Fleeting Competitive Advantage – Sustainable Innovation

30 September 2008

What does sustainable competitive advantage mean to you? Is it a competitive advantage that has a half-life longer than Uranium or do you use sustainable in the sense of a renewable resource?

I much prefer the later analog. Despite IP protection, despite trade secrets, there is nothing so fleeting as a competitive advantage. Sustaining the competitive advantage takes real work.

Innovation is the key, and not just product innovation. Last year, I attended a presentation from Larry Keeley from the Doblin Group as part of the Wisdom Exchange this spring.  His message was simple:  Innovation is a discipline – which means there is a process involved.  People commonly think of innovation in the narrow context of products. However, there are at least nine other areas commonly used to innovate a business in addition to product innovation. Product innovation alone has a 4% success rate.  Better innovation tackles change in at least six of the following ten areas:

  • Finance

    • Business Model – how the company makes money

    • Networking – enterprise structure, value chain and partnerships

  • Process

    • Enabling Processes – Assembled capabilities you typically buy from others

    • Core Processes – proprietary processes that add value

  • Offerings

    • Product performance – basic features, performance and functionality

    • Product systems – extended systems that surround the offering

    • Services – how you help the customers

  • Delivery

    • Channel – how you connect your offering to the customer

    • Brand – how you express your offerings ideas and benefits to the customers

    • Customer Experience

 As a small case study, consider Nescafé reacting to competitive entrants such as Starbucks. Here is a blog on the subject by Thomas Otter entitled Simplicity, elegance and the Java bean. In his post, Thomas describes his adoption of the Nespresso Cube – a coffee maker with a cartridge system that is very easy to use. The product highlights a brilliant piece of innovation in the face of competitive pressure.

Nescafé`s problem: as the dominant coffee company is the world, they missed the boat on speciality coffee shops which changed the way people view coffee and created a stigma around Nescafé`s dehydrated products as inferior.

The Challenge: Regain competitive advantage by getting people to drink coffee in their homes again.

The Solution: Convert an office coffee product originally invented in 1975 into a household device (Product Systems and Core Processes). Partner with a leading design firm and create an elegant and simple device that provides espresso quality coffee with little fuss and much faster than a regular espresso machine (Product Performance and Customer Experience). Change the distribution model from grocery store sales of a commodity product to a web-based subscription service with home delivery (Channel). Use advertising and an excellent web site to build a brand (Brand). Build a community around the machines and coffee (Networking).

The Result: 25% annual growth since its launch in 1988.

The key here was not the product – that existed since 1975.  It was the change in the channel.  This was innovative brillance.