All about distinctive capabilities

Posted on May 18, 2005 
Filed Under Julian, The Edge

By Lim Beng Choon

I often get asked by friends, “What is a good business to be in?” At the risk of sounding cliched, my answer has always been “Take any business and run it well. Then, figure out how to build distinctive capabilities”.

For example, look at Zara, the Spanish clothing manufacturer and retailer. There is nothing new about the retailing business, but they can deliver new styles to their outlets in three to six weeks compared with up to five months for competitors. Or the Dutch insurance company Universal Leven, which has only three employees to look after 23,000 customers. Or Bristol-Myers Squibb’s innovative use of cutting edge technology to achieve overall performance improvements of several thousand days/year in their drug discovery process.

Breaking out
High-performance companies are constantly trying to find new ways to produce the breakout new product, deliver a service or operate a new business model.

When it comes to technology, they avoid the “me too” philosophy and try instead to find new ways to adapt that technology to give them an edge.

Take, it started out selling books online and scaled rapidly, adding various new products to become an e-commerce behemoth. But with little profit to please stakeholders, CEO Jeff Bezos switched tactics and turned Amazon into a technology company.

Amazon turned innovations it developed for its own retail site into services available online. Through Amazon’s web services, merchants could use its patented 1-Click ordering system, or search capabilities, to sell more products. It also allowed independent programmers to download and write new applications, based on its software, so smaller merchants could use these to sell on or elsewhere.

By not incurring any distribution or handling costs for this new side of the business, and taking a 15 % commission on each sale, Amazon’s long-term revenue generation was assured.

Innovation engine
It is easier said than done but the most successful companies do not leave innovation to chance. They know that they need to nurture and develop an “innovation engine” within their organisation that can constantly allow it to redefine the game.

How does a company create a successful innovation programme? Our research suggests that there are three key components.

Forge a lab-business partnership. Great new products and services don’t simply roll out of R&D labs. A successful innovation programme calls for two-way communication and a “meeting of the minds” between groups with different perspectives.

On the one hand are managers and marketing employees who often have their heads down, focused on meeting sales targets and other performance goals. On the other hand are the engineer-types that are sometimes not in tune with what the market can and will accept. High-performance organisations successfully break this barrier to create forums that bring together their technology and business sides.

Look in the right direction. High-performance businesses are continuously tracking new technologies as they approach the point of business value. The transport industry providers in the US are a good example of such opportunities. Each year, the industry chalks up more than US$10 billion in losses alone from truck and cargo theft.

The solution is in RFID (radio frequency identification). RFID tags and sensors can make the products and whatever they are shipped in intelligent and interactive. By utilising such a system, any truck, its contents and all personnel who come in contact with the vehicle can be tracked and verified. It follows that each truck can also be routed in the most fuel-efficient way, increasing supply chain efficiency with guaranteed delivery. In this case, it is the combination of technology with changes in the supply chain that constitutes new distinctive capabilities.

Go to market smart. When the best innovators find a promising idea and prepare to take it to market, they do rigorous testing to ensure its feasibility. Any successful innovation must pass a two-fold test:

(i) It must offer something exciting enough to compel people to buy. That means it has to represent enough of a step forward in cost, features, ease of use, or even something as intangible as image. Apple Computer’s successful iPod and iTunes digital music service is a case in point.

(ii) The innovation should not create its own obstacles. As much as possible, it should fit in with existing infrastructure, skills, values and work practices. Electric cars aren’t a market force because no one knows where to plug them in, but hybrids are selling because they use petrol and much less of it.

Innovation in action
How is the innovation-by-design model applied in actual companies?
One example is BP. Company researchers actively scan the horizon for ideas. BP invites 50 top business leaders each year to two-day events focused on an area of emerging technology or process innovation that has the potential for high impact.

These forums (called Blue Chalk events) include guest speakers from other businesses that are using the technology, as well as brainstorming sessions and breakout discussions with world-class experts and academics.

Accenture itself is part of an energy ideas exchange facility that provides energy clients with an interactive and holistic view of how they can build new distinctive capabilities. Many innovation-focused organisations also look beyond their own walls in search of promising technologies.

Executives from The Irish Revenue Commissioners attended a workshop at Accenture Technology Labs, where they saw a knowledge-integration prototype that could be applied to collect taxes. The prototype allowed their auditors to perform research better and faster, with a deeper understanding of special interest cases. After a successful pilot, the solution is now being rolled out for more general use.

Be in the driving seat
High-performance organisations differ not only in ideas but also in execution. Here, the CEO needs to be hands on to drive the innovation to reality.

Xerox’s John Seely Brown challenged his people to make copiers that made no noise. The expectation made his people rethink the copier completely so it had no moving parts and set the industry abuzz. Nissan’s Carlos Ghosn took a personal interest in selecting cross-functional team “pilots” to come up with ideas to improve the business.

Many companies tend to suffer because they take a narrow approach. Functional silos lead to either a technology or HR approach, which fails to deliver any distinctive capability. CEOs need to step up to foster an organisational culture and set of business processes that will consistently outperform the competition.

Lim Beng Choon is the country managing director of Accenture. This article marks the conclusion of the series, Accent on value.

(Editorial services by Trinetizen Media for Accenture)


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