in­no­va­tion is not every­thing

The Smart Manager - - Contents -

A great brand gives the best com­pet­i­tive pro­tec­tion, says Hap Klopp, The North Face.

Com­pa­nies of­ten en­gage in quick fixes in a bid to be seen as in­no­va­tive. While this may bring in short-term value, fail­ing to fo­cus on the long term could erode their most valu­able moat—the brand. Hap Klopp ex­plains why a brand’s story is not just about its logo or taglines. It is the com­bined ac­cu­mu­lated im­pact of ev­ery as­pect of the busi­ness, au­thor­i­ta­tively uni­fied un­der imag­i­na­tive but sin­gle-minded di­rec­tion.

Never has keep­ing ahead of the com­pe­ti­tion been so daunt­ing. The ex­po­nen­tial pace of tech­nol­ogy is shrink­ing prod­uct life cy­cles, pro­vid­ing in­stan­ta­neous knowl­edge about a com­pany’s prod­uct launches, and has opened up ev­ery com­pany to world-round com­pe­ti­tion. The bad news—it is only go­ing to get worse. So, how does a com­pany in­su­late it­self from the ac­cel­er­at­ing, dele­te­ri­ous im­pacts of ex­panded com­pe­ti­tion? Whether your com­pany pro­duces a prod­uct or a ser­vice, the chal­lenge is the same. (For ease of com­mu­ni­ca­tion, I will re­fer to both as ‘prod­ucts’ through­out this ar­ti­cle). More specif­i­cally one has to ask, how does your com­pany cre­ate com­pet­i­tive ad­van­tages and pro­tec­tion for your busi­ness—what War­ren Buf­fet calls eco­nomic moats? And, can any eco­nomic moat last very long in to­day’s ex­po­nen­tial world?

Fo­cus­ing only on faster and faster in­no­va­tion, which will have a mixed bag of wins and losses, in­evitably leads to cus­tomers fo­cus­ing only on the prod­ucts— not the com­pa­nies that pro­duce them.

And what, ex­actly, does such a moat look like? Well, I would ar­gue that the very best moat to have, and the only one to with­stand the ever-chang­ing world, is to cre­ate a brand. It is, in fact, some­thing of an ar­gu­ment. Tesla’s CEO and fu­tur­ist, Elon Musk, as­serts that the only com­pet­i­tive pro­tec­tion in to­day’s world is in­no­vat­ing faster than the com­pe­ti­tion. In essence, he dis­misses the con­cept of eco­nomic moats as out­dated. Per­haps. But like most of us, Musk, I think, only looks for what he knows. And what he knows bril­liantly is in­no­va­tion and tech­nol­ogy. And, that is sub­ject to an ever-shorter half-life for a com­pany’s eco­nomic moat. But some­thing else that goes side by side with in­no­va­tion can still ac­tu­ally pro­vide a sus­tain­able eco­nomic moat. And, I be­lieve that dif­fer­en­tia­tor is es­sen­tial for your com­pany to not only sur­vive, but also thrive in the fu­ture. Ap­ple is a good ex­am­ple of my point. Un­der Steve Jobs and Tim Cook, that com­pany has been wildly suc­cess­ful. But, most busi­ness an­a­lysts will tell you that it was not just lead­ing-edge tech­nolo­gies that made them so suc­cess­ful. Rather, it was the fact that the in­trigu­ing in­no­va­tions that they used to daz­zle the mar­ket were done so bril­liantly be­cause it was un­der the um­brella of their highly fo­cused, rigidly con­trolled brand. Do not get me wrong. I strongly be­lieve in the value of in­no­va­tion and dis­rup­tion. In fact, I al­ways post the fol­low­ing Rud­yard Ki­pling quote, in my prod­uct de­vel­op­ment de­part­ments: “They copied all they could fol­low, but they couldn’t copy my mind so I left them sweat­ing and steal­ing, a year and a half be­hind.” But re­ly­ing solely on in­no­va­tion, I think, can be a slip­pery slope. For sure, there can be, and of­ten are, short-term com­pet­i­tive ad­van­tages cre­ated by in­no­va­tion. But, there are also un­in­tended consequences that I be­lieve arise from fol­low­ing Musk’s ad­vice of re­ly­ing al­most solely on new­ness and in­no­va­tion to com­pete. New prod­ucts in­evitably have both suc­cess and fail­ures. And, the faster one brings them to mar­ket, the higher the prob­a­bil­ity of fail­ure. Fo­cus­ing only on faster and faster in­no­va­tion, which will have a mixed bag of wins and losses, in­evitably leads to cus­tomers fo­cus­ing only on the prod­ucts—not the com­pa­nies that pro­duce them. This type of trans­ac­tional think­ing, de­void of emo­tion and pas­sion­ate com­mit­ment to the com­pa­nies be­hind the prod­uct, threat­ens the long-term vi­a­bil­ity of a com­pany. You end up with no com­mu­nity, no fol­low­ing, and no vo­cal third-party prod­uct cham­pi­ons. You have no long-term al­le­giance. You lack the per­son­al­ity of the strong, well-ar­tic­u­lated in­sti­tu­tional DNA to which your cus­tomers and sup­pli­ers can emo­tion­ally at­tach. The com­pany suf­fers from an in­ex­orable di­min­ish­ing of its bar­ri­ers to com­pe­ti­tion. What is miss­ing is the un­der­stand­ing that in­ven­tion is not in­no­va­tion. In­no­va­tion is the com­bi­na­tion of in­ven­tion and com­mer­cial­iza­tion. This is where brand­ing comes into the pic­ture. It is the key com­po­nent of com­mer­cial­iza­tion. Brand­ing is what can build the long-term eco­nomic com­pet­i­tive moat that Buf­fet talks about.

