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Blue Sky

The cult of innovation seems healthy on the face of it. In a free market, after all, innovation underpins competitive advantage, which in turn creates profit. So why not try to innovate everywhere?

Here&#39s why not: Innovation is by its very nature wasteful. It demands experimentation, speculative investment, and failure, all of which entail high costs and risks.

Indeed, it is innovation&#39s intrinsic uncertainty that gives it its value. High risks and costs form the barriers to competition that give successful innovators their edge. If innovation were a sure thing, everyone would do it equally well, and its strategic value would be neutralised. It would become just another cost of doing business.

But the high costs and risks also make discretion and prudence paramount. The most successful companies know when to take a chance on innovation, but they also know when to take the less glamorous but far safer route of imitation. Although imitation is often viewed as innovation&#39s homely sibling, it&#39s every bit as central to business success. Indeed, it&#39s what makes innovation economically feasible.

So the critical first question for any would-be innovator should not be how? but where? Deciding where to innovate &#39€&#34 and where not to &#39€&#34 is fundamentally a strategic exercise, requiring a clear understanding of a company&#39s existing and potential sources of competitive advantage.

Extract from Mastering Imitation by Nicholas G Carr a contributing editor to strategy+business and a former executive editor of Harvard Business Review.

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