Process innovation

Customers see the product. The advantage often hides in how it is made.

Process innovation is improvement in the methods by which goods and services are produced or delivered, as distinct from changes to the product itself. It is innovation in the how rather than the what: new techniques, equipment, workflows, or organisation that make production cheaper, faster, better, or more flexible.

The quieter sibling

Process innovation attracts less attention than product innovation because its results are invisible to the customer, who sees a lower price or better quality but not the reengineered factory behind it. Yet much of the productivity growth in modern economies comes from process improvement, and many durable competitive advantages rest on a way of producing that rivals cannot easily match. The moving assembly line was a process innovation that reshaped an industry.

Hard to see, hard to copy

The invisibility that denies process innovation its glory also protects it. A competitor can buy and dismantle a rival's product to learn how it works, but cannot as easily observe the accumulated process know-how, the tacit routines and hard-won refinements, that let one firm produce the same thing more cheaply or reliably. Advantage built in the process is often more durable than advantage built in the product.

Where it fits in a product's life

Process innovation tends to intensify as a product matures and a dominant design settles. Once the question of what the product should be is largely answered, competition shifts to making it efficiently, and attention turns to the process. Early in a product's life the emphasis is on the product; later it migrates to how cheaply and well it can be produced.

Treating process innovation as a second-class concern is a mistake many product-focused firms make. The company with the better product and the worse process can be beaten by the one with an adequate product and a superior way of making it, because cost and reliability are themselves a form of value.