Developing Breakthrough Products and Services - the "Lead User Method" and Outsourcing

1. Developing Breakthrough Products and Services - the "Lead User Method" and Outsourcing

2. The Great Unknown! • The “fuzzy front end” of the innovation process • how it works • how to make it better • how marketing can help • Studies in: Industrial products (like semiconductors); consumer products (sports equipment); OS software

3. Why Pursue MAJOR Innovations? • Everything becomes a commodity eventually.

4. Major Innovations are RARE • So what can Markers do to avoid premature COMMODIFICATION? • Product differentiation (aka, create new MLC) • Segment the market • By demographics • By need • Etc. • Promotional response to declining MLC • Pricing • Channel strategy

5. “Breakthrough” vs Incremental Innovation • We define “breakthrough” innovation as the first member of a major new product line in a firm • iPod for Apple • Sticky notes for 3M • “Incremental” innovations are improvements to existing product lines • Improved iPod • Improved sticky notes

6. Why study how to generate breakthroughs? • Because: • Periodic breakthroughs are ESSENTIAL to firms • Firms are (pretty) good at incremental innovation • but they don’t know how to develop breakthroughs systematically • Result: major innovations are often very rare and desperately sought by management: • In 5 3M Divisions studied less than 1 new product line introduced per Division every 2 years on average

7. Breakthrough innovation is both essential and UNWANTED • Change is disruptive • to be avoided if possible • Change obsoletes marketing expertise and production investments • Polaroid produces instant film and cameras – not DVD players! • Kodak produces film – not digital cameras! • Change devalues personal “intellectual property” • I know how to market films - not digital cameras! • I know how to sell copy machines – not services!

8. Contrasting innovation methods • Traditional methods are based on “find a need and fill it” (Target users provide needs; Manufacturer develops solutions) • New methods are based on finding / encouraging and commercializing solutions developed by users themselves

9. Dominant Planning Process in High-Tech Marketing • Define the Business Arena • Potential customer segments that could be served • Potential applications or functionality that could be provided to these customers • Identify Attractive Opportunities • Thoroughly segment the market • Assess profitability of serving each segment • Understand the Market Environment • Assess your Competencies/Resources • Set strategy • Implement and Monitor

10. And Marketing? • As the traditional model goes does marketing become obsolete and turn into selling?

11. Innovation in the 21st Century comes from two Sources: Lead Users and Pure Innovators • Users innovate when it pays… for them • “Lead Users” are users that: • Have needs that foreshadow general demand in the marketplace • Expect to obtain high benefit from a solution to their needs. (Such users are more likely to innovate –“Necessity is the mother of invention!”)

12. Structures of Technology Innovation • Creative Destruction • Proactively develop next-generation technology that may obsolete current technology • Ex: Develop Web-sites that undermine current distribution channels • Corporate Imagination • Experimental Marketing • Culture of Innovation

13. Elements of Corporate Imagination • Willingness to overturn price/performance assumptions • Incremental improvements to existing technologies (which move along the same price/performance curve) vs. • Radical innovations which allow greatly-improved performance at roughly comparable prices as existing technology • Ex.: blurb.com, Google

14. Elements of Corporate Imagination (Cont.) • Escape the “tyranny of the served market” • Excessive focus on current customers • Obscures the fact that customer needs may change over time and may be solved in radically new ways • Ex. kodak

15. Elements of Corporate Imagination (Cont.) • Use new sources of ideas for innovation • Rather than using standard marketing research tools, use lead users and outsourcing • Ex.: telcos

16. Experimental Marketing: Advantages • More accurate learning of customer needs • Time between market learning and product launch is shortened • Implication: Issue is less being right the first time, but being able to accumulate market experience, and quickly adapt market offerings • Ex.: Sony? Google?

17. Culture of Organizations Who Foster Innovation • Role of product champion is key • Tireless crusaders for idea • Personnel given time and incentives to be innovative • Ex. google • Tolerate risk and “mistakes”

18. Innovation Outsourcing • Often remedies do not do enough for R&D culture • Radical innovation requires radical focus • Innovation comes from outside • What are the implications of outsourcing innovation for marketers just like you?