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Innovators and the different paths they choose – Differentiation and Process Innovation

Background:

There are many types of innovative processes throughout various commercial industries; what I want to talk about is the effect of product differentiation and the impact it has had on some industries. I also want to talk about process innovation and how when effectively utilized it can move companies from competitors in an industry to industry leaders. There are many industries in the 20th century that have thrived from both but I will only talk about a couple of companies Apple Inc and Dell Corp.

Objectives:

Following my discussion you will:

• Show how differentiating products in an industry can change an industry
• Show how process improvements from existing technologies can and have moved companies to the forefront in an industry simply by being first.
• Finally you will learn how companies that fail to innovate in this global economy can move in only one direction.

Discussion:
Differentiation measures the degree to which competitors differ from one another in a specific market. Markets in which there is little differentiation and no significant difference in the relative quality competitors are characterized by low profitability. In other words, competitors need to differentiate their products in order become successful amongst your competition. Where a firm achieves a combination of high differentiation and high perceived relative quality, the return on investment is typically twice that of non-differentiated products. (Tidd et al. (2005)).

An example of product differentiation was reveled in the mobile phone industry, an industry that boomed in the 90’s and made most of us owners of the now infamous smart phone. This industry was forever change in 2008 by an outsider to the industry, the reining cell phone leaders Nokia, Samsung, Blackberry, LG, and Sony-Ericsson failed to differentiate their product lines. Therefore, when Apple introduced the iPhone 3G to the industry it clearly differentiated itself with its ‘touch screen’ technology. Based on Apples continuing ability to innovate the iPhone with such products as their APP store, face front camera, and face time technology [the ability to see the other party - exclusive to the iPhone 4 models] they have become a dominant force in the mobile phone industry with the others now playing catch-up.

Through innovation, specifically product differentiation Apple was able to capture a large share of the mobile phone market. IPhone statistics are as follows:
• By the end of fiscal year 2010, a total of 73.5 million iPhones were sold (Apple Reports First Quarter Results". Apple Inc.. January 21, 2009. http://www.apple.com/pr/library/2009/01/21results.html.)
• By 2010/2011, the iPhone has a market share of barely 4% of all cell phones, but Apple still pulls in more than 50% of the total profit that global cell phone sales generate (Kumparak, (Oct 2010))
• On March 2, 2011, Apple announced that they have sold 100 million iPhones worldwide] (Apple: 100 Million iPhones Sold". Mashable. March 2, 2011. http://mashable.com/2011/03/02/100-million-iphones/.)
Apple has filed more than 200 patent applications related to the technology behind the iPhone. (Ishimaru, (Jan 2007))
("iPhone — Features — High Technology". Apple Inc.. http://www.apple.com/iphone/features/index.html#technology. Retrieved June 6, 2008.)

The following is an example of how another industry used existing process innovation to gain competitive advantage in their industry. Process innovation helps to improve relative quality and to reduce costs, thereby improving the relative value of the product (Tidd et al. (2005). Dell utilized the Internet as a method to direct ship its products to companies as well as individuals. Dell implemented a “just in time” [JIT] manufacturing approach to customize his Dell Computers (Dedrick and Kraemer (2007)). While the other computer manufacturer’s in the industry relied on standardized computers in stores that where mass produced and stored in a warehouse. By utilizing this JIT approach Dell could provide his customer base [corporation or individual] a customized computer shipped directly to their residence or company. This approach minimizes inventory costs, a critical consideration in an industry where components depreciate very rapidly (Dedrick and Kraemer (2007). Dell manufactured desktop machines in-house and contracted out manufacturing of base notebooks for configuration in-house. (Company Annual Reports, various years)

However, the company's approach has changed by continuing to expand our use of original design manufacturing partnerships and manufacturing outsourcing relationships. In other words to keep costs down, Dell closed down its U.S. manufacturing plants and moved their production facilities to Asia, Mexico, Brazil, and the Republic of Ireland. Here is yet another example of U.S. jobs being shifted out of the U.S. to save costs.

Summary:

Different companies in different industries choose different methods to innovate. Each industry dictates how they choose to innovate, Research and Development [R&D] and use existing technologies are but a couple ways companies gain competitive advantage in their or other industries.

As we saw with Apple and their introduction of the iPhones and their touch screen technology trailblazing into a new industry with the latest in smart phone technology; forcing the industry into innovating their smart phone technology in order to maintain their relevance in this very large and competitive industry.

Dell capitalized on existing technology by way of the Internet and also using just-in-time technology, something that Toyota Motor Corp had perfected years earlier. By using the Just-in-time with customized direct shipments, it saved Dell large sums of money in inventory costs, warehouse space, as well as component parts in an industry where technology changes constantly. This process innovation technique has work in other businesses, Dell was just the first to successfully incorporate it into the computer industry. Being first is sometimes all it takes to get the lead in an industry. While others play catch-up, you, the dominate force in the industry must continue to innovate to maintain the competitive advantage.

Finally, competitors should always try to be on the cutting edge of innovation in their industries. Once another competitor develops an innovative procedure, process, or differentiates their product you must competitors should be right there to be on par with the industry leaders. It’s always best to be on top with everyone else playing catch-up but if you are not currently working to improve processes in your industry you will be left playing catch-up. Everyone won’t survive changes in their industry. Like all things companies must evolve with changing market, failure to innovate will drive a company out of business it’s just a matter of time. I’ve spoken about two successful companies, here are some examples of companies and/ or industries that have thrived through innovation others in the same industry that have not.

Industries that Innovated
Industries that failed to innovate

Wal-Mart
*K-mart

Toyota [1970’s]
*Ford, Chevy, Chrysler [1970’s]

Apple’s IPOD
Sony Walkman

Sony Play Station, X-Box, Wii
Atari and Nintendo

Cable [cable, fiber optics]
*America Online [dial up]

Cable News Network [24 hour news]
*Local News

Mobile Phones
*Home telephones

BET / MTV [24-hour entertainment]
Soul train / American Bandstand

* All of the industries listed above may not have gone out of business; however, their market shares [in terms of customers, Nielson ratings, or sales] have been substantially diminished from what it once was due to their inability to innovate.

References

Apple Reports First Quarter Results". Apple Inc.. January 21, 2009. http://www.apple.com/pr/library/2009/01/21results.html.

Kumparak, Greg (October 18, 2010). "Apple sold 14.1 million iPhones last quarter, over 70 million since launch". MobileCrunch. http://www.mobilecrunch.com/2010/10/18/apple-sold-14-1-million-iphones-last-quarter-over-70-million-since-launch/. Retrieved October 18, 2010

Apple: 100 Million iPhones Sold". Mashable. March 2, 2011. http://mashable.com/2011/03/02/100-million-iphones/
Ishimaru, Heather (January 9, 2007). "Apple Options Not An Issue At Macworld". abc7news.com. http://abclocal.go.com/kgo/story?section=news/business&id=4920783. Retrieved January 11, 2007.
Company Annual Reports, various years.

Dedrick and Kraemer: "Market Making in the PC Industry", Personal Computing Industry Center, 2007

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