Use this framework to get a competitive advantage from innovation
It is always good to be first to market with a new product. However this doesn't guarantee success. Imitators are quick to recognise a good thing and copy it. In 1986, the economist, David Teece wrote an article published by the School of Business Administration, University of California, entitled Profiting From Technological Innovation: Implications for Integration, Collaboration, Licensing, and Public Policy. It laid out a framework for building profits from innovations.
David Teece argues that there are winners and losers in the innovation game. He quotes companies such as Pilkington with its float glass and GD Searle with its artificial sweetener as innovators who were first to market and have profited significantly from their innovations.
However, we sometimes forget that there are innovators who can be overtaken. Teece uses the example of RC Cola. RC Cola, short for Royal Crown Cola, competed with Coca-Cola and Pepsi Cola for many years in the US. It was the first to introduce a diet cola in 1962. However, the drink was easily copied by Coca-Cola and Pepsi Cola who quickly took market share using their huge complimentary assets (distribution channels and brands).
In a similar vein, Xerox went through a highly innovative phase which included inventing personal computers. Their focus on other technologies meant that they were quickly overtaken by the likes of IBM.
The framework for making money from innovation has three stages according Teece. The first stage he calls The Regime Of Appropriability. This is the time when the inventor must secure the invention from impersonators, so far as it is possible. Teece makes the point that patents should be applied but you can't always rely on them. There may be other means of securing the invention such as making it technically hard to manufacture (therefore hard to copy) for one reason or another.
Having secured the invention the next task is to get it established, especially to the point where it can be produced in volume. This is the Dominant Design Paradigm. The aim here is to gain benefits of scale. It isn't always the case that the best invention will win. Teece points out that there are often alternatives and they can steal a lead if they have another advantage – as was the case with VHS, a cheaper alternative to Betamax.
The third phase of the framework he called Complimentary Assets. Here Teece was pointing out that just because you have a better mousetrap, the world may not beat a path to your door. Good marketing, a good channel to market, good suppliers and licensees could play a part in building profitability. These complimentary assets can also be important in maintaining a market dominance with the invention.
Managers following David Teece's business framework should be strategic thinkers who prioritize innovation, dynamic capabilities, and adaptability. How responsive is your company to changing market conditions, technological advancements and the competitive landscape?
To what extent is your company leveraging its intellectual property through innovation strategies?
Do you understand your company's unique resources and capabilities that differentiate you from competitors? How are you using this to your advantage?
To what extent does your company have an entrepreneurial spirit and a willingness to take calculated risks to pursue opportunities within your capabilities?
Teece emphasises the importance of networking and partnerships to complement your company's resources. How effectively are you doing this?
And what is your understanding of customer's needs? What feedback loops do you have in place to improve products and services?
And to what extent do you look at global opportunities when thinking about future strategies?