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The Rapid Innovation Cycle—An innovation and market testing process for new products and services development

The Rapid Innovation Cycle—An innovation and market testing process for new products and services development

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05/13/2014

 
The Rapid Innovation Cycle
 — 
An innovation and market testing processfor new products and services development
Chris D. McCoy
1
, Zubin Chagpar
2
,
 
and Igor Tasic
3
 
1
University of California, Berkeley, USA cmccoy@faculty.ie.edu
1
 IE Business School, Madrid, Spain
 
2
 IE Business School, Madrid, Spain zchagpar@faculty.ie.edu
 
3
 Atlantico Partners,igor.tasic@atlanticopartners.com
ABSTRACT
The Rapid Innovation Cycle (RIC) is an innovationand market testing process that was developed in2011 out of the need to assess the market potentialfor new product and service innovations in hopes toimprove economic conditions in Spain(Figure 1).The belief is that technology and serviceinnovations represent a strong component of theeconomic strength of any country (Nothhaft, 2011).The Rapid Innovation Cycle consists of four keyphases: Opportunity Recognition, SolutionSelection, Market Experimentation andExperimental Results. In each of these four phases,various steps are taken to 1) find a marketopportunity 2) define a solution within a given setof constraints (Tasic, 2008), 3) create a market testto assess demand for the proposed solution and 4)use quantitative market test results to make well-informed decisions on a given business venture.Even in its short existence, the Rapid InnovationCycle has now been used at the high school,undergraduate and graduate levels in order to assistnew entrepreneurs, innovators and anyone else whowants to discover if their next big product or
service innovation will succeed in the “unforgivingmarketplace” (Blank, 201
2). A typical challenge tostarting a business is understanding product-marketfit as these decisions are largely based onassumptions and market trends (Ries, 2011). TheRIC aims to address this challenge by applying aseries of qualitative and quantitative tools in typicalbusiness decision processes. Application of theRIC has helped several startups understand theirmarkets and reduce time finding a sustainablebusiness model. Two RIC cycle based startupcompanies are described, one from each type of market test: product- and service-oriented.
Keywords
: Hands-on, Rapid Innovation, RapidPrototyping, Innovation Process, Minimum ViableProduct, Market Testing, Effectuation, CrowdFunding, Crowd Sourcing.
I
 
INTRODUCTION
A. Motivations For This StudyIn late
2010 in Madrid, Spain, a product “idea” for 
smartphones was generated. But upon verballydescribing the market opportunity, sufficient doubt wasexpressed amongst fellow engineers, business colleagues,
friends and others whether this “idea” would
be a marketsuccess. After hours of tiring and depressing speculationsabout its market potential (or lack thereof), the inventordecided to build a
 prototype to better explain the “idea”
which would become
a “minimum viable product”
(MVP).However, what typically is a simple prototyping endeavorin the U.S., the search for a local, low-volumemanufacturer in Madrid, Spain proved to be difficult.
Additionally, the concept of “inventing” something new
received further speculation and awkward looks asculturally it was apparent that invention and innovationwere uncommon and unwelcome.
Figure 1: The overall global youth unemployment rates for variouscountries with Spain topping the chart with 43.5 percent. Source:Eurostat.
Noting these significant product development andentrepreneurial challenges present in Spain, theconnection was quickly drawn to its economic recession.In 2010, general unemployment was approximately ~20percent and for youth, nearly 50 percent (Figure 1).
 
Robert Solow
 — 
a Nobel Prize winning economist
 — claims that 80 percent of a country’s economic strength is
based on technical innovation. These technicalinnovations create business competitive advantagethereby creating long-lasting local jobs in manufacturing,packaging, shipping, design, administrative services,sales, marketing, etc. While Nothhaft focuses on theentrepreneurial challenges present in the United States,the motivations for technological innovation remain validwithin any country (Nothhaft, 2011). Other significantbarriers common to entrepreneurship also noted in Spainare summarized by Sarasvathy (2004). Because of thisneed a course on innovation and a new process
 — 
theRapid Innovation Cycle
 — 
were created.
B.
 
Creating the Rapid Innovation Cycle
The observation of how new products and services werecreatead (described in the case section) catalyzed theRapid Innovation Cycle and drove the creation of thecourse Hands-on Rapid Innovation (@HandsOnRI). Thecourse being based on the following pillars: A set of innovation tools, an entrepreneurial mindset (Kelley,2010) and the Rapid Innovation Cycle. The combinationyields a highly project based, intensive and hands oncourse on innovation(Figure 2).
Figure 2: The key pillars of the course Hands-on Rapid Innovation(Twitter.com handle @HandsOnRI).
The product development process of both case studieshighlighted both the local cultural and environmentalchallenges present to innovation as well as serving as thefirst execution of the RIC and will be described in theresults section.
Figure 3: The Rapid Innovation Cycle (RIC) is an innovationprocess intended to help innovators, entrepreneurs, executives, etc.determine market viability of their new product or serviceinnovation. The four key phases are shown along with typical cycletimes
II
 
