Monday, October 15, 2012

Innovation & Recession

There are two truisms about Innovation & Recession.

1. Innovation, when done right, will help you beat the recession.
2. Innovation can trigger a recession for the competition.

A classic example in recent times is Nokia Vs Apple Vs BlackBerry Vs Samsung.

The last 4 years in the mobile markets has seen a rapid market transformation - caused by a disruptive innovation in smart phones. The innovators, namely Apple and Samsung/Google have seen their sales & profits increase in double digits, while Nokia and BlackBerry are saw a rapid decline in revenue & profits. All this happened at a time when the global economy was barely growing, while Europe & Japan were in recession.

The story of innovation and market disruption in smart phone markets will be studied extensively and there few things that has to be noted about the winners in this battle.

On one hand Apple was the disruptive innovators, who challenged the status quo with touch based mobile phones. Samsung on the other hand was a fast imitator. Samsung's innovation strategy can best be called as Innovation by Imitation .

Japanese and Koreans have mastered the art of Innovation by Imitation, and Samsung was relentless in developing new models & variants of Android OS based touch phones. To the extent that for every one model released by Apple, Samsung released 8-10 models of touch phones, and in the process became a market leader in Android OS based smart phones.

Consumers were enamored by the touch phones with its jazzy Apps, which helped Apple and Samsung increase their revenue and profits. This was a case where companies were able to innovate their way out of recession.

The success of Apple & Samsung had a negative fall out on Blackberry and Nokia. The success of iPhone and Samsung Galaxy forced a recession on Nokia, Blackberry, Sony-Erricson, & Motorola. It was not that Nokia or Blackberry or Motorola were not innovating. These companies were slower on innovation and concentrated on optimizing the value chain to drive down costs. Nokia was spending immense resources to develop low cost phones for developing countries on its Asha range of phones. Blackberry was developing new range of technologies to improve and optimize the Blackberry network for enterprise data communications. By the time Nokia and Blackberry reacted to touch phones - with their own versions of touch phones, it was too little & too late.

Though Motorola was an early adapter of Android OS and released Droid phone, Motorola could not keep pace with Samsung and eventually Motorola was sold to Google.

Lessons to be learnt

One key lesson to be learnt from this experience is:

1. Disruptive Innovation can help companies beat recession.
2. If you are not a disruptive innovator, be a fast imitator.

1 comment:

Ajeya said...

Nice article Arun, very well researched and articulated!