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Types of Innovations

The nature of an innovation affects how an entrepreneur should bring the innovation
to market. In general, innovative technologies originate from R&D efforts. Entrepreneurs
then commercialize these technologies and bring them to the market. It is important
for entrepreneurs to understand the marketing challenges throughout this process.

This flow of the product from the producer (entrepreneur) to the consumer is called
the supply chain. The producer sometimes gets assistance from other suppliers to
develop a product and then the producer markets that product to the consumers. The
supply side of a supply chain refers to the producer and the entities that assist
the producer in manufacturing the product. The demand side, on the other hand, is
made up of the consumers who buy products. For example, a car manufacturer requires
raw materials, components, production equipment and services from different suppliers
along with R&D groups that provide the technology. All these entities are on the
supply side and collaborate in order to develop the product. The manufacturer then
uses a vast army of salespeople to sell the cars to consumers, the demand.

The nature of a technology and its effectiveness compared to that of the existing
widely-used technology can have detrimental effects. In startups, entrepreneurs
generally refer to the one person who is a know-it-all, but as startups grow into
large corporations, entrepreneurs delegate most of the product development efforts
to different supply side divisions: the R&D division, development division and marketing
division. The R&D division invents new technologies. The development division develops
products based on the new technologies. The marketing division works with the salespeople
to sell products. As there are several entities involved in product development,
it is important for entrepreneurs to understand the general nature of innovations
and associated supply chain issues.

There are two types of innovations:

Breakthrough Innovations

Breakthrough innovations are generally considered “out-of-the-blue” solutions
that cannot be compared to any existing practices or techniques. These innovations
employ new technologies and create new markets.

Most breakthroughs are developed by R&D groups who often have not thought specifically
about a particular commercial market application. These technologies originate on
the supply side of supply chain. Conventional wisdom says listen to the market,
but breakthroughs come from labs that do not have what the customer wants in mind.
These technologies are then pushed onto the consumer. For example, Tim Berners-Lee,
a software engineer, created a network of interconnected computers to share and
distribute information easily and cheaply in 1980. This network developed into the
Internet. Tim never thought about what customers wanted when he created his network.

The interaction between research, marketing and development groups can be detrimental.
In general, most marketing professionals view marketing as getting a grasp on what
customers need. They do not emphasis educating customers about the usefulness of
technology or creating a new market. Therefore, R&D groups must make a marketing
group understand how useful the technology will be. R&D groups must be visionary
and lead the other groups in productizing the technology. R&D groups should encourage
marketing groups to seek new markets for the developed technology.

Marketing professionals have a tendency to ask customers, “Hey, do you think you
need this technology?” In general, customers are ignorant of the benefits of a new
technology and can not visualize how it will help them solve problems. Just imagine
what the average Joe would have said about the usefulness of the Internet in 1991,
when it was first conceptualized! Customers can only start visualizing once they
are thoroughly educated about the benefits of a product. As an example, hardly anyone
appreciates the iPhone until they actually use it. If Apple’s marketing people had
approached customers two years back and asked whether they needed an iPhone or not,
customers would have said, “There are so many other phones available with the features
that you are talking about. I don’t think anybody would want to buy your phone!”
Now, the iPhone is very successful. Customers don’t realize that they need breakthrough
technologies unless they actually get a first hand experience.

Standard market research tools are not very useful in determining the market size
for breakthrough technologies. Determining the ideal price and business model is
difficult in most cases.

Incremental Innovations

Incremental innovations, on the other hand, are continuations to existing technologies
or practices. They involve extension of products that are already in the market.
Incremental innovations are more evolutionary in nature. Both suppliers and customers
know about the products and their values. Incremental innovations generally substitute
existing products. The demand side of a market generally motivates the supply side
to launch incremental innovations since product characteristics are well defined
and customers can articulate their needs. Most incremental innovations are developed
in response to customer needs. Innovations in high-tech market are incremental in
nature. For example, Windows XP is an incremental innovation.

It is important that marketing executives to be aware of their role when introducing
an incremental technology into the market. A marketing group has to take the lead
in getting requirements from customers and drive the direction of their company
accordingly. Marketing professionals can use a wide range of tools so customers
can clearly articulate their preferences.

It is important to note that a firm should not go over board in productizing their
innovation. Some breakthroughs might not have a large market potential to start
with. Many incremental innovations may end up requiring major investments even though
developers think they will not. Also, one should not assume that breakthrough technology
will always have a large payoff.

Most investors would prefer to invest in incremental innovations rather than breakthroughs.
Breakthroughs, although seem to be very attractive, have a lot of risk simply because
it is hard to define the product, its potential and the size of the market. Incremental
innovations on the other hand do not have a high risk because it is easy to define
the product and the potential. However it is important to remember that at the end,
every technology that people use is going to be replaced by some breakthrough at
some point in time. Therefore disruptive technologies are not simple write offs.

Written By
Pradeep Tumati (Principle, go4funding.com)

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