Introduction
Organizations constantly explore methodologies and tools that can assist them in gaining competitive advantages, and competitive advantage arises when an organization has or does something different and better than its rivals (Thompson, 2013). Understandably, both the manufacturing and service companies introduce innovative products and services respectively in a bid to gain the competitive advantages. The cornerstone for product and service innovation in the contemporary world is Information Technology (IT) because it helps the manufacturing and service companies to offer superb services and products to their customers. It is noteworthy that Information technology and other services related to it have brought rapid changes in the companies’ organizational structures as from production to customer service (Burgelman, Christensen, and Wheelwright, 2004). As such, innovation has enhanced the competitive strengths of such companies. Companies have embraced the IT-oriented architecture in a bid to enhance and improve their product and service offerings (Bowonder, Dambal, Kumar, Shirodkar, 2010). Innovation entails adding new products and services, expanding the existing products and services and improving the process of delivering the services and products. The innovative activities are relevant to the organizations' success, and it depends on how they are incorporated into the products and services (Davenport, 2013). This essay elaborates how innovation contributes to competitive advantages in manufacturing and services companies.
How innovation contributes to competitive advantages in the manufacturing
As noted by Joseph Schumpeter, innovation in manufacturing companies may occur in five forms namely: reorganization of the manufacturing company, creation of new and improved products, introduction of a new supply market, introduction of new processes of production and introduction of new sales market (Thompson, Peteraf, Gamble, Strickland III, & Jain, 2013).Process innovation occurs when an organization adopts production methods that are improved, and this may encompass changes in product organization or equipment (Thompson, 2013). The process innovations foster competitive advantages because they lead to the production of improved products that may not be produced using the conventional methods. Accordingly, process innovations enhance the production efficiency of the new and existing products (Burgelman et al., 2004).
Arguably, marketing innovations in the manufacturing companies increase competitive advantages because they satisfy the needs of the customers (Davenport, 2013). Specifically, the marketing innovations improve the desired product features, product designs, incremental earnings, product quality and product usability. Furthermore, the marketing innovations enabled the manufacturing companies to differentiate their packaging, product designs, pricing, product placement and product promotions (Tidd and Bessant, 2014).
It is noteworthy that organizational innovation encompasses the implementation of new methods in the workplace organizations and business practices. Evidently, the innovation increases the performance of an organization by reducing the transaction and administration cost, and it also improves the workers’ satisfaction (Khanna & Palepu, 2013). The figure below provides the types of innovation that help the manufacturing companies to differentiate themselves in the market.
Figure: Types of innovation in the manufacturing sector
Source: (Burgelman et al., 2004)
As indicated above, each category of innovation creates value in an organization regarding performance, costs and quality. Product innovation contributes to the output of the organization regarding profitability and sales, and thus it increases the knowledge stock of an organization (Khanna & Palepu, 2013). Moreover, product innovation increases the customers' fidelity because through innovation organizations realize the customers' new needs. As such it helps organizations to provide solutions to the production issues (Tidd and Bessant, 2014).
Intel is a good example of an organization that has used innovation to gain competitive advantages. Markedly, Intel is referred to as the “Manufacturing monster” because the company can introduce and launch a new product in the market faster than any other company (Hollensen, 2015). Intel launched the Intel "tick-tock" strategy in 2006, and it is a blueprint for the company to maintain its competitive advantage through technology leadership (Burgelman et al., 2004). Further, the company intends to take advantage of its manufacturing capacity, product research, and development to launch innovative products every year. The accuracy of Intel's manufacturing process is upheld using robotic equipment that is sophisticated, and the organization has plants around the world that manufacture distinct processors in various markets. The methodology used at Intel is referred to as “Copy Exactly” and it ensures that the construction of the company’s industries is consistent (Baumol, 2002).
Notably, Intel possesses competitive advantages because its cadence to the creation of new product and the improvement of the existing products is regular. Moreover, it integrates the Research and Development teams from all the departments (Hollensen, 2015). As such it is the only organization that can optimize and combine leading-edge capacity, manufacturing process technology, masks, design tools, product design, and packaging in-house. Additionally, Intel has set the very high standards in clean and high-quality clean production because it has invested the vast sum in manufacturing and research and development hence it is not easy for Intel’s rivals to match it (Tidd and Bessant, 2014).
