Innovation: The Cornerstone of a Competitive Advantage

This article was written by Chris Montgomery – eCoast Co-CEO, Chief Sales and Marketing Officer.

If necessity is the mother of invention, then competitive advantage is the father of innovation.

In the American and world economies, there is always someone (maybe many someones) trying to get your customers, your revenue, your profits, and your position in the market. If you aren’t working hard to stay ahead, you get left behind with diminishing margins, poor cash flow, and a weakening ability to invest, diversify and grow. In short, if you don’t have, or are losing competitive advantage, you won’t survive long in any real market; i.e. one that offers profit and return on investment.

Historically, we have thought of innovation as the process of creating great breakthroughs in products, services, and technologies. From the tube to the transistor to the silicon chip…or rocket science (you know, getting a man on the moon). Or how about Apple? The iPod and iTunes…the iPhone and its apps? These breakthroughs certainly reflect innovation and R&D, and they certainly have made companies, and our country more powerful and competitive. In addition to breakthroughs, I think innovation can drive competitive advantage by making our daily, typical, business processes better, more efficient and thereby allow our companies to put our resources and energy into serving our customers better, helping us to grow our margins, and staying ahead of competitors.

How does innovation work? How do we embed it into the DNA of our companies? I know one b-school professor who deems innovation across the organization as the single most important predictor of business success. He’s also a successful venture investor, so he may know what he’s talking about.

A simple innovation process that can apply to almost all firms looks like this:

1. Generate ideas
2. Evaluate the ideas
3. Develop actionable plans
4. Consider the implications of failure
5. Implement
6. Monitor
7. Revise

This process can be used in ALL company departments, not just R&D and product development. Risk tolerance needs to be considered, of course. You also should evaluate based on profit potential and the probability of achieving that profit, keeping in mind the impact failures may have on morale is important too.

To embed this, or any innovation process within a company, you need to schedule regular innovation sessions in all company departments. Managers need innovation objectives; their bonuses and promotions must be dependent to some degree on their ability to lead innovation. Each department must have a goal! Customer service may look to reduce inbound call wait time, finance may seek faster invoice issuance, sales always wants to make more sales calls and close more business. Innovation is the formal, yet creative and fun, process of looking at how we do things and finding ways to do them better. What does it mean to a company to find a way to increase customer satisfaction? Or to reduce receivable DSO? Happier customers and more cash usually means an increase In competitive advantage.

I can’t think of any executive or business owner who wouldn’t love to come up with the next great game-changing product or service in his or her market. But breakthroughs are usually few and far between. We all can, however, innovate consistently and make a series of small gains that collectively add up to competitive advantage.

Tagged as: business tips, innovation