Is innovation always beneficial?

Today we had Module 2 for the Entrepreneurial Growth class. After referring to Howards H. Stevenson and David E. Cumpert’s “The heart of Entrepreneurship” – Harvard Business Review (March-April), 85-94, everybody was so bias towards being an innovative, risk taking, R&D oriented entrepreneur, that needs to invest and seize the opportunity.

I have two comments that I mentioned in class, but I will also post them here:

1. One of it is pretty straight forward: do not take that approach unless your industry demands it. If you are a company that specializes in hand crafted glass objects for example, you don’t need to look for anything innovative. Just be a good “trustee” and look for those long run contracts with the retailers and suppliers.

2. Investing in all that R&D and innovation to be ahead of the game will ultimately reflect as a higher final product. I had an example about the ATV market, in which Chinese copycats managed to bypass many of the patents that Western R&D oriented companies implemented on their top of the art ATV machines, but still managed to come up with good enough replicas that worked in most cases as good as the western devices. They kept the quality at reasonable standards, in order to be able to compete on the same market, BUT sold these machines at 70% of the price of the competitors. This was because they skipped the entire R&D process and did not incur the costs of many of the competitors’ trial projects that failed.

I purchased an ADLY (or Herkules, as it is known in Germany) quad which used to produce parts from Can-Am or Bombardier (which is like the Mercedes for ATVs) until they decided to start their own line of production. The price of this Taiwanese vehicle was far bellow the competitors and encapsulated many of the parts I usually see at Can-Am or Yamaha. I had no major problems with it so far and I am still happy of my purchase.

My point is that companies that copy competitors and add up a decent markup but keep the overall price of the product lower may end up having a bigger market share and a bigger ROI as their competitors, without having to look for innovative thinking or devote capital in research.

They may be profitable without having innovative entrepreneurs!