Business velocity continues to accelerate as the forces of creative destruction, disruptive innovation and uncertainty continuously reshape the landscape. Regardless of industry or arena, your business is most likely contending with the following factors:
- Creative destruction is eroding competitive advantage more rapidly than ever before as technology evolution and adoption accelerates.
- Fast followers with streamlined cost structures have taken reverse product and business model engineering to a new level resulting in faster, and sometimes even better, copycats. In fact, 97.8% of the value of innovations goes to imitators.
- Barriers to entry are diminishing. Lean startups have unprecedented access to once costly capital equipment, cloud based business systems, and even production assets or assemblies that can sourced directly from China through marketplaces like Alibaba. This has reduced the cost of entry into many markets from $100s of millions to thousands.
- The world is flat, and continued deregulation coupled with increasingly free trade has virtually eliminated the forces that historically sheltered markets.
The End of Competitive Advantage
These forces have converged to virtually eliminate companies’ ability to establish long-term competitive advantages. However, a new strategic approach that focuses on continuous innovation is being embraced by today’s most successful companies. In “The End of Competitive Advantage,” Rita McGrath asserts that every successful innovation will be copied and that the innovation’s competitive advantage begins to erode within months providing only a “transient competitive advantage.”
A systematic approach to innovation
In response, companies need to deploy a systematic and continuous innovation approach that simultaneously exploits multiple transient competitive advantages. Analyzing the world’s leading businesses and disruptors reveals not only an organizational culture that rewards continuous innovation, but more importantly, adherence to a methodical approach to innovation. The phases of this systematic approach to innovation are outlined below:
- Continuously Analyze: Continuously analyze your customers and competitive arena using quantitative and qualitative methods. How are changing customer needs, competitors, and market forces disrupting your value proposition or creating new opportunities for innovation?
- Define Problem: Define objectives and problem you are trying to solve. Since many business challenges are complex and multi-faceted, decompose broader problems into their constituent elements to create a well-defined and addressable problem.
- Ideate: Brainstorm and develop innovation POVs and hypotheses.
- Prototype: Create prototypes or designs of your innovation hypotheses.
- Test: Utilize Iterative Optimization Methodology to test prototypes and designs against real market conditions.
- Evaluate and refine: Evaluate the results of your tests. Determine the validity of the innovation hypothesis and the impact to your core value proposition and business strategy. Analyze the implications, costs, and advantages of implementation at scale. If the test was unsuccessful, fail fast and without consequence and move back to phase 3.
- Pivot: Implement solution and be prepared to quickly modify and pivot based on market response and changing customer needs.
This systematic innovation methodology combines the fundamental tenets of Design Thinking and Iterative Optimization Methodology to establish a rapid and iterative approach to innovation. The model reduces risk while providing the agility to cost effectively implement multiple innovations simultaneously. Collectively these innovations become the new platform for sustainable advantage and delight your customers with a fresh brand experience and continuously evolving value proposition.
If you were lucky enough to score an Adobe Summit pass, be sure to join session S820 to learn more about systematic innovation methodology and how McGraw-Hill Education utilized a systematic approach to innovation to transform their business.