Brands are an an­nu­ity for the fu­ture and pro­vide as­sur­ance of fu­ture sales. They are a re­fresh­ing and an ef­fec­tive an­ti­dote to the ex­po­nen­tial rate of change of so­ci­ety.

Prod­ucts and ser­vices have life cy­cles—life cy­cles that are get­ting shorter ev­ery day. Many patented prod­ucts ac­tu­ally die be­fore their patent ever ex­pires. Side by side with this, we find we are liv­ing in a val­ley of im­i­ta­tion where prod­ucts are hard to pro­tect from repli­ca­tion and reverse en­gi­neer­ing, even if you have strong patents. On the other hand, brands and trade­marks, prop­erly and widely reg­is­tered, have much, much stronger le­gal pro­tec­tion—around the world. Well-ex­e­cuted brands thrive gen­er­a­tion af­ter gen­er­a­tion. Think of the brand loy­alty en­joyed by Coca-Cola, Ap­ple, Nike, Fer­rari, Tif­fany, Louis Vuit­ton over the years. A strong brand so­lid­i­fies the bond be­tween com­mu­ni­ties of con­sumers and your com­pany. Even be­tween your com­pany and your sup­pli­ers. Brands are an an­nu­ity for the fu­ture and pro­vide as­sur­ance of fu­ture sales. They are a re­fresh­ing and an ef­fec­tive an­ti­dote to the ex­po­nen­tial rate of change of so­ci­ety. Hav­ing a dom­i­nant brand al­lows you the lux­ury of es­tab­lish­ing in­dus­try val­ues and stan­dards, and guide in­dus­try pric­ing. Cou­pling great brand­ing with in­no­va­tive and su­pe­rior prod­ucts en­sures suc­cess­ful com­mer­cial­iza­tion—long-term. And, long-term not trans­ac­tional cus­tomers is what you want be­cause it costs five times more to find a new cus­tomer than it does to keep your ex­ist­ing one. To sim­plify the com­mu­ni­ca­tion of your brand story, a logo is very help­ful but brands are more than a logo and a tag line. Brands are not just great graphics, web­sites, trade shows, cat­a­logs, the look of your prod­ucts, or a few ad­ver­tise­ments, or a cou­ple of your own stores. Rather, they are all of the above ‘and’ every­thing else: be­gin­ning with com­pany phi­los­o­phy, pro­ceed­ing through the de­sign and man­u­fac­ture of the prod­uct,

