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Can Innovation Spur Growth in Commoditized Business?

| On 01, Jan 2010

Message: 1334
Posted by: Sunil
Posted on: Tuesday, 3rd June 2008


What are the typical market characteristics that make an service/product a commoditiy? If we look at the economic theory one would try and understand the following constituents to answer it.
A. Price elasticity
B. Demand Supply curve
C. Marginal Value of service/product to customer
D. Nature & behaviour of stakeholders/participants/Seller-buyer
E. Sensitivities of the above to extraneous factors:
Substitutes/complements, exchange rates, wage-inflation, change in resources/capabilities brought to bear for service/productetc.
 
Lets take a specific example:
If we reflect the current IT services outsourcing market in terms of the above factors we may probably agree to it. What do you think?
If the outsourcing market has indeed become a commodity, what is the means by which big organizations can command profitable growth? Is it through one or combination of the following:
1.  Mergers & Acquisition – Inorganic
2. Innovation:
a. in Service offering – Organic
b. Innovation in resources (people, infrastructure, application, information) – Organic & Inorganic
c. Innovation in capabilities (Knowledge, organization, management, processes) – Organic & Inorganic
3. Others
 
Any thoughts.


Message: 1335
Posted by: Navneet Bhushan
Posted on: Thursday, 5th June 2008


I think the new way of creating wealth in all that we are doing is through the new found way of co-creation. All the so called commoditized businesses need to get into the model of co-creation with the stake holders – which include the customers, comoplementers, suppliers and even competitors – This is the next stage of openness that we are seeing in the attention economy!


Message: 1355
Posted by: Brendan Dunphy
Posted on: Wednesday, 18th June 2008


I think innovation is the perfect solution to address commoditisation as the work of Christensen and others has demonstrated in theory and most organisations demonstrate in practice on a daily basis. If commoditisation is an increasing problem in outsourced services there a number of options open to vendors and these are visible in the market today, including moving up the value chain, consolidation to achieve scale and lower costs, alternative (shared and performance related business models) etc. There is a lot that can be learned from the consumer businesses in this regard as differentiation with commoditised products is their daily reality and most of their innovations in brand, marketing, positioning and indeed product are aimed at creating and marinating a differentiation in the eyes of the consumer. I also agree that getting closer to your customers and suppliers is a great way to conceive of the next level of offering that transcends current boundaries and addresses the next level of opportunity.

 

Brendan DUNPHY at http://brendandunphy.blogspot.com/