Business innovation is critical to competitive success, but when it comes to middle market companies, it is not enough. The value such companies retain from innovative processes is largely dependent on the models applied to those processes, according to a recent white paper from the National Center for the Middle Market.
The white paper details business innovation models found to be most commonly employed by middle market companies.
First: Cutting Edge
Ariens Company, which makes landscaping equipment, stays on the cutting edge. The company's three consecutive years of 20 percent compound growth were possible because of a healthy product pipeline that made use of new technology insights and social and demographic developments.
Companies like Ariens "create categories or take existing categories to such unprecedented levels that they become, in effect, new." Combining innovation with execution leads to the following advantages:
- It builds early leads with line extensions or expands a core idea into new markets.
- Marketing and PR help educate customers and make the company synonymous with the category.
- It maintains momentum with organic developments or acquisitions that take advantage of technological and social changes.
The big danger to watch out for is not continuing to develop innovations because that may open doors for competitors.
Focus: Own a Niche
Advertising agency GSW came to own a niche. It targeted health care and won early clients with its focus, building a reputation that further established its dominance.
Innovation comes from concentrating on a specific market and applying specialized expertise. Another example is USAA, which started by providing auto insurance to military personnel and expanded to offer multiple financial products. Such companies are often only known within their niches, but by growing with their customers, they attract attention from larger prospects. Advantages of this model include:
- Companies offer their customers scale and quality, becoming indispensable and, often, the sole provider.
- Such companies hire talent and build the expertise necessary to further their positions.
- They position themselves as leaders in their fields.
Companies should be vigilant about staying within their specialty and remembering they aren't as well-known in other areas.
Frequency: Iterative Innovation
Noodles & Company is a casual-dining restaurant chain that practices "just-in-time innovation." The company always has one round of ideas in a generation phase, another in development, and a third coming to market. This approach allows Noodles to stay close to developing trends without being so far ahead that customers fall behind.
Rather than chasing a single big idea, iterative innovation embraces smaller changes and improvements. The result is constant offerings promoted through various channels and incentives. Value comes through "brand loyalty based on consistent quality and service." Iterative success is achieved through these actions:
- Companies optimize their supply and distribution chains to support high-demand promotions.
- Marketing and communications keep pace with innovations to help companies stay at the forefront of customers' minds.
- Companies watch trends and work closely with partners.
It's important to not become too reliant on sales and promotions and lose sight of critical innovation.
Finder: Prophets and Profits
Jeni's Splendid Ice Creams puts products first and foremost, with high-quality ice cream, unusual flavor combinations, the best in quality and transparency. The company's website features videos that show flavors being created from raw ingredients.
Jeni's is an example of what Apple has done so well, which is to anticipate what customers want. Craftsmanship and the founders' ideals permeate such companies and create an emotional connection with customers. Such authenticity and product devotion is almost impossible for competitors to replicate. To foster this sort of connection:
- The founder needs a great CEO and management team.
- The mission must be visible, and customers should be invited to join it.
- All decisions should protect the brand by improving the quality of products and experiences.
If a company starts to compromise its initial ideals, the innovation is lost.
Fat and Happy: Don't Live in the Past
There was a time when Blockbuster virtually owned the video rental business. Management became complacent and maintained its way of doing business, and in 2000, it passed on buying Netflix. Now Netflix has a dominant niche, and Blockbuster has been acquired.
There are times, however, when relying on an initial hit makes sense. A First or Finder business model with a significant barrier to entry can take time to build profits and resources. The drawback is that such companies can become too risk-averse, putting themselves in danger. To avoid becoming complacent:
- Recognize the time you have before competitors enter your space.
- If the company culture resists new ideas, it's time to make a change.
- Nurture ideas with the potential to disrupt business as usual.
If a company sits comfortably for too long, it may forget how to encourage and manage innovation and thus fall prey to competitors.
Once you grasp the different models, the difficult part begins. You and your team must take a cold, hard look at your company and determine how to manage innovation. Building an honest picture may be difficult because you are so close to the operations, so talking to partners and customers can offer important clues.
After determining your model, look at your competitors, the state of the industry and your customers. Ask yourself how long your current approach to innovation can last. Are you running out of transformative ideas? Is an existing niche going to survive industry changes, or is a new focus possible? For example, will a Finder firm continue to possess the driving insight that makes the model work?
Nothing is etched in stone. One innovation model may work for a certain time before another becomes necessary. What's unacceptable is when corporate management stops thinking about what makes the company work and how to maintain that success in the long run.
Why might it be important for a business to change to a new innovation model? Let us know what you think by commenting below.
Erik Sherman is an NCMM contributor and author whose work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, Newsweek, the Financial Times, Chief Executive, Inc. and Fortune. He also blogs for CBS MoneyWatch. Sherman has extensive experience in corporate communications consulting and is the author or co-author of 10 books. Follow him on Twitter.