Why market leaders fear innovation
Cebu Pacific Air has a bigger market share than Philippine Airlines, Asia’s first airline. —RAFFY LERMA
I recently asked my friends in business why they think a company like Philippine Air Lines (PAL) did not create its own low-cost carrier (LCC) before Cebu Pacific Air entered the picture and wrestled market share away from the flag carrier.
Or why Mercury Drug did not go full speed ahead into generics before the entry of The Generics Pharmacy (now TGP). Was it fear of cannibalization? Institutional blindness? Complacency?
Top reasons
Based on my consultations and observation, here are the top reasons why many market leaders tend to be slow to innovate.
1) Need to protect financials
The CFO’s role is to ensure healthy financials.
This means increasing revenues and profitability, and not necessarily launching innovation, which may be seen as an expense rather than an investment.
To get approval for an innovation endeavor, all new proposals need to be aligned for management to make quick and timely decisions.
Innovation, especially radical ones, has elements that are new and unfamiliar, hence, it may be hard to predict if it will improve or dilute profitability.
There is after all Plan B, which is to allow other companies to initiate innovation and hopefully, the innovator will be willing to sell to the market leader.
From a financial perspective, the premium paid for such an acquisition may make more sense than taking on the risk of innovation.
2) Culture of complacency
Market leaders often become too comfortable with their success. They have succeeded based on what they have done in the past and are no longer as hungry and driven to change their success ’formula’ for growth. After all, they already have a name and the money.
Some companies are trapped in their traditions and the culture of conformity. There is also the ’not-invented-here’ syndrome where new ideas are rejected if not coming from specific people in the company. Then there’s the annual strategic planning ritual where companies go out of town and do a lot of number-crunching tactical reviews, extending what they have been doing as long as possible without actually having any innovation ideas as output.
Status quo is the name of their game. Their marketing plan is the cut-and-paste type as they do not bother to get new insights or test any new offers. These executives also tend to be conservative about everything.
3) Limited knowledge, methodologies
A dominant market share can make companies blind to the need to improve market penetration radically.
Why bother innovating when customers have accepted and are used to their existing offerings and practices?
It is also possible that owners and marketers have limited work experience.
The more one is exposed to a particular industry such as consumer goods, the more one will follow the logic of that industry and accept the marketing mix as the only way to differentiate, unmindful of the fact that there are more advanced ways to differentiate.
Many new ideas are ‘one-shot deals’ that come out from eureka moments, but with no specific methodologies or steps to explain or support the creation of another innovation.
Lack of knowledge
Lack of knowledge about how many other industries have innovated and an understanding of the different types of innovation are added factors. While the most common innovation is in the product followed by process, seldom do companies evaluate their business models simply because they do not understand the building blocks of a business model.
They usually associate anything new as ’innovation’ even if they are actually simply playing catch up with progressive competition.
4) Arrogance and pride
When a company is at its peak and has a lot of resources, some of its key officers may think they are indestructible because they enjoy high brand loyalty.
So instead of innovating, they will just drop prices or launch promotions temporarily when new entrants come in as their own form of defense marketing without bothering to think of other ways to defend their leadership.
New players
Without the benefit of a 360-degree view of competitive scenarios, timing as well as what to protect first, market shares and leadership will be compromised in no time.
Dominant players also often take great pride in what got them there; they underestimate the smaller, newer players, forgetting that they were once like them.
5) Lack of strategic
thinking
Market dominance may inhibit strategic thinking, especially of new market spaces. Market leaders have many areas they consider strengths and may just allow a new player to do their thing while they observe how they operate and waste precious time debating how the innovation will affect the company.
6) Slow response to technological changes
The availability of new technology and applications has given rise to many new innovations and many new billionaires.
But instead of embracing technological advancements, incumbents may decide to stretch the use of their old technology, hoping the new thing may just be an unsustainable fad.
7) Lack of an idea channel
Employees may have very restricted access to top management or may somehow be limited to what their immediate bosses will endorse or not endorse for management approval, prematurely killing good ideas in the process.
8) Operational issues
Some companies are affected by many internal inefficiencies that keep them in perennial trouble shooting mode.
Innovation is then relegated to another timetable.
9) Lack of the right marketing talent in the team
The ability to be innovative and creative is a prized trait that not all people have but leaders, at least, should have it.
Managers should not only be able to provide directions with the usual planning, organizing and allocating, they should also be able to make sense of the fast changing needs and wants of customers.
10) Lack of vision or foresight
Major innovations happen when the proponents are able to connect the dots and see a different future.
Incumbents, some of whom were innovators once, may have failed to see innovation coming as focus is on operations and efficiency.
Incumbents may have decided to stick to existing market segments, leaving newcomers with a big and potentially profitable space to enter with an innovative offering.
TGP now outnumbers Mercury 2:1 in terms of retail outlets and is the thought leader in its segment. —thegenericspharmacy.com
