Innovation and Competitive Strategies

The following quotation cited by Chunka Mui got me thinking:

as Drucker reminds us "defending yesterday—that is, not innovating—is far more risky than making tomorrow."

A strategy that I’ve seen to differentiate one's own product from the competitor's is to point out to the customer the flaws in the competitor's product and to outline ways in which the competitor’s product quality isn’t as good as one’s own (e.g., Creative: "Our MP3 player has superior sound quality.") . This approach avoids innovation as a competitive strategy and instead focuses on differences in product quality and effectiveness to claim superiority and attract customers.

I believe that in many cases this is a flawed approach. Most customers that already use Company X’s product (whether personal or enterprise technology) aren't going to be convinced to give up their chosen brand based on these arguments. Taking jabs at the competition’s quality or usefulness of features works best with your own customers, convincing them that they made the right choice and shouldn’t switch brands. It’s kind of like political or religious arguments—they rarely work to convert someone and are only useful in reinforcing people who are already supporters of you and your cause.

Freddie Daniells interesting thoughts on innovation and competitive advantage allude to this concept:

Quality is now a given and any cost advantage gained by efficiencies brings only short-lived advantage.

In my view, to gain market share from your competitors you need to provide benefits that the competition doesn’t offer. This is where innovation comes in. A company has to compete on either low price or novel technology (or these days, creative design). To compete on technology, it’s not good enough to follow the innovation leaders and then claim that you’ve implemented their innovations better. Doing so may keep your own current customers from jumping ship but will not help to acquire new customers from your competition. Daniells cites a Harvard expert on competitive strategy whose ideas are consistent with this view.

Tom Peters says “Innovate or Die”, and I’m a believer.

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