Learning how to be innovative

Stanley Slater asserts that knowledge is the strongest foundation for competitive advantage, mainly because it is the wellspring of ...

Stanley Slater asserts that knowledge is the strongest foundation for competitive advantage, mainly because it is the wellspring of innovation. Yet many leaders aren’t even aware that they need a knowledge management programme. They have much to learn.

Why some companies languish, seemingly content with a comfortable status quo, while others become innovative trailblazers, relentlessly bringing forth new products or services time and again, has been the subject of many articles and books. From my own review of the literature and base of personal experience, innovative companies tend to share two dominant characteristics. First, they employ a high proportion of scientific, technical or engineering personnel. The second is that, due to relatively short product life cycles, new product development is the foundation for achieving and sustaining competitive advantage in these firms.

It seems that the second factor, new product development, has led to a burgeoning stack of literature on the predictors of successful new product programme performance. Many seem to support the following as reliable predictors of whether a company’s new product development process is successful:

  • Extent to which emerging products are perceived as satisfying customer needs
  • Superiority over competitive offerings
  • Focused commitment of personnel and R&D resources to the new product development initiative
  • Functional diversity in the new product development team
  • Proficiency with which the firm generates and screens ideas
  • Complementarity between the requirements of the new product development initiative and the firm’s capabilities of delivering sufficiently to meet demand

However, an overlooked area that underlies many of these characteristics of successful product development programmes is the firm’s stock of knowledge assets and its knowledge management programme. As Ikujiro Nonaka argued in “The Knowledge-Creating Company” (Harvard Business Review, November-December, 1991):

In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge. When markets shift, technologies proliferate, competitors multiply, and products become obsolete almost overnight, successful companies are those that consistently create new knowledge, disseminate it widely throughout the organization, and quickly embody it in new technologies and products.

In the new product development arena, the most important knowledge is derived from the technological and market domains. Technological knowledge is the knowledge associated with products, technologies and/or processes while market knowledge is concerned with customers’ needs, adoption processes and reasons for satisfaction or dissatisfaction. Although a focus on developing products based on addressing customer needs has been heavily criticized for leading to (among other things) incrementalism and risk aversion, the weight of evidence is strongly in favour of a strong market orientation. How a company derives its knowledge of what the market-place is thinking can therefore be critical to the success of its new product development programme. This article describes the characteristics of an effective market knowledge management system that was validated in a study of 67 high-tech firms.

Generating knowledge

Competitive advantage is based on the deployment of valuable, rare, and hard to imitate resources. One class of resources that fits this definition is knowledge assets. Market-based knowledge assets include knowledge of customer needs, preferences, buying processes and likely responses to promotion, sales, or pricing moves, and competitors’ capabilities and strategies. Such market knowledge is valuable in that it leads to the efficient development of products that are based on in-depth knowledge of customer needs and whose benefits can be effectively communicated to the members of appropriately selected target markets. Market knowledge assets tend to be rare because of the complex processes that are required to create them. Market knowledge is also difficult to imitate since it is an invisible asset and has a relatively short half-life, particularly in dynamic markets. A firm’s “stock of market knowledge assets” refers to the amount or extent of these assets that the firm possesses.

In her 1995 book, Wellsprings of Knowledge (Harvard Business School Press), Dorothy Leonard- Barton argues that no information “is more important to a technology-based firm than information flowing in from the market, as this information shapes science into commercial product or service.” In my view, there are two important strategies for generating market knowledge: (1) knowledge generated through firm-market interactions, and (2) knowledge gleaned from market experiments.

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