A technology acquaintance of mine, with little or no business school training or experience, had asked me how one develops a product that would be financially successful. I thought to myself that his seemingly simple question would require a lot more explorations since the issue was truly complex. Since I address Strategy in previous blogs, I never addressed directly what role does innovation play within strategy. In essence, innovation is the general technique to outmaneuver a competitor. Another way is to restate the question: what kinds of innovation might be created that meets the need of the market? And is innovation enough to gain financial traction in the market?
I personally break down innovation into two groups: creative innovation and derivative innovation.
A) Creative Innovation
To me, creative innovation is the creation of a product that is so disruptive that creates a new paradigm. Leonardo Da Vinci comes to mind immediately. When I visited Milan’s Da Vinci Museum, the Da Vinci flying machines — both a helicopter and wings – were shown as prototypes and what was the impressionable, he designed them hundreds of years ago. No doubt that Da Vinci’s artistic skills contributed to these innovations. There were no similar or even comparable flying machines in the Renaissance. And maybe it takes a very creative mind to develop disruptive technology. Unfortunately, his creations were so far advanced that it took several hundred years with new construction materials to realize those designs. Without question, the technologies were disruptive and, in no way, were Da Vinci’s designs derivative.
Another product that can easily falls in the creative innovative space is the electronic transistor – a technology that uses a common mineral on earth, silicon, to manage electrons. And this solution disrupted the market for vacuum tubes. Now these transistors are so ubiquitous that the new generations would wonder how society operated without them. Creative innovation technology disrupts the marketplace, since the technology cannot be compared with any comparable technologies beforehand.
B) Derivative Innovation
Most products developed today I would describe as derivative innovation. And I break this category into three sub-categories.
1) Combining a new technology with an older one, creating a new product or service needed by the market
The first product I see that fits here is the “Square” wireless credit card service. The founder identified the need when an artist friend needing to make a sale but he could not because he had no means to process a credit card personally. The markets being identified with this product are the numerous small businesses needing an inexpensive and wireless means to process “plastic” payments. The overall market trend one can easily identify is the migration to a cashless, check-less environment. Another trend suggested here is the growth of the youth today relying on wireless phones for everything and abandoning fixed line telecommunications. By combining the cell phone with a small, inexpensive credit card reader, Square seized immediately a large market reflecting various economic trends.
Was the technology disruptive or original? No. Square incorporates wireless with hardware and software to service the unmet needs of a market segment. – small business owners relying on wireless phones.
2) Redesigning an older product with enhancements to meet a new demand.
The best example is the conversion of a garden water hose manufacturing company into waterproof conduits for fiber optic lines. Several decades ago, a Chicago based leveraged buyout firm acquired a manufacturer of standard garden water hose. The market became extremely competitive, and, expecting even more erosion to its margins, the company sold itself to the Chicago firm. However, with new equipment and marketing, that same manufacturer became the second largest U.S. supplier of fiber optic conduits.
Now this company did not create a disruptive technology. It did innovate by taking advantage of its manufacturing prowess while tweaking its product line. The conversion to fiber optic conduits had been successful enough that it was easily sold for several hundred percent from its pre-acquisition value.
Other examples are the various Apple products. Prior to the iPhone and iPod sales, various PC manufacturers attempted to sell portable PC products. Dell had been selling, without noticeable success, an “iPod” with the ability to store music and calendars. It was large and clumsy. Its screen resolution had been mediocre. Steve Jobs took that product, shrunk it, improved the resolution, and integrated the music with the Apple iStore – to create another source of revenue. In effect, he enhanced current technology and made it sleeker and more attractive to a youthful target market.
Again, was the iPod a disruptive technology? No, but the iPod was derivative, enhancing older technologies and integrating it with the Internet.
3) Combining older technologies to meet a new demand
In an entrepreneurship session, I noted a company, OrigAudio, which combined two older technologies to create a new product meeting a demand for a youthful target market. As I recalled, the founder applied the Origami design from Chinese takeout boxes that easily collapsed into two dimensions. Since he traveled extensively, he needed a set of speakers that would easily fit in his luggage. He added speakers to the Origami box so that a consumer could squeeze the speakers into his luggage, and one could later expand the boxes so that an iPod can be attached to them in a hotel room.
There is nothing new about collapsible Origami forms as well as speakers. He applied derivative innovation by combining older technologies for a new use – iPod speakers, which would meet the youthful target market he identified. Now the new company is selling thousands of the speakers throughout the world.
Now, innovative technologies do not guarantee financial success. Besides the development of the products, one has to manufacture the final product, able to market it quickly, and execute on a strategic business plan. Why is this process so important?
The company must seize notable market share. Recently, even with innovation, I read that the company, Living Social, established after Groupon, is suffering financial loses and expects to layoff about 400 employees. As one analyst, expecting Living Social to suffer and Groupon to survive, stated, “no one remembers the number 2 company after eBay.” To quote a Will Ferrell film, “if you are not Number 1, you are last.” Tweaking derivative innovative technologies can only get a company so far. The company has to expand rapidly to seize enough market share in order to establish a strong foothold in the marketplace.
Another factor that impacts success to derivative innovation is marketing. OrigAudio had some traction while using social networks to push its product. However, product sales took off when the company adopted other marketing approaches, from direct sales to Public Relations. Otherwise, the innovative product would have fallen on the wayside or its opportunity would have been seized by other competitors.
In summary, innovation is the strategic key to outmaneuver competitors. One has to determine what type of innovation is being developed for the marketplace. Most likely the innovations are derivative. But innovation is only part of the process to market a successful product. One has to include marketing the innovation as part of the business development process.