We are in a rapidly changing business environment.
In 1965 the average lifespan of a Fortune 500 company was 60 years. Today it is less than 12 years!
Closer to home, 50 per cent of the Australian S&P 500 index will be replaced in 10 years. 20 per cent face delisting in the next five years. (Evan Shellshear, Innovation Tools 2016).
So, what does that mean for us as business owners? It means we need to make sure we are not only competitive but have a clear advantage over our competitors.
In its simplest form, there are only two ways to do this:
- To be the cheapest or;
- To differentiate (Michael Porter, Competitive Strategy).
Being the Cheapest
There is nothing wrong with being the cheapest. This doesn’t necessarily mean selling your product for less than your competitors, but it does mean you can produce your product for less, giving you the OPTION to sell it cheaper than your competitors while still making a profit. Characteristics of a successful low-cost model are:
- Standardised offering
- Relentlessly drive down costs
- Sacrifice non-conforming customers (Michael Porter, Competitive Strategy).
Examples of these operators include “The Warehouse”, Walmart, Bunnings and, Ryan Air.
There are several ways a business can differentiate itself. This is a very customer focussed strategy and characteristics include:
- Strive for a deep understanding of customer needs
- Offer products that customers adore
- Guard customer jealously (Michael Porter, Competitive Strategy).
Examples of these types of businesses would be Lewis Road Creamery, Harrods Department Store, and Farro Fresh Food Stores.
So how does a business differentiate itself? It is important to understand differentiation is not a one-off process. It requires continual development as competitors replicate and copy strategies. A competitive advantage requires staying ahead of the pack.
Differentiation can come through innovation.
As a firm, Findex (NZ) have subscribed to Doblin’s Ten Types of innovation. Doblin is a global innovation firm that, through its research, has identified there are only 10 ways a business can innovate. This framework is clear, simple and highly applicable to the SME sector.
Innovation is the “buzz” word that currently circulates business discussions. Most believe innovation relates to inventing a new product. Product focussed innovation actually only relates to two of the 10 types of innovation. Doblin research shows that businesses using the 10 Types framework are seven times more successful with their innovation efforts.
The Doblin Ten Types of innovation are:
Under the 10 types there is a list of 123 different ways you can innovate which makes it very easy to identify opportunities within your business.
A business should be genuinely innovating across at least five of the types, with ideally a spread across the three colour coded categories.
Each type of innovation is quite different and below is an explanation of each innovation type.
This framework is a proven tool to make sure a business focusses on establishing and retaining a competitive advantage. At Findex we facilitate “Innovation Brainstorming” sessions for our clients. This results in an exciting list of innovative ways their business can create their own competitive advantage. The focus is then on prioritising these ideas to ensure the focus is on the key initiatives that will make the most impact.
Next is Execution.
Remaining competitive in today’s rapidly changing business world is going to require doing things differently. Doblin’s Ten Types of Innovation framework is an excellent and practical framework that SME’s can use to identify ways they can establish and retain a competitive advantage. Prioritisation and execution of these initiatives are equally important. Doing the same thing won’t cut it in today’s business world.
Dare to be different!