Innovation is the Life Blood of a Business

 

An important function of business is to be continually looking to improve the goods and services that it provides; to innovate. We commonly think of innovation in terms of major discoveries and changes; penicillin, the airplane, television, the PC, the mobile phone, etc. These are just some of the obvious examples. Innovation happens in myriads of small ways in millions of businesses every day.

 

Innovation goes right through all phases of the business. It may be innovation in design, in product, in marketing techniques. It may be innovation in price or in service to the customer. It may be innovation in management organization or in management methods. Or it may be a new insurance policy that makes it possible for a businessman to assume new risks. It is not confined to engineering or research, but extends across all parts of a business, all functions, all activities.

 [Peter Drucker, The Practice of Management]

 

When we implement Microsoft Dynamics NAV for a client, we invariably write a little custom software to meet requirements that are unique to the client’s requirements, or to reflect local practices or even local laws. In 2010, we initiated a project to create packaged software modules to meet a number of the more common requirements. Now we are able to offer these to clients at a fraction of the cost of a custom-built modification. We also gain kudos in sales situations; the prospect recognizes that we have a proven understanding of how his business functions.Prosperity relies on innovation. Innovation is the cure for the pessimists and doomsayers. Those who predict the end of the world, or that we will run out of essential commodities, usually fail to account for innovation.

 

When new products are brought onto the market they may be relatively expensive, and accessible only to the wealthy. But as more are sold, the company will gain economies of scale in manufacture, supply, and logistics, and it will create improved procedures in its own operations; consequently its costs will fall and this enables it to lower prices. Of course, the company could try to maintain a high price, but this almost never happens. It is more beneficial to total profit to lower the price and sell more of the item. We see this particularly in technological products such as computers, mobile phones and GPS tracking systems; but the principle is general. Work by the Boston Consulting Group in the 1960s recommended that firms take advantage of the lowering of costs through experience to gain a strategic advantage by lowering prices; competitors with less experience had higher cost structures and therefore less ability to match the lower prices profitably.

 

In a similar way, the price of a product may remain relatively stable but its quality and functionality will increase. I recently replaced a fourteen year old refrigerator and was pleasantly surprised that the energy consumption of the new unit was 600 KwH per year, down from 2000. I had not expected to see so much improvement in a refrigerator; it is a mature product, not one in which you expect a lot of innovation. 

Peter Francis Fenwick       Writer      Melbourne     Australia