Magazine article USA TODAY

PRODUCT INNOVATION: Staying Ahead of the Competition

Magazine article USA TODAY

PRODUCT INNOVATION: Staying Ahead of the Competition

Article excerpt

"The earnmark of leading innovators is anticipating where the market is going to and getting there first."

COMMODITIZATION is an ungainly word. Plainly put, it is the market process that sucks everything that is unique out of a product or service. Think about Hewlett-Packard LaserJet printers. Time was, they owned the office and high-end home computer printer markets. They were fast, clean, and made documents look slick. H-P printers were the best, and the company was so fast to market that its sole competition was its own next wave of printers. Then Epson, Canon, and Lexmark caught up and joined the party, and suddenly competition in PC printers wasn't based on winning features, innovation, or service. It was based on price. That is commoditization.

Breaking out of commoditization requires not only recognizing it and its effects, but an understanding of the root cause--the aging of product technology curves. Competitors copy success. Reverse engineering a laser printer or hard drive and then gearing up production takes less time than ever. What starts out as original thinking doesn't last long. Patents and copyrights and intellectual property protection only go so far. Pharmaceutical companies must constantly replenish the patentable compounds in their drug development pipeline. As soon as a drug comes off patent, competitors are ready with generic copies, and the price floor drops. New product lifecycles for telecommunications devices and personal computer printers are measured in months.

Last fall's innovation in microchip speed is this spring's dime-a-dozen commodity, cranked out in the silicon valleys of a dozen developing economies. Access to information makes new technologies more globally fungible, so companies that don't refresh their own product development processes stand to lose ground to faster movers. The Intemet has leveled competitive playing fields everywhere. A few mouse clicks can produce word of new products, competitive intelligence, customer and market data, and information on suppliers, labor markets, and plant facilities around the world. Access to the technology to copy new products and services means any company with a new idea better have a couple more in the pipeline, because the first knockoff will be on shelves within weeks. Commoditization is speeding up.

DuPont, Monsanto, and Hoechst are three giant chemical companies that are reexamining their places in the chemical industry. All have begun spinning off chemical business units in order to concentrate on life sciences. These are cases of strategic and portfolio innovation to offset commoditization by moving the competitive frame to markets where they have more control over product technology curves. As shareholders demand greater growth and faster value creation, the products that have the highest value--engineered molecules with unique applications and bundled services--are the directions these chemical companies are taking.

Commoditization drags down all of a company's products or services. Companies that face commoditization of one or more of their products or services can't grow. Profit margins shrink. Shareholder expectations for growth oblige management to create long-term value at an unprecedented rate. However, a firm's usual product pipeline, traditional mergers and acquisitions strategy, level of continuous operations improvement, and ongoing market expansion efforts usually aren't sufficient to meet rising earnings expectations in today's markets.

To achieve breakthroughs in product innovation, executives must address three critical elements: the integration of technology and strategy, particularly as they relate to a strategic view of the market; a comprehensive view of the innovation process; and a culture of innovation.

Stimulating innovation on the scale necessary to sustain long-term growth demands that managers do more than beef up the research and development (R&D) budget. …

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