Research Shows Product Innovation is Just the Beginning in U.S. Competition with China and India

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U.S. businesses have latched onto product innovation as the last hope for extending our lead in the world economy. But a seven-year study into corporate competition shows this misses a bigger opportunity. Creativity experts are being surprisingly uncreative when it comes to corporate innovation and may be limiting U.S. competitiveness as a result.

GE is betting its future on it. Gurus claim it is our last hope. The media call it the next revolution. But a seven-year study of over 300 competitive business cases shows that what experts call “innovation” is but the beginning. Applying creativity to new products, the focus of most innovation experts, misses a much larger opportunity.

The study finds that companies that create the greatest value do not focus their creative thinking on products. Instead, they find creative approaches to pricing, distribution, and business practices.

Apple’s iPod may be touted today as a revolutionary innovation but this innovation is already attracting powerful copy-cats.

Contrast Apple’s creativity with Dell’s. Dell focuses little on product innovation (indeed it does not even make its own products). Instead it has radically innovated how computers are sold.

This type of “strategy innovation” in which companies find creative new ways to price, distribute, source, or promote their businesses, is far more important than product innovation because, as the author of the study, Kaihan Krippendorff, notes, “strategy innovation is harder to copy.”

The result: over the last five years, Dell grew revenues 60% while Apple produced just 3% growth.

Kaihan Krippendorff, a former McKinsey & Co. consultant and the author of “The Art of the Advantage: 36 Strategies to Seize the Competitive Edge” spent seven years studying over 300 competitive business cases.

He found that creativity is a critical competitive advantage. He says, “The companies beat their competition with creativity. Money and know-how play roles, but creativity properly applied is far more important.”

But contrary to what innovation experts advise today, focusing your creative energies on products is misguided investment. Instead, companies that consistently beat their competition apply their creativity more broadly. They think beyond products to find out-of-the-box options for bigger strategic questions related to sourcing, pricing (who would have thought of pricing coffee at $1.50 before Starbucks came along?), distributing, and promoting their products.

“History shows that while product innovation is important, limiting ourselves to being creative with products is unnecessarily limiting. There are many ways to outthink the competition beyond product. The most competitive companies think outside of the product-innovation box,” says Krippendorff.

This has two important implications for U.S. managers. First, we have within our grasp an opportunity to maintain the U.S.’s position as the leading economy. Creativity is a powerful competitive weapon and U.S. workers seem to be more creative than our neighbors’. But product innovation is easy to copy. If we limit our focus to product innovation, as we are doing now, we may just miss this opportunity.

For additional information on the research or its findings, contact Kaihan Krippendorff or visit http://www.artoftheadvantage.com.

About Kaihan Krippendorff:

Kaihan Krippendorff is the author of “The Art of the Advantage: 36 Strategies to Seize the Competitive Edge” and the President of The Strategy Learning Center, a business education firm. A former consultant with McKinsey & Co., he holds degrees from the Wharton School of Business, Columbia Business School, and London Business School.

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