It’s essential to provide strategic guidance to the innovation process, so in this chapter we take a look at six essential forces that are driving the changes that are occurring across much of today’s world. While these may not be the most pressing issues for your company, chances are that some combination of them will have huge influence on your situation, on the strategic choices you make, and thus on your approach to innovation.
In 1992 Wal-Mart passed Sears to become the world’s number one retailer. How did Sears allow this to happen? First, Sears suffered from the arrogant assumption that it was invulnerable, and then its leaders fundamentally misunderstood the key competitive dynamics in the market (which I refer to as the mindset problem), and allowed Wal-Mart to out-innovate them in three critical performance dimensions: cost of goods, cost of distribution, and pricing. In essence, Wal-Mart mastered one of the six critical forces that drive today’s economy, commoditization.
Commoditization, the inexorable pressure that drive prices downward, continues to be a formidable competitive force that is manifested in our times in many ways, from the Wal-Mart-ization of the world’s retail supply chain and the accompanying outsourcing of manufacturing to Asia, to upheaval in the retail grocery business, to the outsourcing of computer services to India, to the precipitous drop in the price of computing power, to the cheap air fares that we now enjoy.
How will your organization deploy its innovation capabilities to respond to commoditization?
The digital revolution hit the computer makers first, driving IBM into a restructuring that cost the company 200,000 jobs. The power of ever-cheaper computing then moved on to attack other companies too, because it enabled small companies to deploy the computational resources that only big ones previously had, and a major barrier to entry abruptly disappeared. Companies all over the world lower their operating costs, increase their IT capabilities, and improve their own business models by creating better products and services at lower prices.
This process of digitization also accelerated the trend toward larger-scale commoditization, as goods that had once been considered luxuries became so cheap to make that they became available at mass market prices by leveraging digitized design, manufacturing, and distribution systems. This new computer-driven world of manufacturing and distribution became essential to the successes of Tesco, Carrefour, Wal-Mart and Home Depot, as they were among the first to grasp how to exploit the new capabilities of computers to help manage a tremendously complex global enterprise.
Digitization also impacts all aspects of the arts, entertainment, business, and society, and it’s crucial to how products are designed, manufactured, and distributed. It’s essential to how consumers gather and share information, and how they get entertainment, and to how companies manage their finances and operations. It’s even a basic resource for farmers, who plow and fertilize their fields according to what they learn from satellites, and it also tells them how, where, and for how much they can sell their produce. This is as true in the corn belt of Nebraska as it is in rural India, coastal China, and central Brazil. In fact, there is no aspect of society that is not significantly affected by digitization. How does it affect your firm?
Digital technology becomes progressively more significant as it’s applied to more and more functions of life, business, and society. Business today is inconceivable without the internet, and the countless software tools that we use to manage the modern enterprise. And now hundreds of millions of people are using social media platforms like Facebook, MySpace, Twitter, and LinkedIn to communicate with one another, which constitutes a trend with enormous momentum, and perhaps enormous importance.
How will the rise of social media affect your markets, and your organization?
Globalization has drawn every nation into a single economic system, and through social media, many of us are now participating in a mediated social system as well. As a result, every company’s strategy must address a globalized market in which increasing numbers of people are participating in social and business communities that transcend national boundaries.
The power and impact of globalization means that it’s essential for every company to understand the current and future impacts of worldwide trends on operations, to develop a globalization strategy to optimize learning opportunities through exposure to various markets around the world, and perhaps also to extend its reach to new customers. As customer communities are also global, no large company can hope operate successfully without addressing global markets.
I picked a day at random, November 26, 2010, and that day’s news from across the globe included: gang violence in Rio de Janeiro, drug violence in Colombia and Mexico, students protesting education cuts in Italy, social services cuts in Greece and Ireland due government debt crises, as well as political or territorial disputes between India and Pakistan, North and South Korea, Israel and the Palestinians, and Japan and China. That’s not a complete list of the world’s troubled spots, but it’s enough to remind us just how widespread the turbulence is.
And then a few days later, WikiLeaks began releasing a set of 250,000 diplomatic cables, an action that some claimed was the beginning of a real “cyber war.” And a few days after that, the government of Ukraine announced that they would soon be offering tours of the Chernobyl nuclear reactor site.
How many of these trends and challenges present innovation opportunities? Nearly all of them. How will your company anticipate turbulence, and how will it respond?
Each of these five forces of commoditization, digitization, social mediaization, globalization, and turbulence is a strategically decisive issue that’s central to everything that your organization must understand and plan for. But they are not occurring independently of each other. In fact, they’re mutually interdependent, and they feed off of one another. As their impacts converge, the result is the potential for thoroughly disruptive acceleration and the amplification of their impact in a way that is decisive and inescapable.
As I mentioned above, these six forces may not be the only key drivers that your organization must contend with, but they are sure to be among them. Developing your strategic response and harnessing the power of innovation to support that response is both a strategic necessity and a tremendous opportunity that should not be neglected.
Langdon Morris is a co-founder of InnovationLabs LLC, one of the world’s leading innovation consultancies.
Langdon is also a Contributing Editor and Writer of Innovation Management, Associate Editor of the International Journal of Innovation Science, a member of the Scientific Committee of Business Digest, Paris, and Editor of the Aerospace Technology Working Group Innovation Series.
He is author, co-author, or editor of eight books on innovation and strategy, and a frequent speaker at innovation conferences worldwide. He has lectured at universities on 4 continents.
The Innovation Master Plan: The CEO’s Guide to Innovation is now available at Amazon.com.