The Idea in Brief
What distinguishes outstanding competitors? Consistent innovation. Top performers don’t just get occasional big hits in a few areas. They systematically improve every aspect of their business—sales, marketing, R&D, production, finance, distribution. Then they translate those changes into advantages that customers value.
By applying the following principles, the best companies institutionalize innovation—building and sustaining competitive momentum.
The Idea in Practice
Innovation Principles
1. Create the right mind-set. Innovation begins with a CEO and general managers dedicated to change.
- They build company-wide commitment by fanning desire to beat a specific villain. When Coke finally perceived the Pepsi threat, it, too, became an outstanding innovator.
- They cultivate risk taking through constant experimentation. By betting on a portfolio—not just a couple of big, risky projects—they boost their success odds.
- And they avoid casting blame when experiments fail.
2. Unsettle the organization. To stimulate innovation, organize your firm’s creative activities differently than its standard operations. Let people cross lines, get varied inputs, and take risks. For example, task forces spur cross-functional interaction; freewheeling meetings with top management keep ideas flowing; spinning off operations into small divisions promotes entrepreneurial spirit.
3. Be hardheaded about strategy. Don’t try to be all things to all customers. Instead, understand your industry and competitors, and know how you measure up. Then create a practical competitive strategy grounded in that knowledge. Example:
Tin-can company Crown Cork & Seal was a fourth-place player in a mature industry dominated by two giants. Its strategy? Develop growth segments (beverages); be the lowest-cost local, not national, producer; grow in less-developed countries ignored by giants; and grab profitable business abandoned by those giants.
4. Look at what’s already going on. Avoid the not-invented-here syndrome. Profitable innovations often originate outside your firm, from competitors. Beat them with lower prices, better products, or stronger niche-market features:
- Discover what’s already attracting consumers, then out-execute the competition. PepsiCo garnered $2–3 billion worth of successful innovations this way, including Doritos and Tostitos.
- Ferret out what newly defined customer segments really want. Then create products that offer better value than competitors. Taco Bell snagged the working-women market with a mildly seasoned taco salad that boosted sales 20% and added $100 million in its first-year sales.
- Uncover weaknesses in competitors’ business systems—the flow of activities that bring products to market. Then use that knowledge to strengthen your system.
Example:
Noticing its competitors couldn’t serve pizzas as fast as McDonald’s served lunches, Pizza Hut adapted a continuous-broiling technology from the burger industry that let it serve personal pizzas in under five minutes.With its 4,500 outlets, it dwarfed its nearest competitor (500 outlets). It introduced the new product almost everywhere, almost overnight—quickly dominating the pizza-lunch market.
5. Go for broke. Most innovations fail because of insufficient resources—not overspending. Throw needed money, people, and programs behind a new product: You’ll never have the first-blood advantage again.
Most chief executives fervently want their companies to be more competitive, not just on one or two dimensions but across the board. Yet outstanding competitive performance remains an elusive goal. A few companies achieve it. Most do not.
