To gain a competitive advantage in the market place, many businesses are turning to innovation to give them that competitive advantage. The question that many business owners have is how exactly does a business innovate? As I discussed in our blog post The Three Types of Innovation, there are essentially three main forms of innovation: 1) pioneering innovation, 2) best practice innovation, and 3) technological innovation. In this post, we will discuss the most common form of innovation, best practice innovation.
When a business or industry innovates, they often utilize a method, product, or service that has been used by industries outside of their competition circles. This process of performing an internal restructure by adopting industry bench marks or other-industry methods is called best practice innovation. Best practice innovation is widely used by companies today.
Zappos is a great example of a company that adopted an other-industry best practice. In 1999, Zappos' founder, Nick Swinmurn was building his new online shoe business. This was the dot com era, and Swinmurn needed to stand out among a sea of competition. Zappos needed to innovate.
The concept of offering free shipping was nothing new for this era as many companies in other industries were offering free shipping. For this reason, Zappos new that they needed to take free shipping to the next level - they began to offer free returns.
Free returns was extremely innovative for an online shoe business as many would have imagined that online shoe buyers would have a large amount of returns, resulting in an unprofitable amount of shipping costs. By adopting the free shipping model to an online shoe store, however, Zappos was implementing best practice innovation to gain a competitive advantage that is often regarded as the reason for their success.
Another example of a company that utilized best practice innovation is Fed Ex Express. Fed Ex founder Fred Smith first came up with the idea of guaranteed overnight shipping while he was at Yale University. At the time, consumer demands for speed and urgency were increasing which created a logistical problem for many suppliers. Smith felt that overnight shipping could solve this problem. To implement overnight shipping, Smith proposed a centralized "clearing house" where all items would be centrally delivered, sorted, and then distributed.
While guaranteed overnight shipping was a brand new concept, the idea of a centralized clearinghouse was not. In England in the 1800s, the bankers' clearing house was established as a centralized location of transferring checks from one bank to another. In the United States, the Federal Reserve Act of 1913 established the central banking system for the United States which essentially created 12 different hubs. The idea of a check clearing house was to create efficiencies so that each bank did not have to personally deliver checks that needed to be cleared to every bank they had a check from. They could just send all of their checks to one centralized clearinghouse, where there check would them be delivered to the appropriate financial institution.
Fed Ex Express essentially utilized this logistical concept by creating a centralized hubs. While it may not seem to make since to send a package to a city that is not on the direct route to the delivering city, the economies of scale make this model effective. Fed Ex only has to manage a limited number of centralized sorting hubs rather than deal with each individual branch delivering packages to multiple locations.
What best practices implemented in other industries turned out to be "game changers" in the new industry?