DOES INNOVATION

ALWAYS WORK
 CONCEPT
• A little over three decades ago,
Bruce Henderson founder of the
Boston Consulting Group made the
following remarks.
The majority of products in
most companies are cash traps.
They will absorb more money
forever than they will generate.
RETURNS VS EXPENCES
• The apprehensions of Bruce Anderson were entirely
justified. Most new products don’t generate substantial
financial returns against expenses incurred on them.
According to several studies , between five and as many as
nine , out of ten products end up as financial failures.
• Even truly innovative products often don’t make as much
money as organizations invest in them. In fact many
corporations make the lion’s share from only a handful of
their products. In 2002 just 12 out of Proctor & Gamble’s
250-odd brands generated half of its sales and an even
bigger share of net profits.
HOT IDEAS & COOL PRODUCTS
• Hot ideas and Cool products, no matter how many a
company comes up with , aren’t enough to sustain
success.
• The fact that you can put a dozen inexperienced
people in a room and conduct a brainstorming session
that provides exciting new ideas that are not worth
executing.
• Harvard business school professor Theodore Levitt
in his article creativity is not enough states : In
fact, there is an important difference between
being innovative and being an innovative enterprise.
The former generates lots of ideas , the latter
generates lots of cash:
The three approaches to
innovation
• A study conducted by Harvard school
of business recommended 3 ways for
a company to take a new product to
the market. The 3 approaches are
• The Integrator
• The orchestrator
• The Licensor
 Integrators, orchestrators
or licensors
Most institutions are integrators.
• They manage all the steps from R&D to manufacturing and finally
marketing. In this approach investment requirements are high. It
also requires strong cross-functional links within the organization.
• Organizations can also choose to be orchestrators. They focus on
some parts of the commercialization process and depend on
partners to carry out the rest. Here capitol requirements are less
but organization must have the ability to collaborate with several
partners simultaneously while not having direct control.
• Finally, companies can be Licensors. They sell or license a new
product or idea to another organization that handles the rest of
the commercialization process. Here manufacturing and marketing
expenses are borne by other companies.
 Which approach is the
best
• There is no consensus on the issue. Each approach
has got its strengths and weaknesses. In fact
many ideas have failed to live up to their full
potential simply because organizations went about
developing and commercializing them the wrong
way.
• There are strong evidences that three
approaches can produce different profit levels ,
with the best approach (suited to a specific
project ) can yield 2 to 3 times the profits of the
least optimal approach for the same innovation.
Choosing the right track
• We don’t have a black box that helps
managers in choosing the most effective
approach. The selection process requires a
systematic analysis of 3 dimensions of
opportunity. The 3 dimensions are;
• The Industry
• The Innovation
• The risks
 THE INDUSTRY
• The industry. A company has to take into account the
structure of the industry it is trying to enter particularly
if the industry is unfamiliar to the company. The following 4
factors should be analyzed when thinking about an industry
and the choice of approach.
• 1- The physical assets needed to enter the industry (will we
need to invest heavily in factories )
• 2- The nature of supply chain ( Are partners mature or
unsophisticated ).
• 3- The importance of brands ( will our brands provide a
permanent or temporary advantage ).
• 4- The intensity of rivalry ( how the industry is likely to
react ).
 THE INNOVATION
• The Innovation. The characteristics of an
innovation play a central role in the choice of the
approach. For instance it is very important to look
at the product’s potential life cycle in order to
figure out the right approach. Disk-drive makers
like Western Digital have only 6 to 9 months
before the set of new technological advances
spell out the end of their product. Such
companies prefer to be orchestrators and work
with many partners to keep incorporating the
latest technologies into products.
 THE RISKS
• The Risks. There are 4 risks a company should keep in mind
when deciding which innovation approach to use.
• 1- Can the new product actually deliver the anticipated
promise.
• 2- Customers may not buy the new product even if it works.
• 3- The threat of a substitute that can substantially lower
the profit margins.
• 4- The investment needs for commercializing the project.
Some products are clearly are more expensive to bring in
the market than others ( jet aircraft versus a soft drink )
 summary
• Innovation is high on the agenda of every
company. It is the subject of countless articles
and speeches.
• The key is to determine which innovation
approach is most appropriate for an opportunity.
The result is a company that is able to turn ideas
into cash. That is critical because , unless
companies can make money from it , innovation is
just another expense or perhaps satisfying the
personal ego of the management group making
nothing out of it.
 WHIRLPOOL
• In early 2001 , a group of sales and marketing employees at Whirlpool came
up with the idea of creating a line of appliances and storage system for the
garage. It was an intriguing opportunity because it targeted both a new
room in the house as well as new demographics for the company: men
rather than women.
• The company thought that some components of the new product line , like
the wall rack system can be made patent. But establishing a strong brand
position , securing floor space at retailers and learning how consumers
bought, installed and used the products were going to be equally important
to the products success.
• The project was approved and the team was told to commercialize the
project and it was dubbed THE GLADIATOR LINE. But they were told to
do it as inexpensively as possible because money was tight and no one knew
how big the market would be. Most people at Whirlpool took it for granted
that the Gladiator team would develop the new products using the
Integrator approach , as the company had always done.
 The project is approved
• But CEO David Whitman had given the freedom to commercialize
the project the way it wanted to, even if it meant a departure
from company practices.
• In September 2001 , based on consumer research , the project
received $2 million in funding. But the funding was conditional. If
Gladiator team couldn't shoe revenues , customers and a product
line by the end of 2002 , the project will be shelved. The Gladiator
team realized that they would need a full line of products at
launch; otherwise , consumers would not understand the idea that
the system would transform the garage. Another advantage of
launching with full product range (along with tools ) that they
could command premium prices because the competition would find
it harder to duplicate the full product line.
 Challenges
• Challenges that the Gladiator team faces
are;
• To launch the project with full product line
as per schedule.
• To curtail the expenses as much as
possible.
• WHICH INNOVATION APPROACH
SUITS THEM MOST ?