Thursday, July 19, 2007

Fast Innovation - The new imperative for Indian Firms

Several medium sized Indian companies are waking up to the new reality - that they have to innovate or perish. Unfortunately these companies do not have time on their side and are hard pressed to develop new products, expand into new markets and develop new line of services in the shortest period of time.

Knowing Indian firms and managers, I know that these companies are capable of executing rapidly - especially when there is a fire. This ability and the dire need to innovate makes a perfect case for companies to make a case for Fast Innovation.

Fast innovation can create substantial impact to the existing business. It can result in:

  1. Fast time-to-market for a new products.

  2. A highly differentiated product or service offering

  3. Cause major disruptions in the market place.

Fast innovation - i.e. The need to speed up the innovation cycle can dramatically alter the business environment. For example, if Toyota decided to fast track the development of its hybrid technology and committed to its commercialization way ahead of its competitors. This fast move - even when it was done in full sight of everyone caught Toyota’s competitors off-guard. Detroit’s big three were still of the opinion that Hybrid technology will not be economically feasible when Toyota introduced Prius in 1997. It took a solid seven years for GM & Ford to release their hybrid vehicles.

In India, Mahindra & Mahindra (M&M) fast tracked the development of its SUV Scorpio. The rapid development and commercialization of Scorpio enabled M&M to become leaders in the luxury SUV market in India. M&M’s main competition Tata Motors, Hyundai, Toyota could not respond to M&M in time - and Toyota abandoned its SUV product line - Qualis in India.

The new Imperative

Firms all around the world can adapt fast innovation - and bring about dramatic improvements to their revenue & bottom line. However implementing a fast innovation requires a dramatic change in internal operations & management skills. But the benefits are worth the efforts. Fast innovation is particularly useful for companies that have traditionally worked in a stable business environment - but are facing increasing competition.

Reducing the Time-to-market for new products

In most stable industries, every company in that sector knows the product roadmap and knows when a new product will be introduced. If one of the players decides to speedup its innovation and bring a new product ahead of the competition, then it will potentially catch everyone by surprise. Bringing a new product early into the market will have another advantage - win customer’s mindshare and also gain the first mover’s advantage. A possible side effect of reducing the time to market is that it reduces the total negative cash flow required for the development cycle and make it possible to attain a positive cash flow from the product earlier than expected.

Another advantage of reducing the time to market is that it results in a highly differentiated product in the market.

A highly differentiated product or service offering

Introducing a highly differentiated product has several benefits. The foremost benefit is to win customer’s mindshare and wallet share. It is also observed that customers are often willing to pay a premium for a highly differentiated product or service. For example, people are willing to pay a high premium for Apple’s iPhone.

Companies that take the risk of introducing a product ahead of its times will reap good rewards in terms of higher margins and greater marketshare. However, it is difficult to repeat and sustain such high margins over a period of time. So when competition comes out with a similar product, the market innovator can drop the price and still maintain market share.

Cause major disruptions in the market place

Speeding up product introductions can cause major disruptions in the market place. By leaping ahead of the competition, the company has the opportunity to re-write the rules of business and can shape the market place to its needs. For example, introduction on PC made Intel, IBM & Microsoft dominate the PC market for a long time. During this period, these companies were able to write the rules for the PC business. Intel & Microsoft have been able to hold on to their pole positions and have retained the ability to influence the market place. RIM's Blackberry rules the roost when it comes to business cell phones. This was possible only because RIM was able to introduce a new technology - that was way ahead of the competition. Blackberry caused a major disruption in the marketplace for business cellphones.

Major disruptions in the market place often upsets the existing players - thus force them to cede market share and profitability

Closing Thoughts

Fast Innovation is need of the hour for companies that are stuck with intense competition and are engaged in a bloody battle in the "Red Ocean". Successful implementation of fast innovation projects will give companies an opportunity to define their own "Blue Ocean" and define the market rules for it.

Several medium sized companies in India are looking at Innovation as a means to gain competitive advantage should look at fast innovation - and speed up new product introductions. Companies such as Eicher Motors, Ashok Leyland, TVS group, SPIC, Bajaj & others are the best candidates for such fast innovation.

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