“No one sews a piece of unshrunk cloth on an old garment. If he does, the patch tears away from it, the new from the old, and a worse tear is made. And no one puts new wine into old wineskins. If he does, the wine will burst the skins—and the wine is destroyed, and so are the skins. But new wine is for fresh wineskins” (Mark 2: 21-22 English Standard Version).
In today’s global economy, even the best of businesses are plagued with the inevitable “competitive scrum.” I borrow this term “scrum” from the game of rugby, as it perfectly describes what invariably occurs in the competitive marketplace. A business brings out a new product; it becomes profitable, but in a very short period of time, often just months, a cadre of competitors come out with a similar product, proliferating supply and resulting in a “race to the bottom,” with price being the only differentiator. In economics, this is often referred to as the “commoditization” of a product. We see it time and time again in the global economy, and it really hampers the ability and willingness of a firm to allocate capital to new products, as a firm’s initial profitability is quickly vanished by the forces of competition.
So, what is the antidote for avoiding the competitive scrum and its associated financial hardship? Product and service innovation! Innovation enables a firm to bring highly differentiated products to the market, become profitable from such innovation, and hold on to “pricing power” for months and even years. Profits from such products and services can then be allocated back into further development of innovative products—and the pipeline of profitable products remains full.
Avoiding the competitive scrum is never easy, but a firm that focuses on innovation can rise above the fray and remain profitable for years to come. As Mark describes in his gospel, “new wine is for fresh wineskins.”