3 Innovation Strategy Choices – Innovate, Follow, or Cost

Innovation Strategy is All About Choices

Understanding the various innovation strategy choices is crucial for any business aiming to succeed in today’s competitive landscape. Each strategy comes with its own set of advantages and challenges, and companies must carefully assess their market position, resources, and long-term goals before committing to one approach. There are typically three approaches we see in play in the marketplace:

1) Innovation – We are the first to market. We’re not perfect. We are consistently first.

2) Fast Follower – We look to see what the other’s are doing. We then we do it better and cheaper.

3) Lowest Cost – Once the market is stable, we release our offering. We compete in a commodity market based only on price. Lowest price to buy wins and that’s how we win.

Fast followers, capitalize on the successes and mistakes of pioneers. By doing so, they can offer similar products at a lower price, appealing to cost-conscious consumers.

However, the lowest cost strategy can lead to a race to the bottom. This strategy can be challenging to maintain, especially as competitors enter the market with similar pricing models, forcing companies to constantly innovate in efficiency and cost reduction.

Understanding these strategies in context allows us to appreciate their implications on market dynamics. For example, while innovation can lead to market leadership, the initial costs can be substantial. Companies must weigh the potential for long-term gains against the short-term financial burdens.

Reflecting on historical examples, we can learn from both successes and failures of these strategies. For instance, Kodak’s failure to embrace digital photography despite being a pioneer serves as a cautionary tale for companies that hesitate to innovate.

This underscores the critical need for innovation strategy that is adaptable. Companies must regularly evaluate their market position and adjust their strategies accordingly. This flexibility can often determine whether a company thrives or merely survives.

The Long Term Implications of the Fast Follower Strategy

In the October 2014 issue of Fast Company Magazine, features Apple I-Pod Collaborator and Nest Founder Tony Fadell on the cover.

In that issue an article appears on wearable technology that caught our attention. Not so much for what the article says about wearable tech, but rather what the author Max Chafkin captures as it relates to innovation strategy differences between Apple and Samsung. The article discusses Samsung’s need to innovate and grow beyond its current strategy, with the creation of a design center with outside supplier based collaborators.

“Designing something that the world doesn’t yet know it wants is among the most difficult challenges in business. It’s an especially hard problem at a company like Samsung, which rose to prominence by identifying successful products and refashioning them at lower cost or with more features. The so-called fast-follower strategy has been controversial, to say the least, and it reached its apotheosis as the Korean electronic giant’s smart phone business became wildly profitable and the world leader in sales volume. But Samsung now faces pressure from low-cost Chinese competitors such as Xiaomi that undercut it on price, while Apple continues to dominate the high-end of the market and encroach upon Samsung’s turf in Asia. This is why Samsung’s operating profits have declined three-quarters in a row. Rather than passively accept this squeeze, Samsung is trying to transform itself into an innovator.“

Just to be sure on the claim of Samsung operating profit decline we reviewed the numbers on net margin over the past 3 quarters as well. Apple’s net margin was about 21% and Samsung’s 13%, but declining over the last few quarters. Check out the latest update from Mashable on Samsung’s plunging profit forecast here.

So given the fact that Samsung is by all measures a successful company, why would Samsung be looking to change its innovation strategy from fast follower to innovation?

Samsung is realizing that their current fast follower approach is not a sustainable long-term growth innovation strategy. Samsung leadership has a deep-rooted fear that the company will continue to show profit and net margin declines until Samsung designs something that the world doesn’t know it needs. This change effectively ends Samsung’s fast follower strategy.

We not intending to compare the merits and functions of what smartphone platform is better but point out a very present and real case of what happens if your strategy is to be a fast follower or “close second”.

What Innovation Strategy Wins Most Often in the Marketplace?

It’s interesting to note that Dr. W Edwards Deming gave the same advice back on the best innovation strategy in his seminars through the 1980’s.

You have to figure out what will get ahead of your customers, get ahead of them. And then entice them to buy.” – W. Edwards Deming

This insight from W. Edwards Deming emphasizes the proactive nature of a successful innovation strategy. That’s a true innovation strategy if there ever was one. Companies that wait for consumer demand to materialize may find themselves outpaced by more agile competitors.

It’s essential to measure the outcomes of any chosen innovation strategy. The magic of the process is the “enticement of others to buy.” Evaluating your early options with rapid customer feedback will help to determine if you are truly on to something unique.

By assessing and pivoting on innovation strategy choices such as these, companies can determine whether their strategy is yielding the desired results, making it easier to make necessary adjustments to stay competitive.

Ready to Learn More and Explore Next Steps?

If you’d like to learn more about creating a compelling innovation strategy for your organization, check out our events page or take that first step by reaching out to us here, or drop an email to [email protected].

At The Innovation Garage®, We help organizations grow. Providing education, tools, technology, and expert consulting in change management for strategy, innovation, and supply chain. Guiding leaders from organizations across the world to intentionally self-disrupt their offerings and organizations. We deliver world-class education, tools, and technology on how to craft business operating systems focused on long-term profitable growth. 

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