Innovation vs. Leadership

You’ve no doubt read widely about the importance of innovation in gaining strategic advantage, that the advent of “disruptive technologies” is what creates giants of industry. Our BPM practice philosophy at Perr&Knight, however, is based on the idea that competitive advantage is best achieved by adopting a continuous improvement framework – a framework that does not require the innovative breakthroughs that characterize disruptive technologies to be effective.

Surely, "disruptive" innovations are the mark of many strong competitors. But these innovations, over time, become widely adopted, and the competitive advantage they once provided erodes. And so must begin another cycle, and another innovation to maintain the competitive advantage. The problem is that true breakthroughs are few and far between, require much trial and error and are insatiable consumers of research and development funds.

Continuous improvement, driven by thought leadership, is what makes great competitors.

The good news is that the cycle works equally well with a far more mundane approach, where operational excellence is a product of a discipline, consistently applied – and of thought leadership – rather than reliance on multiple, innovative, strategic breakthroughs. While breakthroughs can be wonderful catapults, it is in the maintenance of market leadership – not innovativeness – on which competitors must focus.

The world is riddled with stories of innovative companies that lost their leadership positions. IBM, Sony, Apple – all delivered innovative, breakthrough products (the PC, Betamax, the Macintosh) and enjoyed the number one spot only to see it evaporate in an onslaught of aggressive competition. All three have regained their composure, though each pursued a rebirth using very different strategies: IBM had to completely remake itself and shift its focus to professional services and acquisitions; Sony became a mark of quality rather than genuine innovation; and Apple dominated the “cool” category in computing and now virtually owns the personal audioplayer market (once dominated by the Sony Walkman) by improving upon earlier innovations. ("Breakthrough" MP3 technology used to be dominated by Creative Labs.)

Cycles of innovation and cycles of leadership certainly overlap, though it’s the commitment to continuous improvement driven by process discipline that seems to be the best marker of consistent market leadership.