What is the connection between competition and innovation? When an organization focuses on its competition, is it good or bad from an innovation perspective? Hamid Shojaee has an interesting post that details this issue in the context of Microsoft. The post took me back to when I used to teach an HBS case on the browser wars between Microsoft and Netscape.

According to Shojaee, Microsoft’s overfocus on its competition kills innovation. While Shojaee is right, he is only partially right, because this ties back into what we mean by innovation. Shojaee’s perspective on innovation is one that is common but only partial: that all innovation is radical, paradigm-shifting. In fact, most innovation is incremental. If Toyota implements 1 million new ideas every year, what does that say about innovation in Toyota? 1 million new car designs, or new car features, or new business processes? As has been well-documented, most of these 1 million ideas lead to incremental improvements.

In fact, from the ISmarts perspective, a focus on competition is necessary for innovation. Analytical ISmarts allow a firm to watch the market for trends, watch competition for new ideas, and sift through all that the ideas “out there” to construct a portfolio of innovation projects. As a Gartner study found, many smaller firms which do not have the resources to invest in original R&D, watch the competition for new ideas that look promising (analytical ISmarts), reverse-engineer and implement these ideas (operational ISmarts), and then market them aggressively in their local markets (communicative ISmarts). In this innovation strategy that Gartner terms “fast follower”, innovation paradoxically does not rely on invention.