Innovation as a Sustainable Competitive Advantage
To grow a business in tough times or outgrow the average uptick in your industry in good times, you need
A Sustainable Competitive Advantage
meaning a competitive advantage that is not easy to copy by your competitors. There are multiple ways to achieve it:
- Intellectual property rights
- Secret recipes - they have the advantage of not making your recipe public with an expiration date of protection in specific markets you protected it in
- Specific processes and machines - TSMC rings a bell here
- Capital-intensive industry - try starting, say, a new commercial aircraft-producing company - holds true for TSMC
All but the first and last ones are useless in the services industry (some services are built on intellectual property rights - e.g., Microsoft or capital-intensive - opening a water park or a hotel).
So what can you do to build a sustainable competitive advantage that works in any industry and is hard to copy?
Innovation as a sustainable competitive advantage
Innovation will not guarantee you a success over your competitors, although it will increase your chances of finding a new, untapped approach or a model that will give you an edge. To achieve something you have never done, you should, obviously, try something you have never tried before. Innovation, however, will immediately make your business more adaptable, since it gives your organization the ability to try new things and learn faster, and as Darwin said, the most adaptable will inherit the business world (or something to that effect 😉).
Innovation lives and dies by your culture
You cannot order innovation (it has been tried in the USSR), you cannot set a process, adopt an organizational chart or copy ceremonies to achieve innivation. You can, however, build an environment with free information sharing, a blameless culture, foster curiosity in your employees when trying new things in their work, and incentivize them, and not just financially.
All organizations that have existed for a few years innovate. It is making it a focus of your culture that counts.
Many organizations try to copy ceremonies from organizations they consider innovative in the hope of gaining their success, like the cargo cults that popped up after WW2 in the Pacific Ocean. Examples, among many others, include Amazon's empty chair, Google's TGIF meetings, or OKRs. Copying ceremonies and tools do not bring the culture over - these are fruits of the culture, not vice versa. You can direct a company by processes, structure, people selection, or culture. In creative fields, culture works best. Setting the right culture means people will align around what's important without telling them what to do.
"If you want to build a ship, don’t drum up the men to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea."
Antoine de Saint-Exupéry
Culture is the hardest thing to steal
Culture is hard to achieve. It requires consistency, making hard choices, and is a marathon endeavor. Character traits that are hard to achieve are hard to steal. They are not like an accent or a fancy suit. That makes innovation culture a sustainable competitive advantage that every company can build albeit not easily.
How to build culture
The short answer - by living it. On every level. You will have to hire, promote, and fire based on your cultural values. Although culture is a long game, how you build it is usually a series of 30-second interventions. When a recognized leader on any level sees a behavior that aligns or does not align with the culture they want to build, they must make it known. Not on the next 1 to 1 meeting. In the next 30 seconds. If you have to scold someone - do it briefly and in private, but do it immediately.
Innovation is a sustainable competitive advantage, regardless of the line of business you operate in. Companies and individuals need to innovate now more than ever, and building the right culture is the way to do it.