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Trade Routes: Where What Isn’t Will be Found

By: Michael Wynne
Posted: February 20, 2007
Back to the February 2007 Issue

To be an innovator, you have to take risks. The problem is that business, in general, is risk averse; it prefers the tried and true. Managers are not fools—they know that taking risks puts their jobs in peril. If, on the other hand, they follow in the footsteps of others in their business, they know that they will be safer.

But following in the footsteps of others only leads you to where they are—and they got there first. So, yes, those managers will be safer, but only until their company goes out of business because it was an uninspiring “me too” in the marketplace.

Benchmarking
Traditionally, the best advice for a company hoping to develop a competitive advantage was to do what the best do—only better. That theory was called benchmarking. But, if you matched what the best cosmetic companies did, or even surpassed it, you were still only doing what they did.

Doing what others do, even if they are the best, isn’t enough in today’s fast-paced global market. Look at it this way—the top 10 companies in the cosmetics business generate 70% of the global market sales. If you just copy what they do, do you really think you will achieve true competitive advantage?

It used to be that incremental improvements sufficed to increase sales. In a different industry, Toyota has become a success by steadily introducing small improvements into every aspect of its business. Those improvements have, for the most part, been in manufacturing. The automobile is a high ticket item, therefore, continued small improvements do increase productivity and lower costs, which allows Toyota to compete efficiently and earn higher margins. But the cosmetics industry is not like the automotive industry. While lower costs are always important, they don’t guarantee a major competitive edge in the cosmetics market.

After a while, small steps no longer provide market leadership—if ever they did. Today, you need quantum leaps to generate the kind of attention that generates better than organic growth, and this is achieved by creating new categories, products and markets.

So what has changed?

Upgrades
Microsoft and the entire computer and software industries have taught all of us to expect the upgrades. A new version of Windows comes out, and people feel obsolete if they don’t get it. Intel develops a new and better chip, and makes everyone’s hardware so “yesterday” and so on. But, upgrades better be major ones or they won’t make a difference.

Invention Industry
This is an invention industry. Companies, laboratories, institutions and governments around the world are investing billions in developing and introducing new products. Scientists and technicians are constantly working on developing the next new thing.
L’Oréal has 2,500 researchers in its labs around the world. In 2001 alone, the company registered 420 patents for innovative ingredients. Procter & Gamble has 7,000 (not all dedicated to cosmetics). Bayer has 2,500 focused on health and cosmetics. So the stream of innovations and new products is likely to continue growing.