Why you need to ignore the competition if you want to innovate
(this article originally appeared in the 20 June 2013 issue of Finweek)

“When America sneezes, the rest of the world catches a cold.” At the height of the recent bad debt crisis in the US, regulators in South Africa were concerned that the fallout would affect the local market. Thankfully, we emerged relatively unscathed. Well, most of us, anyway. The home loan divisions of the local banks at the time might have disagreed. The crisis exposed the poor quality of their loan books, resulting in massive bad debt write-offs – though nothing close to that experienced in the US.
The bank where I used to work was feeling this pain particularly hard. Something had to be done.
The bank where I used to work was feeling this pain particularly hard. Something had to be done.
It was just the type of challenge my team craved, and we didn’t disappoint. Within a few months, we had come up with a radical idea to address the problem. If it worked, it would simultaneously plug the huge bad debt hole and change the way that homes were financed in South Africa. “Project Mango” as it was called (I still don’t really know why) was not a normal idea. It was edgy, to be sure. It pushed the boundaries. It challenged banking conventions. And I loved it.
The CEO of the bank was not so sure, however. He was chairing the senior executive committee whose approval we needed for further resources to investigate the idea. He pursed his lips tightly together and drummed his fingers on the table. “I don’t know” he eventually muttered, breaking the stony silence. “I just don’t know. I’m not feeling comfortable.” And then he said the worst six words that you can say to an innovator. Six words that got my blood boiling. He said, “Has it been done anywhere before?”
He didn’t mean to offend. He simply wanted to find out whether or not there was a precedent for this idea elsewhere in the world, and if so, what the market reaction had been. Fair enough, I suppose. But what he actually said – in not so many words – was the following: “I’m not brave enough to blaze my own trail, and I’d rather follow one that someone else has left behind.”
There is no quicker way to kill innovation than requiring new ideas to have been done before by someone else.
Safety in numbers
Large corporates are not geared for risk-taking and uncertainty. They prefer the well-trodden path, the safe option. After all, they’ve got stakeholders and investors to look after and they need to be responsible in how they conduct their business.
The only way to get ahead in such a world is to beat your competitors - to make sure that you offer better products, cheaper prices or better service than the company next door. You’re all competing for the same customers so the talk in the boardroom is all about how to outsmart the competition. When the fund managers do their stock selections, you need to give them a reason to pick you instead of the other companies in your sector.
The problem is that your competitors are all holding the same focus groups with the same customers, asking the same questions, and getting the same answers. No wonder it all seems like more of the same. This is not the way to get ahead.
The need for endless comparisons with competitors has also resulted in the growing popularity of two horrible concepts - “Benchmarking” and “Best Practice”. Benchmarking involves measuring various metrics within your company and then comparing the values against those of your peers. It rewards commoditization. And Best Practice is even worse – this is the adoption of certain processes and strategies that appear to have worked well for other companies. Organizations follow Best Practice in the hope of achieving similar results. By definition, it is a copycat approach. No original opportunities have ever arisen from benchmarking or adopting best practice. They are the enemy of innovation.
So why do companies do it? Because it’s safe. No-one ever got fired for following what appears to be a proven approach for getting results. No-one ever got fired for making sure the company keeps in line with its competitors. As long as you’re not falling behind your competitors then it means you must be doing alright.
The problem is that it’s a crutch – it prevents you from discovering new and better ways of doing things. Instead you’re relying on your competitors to pioneer the way forward and identify the new opportunities – with you content to play catch-up. Is mediocrity the value you’re trying to promote?
The iPad challenge
Towards the end of 2011, FNB announced that it would start offering Apple iPads and iPhones to its customers at reduced rates, with the aim of promoting access to electronic banking. To achieve this aim, each device would come pre-loaded with FNB’s banking app. The strategy was a huge success. By the end of February 2012, FNB was selling an iPad every minute, and the bank had become the largest retailer of iPhones and iPads in the country.
