“Use the hard times to concentrate on and strengthen your competitive advantage. If you are confused about this concept, hard times will clarify it.
Competitive advantage has two branches, both growing from the same root. You have a competitive advantage when you take business away from another company at a profit and when your cash costs of doing business are low enough that you survive in hard times.”

This challenged my thinking of competitive advantage but then again hard times certainly do question all our thinking. I always felt it was the uniqueness within, in what you offered, that separates you from your competition. This alters that perspective.
It seems this piece of advice boils down to the hard dollar gained by showing advantage within the marketplace- where it really counts, in fighting for every sale by being able to make a profit or simply cover your costs to simply keep going.

Isn’t innovation simply stripped away here-lost, forgotten, ignored, abandoned? Just thrown overboard along with any branding and this seems so stark or am I missing something here?

What happens when markets come back?

Maybe you have survived and you pick up the pieces. Do you agree this is where competitive advantage lies?

Perhaps this is ‘creative destruction’ and ‘innovation productivity’ in its rawest form? See my recent article on ‘seeking innovation productivity through creative destruction’ on this.
Any thoughts?

The post Hard times need a plan, based on what-survival? first appeared on Building Your Innovation & Ecosystem Intelligence.

I recently wrote in a blog (http://bit.ly/mXZjC3 ) called ‘the Risks of Dampening down Innovation Productivity” that with contracting economic performance, innovation performance suffers as well.

I’d like to look at a few of the hidden or even darker sides to this, not because it is simply a Monday blues sort of thing, but there are growing implications if we don’t clarify why ongoing innovation investment is really needed and what it can often cost on society.

The tough economic times we are presently facing

We are faced with some tough times; markets are contracting, business performance is struggling to maintain its previous levels, there is increasing argument we are heading for a double-dip recession, although I feel we are already in this. Jobs are tough to hold onto and even harder to find.
Presently economic policy is driven by the need to hang on to what we have got. Is this the right approach?  Does this really deliver a growth strategy that generates new jobs or simply try to hold onto the ones we have?

Many people feel the later and anyone in a job that feels vulnerable or concerned for their immediate future, welcomes any economic stimulus that helps protect them.

The concern though is the ill wind we all feel, blowing in from the east and its global competition effect requires us to become more productive to compete. We can’t stagnate. We can’t simply tread water.

We need a clear set of growth strategies not just stimulation packages

For a growth strategy, needed for attracting new jobs it is going to be tougher, far more politically unattractive. Many of the bigger organizations recognized within our economies are already part way into a risk-adverse approach, not really experimenting or pushing aggressively for new growth opportunities that involve higher than normal investments.

Talking around a number of different issues and opportunties recently with Drew Marshall of Primed Associates (http://thinkprimed.com), he further confirmed that it seems ‘Scarcity’ has become something of a touchstone conversation with organizations recently; even those sitting on large capital reserves are framing all their innovation efforts in this context.

Large ‘chunks’ of the economic stimulus being announced in different countries presently will go into these organizations, to further strengthen their balance sheets but to create new jobs is more questionable. Scarcity can be viewed in many ways- of markets, of opportunities, of qualified people, of fresh capital, informal panic, reacting to worrying news by reducing activities.

There is a strong argument for a more dynamic growth distribution.
Innovation calls for strong experimentation, for investment, for seeking out new bolder opportunities. If we lose this real investment appetite for innovation, we lose our business dynamism and productivity growth.

Economies become increasingly ‘static’, the organizations that were inefficient either have to change their ways to expand their current capabilities, or shrink and exit.

It is the increased competitive pressures of a ‘stalled’ economy in the West, increased global competition that will create this further disruption.  If everyone hangs-in and settles for a shrinking share of the markets we simply lower the productivity growth as investments get cut back, saving are sought out and then offers of economic stimulus support are gratefully taken to help in this.

All of this ‘negative’ activity creates longer term prosperity problems. We ‘play’ into someone else’s’ hands who are making appropriate investment and we simply can’t afford to do that.

