Strategy & Innovation

By Mike Anleitner

As competitive forces intensify, most businesses come to believe that innovation is a critical element of success. For any business, innovation is a powerful means to create a competitive advantage.

However, too many executives and managers don’t think through the critical elements of innovation. In general, it’s possible to innovate in two general areas: product development and process improvement.

Product Development Innovation

No question—this is exciting stuff! R & D, press releases, customer raves, and great PR (at least when things go well). Dreaming about “a better mousetrap” is exhilarating. It is also very expensive, time consuming, and risky. Typically, managers are either energized or anxious about product innovation. Smart managers feel both emotions at the same time. There are big financial gains when new products are successful, but big losses when things don’t turn out well.

Process Improvement Innovation

On the other hand, this is far less stirring for most managers…it’s the hidden activity that sits “in the back” of most factories or businesses. It rarely generates publicity; because this kind of work is difficult to patent, it’s usually protected as a trade secret. Managers rarely feel much emotional attachment to process innovation, unless large and speculative investment is required. Financial gains can be substantial, but they tend to provide incremental improvements in the bottom line rather than the “big hits” that new products generate. Conversely, process innovation can provide income improvement for many years, while product innovation can become obsolete in a minute.

What Do You Want?

Too many managers want both product and process innovation. It’s rare that a business unit can sustain innovation in both areas, although well managed “portfolio” firms can choose to be process-oriented in one area and product-oriented in another.

Why? To begin with, successful product innovation tends to make process innovation difficult. In a business that is introducing new products at a torrid pace, process innovation is difficult and expensive. No sooner does the factory, kitchen, or back office master the intricacies of the latest launch than another new product must be unleashed. There’s little time to develop innovative processes when the process base is changing frequently. On the other hand, robust and innovative processes often present a barrier to new products, especially when new products require replacing existing processes.

If a business tries to innovate in both product and process at the same time, they often do neither very well. For example, let’s consider the personal computer business. Sony is a top-flight product innovator, while Dell is a master of process efficiency. Each controls important market segments, and each benefits from their innovative efforts.

Hewlett-Packard, on the other hand, appears to be trying to do both; they are trying to match Sony in new product offerings and engage in price competition with Dell. The result is that they are caught in the middle, with products that don’t really measure up to Sony’s lines, and costs that lag behind Dell. The result is mediocre profitability, a blurry market image, and an uncertain future.

Send email to m.anleitner.68@livoniatech.com or call me (248-474-2035) if you would like to discuss this or plan a working session in for innovation.