Iterative innovation: the only way to win

I've seen only three companies that really knew how to innovate to win.

All three lost their way since, but they all had one thing in common: iterative innovation.

Iterative innovation is a process whereby you plan a series of innovative deployments.

The aim is to ensure that each time the competition catches up with your innovation, you roll out the next one.

This means you are always one step ahead of the chasing pack, and it makes it difficult to be caught.

The first company I saw do this well was Tesco in the 1990s.

This was when Terry Leahy and his team first took over the ailing grocery chain.

At the time, Sainsbury was the UK market leader and Tesco was fairly cheap and grubby.

The first thing Leahy's team did was to makeover the stores.

They were suddenly bright and cool and friendly, and Sainsbury's stores looked dark adn dingy by comparison.

As Sainsbury caught up, Tesco rolled out wave after wave of other retail innovations: Tesco Direct (home deliveries via the internet), Tesco Express, Tesco Metro, Tesco Clubcard, Tesco Bank and more.

By the time Sainsbury had worked out what was going on, Tesco had transformed from a poor second place performer to market leader, and knocked their competitor off the top spot for years to come.

The thing is that it is difficult to continue iterative innovation and Tesco's stumble was global expansion.

Never mind, you get the idea: work out waves of differentiation and innovation and roll out each one just as your competition has worked out the last one.

Apple has been very good at this process through the 2000s.

Starting with the iPod, it led to iTunes, the iPhone and the iPad.

The latter innovations wiping out the first and most successful one (who needs an iPod when you have an iPhone?).

Again, with Steve Jobs passing, Apple stumbled - surely they should have worked out that the Spotify streaming model would kill the iTunes downloading model? - but they still have some opportunity to comeback.

Nevertheless, that last point is a critical one.

If you are an iterative innovator, you not only ensure your next enrichment of service is ready to roll as you deploy your current one, but you also ensure that no-one is wedded to history.

There can be no sacred cows or sacrosanct barriers to change with iterative innovation.

In fact, you should focus upon the very opposite: can we kill the business we have today? If yes, then we better do it as if we don't do it, someone else will.

The final iterative innovator has been Square.

Each time Square rolled out a product - the dongle, card case and more - PayPal would reel in shock.

Square always seemed to be one step ahead.

That has changed - the PayPal Beacon seems to have the edge over Square - but it was enough for the fledgling business to flourish in its first formative years.

So when looking to innovate for leadership, banks should not invest in digital, mobile or social, but should really lay out a roadmap of possibilities - wearable, proximity based, predictive and proactive services - and then identify waves of innovation change and leadership.

Unfortunately, even the banks that are innovating appear to only really have enough creativity to manage one iteration, rather than many, and that's where and why someone is going to have really good opportunity to win.

It might even be a bank.