What is innovation? What does it comprise? What can you recommend concerning how to effectively execute innovation to generate better returns for the company?
When I hear the word innovation I think of how modern man has harnessed electricity and invented toasters which have allowed me to enjoy my UM sponsored Saturday morning bagels at the Kravis Center for the last two years.
Simply stated innovation is a combination of three important elements: invention, commercialization (product or process development) and market penetration.
Invention is driven by man’s imagination and inherently inquisitive nature for solving problems. This manifests itself in the development of windmills for pumping water up out of the ground on cattle ranches, devices for injecting insulin, or a solar powered fan affixed to a cap which helps to keep you cool. Some might say “necessity is the mother of all invention”.
Commercialization is the process by which invention is transformed into products, goods and services. For example, for many years Romans pressed grapes and produced Vino. The Romans enjoyed the darker berries while the Northern Germanic Tribes enjoyed the delightful Gewürztraminer. This delicious substance was kept in clay jars which were exquisitely decorated. Plato and Aristophanes wrote of temperance while enjoying this elixir however, great Roman orgies were still held despite their forebodings. As time progressed incremental improvements were made to the jars but it wasn’t until the industrial revolution that major radical innovations were made to the carafes as Venetian glass artisans developed blown glass bottles for holding the nectar of the Gods.
Market Penetration is the adoption of the product, goods or services by the masses. Technical criteria are used to determine the success of invention whereas commercial criteria are used to determine the success of the innovation. This distinction I believe to be very important and I will elaborate on further in the final section of my essay however I mention it now as it ties in well with the Roman Orgy evoking Vino preserved in the Venetian Carafe example.
With the revolutionary development of the carafe Italians and Japanese alike were able to consume much Vino. So many modern day carafes were being produced utilizing the new innovative mass production methods that a “bottleneck” was created in the Vino production and the orgies were coming to a halt all over the place. Something had to be done so Venetian industrial engineers were brought in to analyze and study the problem. The “bottleneck” problem turned out to be the cork. You see cork is actually the bark of trees and there weren’t enough trees to supply the carafe makers so a solution needed to be found. The engineers being resourceful and bright fellows came up with an excellent solution. They invented screw-on caps and voilà they pronounced that the orgies could resume. No worries! Or so they thought.
As mentioned previously commercial success is not always guaranteed even if the product is the hand delivered elixir of the Gods. As it turned out the consumer did not like screw on caps on their Murano glass Carafes. And to make matters worse the engineers in their innovative fervor optimized the delivery method of the Vino even further with their incremental innovative solutions and came up with square cardboard boxes with plastic liners and keg taps that could easily hold 5 liters (enough for a proper orgy) and fit snuggly in lorries for trans-continental shipment. The consumer refused to purchase the hideous items because the engineers had forgotten to take into account the “snob effect” that goes along with the consumption of the lovely Italian grapes.
This was a valuable and costly lesson for the carafe makers because it brought about a decline in an otherwise market penetration growth rate that would have even given stoic Donald Trump reason to stand up and shout “GEEZUS” or “You’re Fired!” for half an hour. Because not only did the producer lose market share to the Germanic Gewürztraminer bottlers but they also incurred enormous re-tooling costs at the bottling plant.
There are many methods for avoiding the types of disastrous problems mentioned in my short narrative but what it all basically boils down to is that the firm or entrepreneur who in however which way (innovation incubators) comes up with an idea needs to follow a few basic steps in order to effectively execute innovation to generate better returns for the company.
Innovative firms such as P&G and 3M typically have a structured procedure for their product pipelines. This ensures the highest returns possible for the firm. The process begins with an idea bank. Ideas arrive through different channels such as from suppliers, salespeople and internal staff. The ideas are then ranked and selected for further evaluation. A technical and commercial review is conducted. The preliminary design and unit production cost is calculated by technical staff and the commercial department estimates the market size and pricing.
If the numbers look promising the design project may be approved for further development. This process needs to be deliberate because the cost of bringing products to market can cost billions of dollars as is the case for pharmaceutical companies. If the preliminary development steps are promising then test/focus groups can be called upon for market feedback and test mock-ups may be developed as well using CAD modeling techniques. For example, automobile manufactures and jet engine manufactures use wind tunnels for testing aerodynamic designs. 0-production series are run later in the design process and the marketing department is called in to assist in the development of packaging requirements and for product roll-out campaign preparations.
Generally a “Champion” within the organization is needed to deliver a product to market as it’s easier to sell a product externally then internally in an organization. There are many review sessions and the project is continually changed and “tweaked” both commercially and technically. For example various sub-assembly parts are spec’d, priced and compared to the commercial price points along with tooling costs or perhaps safety factors (o-ring failure was attributed to the NASA Challenger disaster that cost the agency the lives of 7 of its astronauts and set the program back years).
If the new product passes all the internal reviews then it is “rolled-out” by the sales department. Training of sales force is carried out, manuals and sales brochures are printed, patents are filed, new product introduction tours are planned, trade show appearances are booked, distribution channel agreements are negotiated and signed, sales are tracked, feedback is gathered and incremental improvements can begin to be laid for future product development.
This last detail is important because with every new product that the firm delivers imitation innovators quickly re-engineer the firm’s product and almost literally overnight imitation products mushroom. By continually improving the product the market leader can sustain their competitive advantage.
For example, people used to scrape snow off their windshields using their credit cards, then an innovator came up with a cheap plastic scraper, then the imitation innovator came up with a scraper with a glove to keep the user’s hand warm, next the competing firm came up with the scraper with the glove and brush.
The innovation “war” is continual and because of this the consumer sometimes ends up with something useful say other than a dashboard bubblehead.