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June 5, 2012

Where do you stand on innovation?

Posted by Anand Prasad Arkalgud (View Profile | View All Posts) at 10:15 AM

When we talk about companies in the context of innovation, we are quick to point out how some companies are innovators - leaders in innovation, while others are laggards. Innovators or leaders are firms that believe that a core part of their business - their soul - lies in inventing the next new thing. They invest a lot of money in research and development, and are accustomed to trial and error. They understand that there is a given ratio where missteps and failure outpace success. Laggards are the sort of companies that wait till a product or service matures before they jump into the marketplace. Why? They save money because they don't invest in R&D and worry about failure.
Companies often find themselves trying to decide if they should be leaders or laggards. Being the leader in innovation is an expensive proposition (ask pharmaceutical companies that rely on drug discovery), and being a laggard seems to be socially unacceptable in today's corporate world.  More often than not, we tend to believe that the best way to succeed is to try and lead! Many companies often conclude that the reason that they are failing to make inroads in certain areas is because they are not innovative enough! If that was true, we should see the laggards dropping like flies. 

Let me give you an example that made me step back and re-consider whether it is that bad to be a laggard after all.  I walked into a hardware store in Bangalore and I had some time to chat with the guy at the counter.  He told me that 95 percent of the drill bits he sells come from China.  He mentioned that the Chinese drill bits break more often than the higher quality premium branded ones.  But his clientele - the local tradespeople - do not care about quality.  They don't buy the drill bits hoping they will last for life - or even a year or two - because they get paid on every job and factor in the cost of the bits that they're not going to use again.  The local guy dealing with the customer - the contractor, if you will, tells his carpenter or handyman about every new job.  He gives the man money and tells him to go out and buy drill bits. So, his guy goes to the hardware store and buys the cheapest drill bit possible.  He only wants it to last as long as it takes to do the job - probably a week or two.  What is his worst-case scenario?  The drills break right away.  So, then he'll send his worker out to buy one more to finish the job, and remember, it's half the price.  So even if he buys one more he is nonetheless better off than if he had bought the more expensive premium drill bit. Does it matter that we consider this company a laggard?  They understand their market - even if they've never been to that hardware store in Bangalore. 

The numerous interactions I have had with global corporations, in recent times, on the topic of innovations seem to highlight the need for a third option - the fast follower. These companies do not necessarily come up with radically new ideas, but are constantly trying to get things on their radar.  They may not invent an energy drink or a new type of car, but when they see the market past the infant stage - and that there is room for another player - they're quick to follow with a new entry. Being a (successful) fast follower is not about following competitors in your industry. It is about scanning companies across industries and finding ideas worth emulating. It requires companies to develop capabilities that help them scan the broader environment more effectively, understand how consumer expectations are being shaped in other industries or geographies and use that information to differentiate them from their peers.

But then, it still bothers me that a company has to decide whether it is a leader, a fast-follower or a laggard. What seems practical is to decide an area where you want to be a leader (innovator), where you prefer to be a fast follower and where you'd rather be the laggard. If you are an FMCG company, you may decide to be a leader in product or packaging innovation, be a fast follower when it comes to digital marketing, and be a laggard in some areas where you don't see the prospect of differentiation. It is very conceivable that another FMCG company decides to lead on digital marketing but follow on product and packaging. So be it.

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