Innovation can be defined broadly as radical improvements in technology or the methods of doing things. Innovation encompasses product changes, process changes, new forms of delivering or providing a product or service, new conceptions of scope, and new ways of interacting with the market.
It is useful to distinguish between innovation and improvement. Innovation is typically large-scale change, often disruptive in its scope and impact, while improvement is incremental, smaller in scale and less disruptive. However, we should avoid getting bogged down in semantics – for most practical purposes, they are one and the same.
A firm can develop or shift its competitive advantage when it responds with innovation ahead of rivals. Innovation results when a firm perceives a new need, or an existing need which is being under-serviced in some way. The firm that detects these needs first is the firm that will innovate the new way to compete.
The driver for innovation must be the marketing function. Marketing is the business function which detects emerging and unmet needs in the marketplace. Marketing points the way for R&D, and ensures that a firm’s scarce resources are focused on the innovation opportunities holding the greatest potential.
The failure of a firm to innovate is not due to a lack of creativity, as is commonly supposed. It is usually due to a lack of market knowledge and awareness which only a well-developed marketing function can provide.
Entrepreneurs necessarily, but often unknowingly, perform the marketing function in their start-ups. An entrepreneur scans the marketplace, identifies unmet or under-serviced needs, and innovates an offering in response. In a mature firm, it is the spirit of the entrepreneur that the marketing function must fulfill.
No competitive advantage is forever. A firm’s environment is constantly changing, and every product or service has a finite life-cycle. Firm’s that can detect the triggers for innovation earliest will be the ones best positioned to respond and shift their competitive advantage.