In addition to that, the designs of Intel products are high quality because the company develops new and efficient technologies by combining market-led, product-led and user-led features. (Aaker, 2012).It is imperative to note that Intel can leverage its manufacturing capacity hence it can launch a new product in large volumes in the market by increasing production. Understandably, the capacity to increase volumes and introduce the new products in the market at a rapid case plays an instrumental role in the creation, sustenance and maintenance of competitive advantages (Baumol, 2002).
Evidently, co-creation is another element of innovation, and it has been embraced by most manufacturing companies because it integrates the voices of the customers in the product designs (West, Ford & Ibrahim, 2015). An example of creation is when 3M worked with Mayo clinic in a bid to develop products that would replace surgery with various invasive options. The strategy was successful because it helped in solving various market problems since test marketing was conducted in good time. In the end, the customers' requirements were met by the manufacturers (Conway and Stewart, 2009).It is imperative to note that innovation reduced the cycle time of manufacturing companies thus the customers can access the newly launched products quickly (Aaker, 2012). The cycle time of Toyota Prius was reduced by one year, and this was a good surprise to customers because it gave them options that were above their anticipations. Specifically, Toyota Prius surprised the customers with its speed (Dodgson, Salter and Gann, 2008).
In addition to that, Innovation plays a role in the enhancement of brand values for manufacturing companies. In other words, it helps in delivering products that meet the aspirations of customers. To illustrate, Motorola introduced innovative features in Moto RAZR that are not offered in other cell phones. Consequently, Motorola gained a significant share of the market share due to the excitement of customers with its new features (Grant, 2015). Besides, innovation mutation in the manufacturing industry has lead to the creation of new products using the mutating technology. For instance iPhones and iPods were produced using innovation mutation. In other words, the iPhone the iPod technology was mutated to yield the iPhone. Evidently, innovation has helped the manufacturing companies to expand their portfolios, and this increases the competitive strengths in the market (Baumol, 2002).
Furthermore, innovation has helped some manufacturing technologies to increase their competitive advantages through the acquisition of markets, technology and brands. For example BASF acquired Crop design in a bid to produce new types of crops with desirable features as a result; BASF extended its product portfolio to include plant biotechnology products. In the same way, Unilever took over the “Slim Fast” technology with the aim of creating series of foods that would increase the customers’ potential of reducing weight. Subsequently, Unilever launched the weight reduction production in the market thus enhancing its competitiveness in the food industry (Conway and Stewart, 2009).
How innovation contributes to competitive advantage in services
Service innovation may take three forms namely: innovation in service products, innovation in service processes and innovation in service firms (West, Ford & Ibrahim, 2015). Innovation in services focuses on introducing improved or new services to the customers, and this concept relates to service design. On the other hand, innovation in the service processes aims at introducing new designs and process of producing the services (Grant, 2015). The innovation in the service processes encompasses new service delivery systems that may be technological and it often affects the organization of work at the service company. In addition to that, innovation in the service industries, organizations and firms focuses on managing the innovation processes in the service organizations (Conway and Stewart, 2009).
Evidently, all the technological advances in the modern age have been embraced in the services industries. The advances in computing and communication, transport systems, medical care and delivery, pollution control and energy productions are crucial in the development of the service industries (Slack, 2015). It is crucial to note that organizations in the services industry utilize Human resource innovations to gain competitive advantages in the market. The HR professionals drive innovation by acquiring and integrating external and internal knowledge. In other words, HR innovations are a source of value addition to the services companies and they help in improving the experiences of the customers (Conway and Stewart, 2009).
Notably, technological innovations in the services industry increase the rate at which the service companies adopt the latest technology in the market. Innovativeness of the services differentiates the services that are new to an organization from the services that are new in the market. The central resources in services include knowledge skill and competencies thus; innovation revolves around them (Schilling, 2005).Customer excitement is a basic tenet of innovation in the service industry, and it aims at offering unique value propositions to the new and existing customers. Customer excitement can be realized through platform offerings, brand value enhancement, co-creation, and reduction of cycle time (Dodgson, Salter and Gann, 2008).
Certainly, platform offerings increase competitive advantages by offering customized and repeatable services. Google is a good example of a service company that used platform offerings to increase its competitive advantages. The company started its operations with a search engine and then extended to the platform by integrating Orkut, Gmail, Google Chat, and Google images (Salunke, Weerawardena & McColl-Kennedy, 2013). Consequently, the Google customers can use the single platform to carry out various operations which would have otherwise required different platforms. Understandably, Google's innovation in the platform arena contributes to the excitement of customers (Schilling, 2005).
