The Innovation Process
The previous article examined the process of producing incremental improvements ideas as well breakthrough innovative ideas. Innovation comes from creative and novel ideas that provide a discontinuous breakthrough. Before you can advance with an innovative idea, it has to be examined using critical reasoning to ensure there is a clear path to profitability.
Moving away from the realm of creative thinking, logic and reason are used to evaluate the potential of the idea against the backdrop of industry expertise and knowledge. The objective of critical reasoning is not to kill the innovative idea but to find better answers than the ones you might have initially.
The first area is to examine is the value proposition the innovation offers to the customers. Can you describe your value proposition in thirty seconds or less? If you cannot, chances are that have not fully understood what you intend to sell and the value it will bring to your customers. Take high-end watch manufacturers for example. If their business was to produce watches, they would have lost out to low-cost accurate digital watches a longtime ago. They understand that they are not in the business of making watches but are selling jewelry for high net worth individuals.
Does your target market need the product , will it help them improve their profitability or create more business? Accounting software sells because it helps a company keep its records cost-effectively and provides information not obtainable from a manual system. How has the target market survived without your product?
If it is “nice to have” product, does it trigger the emotional hot-buttons of the customers? If you are making toys for example, do your products draw both children and parents to the shelves? The hot-button for the children may be “fun” while the hot-button for the parents may be “learning”.
The next area to look at is the dynamics of the industry, the critical drivers and the success factors necessary to succeed in the industry. Your domain expertise of the industry must be sound as often customers do not purchase based on product features alone. Often, product support is more important than an alternative product with better features. In cases where customers buy an entire system, they will not substitute one component of the system with your product -unless you can provide a compulsive enough reason. The airline industry is a classic example, as is high-end manufacturing.
What works in the business-to-consumer (B2C) sector is unlikely to be successful in the business-to-business (B2B) sector. Websites that are full of animation and are “hip” may be fine for B2C but will fail in the B2B market. If you don’t have the necessary industry expertise, bring in devil’s advocates from the target market to critique your ideas.
Examine the competitive landscape in-depth. If you intend to compete on price alone, bear in mind that research has shown that in some industries, it is very difficult for a new player to break into an established market unless the price differential is around ninety percent. This is understandable, given the pain and high cost of switching. Can you come up with an innovative approach that entices and compels the customers to switch to your product? You must also anticipate competitor’s moves -what happens when they drop prices? Can you remain profitable in a price war, especially if the competitors have deep pockets?
If your basis for competing is differentiation, do not make the mistake of thinking that since your product is substantially differentiated, you do not have competition. Your competition is likely to come from other product segments or even different industries that provide substitute products. The competition for low-fat ice-cream for example, comes from frozen yogurt. Train and bus companies now have to compete with budget airlines for domestic travel. If you truly believe that you do not have competition, it may be that you don’t have a market either!
Keep in mind that an innovative product or service has to have a clear place in the value chain of its customers. There must also be strong and identifiable reasons the customers will purchase from you. Differentiation alone is not enough – the differentiation must be desired and appreciated by the customers, otherwise it adds costs to your product but does not translate into increased sales.
If it appears the innovation can be profitable, the next issue to address is the business strategy. A key issue is the mechanism of getting your product to your customers. Your existing distribution or sales channels may not be the best method of getting the innovation to the market. Sales and marketing strategies suitable for the innovation must be drawn up to penetrate the market in the most cost-effective manner. Innovative tactics must be sought as they are likely to save costs and boost effectiveness.
Equally important are internal issues such as skills, competencies, financial and other resources. A SWOT exercise has to be undertaken in a frank and ruthless manner. The earlier critical reasoning might show there is a real market opportunity but the SWOT may signal the company is not in a position to exploit it. Just as ability without vision leads to mediocrity, vision without the ability required to execute the implementation leads to delusion and financial ruin.
If an SMI has correctly identified a market opportunity for an innovative product but lacks the ability or resources to take advantage of the opportunity, it must seek alternative means to profit from it. It must go back to the first stage of the exercise and find a solution using the creative mind.
Throughout this series, it has been stressed that an SMI or SME should not undertake conventional R & D. New product or service development should be in the form of innovation that marries existing technology building blocks to create new, compelling value propositions. The bottom line is that all innovation must contribute to the bottom line – profitability.
Source: Dr. Kamal Jit Singh is the regional director of British Telecom’s Asian Research Centre and specialises in using innovation as a strategy for increasing competitiveness. He also teaches strategic management to an MBA class in Singapore. Comments: firstname.lastname@example.org