Irrespective of the greatness of the ideas, profiting from Innovation in a competitive market is extremely challenging. It encompasses the hurdle of offering better products at a lower cost and dealing with competition responses. On the other hand, rational decisions should be taken in the midst of uncertainties in taking ideas to market. Hence, innovation management deals with a disciplined approach for ferreting out value from the market out of technology ideas.
Innovation is about generating and turning ideas into a profitable business—by empowering customers to get jobs done better. Although the success or failure of innovation appears to us magical, the journey of taking ideas to market demands strong management practice. Hence, innovation management is about managing the journey of taking ideas to market at a profit. Innovation could be a completely new product, incremental advancement of an existing product, or changing a mature product’s technology core. Furthermore, it also encompasses innovating a completely new process or advancing an existing one to improve the quality and reduce the cost of innovative products.
Management of the ideation, emergence, growth, maturity, decline, and next life-cycle of innovation
Management of innovation is similar to nurturing the human race, generation after generation. It begins in embryonic form through the gathering of knowledge, technology invention, and ideation. Subsequently, it leads to the emergence in the real world to experience a life cycle. Like a living thing, growth leads to maturity and decline. The next life begins, often, at loss-making revenue, with the change of technology core.
Ideation and emergence begins the journey of innovation management
The journey of innovation management begins with the innovation of a product. Technology progression and knowledge about the market lead to the ideation of a product. The ideation leads to the implementation, which creates the demand for technology acquisition, refinement, fusion, and production Process innovation. Besides, every innovative product usages a set of technologies. Not all of them are in the same state of maturity. Moreover, innovators do not have all the required technologies in-house. Besides, the product requires an appropriate process for production. Hence, process innovation is an integral part of taking an idea to market.
At this stage, innovators need to deal with several uncertainties. Some of them belong to customer preferences, technology capabilities, team’s ability, competition response, unfolding of infrastructure, and risk capital finance need. In the midst of these uncertainties, innovation management demands taking a series of rational decisions. Moreover, managing the supply chain also poses a serious management challenge, as many of the components will be sourced from 3rd party suppliers.
The ideation proceeds to the emergence of innovation in the market. In addition to managing the production process and supply chains, innovators also need to in dealing with information and experience gaps of target customers. To benefit from externality effects, innovators need to focus on developing complementary product suppliers.
Managing the growth phase
The willingness to pay for the innovation depends on the features of the product and how well it serves the purpose of the target customers. It also depends on the externality effects and the competition response. Innovators should focus on leveraging positive externality effects and dealing with the negative ones. Some of the positive externality factors are i. 3rd party complimentary goods and services, ii. Experience and information gap, iii. Infrastructure and iv. Standard and compatibility. The competition response unfolds in the form of i. replication, ii. imitation, iv. innovation, and also iv. substitution.
The combined effects of these eight variables lead to making the willingness to pay (WtoP) for the innovation function of time. Invariably, WtoP keeps drifting downward. Subsequently, the sale starts declining. At this point, innovators face two important challenges. It begins with the challenges of dealing with the declining WtoP. And the next challenge is to make the product appealing to a growing number of customers. For addressing these two challenges simultaneously, innovators are required to keep releasing successive better versions. If those successive better versions are strong enough, innovation starts diffusion through different market segments. However, contrary to common wisdom, diffusion takes place through waves, giving birth to the wave Theory of Innovation diffusion. Such reality also makes innovation a seasonal crop. Even, great magical iPhone could not escape reality.
In managing the diffusion through the release of successive better versions, characteristics of a different group of customers, and presence of chasm between customer segments and the challenges to overcome them should get the focus. Moreover, the wave effect of diffusion should due get priority in taking steps for sustaining innovation in the competition race.
Leveraging the scale effect is a core challenge of innovation management
Challenges in taking Economies of Scale, scope, and externality effects and deciding about the pricing should get adequate management attention. Innovators incur substantial R&D costs in releasing subsequent better versions. Hence, management faces the challenge of taking the scale effect. The price should be set at an appropriate point so that the product could be sold to the desired number of customers. Profitability depends on the price and the success of selling target units. However, there is significant uncertainty in reaching the target. The number of units that could be sold depends on a number of factors. Some of them are i. quality of the innovation affecting the willingness to pay, ii. freely available customers, iii. customers using competing products, iv. the loyalty of existing customers, and v. the affinity of customers using competing products.
To divide the R & D cost among multiple products, often innovators pursue the strategy of developing a family of products around the same technology core. Moreover, high R&D cost and innovation features in the form of software offer the opportunity and pose the threat of monopolization. Besides, the zero cost of copying the software opens a high scale advantage for acquiring the price-setting market power. Hence, one of the core innovation management challenges has been to acquire the capacity of offering a higher quality product at a lower cost than what competitors can offer. Software and network-centric innovations are offering such monopolization opportunities. However, this same reality also poses a threat of being caught in an inescapable loss trap. Hence, innovation management must focus on it.
Declining and beginning of next life cycle challenges innovation management
Irrespective of the greatness of the idea and strength of the underlying technology core, eventually, every innovation will face the reality of reaching maturity. At the maturity state, innovators’ ability to release successive better versions keeps declining. At this point, the management challenge has been to take a radical step in changing the technology core. This is a risky proposition. Invariably, the emergence of life around the new technology core begins at a loss. Moreover, the next wave’s progression in reaching a profitable state depends on the amenability of the technology core’s advancement.
Such reality often creates a decision Dilemma among the incumbent producers of the mature product. In retrospect, new entrants usually take the radical step in changing the technology core for giving new life to mature innovation. Eventually, the innovation starts the next life with an emerging technology core. However, at the inflection point of two waves of life-cycle, sometimes, incumbent firms suffer from disruptive effects due to switching decision dilemmas.
