Innovation and Competitive Advantage

Innovation is of course not confined to manufactured products; examples of turnaround through innovation can be found in services and in the public and private sector. For example, the Karolinska Hospital in Stockholm has managed to make radical improvements in the speed , quality, and effectiveness of its care services — such as cutting waiting lists by 75% and cancellation by 80% — through innovation. In banking the UK First Direct organization became the most competitive bank, attracting around 10,000 new customers each month by offering a telephone banking service backed up by sophisticated IT. A similar approach to the insurance business – direct line – radically changed the basis of that market and led to widespread imitation by all the major players in the sector. Internet, based retailers such as have changed the ways in which products as diverse as books music and travel are sold whilst firms e-Bay have brought the auction house into many living rooms.

What these organizations have in common is that their undoubted success derives in large measure from innovation. Whilst competitive advantage can come from size, or possession of assets etc. the pattern is increasingly coming to favor those organizations which an mobilize knowledge and technological skills and experience to create novelty in their offerings (product /service) and the ways in which they create and deliver those offerings . This is seen not only at the level of the individual enterprise but increasingly as the wellspring for national economic growth. For example, the UK Office of Science and technology see it as the motor of the modern economy turning ideas and knowledge into product.

Innovation contributes in several ways. For example, research evidence suggests a strong correlation between market performance and new products. New products help capture and retain market shares ad increase profitability in those markets. In the case of more mature and established products, competitive sales growth comes not simply from being able to offer low prices but also from a variety of non price factors –design customization and quality. And in the world of shortening product life cycles –where for example, the life of a particular model of television set or computer is measured in months, and even complex products like motor cars now take only a couple of years to develop – being able to replace products frequently with better versions is increasingly important. Competing in time reflects a growing pressure on firms not just to introduce new products but to do so faster than competitors.

At same time new products development is an important capability because the environment is constantly changing. Shifts in the socio-economic field (in what people believe, expect want and earn) create opportunities and constraints legislation may open up new pathways or close down others – for example, increasing the requirement for environmentally friendly products. Competitors may introduce new products which represent a major threat to existing market positions In all these ways firms need to capability to respond through product innovation.

Whilst new products are often seen as the cutting edge of innovations in the marketplace process innovation plays just as important a strategic role. Being able to make something no one else can, or to do so in ways which are better than anyone else is a powerful source of advantage .For example, the Japanese dominance in the late twentieth century across several sectors – cars, motorcycles, shipbuilding, consumer electronics – owed a great deal superior abilities in manufacturing something which resulted from a consistent pattern of process innovation. The Toyota production system and its equivalent in Honda and Nissan led to performance advantages of around two to one over average car makers across a range of quality and productivity indicators.

One of main reasons for the ability of relatively small firms like Oxford Instruments or In cat to survive in highly competitive global markets is the sheer complexity of what the make and the huge difficulties a new entrant would encounter in trying to learn and aster their technologies.