Innovation – perhaps this is something businesses need less of after-all?

Innovation is all the rage these days- from large multinationals to SMEs- it is on tip of everyone’s tongues. Every business manager chirps on about driving it, the need for it and brags at the local pub about their “innovative achievements”. There are even multiple variants of it: reverse innovation (where ideas are brought back from 3rd world nations), frugal innovation (also originating from the 3rd world but widely adopted when referencing achieving more with less). Both of these can be broadly referred to as the “incremental” category. There is also the disruptive type (which radically changes and replaces all), the sustaining type- and the list goes on. Regardless it seems “innovation” is so loosely defined that even a government agency creating a facebook page has been heralded as innovation (depending on your view of government agencies this might not be too much of a stretch). The question is – does innovation really create sustainable competitive advantages? Is innovation for every Tom, Dick and Harry?

Inditex (the company behind the fashion label Zara), is world’s 2nd largest clothing maker. Their sales are close to $19.1 billion per annum and continuing to grow as they expand across close to 120 different countries. The genius in their business model is that it picks up every season’s trend (it is a follower) and never has a distinguishing style which could easily fall out of fashion. This is clearly the polar opposite of your “haute couture” labels who pride themselves in paving the way for others to follow and each design house having its own identifiable style. These designer labels spend much on their marketing to reinforce their brands. Zara – does not advertise and instead relies solely on chic locations and shop-window displays. Frowned upon and despised by those in the fashion circle – it is clear who the sales champion is and who is sitting on the most enviable operating margin.

Realities of innovation

Businesses CAN copy and succeed. Let’s shift our focus to Apple (I’m prepared to receive lots of seething fan-boy hate mail for bringing this up). It is a fact that the iPod is not the first digital music player. The iPhone was not the first smartphone nor the iPad the first tablet. Despite the ongoing patent suits and counter-suits still playing out, one thing is clear- Apple COPIED and IMITATED other’s products. What made them succeed was that they enhanced the product and made it far more appealing. Another clear example is the pharmaceutical industry- typical players are either innovators (who creates “blockbuster” drugs) or imitators (the generics). Closer to home, our cosy oligopoly of Coles and Woolworths have both managed to crowd-out labelled brands with their own: “Select” and “Home Brand”: the products have been imitated right down to the colours and details of the packaging. In the technology sector, the German Samwer brothers: Marc, Oliver and Alexander are minting money from replicating the innovations from the Silicon Valley and bringing it to the European markets. Don’t believe me? Google “Pinspire” and you would be hard pressed to tell the difference between it and Pinterest.

Senior business leaders and even politicians harp on endlessly about innovation’s critical role in economic development . Word on the street is that you must innovate or face a certain death. Imitators are singled out and hung out to dry – “first mover advantage” bellows your friendly neighbourhood CEO. Clearly, some people have spent too much time with their heads in the clouds.

Time and time again, history has shown there is little advantage in being the first mover. But obviously hardly anybody recalls- history is indeed written by the victors: McDonalds stole their model off White Castle, Pampers did not create the first disposable nappies – it was Chux. This claim is actually not that new. Ted Levitt (a management guru) acknowledged back in the 1960’s that copying is not only far more common than innovation but also a far surer path to profits and growth. There are also books written about this. In “Copycats: How Smart Companies Use Imitation to Gain a Strategic Advantage” the authors did extensive research on this topic and found that imitators do at least as well and often gain superior results than the innovators do. The obvious reason for this is imitators have far lower R&D costs, established products of less risk of failure as it is already tried and tested by the market. In another publication “Pioneer Advantage: Marketing Logic or Marketing Legend” – it was found that innovators captured only 7% of the market with their new offerings over the entire product life-cycle.

Be Subtle

As my examples have shown, there are clearly limitations of innovation. Dell’s former CEO, Kevin Rollins once famously asked “if innovation is such a competitive weapon, why doesn’t it translate to profitability?” I wouldn’t be surprised if this quote has been forgotten. Explaining to your investors that you copied your competitor hurts every boss’s ego.

Consequently, firms pay little attention to mastering the art of copying. Few businesses would have either a formal or informal policy on how to respond to their competitor’s innovations. Hence, they move far too slowly to replicate their successes leading to missed opportunities and profits. In business, copying is a taboo – few get praised on it and when the press catches wind soon sneered and derided. Just think China’s automotive industry. It seems we have all forgotten that 50 years ago we said the same thing about Japanese “riceboxes”. As a matter of fact, the Japanese are masters of copying. Matushita (former parent of Panasonic) had a nickname of maneshita denki “electronics that have been copied”.

Let us take this opportunity to be absolutely clear. I’m not condoning or suggesting that businesses blatantly go and infringe each other’s intellectual property. There is plenty of scope to imitate safely – especially so when one is not is direct competition with the innovator: Ryanair cloned Southwest Airlines’s business model without any objections.

Excessive copying is obviously good for nobody – patents are filed and awarded for a reason (consider it as a temporary form of monopoly), so clearly copying and doing it well is quite an art. Have you considered that mastering and applying the art of copying is also an innovation?