The well known Moore’s Law stipulates that technology will double every two years for high-technology industries. The rule has been valid since the inception of the invention of the integrated circuit in 1958. You might think the concept does not apply to your company because your company is not in a high-tech industry but your industry surely has technology advancement as well. It may not double in technology every two years but it will have a trend that you must know and understand.
From time to time cutting cost becomes popular. When it does, managers seem to ignore anything else. Expectations for cost reductions become high and any idea that will not reduce costs is marginalized. However, managers must understand the risks they face if they ignore innovations that lead to new products and new services. Cost reduction ideas increase the profitability of a company but do nothing to increase sales and customer satisfaction. An over-reliance on cost reduction chances loss of customers or at least loss of market share.
This can be particularly important for small businesses because they are often in market niches with relatively few customers. A failure to innovate invites competition. If the competition is good at creating new products and services, then in the long run they will command the market leader position. Typically the name recognition and economic power associated with the leadership position means the company can command higher prices which translates into increased profits. In the worst case scenario, your current technology may become obsolete altogether.
The other thing to keep in mind is that your company might want to position as the technology leader or the technology follower. The potential advantage of technology leadership is a positive image to customers, earlier experience with the technology, and early market gains. The disadvantage is the potential for high costs and the potential that the technology will not be adopted by the industry. Sometimes a firm will decide to be a technology follower because it is easier to see which technologies are winners and the cost of using the technology is often lower. The disadvantage is that the customer may perceive a technology follower as just another company in a crowded field.
An example of the importance of innovation management is the “format war” between Blu-ray and HD-DVD. Sony led the development of Blu-ray which officially started in February, 2002; HD-DVD began by Toshiba in August of the same year. Sony and its allies slugged it out with Toshiba and its allies until 2008 when Toshiba announced it was discontinuing support for the Blu-ray technology. Today, Toshiba makes Blu-ray disc players.
This may sound like a story of two technology giants going head to head but it’s more than that. Toshiba is not the only loser. Small electronics firms that stocked HD-DVDs and HD-DVD players were losers too. Once Toshiba let everyone know the technology was out, the companies selling the products instantly had obsolete inventory. Prices on the products quickly fell. Retailers were just hopeful to recover part of their investments. Any movie rental shop selling HD-DVDs had to sell their inventory before demand fell to zero.
Even small companies must have an innovation plan. It may not be as elaborate as a big business, and it may not be formalized in writing. Still, the basic features of strategic positioning, innovation budgeting, and product development need to be included.
About the Author:
Calvin Bacon is the Director of Creative Services at Wisepreneur.com. His areas of interest include idea generation and innovation management.
Wise words, no pun intended. We need to be at least constantly aware of the developing technologies in our world. As a small business owner that educated and supports other entrepreneurs with technology I’m at times stunned how little effort is put into knowing what innovations are out there to jump on. Chris Brogan’s book “Trust Agents” encourages entrepreneurs and thoughtleaders to be “gatejumpers” … you have to be in the know of what’s out there to make the most of it and profit.
P.S. Not being able to right click and do spell check stinks!
Hi Rob, Thanks for your comments. I think people get hesitant to adopt innovations because of the risks. A poor implementation of a good technology will sometimes yield bad results.
There is real value in learning how to find, understand, and implement innovations.
PS: I have re-activated the right mouse button. Let me know if that works better.