This masterstroke by FNB shook the local banking industry. Competitors didn’t know how to react. Some banking leaders dismissed it as a gimmick, and then stuck their heads firmly back in the sand. Others tried to fight fire with fire. For example, in October 2012, Standard Bank partnered with Samsung and Microsoft to give Standard Bank customers first option on Samsung’s new Ativ tablets running Microsoft Windows 8. According to Itumeleng Monale, head of self service and payments innovation at Standard Bank: “Standard Bank customers will be among the first in the world to use Windows 8 on a portable ARM device. Standard Bank is also the first South African bank to give customers the choice to use its banking app on Windows 8 desktops, laptops and tablets.” Even this well-worded bit of PR spin couldn’t hide the fact that Standard Bank’s move was nothing but a copy-cat strategy to stem the flow of customers to FNB. If anything, it further cemented the impact of FNB’s tactic in the minds of consumers.
So how should Standard Bank and the other local banks have reacted? The key, I believe, is to have taken a step back to recognize what the market was telling them. Customers took up the FNB offer not because they wanted to use the FNB banking app (I think it’s a fairly safe bet that the majority of customers have never even looked at it), but because they wanted a cool gadget that had been hyped up in the media. FNB offered them a way to get their hands on the device cheaper than anywhere else. So what if FNB is a bank, as long as they get a good price. Consumers were telling them that they don’t mind if banks start operating in other areas, provided that they offer value to the consumers. And they would be happy to sign up as new customers for the privilege of accessing this value.
A better way to react would have been to start looking for other areas where the banks could use their size and influence to offer consumers value outside the traditional banking boundaries. There are lots of these opportunities, if only the banking executives would start looking. Ironically I overheard one senior executive at a competing bank react to the news that FNB had become the largest iPad retailer in the country. “That’s ridiculous,” he scoffed, “don’t they know they’re a bank? What’s next? Shopping trolleys outside their branches? Ridiculous!” Yes, ridiculous indeed.
A fascinating experiment
The processionary caterpillar is a very unusual creature. When searching for food, a group of caterpillars forms a single line or procession, one caterpillar behind the other. Only the leader is tasked with actually looking for the next meal of pine needles; the others blindly follow the caterpillar in front.
The French naturalist Jean-Henri Fabre observed this behaviour and decided to conduct a fascinating experiment. He placed a procession of these caterpillars in a circle along the edge of a flower-pot so that every caterpillar was following another one. There was no leader. He then placed some pine needles in the middle of the pot, and left them alone. Would any of the caterpillars break the circular procession and move towards the food in the middle of the pot? Or would they continue circling the flower-pot, following their natural instincts?
Amazingly, the caterpillars followed each other blindly for a full week, and eventually died of starvation. Sometimes, we’re like the processionary caterpillar in Fabre’s experiment. We’re so intently focused on our competitors directly in front of us that we completely miss the opportunities a little to the left.
We should rather ignore our competitors and break out of the competitive cycle. We should blaze our own trail, even if it’s risky and hasn’t been done before. As Henry Ford said, "The competitor to be feared is one who never bothers about you at all but goes on making his own business better all the time."
The CEO of the bank was not so sure, however. He was chairing the senior executive committee whose approval we needed for further resources to investigate the idea. He pursed his lips tightly together and drummed his fingers on the table. “I don’t know” he eventually muttered, breaking the stony silence. “I just don’t know. I’m not feeling comfortable.” And then he said the worst six words that you can say to an innovator. Six words that got my blood boiling. He said, “Has it been done anywhere before?”
He didn’t mean to offend. He simply wanted to find out whether or not there was a precedent for this idea elsewhere in the world, and if so, what the market reaction had been. Fair enough, I suppose. But what he actually said – in not so many words – was the following: “I’m not brave enough to blaze my own trail, and I’d rather follow one that someone else has left behind.”
There is no quicker way to kill innovation than requiring new ideas to have been done before by someone else.
Safety in numbers
Large corporates are not geared for risk-taking and uncertainty. They prefer the well-trodden path, the safe option. After all, they’ve got stakeholders and investors to look after and they need to be responsible in how they conduct their business.
The only way to get ahead in such a world is to beat your competitors - to make sure that you offer better products, cheaper prices or better service than the company next door. You’re all competing for the same customers so the talk in the boardroom is all about how to outsmart the competition. When the fund managers do their stock selections, you need to give them a reason to pick you instead of the other companies in your sector.
The problem is that your competitors are all holding the same focus groups with the same customers, asking the same questions, and getting the same answers. No wonder it all seems like more of the same. This is not the way to get ahead.
