driven by the competition, it is imperative to study the nature of the competition itself. Michael E. Porter’s Five Forces of Competition clearly outlines the threat of substitutes as a powerful force that is technology driven. The rise of new technology can disrupt an existing business, products or processes. For example the postal department in most countries is not wiped out by the overnight courier services but by the advent of email. In a broad sense companies do not compete only with companies in the same industry, but with other industries and disrupting technologies as well. Moreover the market place has endless potential for new products and services that only other forms of innovations can guarantee. To tap on to the market potential, innovation must go beyond its competitive process to a rather creative process. Competitive Innovation is good. It is good to watch your competition but does worse when you follow them. You can keep the competition under a Radar but do not put them under your Microscope. Ultimately your focus will determine your pursuits. Therefore the focus must be on developing value that customers want to buy.

Balancing your innovation portfolio and sensitivity to the changing market scenario will remain the key rationale to long term success. To win the game in the short term and in the long term, organisations must keep a harmonic model of revolutionary innovation (discontinuous process) along with the evolutionary (continuous process).

The nature of the market is to evolve, the nature of consumer taste is to evolve but since humans are also highly adaptable by nature they can also adapt to revolutionary changes. The vital ingredient for adaptability is the timing factor- where technology meets the demands of consumers when they are ready. For example the dot-com was busted as a revolution in the year 2000 but it boomed later as an evolution. Therefore the readiness factor is more of a common acceptance of a new technology while other alternatives decline to serve the same experience to a consumer. An industry will have an incremental growth after establishing a clear breakthrough just like the advent of the Internet. Commercially the Internet started to catch on in 1995 with an estimated 18 million users. The incremental progress of web took an exponential growth after several companies began to use the medium as a platform for multiple services reaching to millions of its customers. Consequently behavioural changes and habit acceptance (like click and buy) evolved over a period of time and web was monetised and accepted as a virtual marketplace. Consequently the Internet was disrupted by the mass adoption of smart phones. Thus we have moved away from the information age of managing information (Microsoft) to a connected age where we create and share information (Google, Facebook).

We can evolve constantly and incrementally innovate ceaselessly but once in a while some revolutionary ideas will create the big bang. If you are not part of that big bang, you will be disrupted. The new rule of the game is either to be a disruptor or to be the disrupted. So let’s keep asking why, what ‘s next and where is the next big bang?  (Excerpts from Paul Robinson's book HOW TO THINK OUTSIDE THE BOX)

Paul Robinson speaks about innovation to a gathering of 600 managers          www.paulrobinson.in