THE RAPID INNOVATION CYCLE
The Rapid Innovation Cycle(Figure 3, Figure 4)is a fourstep innovation process designed originally for anyonewho is responsible for generating product or serviceinnovations that are sustainable and profitable within theircompany or startup (these people will be referred to asRIC participants).
Figure 4: The RIC cycle phases and their key components.
Unlike checklists, algorithms or other processes that
suggest one is “done” upon completing a set of steps or 
by inputting data, the RIC requires that within each cycle,the RIC participant(s) draw valuable insights from thecollected data from the market test and make an informeddecision whether the product, service or internal solutionshould be executed and scaled up (this is similar to theRies
build-test-learn
cycle for software companies)(Ries, 2011). The process can be used iteratively withvarying cycle times, solving market needs both in theshort term and the long term; however the examples inthis research focused on short-term time-to-marketprojects (long-term time-to-market example would be the3D printing of biological structures such as human organsor bone and heavily relies on significant and timeintensive scientific or technological advancements).
 
Lastly, it is interesting to note that while many peoplehave a theoretical background on how business works andhow to successfully launch new companies, fewer havepractical experience; and thus success rate of newcompanies is low (a rule of thumb success rate often citedby Venture Capital partners is about 1 in 10). The RapidInnovation Cycle seeks to provide a low-risk method topractice business thereby ideally improving the successrate of entrepreneurial startup companies and / orintraprenurial corporate projects.The conventional hurdles to enter the marketplace aresufficiently large to prevent the majority of peopleinterested in innovation from ever attempting to start abusiness that revolves around a product or service idea.Typical
factors affecting innovation are a region’s
education and human capital, governance and corruption,macroeconomic management, regulatory framework andgender equity (López-Claros, 2010).It is unclear how reducing the barriers to creatinginnovative companies via innovation processes like theRIC might impact the public
 — 
would quality decrease?
Would people’s safety be put at risk? Would innovation
happen at a faster rate? Would large companies bechallenged by underdogs, thereby improving product andservice offerings in general?However, it is hypothesized that the Rapid InnovationCycle can actually help answer these questions in thesense that if an entrepreneur and their team executesuccessful market tests that suggest positive return oninvestment for their business opportunity, they can bemore confident about investing more into their customers,the product, the service and the business in general ratherthan lose it investing in an unwanted product or servicesolution. Venkataraman (2003) describes that
“a fear of 
realizing the downside of creating a new business biasesone towards analysis. A bias for analysis significantlydecreases the probability of business entry, but increases
the probability of success.” The data collected from the
RIC should assist these types of analyses and thereforeincrease the probability of building a successful business.
A.
 
Opportunity Recognition (OR)
The first phase of cycle allows anyone using the RIC toidentify market opportunities. Sarasvathy (2002)describes
opportunity recognition
as an obviousexistence of both supply and demand that is identifiedand is consequently brought into existence by a new orexisting firm. In the context of the RIC, this phasetypically includes effective brainstorming, seeingproblems as opportunities, constantly looking at the worldwith fresh eyes, asking questions like:
“what bothers you?
 What causes you pain in your business? What keeps youup at night?
”,
looking for workarounds(Figure 5),traveling and any other form of seeing the world aroundthe observer as a source for numerous marketopportunities.
Figure 5: An example how looking for workarounds can helpidentify a problem and define a market accepted solution. Asimple door wedge is nothing new, but applying it to a differentproblem and adding features that may be interesting to differentcustomers present new business opportunities. People exposed to
this “market experiment” subjectively said they would pay
about$US 4.00 for a gadget that costs less than $US 0.40 to produce. Thenext step would be to actually sell at that price and see what
percentage of people would actually pay the “claimed” buying
price of $US 4.00.
“Entrepreneurial opportunities are r 
arely found,
they have to be created and earned.”
(Venkatamaran, 2003)Sarasvathy (2002) further identifies an entrepreneurialopportunity consisting of three key characteristics: 1) Anew idea / invention that will possibly lead to theachievement to one or more economic ends, 2) beliefsabout things favorable to the achievement of thesepossible valuable ends, and 3) actions that generate andimplement those ends through specific new economicartifacts.At the end of the Opportunity Recognition phase, the userhas a large number of recognized market opportunitiesand some ideas of technical solutions for them. But now,the participants need to choose the best or most promisingopportunity depending on their goals. This filteringprocess happens in the Solution Selection phase.
B.
 
Solution Selection (SS)
Amongst the number of potential market opportunitiesgenerated in the previous OR phase, the RIC participantsevaluate which idea is best suited for market testing. Theplethora of ideas is quickly filtered by time limitations,financial constraints,
the team’s
technical abilities and theavailability of other resources. All filtered ideas shouldbe saved for future venture development.The
typical
market study which assesses competition,market size (both in revenue and people), trends, andother information relevant to a market / industryrepresents one component of solution selection but are farfrom the most important selection criteria. Traditionalmarketing studies are conducted with the assumption thatthe customers within this segment actually know whatthey want from a product or service. Consumers howeverhave been academically proven to be unpredictable whenthey make purchase decisions (Armstrong, 1991). In fact,a typical quote (often referred to as the business tycoonHenry Ford) that describes such situations is

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