Creative destruction comes in many different forms

• Policies that support ‘selective’ industrial policies skews existing producers interests even more and often at the expense of the consumer. In a global economy others that are better equipped, more modern, more efficient can make a more competitive offer.
• If your selections for support are really subsidised favours you often don’t improve the competitive climate, only ‘healthy’ competition really does that. If you don’t invest in advancement and keep active in offering consumers improvements (not necessarily lower prices) you lose market share…..eventually. Others see these times as opportunities and invest appropriately.
• Ploughing increased investment in R&D also has a very limited short term effect. The horizons from research are longer in distance than the immediate need. By offering for example economic credits to R&D has value in the longer term but less for immediate impact.
• It is the value of deepening the intangible capital that need the focus but ‘stimulus packages’ don’t target the specifics just often the generalities.
• When we invest and support a number of our less than dynamic industries we are passing up the chance to invest in the future. New high growth firms account for a disproportionate share of job creation and can have up to a 2.5 multiplier effect over three years.
• Of course these firms are contributing small economic share to the economy but are the very seeds of our future. We need to accelerate the entrepreneurial climate, not hold it back by starving it of capital or its share of any stimulus package. Policies tend to favour the ‘mature’ not the young at heart.
• The more we can support organizations willing to invest in innovation activity, the more the uneconomical ones in the same industry shrink, this adds growth and new economic activity that is a much healthier position. This enables organizations to withstand and re-equip for this increased growing global competition but this does comes at a price of disruption.
• We need a greater ‘selective’ survival of the fittest otherwise we prelong the organizations that actually create a drag on the industry they operate within. We do need real Darwin-ism here not prelonging inefficiencies.
• As increasingly more calls will be made for deeper structural reform and reducing barriers to trade even further, you will get growth but at a cost, the cost of destruction of many of the existing organizations. Greater disruption and increased uncertainty.
• This has its ‘knock-on’ effects, the ones that become even more politically unpalatable; the shifting job market where people and their families get uprooted, in search of a new job.
• Society is facing a tough set of challenges- if organizations do not innovate, create new growth, new products and compete effectively we fail to get what some call ‘creative destruction’.
• It is the need for rapid diffusion of new technologies, new methods and designs that facilitates ‘creative destruction’ as it equips those that invest with the ‘capital’ to compete better.
• Livelihoods, established communities, institutions and economic security all get caught up in these tough decisions that have an inevitable occurance for many, at some time.
• Seeing destruction is extremely hard when it has these very personal impacts on our lives and politicians often get caught in the middle.

Subsidies, tax credits and lower taxes it is argued never quite generate the solutions promised.

There can be both ‘productive’ and unproductive churn taking place.

The need of any crafting of policy in times like these, is to look well beyond the ‘knee-jerk’ effect, we need to have clear job creating purpose underlying economic stimulus. Innovation needs to be clear, is it the means to economic ends?

More jobs, better jobs, greater productivity. The answer is yes but the real-world trade-offs do have higher destruction than we often want.

Sometimes innovation in the short term is neither giving us societal or economic good.  I recall recently an article by Michael Schrage where he suggests innovation has a “perverse and unpredictable impact on nations and employment.” He points out “innovation comes with risk and costs attached.” Innovation ensures creative destruction.

We seemingly need innovation in all its different forms and we need to continue to invest in it, otherwise we reap the cost for even more destruction. We are facing much uncertainty as we see these job losses continue from many less than ideal organizations simply shedding to survive.

It is through appropriate investment in innovation productivity we can see the rise and potential for growth. We are travelling down a hard road at present with social and political costs.

Managing innovation investment correctly today is critical but it has to be continued, even with all the disruptions it provokes.

As Michael Schrage poses in his conclusion in his article “what kind of growing economy do we want to have?”

We sometimes pay a high price for innovation.

The post Seeking Innovation Productivity through Creative Destruction. first appeared on Building Your Innovation & Ecosystem Intelligence.

The more our firms do not expand, the lower the innovation productivity rate. The lower the productivity rate, the tougher it becomes to improve standards of living, boost skills, deepen capabilities, keep competitive and find those more distinctive new products to grow the market before competitors do.

Innovation productivity actually raises the competitive game

Innovation productivity is actually a sustaining engine for wealth and job creation surprisingly. The more you improve speed, efficiency and scale you attract others to adopt similar approaches.

The rise in productivity happens when others adopt improved ways to equally compete, the benefits start to spread and this drives innovation productivity.

It goes: the more efficient we become, the more effective and that leads to increased innovation opportunities.
Innovative capacity
There is a need to build the capacity to drive productivity. We must recognize that the demographic footprints within our societies are already embedded in the ground; there is not enough resource to generate substantial economic growth longer term.

One way to counter this is ensuring constant innovation productivity. We need to keep innovation productivity constantly in our plans to help offset this looming problem.

