As a business owner or an entrepreneur, you have two general choices for a strategy. You can either follow the lead of your competitors or set the rules yourself. In the first case scenario, there is a relatively decreased risk. However, when it comes to business investments, higher risks lead to higher returns.
So, what can you do to achieve such a result?
The Concept of Competitive Advantage
The term competitive advantage refers to all factors that allow a company to generate more sales and earn higher profits. In general, there are three types of competitive advantage:
- Product/Service Differentiation
- Niche Strategies
Nowadays, businesses explore all kinds of opportunities and find different ways to gain a competitive advantage compared to their market rivals. What’s more, over time, business owners have better understood the importance of innovation as a strategy for developing a competitive edge.
Innovation as a Competitive Advantage
Innovation is an essential part of the strategic planning process, especially for small businesses. Large-scale companies can explore economies of scale, thus decrease the cost of production and earn higher margins. Local stores or start-up don’t have the same opportunity, so they usually need to innovate to reach the same results. What’s more, a well-established business that uses innovation as a progressive tool can further enhance its profits and efficiency.
Why don’t all businesses use innovation as part of their strategies, considering it can lead to bettering results?
The Downside of Innovation
Smaller businesses usually have limited resources and a not-excessive number of employees. Therefore, these companies don’t have a responsible person for innovation. As innovation is not a top priority, these businesses usually end up doing the same things or operations over and over again.
Another aspect companies mostly find challenging is the nature of innovation. More precisely, innovation is a change that creates uncertainty and a threat to existing operations. However, no one can ever be certain of these projects’ outcomes or the company’s investment return. One can even undermine its existing or core business by entering a new niche or innovating a new product/service.
How can a business gain a competitive advantage without weakening its primary work or investing excessive amounts of money and other resources?
Gaining Competitive Advantage Through Innovation
The following list is non-exclusive, but it might help you, as an entrepreneur, or a business owner, explore the benefits of innovation as a competitive advantage.
Align Innovation and Company Structure
Many perceive innovation as a competition with oneself, as opposed to the business environment. Logically, the entity should generate innovation internally, not outsource it to third-parties.
Small and mid-sized businesses generally make small changes or improve their operations. However, companies that find ways to integrate innovation as part of their strategy and processes reap the highest awards or benefits.
In this regard, one should consider:
- The company short-term vs. long-term goals
- Develop a proper idea management process
- Continually tracking the innovation metrics and progress
- Setting the right tools and processes
Set A Pro-Innovation Culture
After providing the essentials, one must work on developing and cultivating a growth mindset within the company. In other words, all employees must feel free to share their ideas and suggest solutions to existing and potential problems.
The pro-innovation culture provides opportunities to improve the company’s operation and processes, therefore increasing profits.
To create such a business environment or culture, one should consider:
- Communicating the company mission
- Establishing and reinforcing the company’s values
- Hiring a skilled workforce eager for personal improvement
Focus on The Future
One of the most crucial aspects of innovation is for the company to consider the future market needs and wants instead of the current demand. Innovation ultimately replaces the existing processes. So, the market competitor that considers this issue first is usually the one exploring the highest returns.
In this sense, a great piece of advice is to stop selling what you already do but focus on what will make you money in the future.
Consider Your Competition
Another relevant issue is competition. Sometimes companies come upon an innovative process but choose to delay its establishment not to undermine their core business. However, if you don’t enter a niche, your competitors probably will.
What’s more, even if you develop an innovative process, other market participants are likely to follow. Yet, as Andrew Carnegie once said, “The first one gets the oyster, the second gets the shell.”
Today, there are endless ways to gain a competitive advantage or increase your company’s profits. However, exploring innovation has proven as an effective means of outrunning the competition. Even though it might imply uncertainty and risk, the results or returns usually account for it.
So, as the business owner, you should carefully calculate your risks and decide which strategy would best benefit your operations.