Does Innovation Always Work

8/14/2019 Does Innovation Always Work

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DOES INNOVATIONDOES INNOVATIONALWAYS WORKALWAYS WORKDOES INNOVATIONDOES INNOVATIONALWAYS WORKALWAYS WORK


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CONCEPT A little over three decades ago,

Bruce Henderson founder of the

Boston Consulting Group made thefollowing remarks.

The majority of products in

most companies are cash traps.They will absorb more moneyforever than they will generate.


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RETURNS VS EXPENCES The apprehensions of Bruce Anderson were entirely

justified. Most new products dont generate substantialfinancial returns against expenses incurred on them.According to several studies , between five and as many as

nine , out of ten products end up as financial failures. Even truly innovative products often dont make as muchmoney as organizations invest in them. In fact manycorporations make the lions share from only a handful oftheir products. In 2002 just 12 out of Proctor & Gambles250-odd brands generated half of its sales and an evenbigger share of net profits.


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HOT IDEAS &C

OOL PRODUC

TS Hot ideas and Cool products, no matter how many acompany comes up with , arent enough to sustainsuccess.

The fact that you can put a dozen inexperiencedpeople in a room and conduct a brainstorming sessionthat provides exciting new ideas that are not worthexecuting.

Harvard business school professor Theodore Levittin his article creativity is not enough states : Infact, there is an important difference betweenbeing innovative and being an innovative enterprise.The former generates lots of ideas , the lattergenerates lots of cash:


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The three approaches to

innovation A study conducted by Harvard school

of business recommended 3 ways for

a company to take a new product tothe market. The 3 approaches are The Integrator The orchestrator

The Licensor


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Integrators, orchestrators

or licensorsMost institutions are integrators.

They manage all the steps from R&D to manufacturing and finallymarketing. In this approach investment requirements are high. Italso requires strong cross-functional links within the organization.

Organizations can also choose to be orchestrators. They focus onsome parts of the commercialization process and depend onpartners to carry out the rest. Here capitol requirements are lessbut organization must have the ability to collaborate with severalpartners simultaneously while not having direct control.

Finally, companies can be Licensors. They sell or license a newproduct or idea to another organization that handles the rest ofthe commercialization process. Here manufacturing and marketing

expenses are borne by other companies.


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Which approach is the

best There is no consensus on the issue. Each approach

has got its strengths and weaknesses. In factmany ideas have failed to live up to their fullpotential simply because organizations went aboutdeveloping and commercializing them the wrongway.

There are strong evidences that threeapproaches can produce different profit levels ,with the best approach (suited to a specific

project ) can yield 2 to 3 times the profits of theleast optimal approach for the same innovation.


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Choosing the right track We dont have a black box that helps

managers in choosing the most effectiveapproach. The selection process requires asystematic analysis of 3 dimensions ofopportunity. The 3 dimensions are;

The Industry The Innovation

The risks


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THE INDUSTRY The industry. A company has to take into account the

structure of the industry it is trying to enter particularlyif the industry is unfamiliar to the company. The following 4factors should be analyzed when thinking about an industry

and the choice of approach. 1- The physical assets needed to enter the industry (will weneed to invest heavily in factories )

2- The nature of supply chain ( Are partners mature orunsophisticated ).

3- The importance of brands ( will our brands provide apermanent or temporary advantage ).

4- The intensity of rivalry ( how the industry is likely toreact ).


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THE INNOVATION The Innovation. The characteristics of an

innovation play a central role in the choice of theapproach. For instance it is very important to lookat the products potential life cycle in order tofigure out the right approach. Disk-drive makerslike Western Digital have only 6 to 9 monthsbefore the set of new technological advancesspell out the end of their product. Suchcompanies prefer to be orchestrators and workwith many partners to keep incorporating thelatest technologies into products.


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THE RISKS The Risks. There are 4 risks a company should keep in mind

when deciding which innovation approach to use. 1- Can the new product actually deliver the anticipated

promise.

2- Customers may not buy the new product even if it works. 3- The threat of a substitute that can substantially lower

the profit margins. 4- The investment needs for commercializing the project.

Some products are clearly are more expensive to bring inthe market than others ( jet aircraft versus a soft drink )


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summary Innovation is high on the agenda of every

company. It is the subject of countless articlesand speeches.

The key is to determine which innovation approachis most appropriate for an opportunity. The resultis a company that is able to turn ideas into cash.That is critical because , unless companies canmake money from it , innovation is just another

expense or perhaps satisfying the personal ego ofthe management group making nothing out of it.


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WHIRLPOOL In early 2001 , a group of sales and marketing employees at Whirlpool came

up with the idea of creating a line of appliances and storage system for thegarage. It was an intriguing opportunity because it targeted both a newroom in the house as well as new demographics for the company: menrather than women.

The company thought that some components of the new product line , likethe wall rack system can be made patent. But establishing a strong brandposition , securing floor space at retailers and learning how consumersbought, installed and used the products were going to be equally importantto the products success.

The project was approved and the team was told to commercialize theproject and it was dubbed THE GLADIATOR LINE. But they were told todo it as inexpensively as possible because money was tight and no one knewhow big the market would be. Most people at Whirlpool took it for granted

that the Gladiator team would develop the new products using theIntegrator approach , as the company had always done.


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The project is approved But CEO David Whitman had given the freedom to commercialize

the project the way it wanted to, even if it meant a departurefrom company practices.

In September 2001 , based on consumer research , the projectreceived $2 million in funding. But the funding was conditional. IfGladiator team couldn't shoe revenues , customers and a productline by the end of 2002 , the project will be shelved. The Gladiatorteam realized that they would need a full line of products atlaunch; otherwise , consumers would not understand the idea thatthe system would transform the garage. Another advantage oflaunching with full product range (along with tools ) that they couldcommand premium prices because the competition would find itharder to duplicate the full product line.


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Challenges Challenges that the Gladiator team faces

are;

To launch the project with full product lineas per schedule. To curtail the expenses as much as

possible. WHICH INNOVATION APPROACH

SUITS THEM MOST ?


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Does Innovation Always Work