Can you also imagine if the global economic pie is not set for expanding then the whole environment for competition stagnates?  The more stagnation, then there is less incentive to upgrade, to (re)invest, to optimise and improve.

The knock-on consequences of this potential stagnation
There are three parts to increasing innovation productivity. If these do not happen it has a knock-on effect that reduces the greater job creation possibilities.

It also lets others in that decide this is the time to invest. The three inter-related aspects, if you don’t invest, are:

1. You limit entry into higher value activities- although this is mostly determined by the markets themselves, if there is no new innovations investments coming through then you limit growth opportunities.
2.   If upgrading stops, this affects industries that might already be vulnerable to downturns and disruption. It can reduce the market as competing enterprises can go out of business. Clearly some of this ‘shake out’ is not so bad and even welcomed but as we compete more globally than ever today and any delays in investing in innovation productivity can be fatal, as others seize the opportunity while you are consolidating your position.
3. You certainly can stop the upgrading of the skills and creative potential of individuals if you reduce your economic activity and cut back. Training investment dollars tend to be one of the first places to be hit the hardest. This ‘false economy’ steps you further back in the potential to raise your game when the better times return, as you are less equipped to respond.

Actively reducing innovation productivity often stops new process innovation to take place. Innovations that are more process driven, as against product-driven, usually offer a higher value, as it is the technology related components, for instance, that gives complexity and lead to the potential for a higher value than pure product alone. Process-driven innovation can add significant value.

Innovation requires competition.

To obtain certain innovation vitality there needs to be active competition. That is why the USA is still such a power house. With its size of internal domestic market as well as its innovation reputation and reach out into the world it is a formidable competitor.

What it must do, the same as the countries in Europe, is to keep investing so as it keeps ahead of the curve. Investing in start ups, urging entrepreneurial investment is a good present focal point but it is the sustaining ability within our larger firms to invest that provide the real value-adding wealth that we require to sustain our competitive positions and provide continued security for the economy to grow.

Innovation involves often a very complex process. It is increasingly occurring through diverse and often non-linear pathways, the connections and networks we explore.

The greater the intensity of these networks and connections, the higher innovation productivity potential we have. If we stop investing on one, it has a knock-on effect on the other.

Outlining an Innovation Productivity Agenda- some broad themes to investigate and explore.

• The productivity economy will reward the ‘do-it-smarter’ companies that build a better business model and the innovative processes to fit. It is finding the marketable ways to ‘do-it-smarter’ along with the most transformative business models that will win.
• Innovation is a disruptive process increasingly. Just think about the book industry or newspapers and all its competitors. Exploring multiple productivity options by learning what reduces costs provides a promise to improve outcomes significantly.
• Companies need to have higher concentration of knowledge workers and need to seek ways where they can achieve returns per employee. As a rule of thumb around three times higher than those companies with fewer knowledge workers gives substantial competitive edge.
• There needs to be increasingly intense focus on consumers more than ever, not just simply producing what was good in the past. Goods have value only when consumers want them. The market conditions are rapidly changing and this has significant implications to productivity and installed capacities. Stay alert and seek out ways to be more flexible.
• The constant quest for adding service into your product innovation mix will continue to push and extend the need for different thinking. The increasing of value and possible lock in has real potential to explore, more in today’s circumstances than ever.
• Seeking out of transformational process flows needs a global search. Finding these, often ones that are within other industries will potentially unlock new kinds of productivity that others can only copy and simply chase to catch up. Being proactive in this search is incredibly valuable and can lead to redefining how value is delivered.
• The continued push for less regulation will remove some of the present barriers to entry across a global market. This is sometimes a double edged sword and again has its needs to think through of where to invest to raise productivity to keep competing in changed circumstances and different market conditions.
• The increasing competitive pressures today drive productivity activities to look even harder at adopting best practices; this also has its dangers as you are often simply just catching up. You need to look beyond current practices and seek out emerging practices to really get ahead for achieving better potential from innovation productivity investments.
• A final productivity driver will be something all companies need to create, in bucket loads, information and knowledge; that is useful, practical and insightful, to keep being increasingly aware and productive in understanding and exploring experimentation and learn from.

This is the time to actually invest

Investing in innovation productivity is critical. What matters today is the value you can create with a day of work; tomorrow’s productivity is the future innovation capacity investments made that can allow you to not just survive, but even thrive in tough times.

The post Dampening down Innovation Productivity risks first appeared on Building Your Innovation & Ecosystem Intelligence.