Wednesday, April 2, 2014

Is Competition Required for Innovation?

Is competition required for innovation?

Much of our readings focus on competition. The hallowed "five forces" speak to competition within an industry, bargaining power of suppliers or customers, the threat of new entrants, and the threat of substitutes, and the way in which these interact tell us about strategy and firm outcomes. But this got me to thinking: how does competition effect innovation? 

The Cola Wars Continue case attributes competition to more innovation between firms: new varietals, better distribution, and new technology. Competition in the leather and fashion industry in Florence (specifically, something Porter calls the "Competitive advantage") has been attributed to the expertise and wealth in the industry. The intense competition, in part driven by location, as well as the ability to share inputs (such as skilled labor) and the rise of supporting industries (industries that provide parts/direct production inputs), makes this the best place to buy leather in the world. 

We also see competition in vision and mission statements regularly: "Beat Coke" or Barnes and Noble's "Our mission is to operate the best specialty retail business in America, regardless of the product we sell.Marketing campaigns directly speak to competition. Coke began acknowledging competition in the 1950s. With the exception of the initial McConnell campaign video that inspired #McConnelling, almost all political campaign ads address the competitor, either directly or indirectly. 

However, let's think of real innovations: refrigeration. Penicilin. Electricity. These have transformed the world. However, to what extent can we really attribute any of these innovations to compeetition? For electricity, perhaps the dispersion of electricity and its proliferation could be seen as due to competition: what company could 'win' in terms of providing the best service, the best infrastructure in specific cities, etc. But the innovation itself? 

Perhaps then, innovation is not a function of competition, in and of itself. Perhaps innovation is driven by true human/customer need. But once that service or device or invention has been made to fill that need, the way in which it is proliferated is subject to competition. Afterward, that competition can drive innovation, both in strategy and execution.

So maybe the question we should be asking ourselves is what does innovation mean? And what is the scope of innovation that competition can effect?

Main Sources (others linked):

Porter, M. E. (2008). The five competitive forces that shape strategy. Boston, MA: Harvard Business School Publishing.

Porter, M. (1998, December 1). Clusters and the New Economics of Competition.RMISP. Retrieved April 2, 2014, from

Yoffie, D. B., & Wang, Y. (2010). Cola Wars continue: Coke and Pepsi in 2010. Boston, MA: Harvard Business School Pub.

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