The need for endless comparisons with competitors has also resulted in the growing popularity of two horrible concepts - “Benchmarking” and “Best Practice”. Benchmarking involves measuring various metrics within your company and then comparing the values against those of your peers. It rewards commoditization. And Best Practice is even worse – this is the adoption of certain processes and strategies that appear to have worked well for other companies. Organizations follow Best Practice in the hope of achieving similar results. By definition, it is a copycat approach. No original opportunities have ever arisen from benchmarking or adopting best practice. They are the enemy of innovation.
So why do companies do it? Because it’s safe. No-one ever got fired for following what appears to be a proven approach for getting results. No-one ever got fired for making sure the company keeps in line with its competitors. As long as you’re not falling behind your competitors then it means you must be doing alright.
The problem is that it’s a crutch – it prevents you from discovering new and better ways of doing things. Instead you’re relying on your competitors to pioneer the way forward and identify the new opportunities – with you content to play catch-up. Is mediocrity the value you’re trying to promote?
The iPad challenge
Towards the end of 2011, FNB announced that it would start offering Apple iPads and iPhones to its customers at reduced rates, with the aim of promoting access to electronic banking. To achieve this aim, each device would come pre-loaded with FNB’s banking app. The strategy was a huge success. By the end of February 2012, FNB was selling an iPad every minute, and the bank had become the largest retailer of iPhones and iPads in the country.
This masterstroke by FNB shook the local banking industry. Competitors didn’t know how to react. Some banking leaders dismissed it as a gimmick, and then stuck their heads firmly back in the sand. Others tried to fight fire with fire. For example, in October 2012, Standard Bank partnered with Samsung and Microsoft to give Standard Bank customers first option on Samsung’s new Ativ tablets running Microsoft Windows 8. According to Itumeleng Monale, head of self service and payments innovation at Standard Bank: “Standard Bank customers will be among the first in the world to use Windows 8 on a portable ARM device. Standard Bank is also the first South African bank to give customers the choice to use its banking app on Windows 8 desktops, laptops and tablets.” Even this well-worded bit of PR spin couldn’t hide the fact that Standard Bank’s move was nothing but a copy-cat strategy to stem the flow of customers to FNB. If anything, it further cemented the impact of FNB’s tactic in the minds of consumers.
So how should Standard Bank and the other local banks have reacted? The key, I believe, is to have taken a step back to recognize what the market was telling them. Customers took up the FNB offer not because they wanted to use the FNB banking app (I think it’s a fairly safe bet that the majority of customers have never even looked at it), but because they wanted a cool gadget that had been hyped up in the media. FNB offered them a way to get their hands on the device cheaper than anywhere else. So what if FNB is a bank, as long as they get a good price. Consumers were telling them that they don’t mind if banks start operating in other areas, provided that they offer value to the consumers. And they would be happy to sign up as new customers for the privilege of accessing this value.
A better way to react would have been to start looking for other areas where the banks could use their size and influence to offer consumers value outside the traditional banking boundaries. There are lots of these opportunities, if only the banking executives would start looking. Ironically I overheard one senior executive at a competing bank react to the news that FNB had become the largest iPad retailer in the country. “That’s ridiculous,” he scoffed, “don’t they know they’re a bank? What’s next? Shopping trolleys outside their branches? Ridiculous!” Yes, ridiculous indeed.
A fascinating experiment
The processionary caterpillar is a very unusual creature. When searching for food, a group of caterpillars forms a single line or procession, one caterpillar behind the other. Only the leader is tasked with actually looking for the next meal of pine needles; the others blindly follow the caterpillar in front.
The French naturalist Jean-Henri Fabre observed this behaviour and decided to conduct a fascinating experiment. He placed a procession of these caterpillars in a circle along the edge of a flower-pot so that every caterpillar was following another one. There was no leader. He then placed some pine needles in the middle of the pot, and left them alone. Would any of the caterpillars break the circular procession and move towards the food in the middle of the pot? Or would they continue circling the flower-pot, following their natural instincts?
Amazingly, the caterpillars followed each other blindly for a full week, and eventually died of starvation. Sometimes, we’re like the processionary caterpillar in Fabre’s experiment. We’re so intently focused on our competitors directly in front of us that we completely miss the opportunities a little to the left.
We should rather ignore our competitors and break out of the competitive cycle. We should blaze our own trail, even if it’s risky and hasn’t been done before. As Henry Ford said, "The competitor to be feared is one who never bothers about you at all but goes on making his own business better all the time."