Idea and design thinking
At the core of innovation management is to conceive a product to help customers to get the job done better. Hence, the priority should be on empathy about the purposes, preferences, and circumstances. Often survey on target customers does not reveal the insights. Invariably, customers fail to articulate their pain points and conceive a viable alternative. It demands a Passion for Perfection and a strong focus on ethnography to feel the untold expression. For this reason, cultural traits matters in succeeding with ideation.
Instead of generating a Flow of Ideas through a technique like brainstorming, the challenge has been in systematically generating innovative ideas. We should look into underlying patterns to overcome the challenge in systematically ferreting out value from ideas. A disciplined process like discovery, scoping, feasibility, development, validation, and launch is helpful in selecting ideas.
Technology sourcing and aligning organizational capability
Ideas need to get support from technologies for implementation. Technologies grow through phases, such as emerging and spacing. Moreover, no organization can afford to have all technologies in-house. Hence, one of the management challenges has been in scanning, benchmarking, and forecasting technologies. In performing technology analysis, questions related to customer preferences, technology feasibility, economic viability, anticipated competence need, and organizational suitability should also be investigated. The focus should be on advancing, fine-tuning, and fusing acquired technologies and developing legal ownership of intellectual assets to have an innovation edge. Besides, in sourcing technologies, adequate decision-making capability should focus on comparing and choosing options from i. internal development, ii. acquisition of patents, firms, and owners, iii. licensing patents and sourcing components and iv. joint venture and academic R&D partnerships.
Developing competition barrier and acquiring price-setting capability
Being creative and innovating great product is one challenge. The second challenge is to deal with competition for extracting value from the market. Apart from the patent portfolio, creating a barrier out of the speed of innovation, complementary assets, and pricing options out of scale, scope, and externality effects should get adequate priority. Moreover, leveraging the capability of component suppliers should also get attention for creating high barriers to followers.
Types of Innovation
The success of Product innovation also depends on the process of producing the product. Process innovation determines how effectively and efficiently technology could be implemented in turning ideas into features. There should be a very close partnership between product and process innovation. This process innovation may lead to the advancement of R&D on high precision instruments, robotics, and automation. In the absence of process innovation support, product innovation suffers from low quality and high production costs. Sometimes, innovators develop process capability as a barrier to competition response.
The next types of innovation are incremental, sustaining, radical, creative destruction, and disruptive innovations. To sustain the innovation to keep penetrating deeper in the market and withstand the competition force, innovators take advantage of a continuum of ideas for making the product better and cheaper. We call it sustaining innovation with the support of incremental progression. The journey of sustaining innovation may also experience radical jumps from technology breakthroughs.
Once the innovation reaches the maturity stage, there is a need for changing the technology core for starting the next life cycle. Either incumbent producers or new entrants take a radical step in changing the technology core. Subsequently, the change of technology core leads to the beginning of the force of creative destruction. Although invariably, the next life cycle begins in primitive form generating loss-making revenue, it keeps growing through incremental steps. If there is a resonance between timing, technology selection, and management practice of advancing, this emerging wave grows as a force of creative destruction to incumbent products. If incumbents fail to switch to this new wave due to innovators’ dilemma, the creative wave becomes a Disruptive innovation, destroying existing jobs and firms. Such effects are also underlying causes of long cycles of economic growth.
Innovation management competence
Innovation management competence has four major dimensions: culture, capabilities, structures, and strategy. Rational decision-making amid uncertainty demands culture for enabling the organization to acquire people’s capabilities. Hence, a winning spirit and passion for pursuing a relentless journey of perfection should be the core trait. Once spells out, it includes the need of (i) thinking of ways to get better, (ii) valuing speed, learning, and experimenting, (iii) considering failure as just a normal part of the process for creating anything new, and (iv) providing enough freedom and responsibility to be led primarily with vision and culture instead of a chain-of-command approach.
Appropriate communication channels, the right processes for making decisions, and the suitable infrastructure for implementing ideas affect how people come up with ideas that follow the journey to let them see the light of day. Hence, organizational structure matters; structures should be conducive to reinforcing the culture for winning with innovation.
The next item of competence is capability. It revolves primarily around people, as innovation relies heavily on the abilities of both individuals and teams collectively. That includes the abilities, unique insights, know-how, and practical skills of the people working for taking ideas to the market. It also encompasses the information capital, tacit knowledge, intellectual assets, IP base, and also other resources like financial capital.
The strategy spells out the game plan for winning the race. Both follower and leading strategies should be blended together. In the innovation race, even followers can win. As opposed to pursuing a quality or cost-based strategy, the focus should be on offering higher quality at a lower cost. Moreover, price setting capability out of the scale, scope, and externality effects should form the strategy’s core part. In addition to adding increasingly more features, the winning strategy should also focus on thinking inside the box.
Key performance indicators and success factors—measuring and controlling innovation management
Innovation management is about winning a race or war. It’s not a solo game. In fact, innovation faces intense competition in the globally connected Market Economy. To win the race, the focus should be on understanding customers and competition and strengthening the base of technology, intellectual assets, team’s ability, culture, strategy, supply chain, and organizational structure. Besides, predicting the unfolding scenario and responding with the appropriate release of successive better versions at winning pricing should get the priority. Further, a set of performance indicators should guide the monitoring and situation assessment to support rational decision-making for winning the innovation race. Hence, in resource allocation, the necessity for defending the current position and pursuing emerging opportunities should have a balanced approach. However, the 70-20-10 rule could be a simple rule for allocating resources. In general, specific, measurable, achievable, relevant, and time-bound metrics should guide innovation management practice.