We recently hosted a group of mid-career executives who are in the Global Executive MBA program at the IESE Business School in Barcelona. We have done this collaboration for several years now, and it’s enlightening to see how the students are facing an ever-changing set of innovation challenges. Given the diversity of countries and industries (everything from energy to telecom, government to nonprofit) and company sizes (multinationals to startups) there are some striking commonalities that emerge. See if these feel familiar, and consider if they are trending up or down for your business:
Challenge 1: Commoditization
Two factors are conspiring to heighten concerns over rapid commoditization: price pressures from still budget-conscious customers, and market compression from more competitors (and more cut-throat competitors). These equate to a race to the bottom on price, and an inability to differentiate except on price. It’s a death spiral. Unsurprisingly, given the state of the economy, commoditization was even more pronounced in the students’ responses than 12 months ago, and few of them were yet seeing the end of the spiral.
Challenge 2: Simplicity
Last year the focus was on how customers were becoming more demanding. This year the trend has shifted subtly: customers now are seeking simplicity. This means bundled solutions where you provide an end-to-end package, especially for B2B companies. Customers are willing to be offered fewer options if they can get a lower price (see Challenge 1). For companies who are used to working in high-touch, high-segmentation, high customization modes (very common until two-to-three years ago), this can be a difficult shift. One also has to be wary of demands shifting again when the buying mentality changes back to buying best-of-breed from multiple vendors.
Requests for “simplicity” can also be a signal that customers see your offering as generic, which means they could start treating you as a commodity permanently, and not just temporarily while the economy is bad. Treat this as a warning that your offering may not be as unique and valuable as you think it is.
Challenge 3: Risk
The theme of our meeting was innovation, and most of the companies represented by the students had been undertaking a variety of innovation efforts for several years. These had largely stopped or been dramatically scaled back in the last two years, and few were starting back up at a significant scale. Based on the students’ feedback, companies’ appetites have shrunk in the last year for taking risks on innovations and new opportunity areas.
This was a source of frustration for many of the students, who felt that Challenge 1 (commoditization) cannot be adequately solved without facing the risks that come from innovation. I agree. Most companies have cut so much in the last few years that top-line growth has to be the focus, especially if you are not a company inherently set up to be optimized for commodity selling.
Will These Trends Continue?
Change is the new normal: no industry is standing still these days, and this means that the innovation challenges we face are also constantly changing. A worrying sign from our small sample is that many companies are still in too reactive mode to these innovation challenges, and are not doing enough to push smartly into new areas and lay the seeds for growth when the recession finally clears. They would do well to take a step back from the rush of day-to-day operations and consider a strategy for the next one-to-two years that does not assume commoditization, simplified offerings, and risk-aversion will continue to be the basis for competitiveness. What will be the next set of competitive dimensions? If you’re not asking these questions now, you will be yet further behind when the economy really comes back to life.
This article originally appeared in the Harvard Business Review blog