When prop­erly ex­e­cuted, a brand be­comes a monopoly uniquely dif­fer­en­ti­at­ing the com­pany from all com­peti­tors. Per­fectly ex­e­cuted means that all as­pects of the com­pany, all di­vi­sions of the com­pany, all prod­ucts of the com­pany, and all ac­tions of the com­pany are to­tally and con­sis­tently aligned over time.

through ev­ery as­pect of cus­tomer re­la­tions; through how you treat your cus­tomers, em­ploy­ees, and the com­mu­ni­ties you op­er­ate in. It is the com­bined ac­cu­mu­lated im­pact of ev­ery as­pect of the busi­ness, au­thor­i­ta­tively uni­fied un­der imag­i­na­tive but sin­gle­minded di­rec­tion that makes the brand truly work. Unity of all of that is not op­tional. It is es­sen­tial. Build­ing your brand re­quires pa­tience and con­sis­tency. Brands are like co­ral. They take a long time to build and are hard to see grow, but once they reach a crit­i­cal mass and be­come vis­i­ble, they cre­ate a beau­ti­ful, in­vin­ci­ble eco­nomic moat. Build­ing a great brand can­not be the sole re­spon­si­bil­ity of your mar­ket­ing depart­ment. For it to flour­ish, it has to re­flect the en­tire com­pany’s ac­tions and DNA and be­come the short-hand tool for com­mu­ni­cat­ing the com­pany’s val­ues and po­si­tion­ing. What the com­pany be­lieves. What the com­pany stands for. How it acts. What it will al­ways do. What it will never do. Brands are all the things you do and it is, like­wise, all the things that hap­pen when no one is look­ing. These unique qual­i­ta­tive as­pects are the rea­son peo­ple vis­cer­ally bond to your com­pany. Why they ‘love’ you. Why they will keep com­ing back. And it is how your re­la­tion­ship can tran­scend the risky trans­ac­tional cus­tomer ap­peal based on you be­ing the new shiny ob­ject, or hav­ing the low­est price, or even hav­ing strong but short-lived patented prod­ucts. When prop­erly ex­e­cuted, a brand be­comes a monopoly uniquely dif­fer­en­ti­at­ing the com­pany from all com­peti­tors. Per­fectly ex­e­cuted means that all as­pects of the com­pany, all di­vi­sions of the com­pany, all prod­ucts of the com­pany, and all ac­tions of the com­pany are to­tally and con­sis­tently aligned over time. That is what The North Face has been do­ing from the day I launched it so many years ago un­til to­day and, I be­lieve, why the com­pany re­mains such an iconic brand even af­ter all the dra­matic changes in the con­sumer mar­ket and the hun­dreds of com­peti­tors and im­i­ta­tors that en­tered the field. Musk’s com­pany Tesla presently enjoys a cult fol­low­ing and cer­tainly rigidly ad­heres to his strat­egy of in­no­va­tion as the key in­gre­di­ent of its com­pet­i­tive pro­tec­tion. But with nu­mer­ous ex­am­ples of Tesla not liv­ing up to its brand prom­ise (ie un­cer­tainty re­gard­ing the safety of the au­topi­lot sys­tem, a mil­lion-dol­lar law­suit set­tle­ment with its sales em­ploy­ees who were not paid min­i­mum wage and over­time, un­cer­tainty re­gard­ing the vac­il­lat­ing delivery time of back-or­dered ve­hi­cles), I be­lieve the ini­tial highly fa­vor­able brand­ing is suf­fer­ing. What that di­chotomy will ul­ti­mately mean for Tesla is not yet cer­tain. Nor is it clear if Tesla is go­ing to get se­ri­ous about fo­cus­ing on its brand build­ing and liv­ing up to its brand prom­ise. Musk’s bold state­ment that “the only com­pet­i­tive pro­tec­tion in to­day’s world is in­no­vat­ing faster than the com­pe­ti­tion” might even sug­gest he is not too con­cerned about Tesla’s brand­ing for the fu­ture com­pet­i­tive pro­tec­tion of his com­pany. I would be.

Hap Klopp is founder and twenty-year CEO of sport and ap­parel brand, The North Face. The pa­per­back ver­sion of his book, AL­MOST—12 elec­tric months chas­ing a Sil­i­con Val­ley dream, co-au­thored with Brian Tarcy, was re­leased re­cently.

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