Arguably, innovation helps the service companies to leverage technology, and this increases customer trust and customer loyalty. As an illustration, FedEx tracks about 3.2 Million parcels that it delivers daily using RFID technology, and this has helped it to outdo its competitors (Salunke, Weerawardena & McColl-Kennedy, 2013). Specifically, the technology helps in tracking misplaced and lost packages, and this lowers the reduced packages of the minimum. Most services companies have embraced the concept of service innovation because it increases the competitive strengths in a particular market (Dodgson, Salter and Gann, 2008).
The main areas of innovation in the service industry include the service concept, the customer interface, the service delivery process and the technological options. The innovation of a service concept enhances the competitiveness of an organization because it introduces new methods of solving problems in an organization (Trott, 2011). For example, in the retail sector innovation of a service, the concept may lead to a new format for organizing the shops in a bid to improve the customers' experiences. On the other hand innovations in the customer interface impacts on the interface between the customers and service providers (Schilling, 2005).
It is imperative to note that the innovations in the service delivery system impact on the manner in which the service organizations deliver their services to the customers (Grant, 2015). Innovations in the delivery systems revolve around the electronic avenues and technological gadgets of delivering the services. It is noteworthy that innovations in technology have increased effectiveness and efficiency in the service sectors (Trott, 2011). To illustrate, new Information Technology systems improve the effectiveness of the interface dimension. Further, technological innovations increase the capacity of the organization to track customer services specifically for the services that are delivered electronically (Hitt, Ireland & Hoskisson, 2012).
Besides, innovation has played a significant role in the service industry because it fosters lean development. Lean development reduces the production costs and wastage. For example, Adobe Company applies the Agile Software Development Ecosystem in a bid to complete tasks in the short term and to uphold quality (Utterback, 1994). Consequently, the service companies dominate their markets because the minimize waste, incur low cost in development and use low amounts of materials (Hitt, Ireland & Hoskisson, 2012). In addition to that, innovation has enabled service companies to segment their markets appropriately. That is to say, innovation has created new windows of opportunities for the service companies. For example, Southwest Airlines got a brew market segment through its strategic positioning, and this helps it to run as a low-cost airline (Utterback, 1994).
Innovations in the production of services are common in most service companies thanks to innovations in technology. For example, the invention of teleservices has reduced the need for heavy investment in buildings and encouraged low levels of investment in the capital equipment (Bowonder et al., 2010). Markedly, there are innovations in the Human Resources in the service companies which aim at improving the delivery of services. The innovations have reduced the dependence on the expensive skills through the application of expert systems. Further, telecommunications have led to the relocation of the main operations to areas that incur low labor costs (Schilling, 2005).
In the same way, service innovations have impacted in the organization of employees in the service sector. Specifically, IT used to monitor the manner in which the employees deliver services to the customers (Bowonder et al., 2010). For example, mobile communication and tachometers are used to monitor the staff in the transport industry, and this has led to the development of flat organization structures because the field data enters the Management Information systems and databases directly. Innovations have introduced familiar user interfaces, and this has enhanced the delivery of the services (Hitt, Ireland & Hoskisson, 2012). Further, through innovations, it is possible to customize the services depending on the requirements of the clients (Slack, 2015). To illustrate, the client's details are input remotely using the Internet or the Electronic Data Interchange. In the same way, some companies record client details using software that matches their requirements to the service products (Schilling, 2005).
Conclusion
In a nutshell, this essay has discussed how innovation contributes to the competitive advantages of bother the manufacturing and services companies. Innovation increases the competitive advantages of an organization because it offers attributes that enable it to outperform its rivals. Innovation enables organizations to gain competitive advantages by creating new product and service portfolios, exciting customers and outperforming the rival companies. Innovation is a main differentiator in the competitive race, and thus, the innovative companies have embraced innovation in a bid to sustain their competitive advantages. Through innovation, companies create new businesses, and they enter new market segments. Also, innovation increases the capacity of organizations to introduce new experiences and products in the marketplace. As such, it helps the innovative companies to stay ahead of rivals in the marketplace. All in all, innovation is a major determinant of competitive advantages for both the manufacturing and service companies.
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