In the past, ability to secure licenses to manufacture products in limited quantities was deemed by companies as a great competitive advantage. They could rehash their old products for years on end by making mere cosmetic changes. Needs and wants of customers hardly ever mattered. Involving customers in product or service design was unthinkable. Not any more. Following globalisation, however, the Indian markets are witnessing an unprecedented level of competition. Customers are bestowed with newer products or services from companies never heard of before. Customers would naturally feel pleased about this situation and would not like to let go of this power of choosing from several competing products and services any time soon. On the contrary, their expectations of novelty of features, quality, service and price are only rising.
In this fast changing environment, product life cycles are becoming ever shorter and there is a constant need to replace products or services before they get copied or commoditised. Not many companies are able to cope up with this difficult situation. Some of them draw comfort from clinging to the past successes hoping for the tide to turn their way. This may not happen at all. Markets hold only one message for companies - innovate or perish.
Innovate to create and sustain competitive advantage
Having competitive advantage implies that a company is able to outperform its rivals in the marketplace. To be able to do so consistently helps the company in building a sustainable competitive advantage. Internationally acclaimed strategy Guru, Michael E Porter, has cited low cost advantage and differentiation as two primary measures of competitive advantage. A company, which is able to manufacture a product or render a service at costs lower than those of its leading competitors, is deemed to have low cost advantage. Whereas, differentiated products or services help a company create or add a unique value to its customers that cannot be matched its competitors in a foreseeable future. Unique features or attributes in a product or a service are indicators of differentiation. While rivals may be able to overcome the low cost advantage sooner than later, they may not be able to emulate a companys unique ability to consistently churn out innovative products. This requires an entirely different mindset. Andy Grove, the legendary former chairman of Intel, USA, believes only paranoids can achieve this. Intels ability to bring out new microprocessor chips every so often is yet to be matched by its rivals. Most companies protect this advantage by obtaining patents or other forms of intellectual property rights. In other words, constantly exploring new ways to compete is the best way to cope with this savagely competitive market environment. For example, Colgate has recently brought out a see-through packaging for one of its sub-brands of toothpastes. Colgate has a slew of products, one for each of the market segments and spends heavily on advertising its brands (It spent Rs 197 crores on advertising from a sales turnover of Rs 1,178 crores in the financial year 2000-01).
Innovation as a corporate goal
Companies now need to become customer focused to better understand the changing needs and wants of their customers. This understanding in turn will help them in offering products or services to match these changing needs and satisfy customers. Companies must try and understand that their business customers may actually stay with their existing suppliers despite the higher prices if served better. In fact, innovation now needs to be made a corporate goal. At the 3M Corporation, Minnesota, USA, it is a corporate goal that in any given year, 30 per cent of the revenue should be contributed by products, which are less than four years old and 10 per cent of the revenue should be contributed by products, which are less than one year old. At Owens Corning, USA, products less than a year old contribute close to 75 per cent of the revenue.
Perhaps hardly any Indian company sets such lofty corporate goals. But they must make a modest beginning nevertheless. The choice is clear - Innovate or perish.