The importance of innovation to survive in a hyper-competitive environment

Innovative companies, the majority of which are startups, consider innovation at the heart of their strategic planning. What about traditional and mature companies? As it happens, the planners of these companies have traditionally not placed much emphasis on innovation and have considered that good management is based on optimizing processes that quickly maximize the return on investment. Thus, when faced with a competitive advantage, the traditional strategy proposes to focus on performance parameters such as revenue growth, profit margin and compliance with certain accounting ratios. Of course, these parameters are valid and will always remain so and the majority of entrepreneurs adhere to this method of measuring the success of a business. The problem is that we forget that this performance model is intended for very mature companies that meet the following three assumptions (i) these companies operate in stable markets with clearly defined boundaries, (ii) the competitors are known and located in that same territory, and (iii) the talents remain loyal forever. However, the context of the economy has been constantly changing over the last few decades and is increasingly challenging the foundations of this traditional model. Indeed, in today’s reality, we must take into consideration the globalization of markets, the digital revolution and the emergence of capitalism in some countries such as China, India, Russia and Brazil.

The consequence, you ask? The movement of talent is made easy by social networks, the market space becomes crowded with rivals arriving from all over and the competitive advantage, once well identified over a long period of operation, is undermined. Welcome to the world of hyper-competitiveness described by Ian MacMillan, “Seizing Competitive Initiative, Journal of Business Strategy, 1982, 2 (4): 110-16“. MacMillan proposed in 1988 in his article ” Controlling Competitive Dynamics by Taking Strategic Initiative; Academy of Management Executive, 2 (2):111-18“, a model that explains in a very simple way the life cycle of any offer. The figure below illustrates the temporal aspect of an offer, the x-axis represents time and the y-axis represents some kind of competitive advantage which can be sales for example.

The graph shows 4 distinct zones: launch, ramp-up, operation and decline. La divergence entre la stratégie de l’innovation et la stratégie traditionnelle réside dans la gestion de la période d’exploitation. Traditionalists seize this period to optimize all resources in order to maximize the bottom line of the financial statements and innovation becomes a mere sporadic activity, if not non-existent. The innovation strategy, on the other hand, is based on a structure that favours the maintenance of qualified resources and a corporate culture focused on the systematic renewal of the offer. I invite you to read my article entitled The 3 pillars required for any innovative company, the objective being to ensure a sustainable exploitation period. Thus, the innovative firm anticipates the launch of a new cycle described by MacMillan no later than the grace period Tg so that the intensity of the operating period of the new cycle (dotted line) is greater than or equal to the previous period.