Fast followers in Asia

There are thousands of businesses here in Asia that follow a fast-follower innovation strategy* in fragmented industries with monopolistic competition. The monopoly that these firms have is often their location and the fact that people like variety. You'll often see the following scenario unfold in these industries: a new product offering will arrive on the scene with little fanfare. After some time, this product offering starts to garner attention from customers, other businessmen and, possibly, the media. At this stage, the new product offering moves from being fairly low key to highly visible: the visibility is then equated with profitability. Before you know it, the market is flooded with new entrants, keen to snatch a piece of the economic action from other businesses (usually small, family owned firms). Some of these fast followers will be successful, while others will make a loss. The weird thing is that, from the outside, it is very difficult to distinguish the loss-making firms from the profitable ones, as they all appear to be reasonably busy. Go to any Asian city and you'll see this scenario played out time and time again.

In situations like the one above, it's really important to think about business model innovation and value innovation to avoid getting caught up in the inevitable price war. There is a free article from the authors of Blue Ocean Strategy on value innovation HERE.

* (Crawford [1980] uses the term "adaptive" innovation strategy)
ADAPTIVE: The firm chooses to wait and let others lead, and then to quickly adapt or modify the product. By means of “innovative imitation,” it seeks to be second but best.

What is disruptive innovation?

This is a question that I struggled with for a long time until I read Robert Burgelman's book, Strategy is Destiny. He offers a great explanation on Page 400. When reading the following, just substitute disruptive innovation for disruptive technology, as this is essentially what Burgelman is describing:

"Disruptive technologies focus on a different subset of performance dimensions in a product's multidimensional performance space. These technologies are typically rejected by a company's existing customers and therefore are not further supported within the company's resource allocation process. Often the internal entrepreneurs associated with such initiatives leave the company to start a new one. After finding new customers interested in the different performance characteristics of the technology, performance on the other dimensions also improves over time. As a result, the customers that were earlier not interested are likely to eventually find the new technology good enough and may switch. This leaves the incumbent companies still working with the old technology in a difficult strategic situation."

Another really important point is that a disruptive innovation is not the same as a radical innovation. A radical innovation is a major improvement along an existing performance trajectory. A disruptive innovation, by contrast, emphasizes a different performance dimension -- one that is not particulary important to incumbent firms' most profitable customers. This is often customization, convenience, or accessibility.

The superhero above is probably pursuing a disruptive innovation strategy: not strong enough to block breaks in the Hoover Dam; stop speeding trains; lift buses back on to bridges; or get in the national newspapers, as shown in the Superman movie; but he is good enough to rescue a couple of cats, or help an old lady across the street.

Some articles on innovation

From time to time I receive an e-mail from the MIT Sloan Management Review with news about the magazine. There are a couple of free articles available at the moment that are worth reading. One, from Clayton Christensen, discusses market segmentation based on "jobs to be done." The direct link is here.

The other article, from Mohanbir Sawhney, Robert C. Wolcott and Inigo Arroniz, presents and discusses 12 Ways for Companies to Innovate. The direct link is here.

In the second article above you become very aware that there are literally dozens of types of innovation. I'm starting to think that any type of innovation can be placed into one of three broad categories, based on the following:

1. Firm or Market perspective (Market here is viewed as a group of individuals with a similar problem to solve)

2. A coarse- or fine-grained view

3. A product (this covers brand, design, distribution, packaging, time of distribution etc.) or process view (this covers customer service, operations, manufacturing etc.)

It may also be worth stating whether we're discussing services or products. This is not as straightforward as it looks: I met a man here in Taiwan that works for a Taiwan-based company that manufactures "hardware" in China. You'd think that his company would only be interested in product innovation, however, he told me himself that it is customer service, specifically after-sales service that his customers really value.

You wonder why Taiwan-based firms struggle to market their own brands in Europe and the USA? It's not that the products are not good enough, it is a lack of experience/skill in providing outstanding after-sales service (as a minimum) to Internet-empowered customers in a far off land.

Innovation as attitude

My father always used to tell me that "a firm is only as good as its worst employee." The same perspective can also be taken when looking at innovation at the national level. Rather than focusing all attention and resources (tax dollars) on high-profile, large companies, governments should also be looking at poorly performing small firms. It is these firms that need help. Education and training can play a key role here. It's not that difficult to arrange a cheap, accessible education programme for small business owners -- this could be delivered via DVD/Downloadable video/Pdf file/Mp3 file/flash PowerPoint etc. -- or in a more traditional, classroom setting. This is disruption just waiting to happen (Let's face it, McKinsey isn't motivated to help these guys out).

Not only do governments need to think about the type of firms that need support, they also need to stop thinking of innovation as limited to a few geographic regions within a country. It seems that governments have placed way too much faith in Michael Porter's clusters -- sure, Porter's ideas are plausible enough (when was this book written?), but innovation is not just about geography and a few select, high-profile industries. It also requires an attitude, or mindset, for innovation, which is shaped by a nation's culture and history.

I came across this very interesting piece in the Scotsman that is worth a read. The piece focuses on firms that are locked into a "business park" mindset in Scotland. Here is an extract:

ANDREW Lloyd has a message to the geeks of Scotland. Like a technocratic Moses, he wants to lead them out of the business parks and "innovation centres" where they conduct subsistence-level business with each other, slaves to over-indebtedness and "business park mentality".

Properly growing companies, he says, should be forced, like slobbish 20-somethings, to make their way in the real world. "Just surviving is for losers," he says.