2. Conceptual Background

2.1. Defining Innovation and Context

Figure

- Context and Definition of Innovation

Innovation can be described as the successful exploitation (usually in monetary terms) of new ideas (3). These ideas can broadly take the form of a new process, product, position 1 or paradigm 2 the so-called 4 Ps of innovation (4). Product innovation (NPI) is considered the most important aspect of innovation, although all 4 dimensions must be present (and in good form), for a company to innovation successfully (2). Interestingly, although the 4 Ps are not rigidly defined, nor are they mutually exclusive (4); innovative companies tend to align themselves strongly with a particular dimension. Examples include: Toyota, process innovation; Apple, product innovation; Lucozade, position innovation; and Nokia, paradigm innovation Furthermore, there are different degrees of innovation, varying from incremental to transformational. Using this degree of variation parameter, and the dimensions available; it is possible to form a framework to define the context of innovation Such a framework is shown in , where it is concluded that innovation to lies somewhere between business-as-usual (incremental improvements to the daily processes), and a revolution (transformation in the paradigm).

3. New Product Introduction

1 Position refers to market position.

2 Paradigm refers to the business model

Figure 1

New product introduction (NPI) is the full business process of bringing new products to market - it spans the entire product life-cycle as shown in Figure 2. The cycle starts at the identification stage where new market and technology opportunities are identified Next, the design, development and production stage followed by the market launch, enhancements, sales and support. Finally, the cycle terminates with product retirement as new products supersede the now "old" product (5). The business and product strategy underpins all the decisions made throughout this process as they provide the direction (6) Moreover, the strategy (particularly product strategy) can play an important role in gaining a competitive advantage against competitors through e.g. strategic manoeuvring (7) - a pivotal reasons why JVC's videocassette recorder standard VHS won market dominance over Sony's (technically more superior) Betamax in the late 1970s (8). This entire process is chaotic, requires substantial planning and poses challenges to the firm however there are management techniques available to help.

3.1. Challenges in New Product Introduction

3.1.1. Product Strategy

, but as mentioned before, a good strategy can create a competitive advantage for a firm In order to formulate a strategy, both internal and external factors (as shown in ) 4

A strategy is a plan based around a company's vision for the future (9). The topic is vast 3 must be identified (10). This is one of the challenges. Research shows that early strategy formulation focused more the external factors than the internal ones (undoubtedly influenced by Porter's very influential five forces model in the 1980s) It has

3 Strategy is an entire academic discipline, and the purpose of this report is not to provide a comprehensive view of this vast academic discipline, but instead to highlight the key challenges with regards to NPI.

4 There are other frameworks such as the Johnson & Scholes' Strategy Framework since been recognised that successful strategies should look to better incorporate internal factors. The key to achieving this lies in maintaining good interdepartmental integration (11). This is particularly difficult as it requires a good understanding of individual department objectives but more importantly, the conflicting objectives such that appropriate trade-offs can be made, in order to achieve an optimal solution. Further down the strategy formulation sequence; evaluation and choice of strategy must be made; usually subject to issues such as incoherent product ranges, number of projects to be chosen, budget and time constraints. However, "a strategy is only of value if mechanisms for its implementation and renewal are in place" (12 p. 349)

The external factors affecting a company's strategy are constantly changing due to the technology, market and industry evolution (13) These changes can be fads, trends, megatrends and/or disruptive - each with different levels of impact (14) (15). The changes are often; (a) difficult to realise in the first place, and (b) difficult to keep up with in the second The internal factors, on the other hand, tend to change in response to the externals ones. A company's ability to adapt to these changes (dynamic capability) affects the strategy implementation procedure and its effectiveness. Dynamic capability is challenge for any firm, but a concept well understood by leading Japanese and US firms in the early 1990s (12)

3.1.2. Product Design

The initial product design process seeks to identify the customer and market 5 Figure 4 needs (both overt and covert), and finds ways in which these needs can be satisfied through a vision of a product (5). This step requires clear market identification (16), typically done through defining, segmenting and researching the prospective market. A few key questions have to be answered at every stage (as shown in ), but the difficulty is that most of the answers to these questions are subjective; making it difficult to draw robust conclusions with great certainty 6

But sadly, even if a company were to "perfectly" identify a market and draw all the "right" conclusions, this could still be wrong... The reason is simple - customers do not often know what they want In 1960, a $5m market survey conducted by ADL for GE concluded that there was no market for a portable solid-state television. A month later, Sony launched such a device and 4 million units were sold within a year (2). Bluntly put, uncertainty at every stage of customer and market and identification process is the single greatest challenge for the initial product design. This normally results in failure to understand the market, and therefore satisfy the needs. The actual designing part is relatively easy - frameworks exist that deal with this effectively (e.g. topological exploration).

5 The customer and the market are inherently linked - a market is the entire set of actual and potential customers for a product or service

6 Not subject to change if someone else was so redo the market research trying to assess the same need.

Product development looks to convert the vision of the product into reality (5). The main challenge here is the technology aspect because it can be thought of as the bridge connecting the initial product design to the detailed design needed to manufacture a tangible product. Here, technology is meant in both the micro and macro environmental context. In the early 1980s, links between "micro" technology issues and the firm's needs were not well understood. Since then, the issues have been identified (as shown in Figure 5) and understood for their challenges (12); however the remaining challenge was to develop reliable management frameworks to help deal with these issues The "macro" technology issues revolve around technology evolution (13) - trying to deal with it, predict it and exploit it. Both micro and macro technology issues are strongly linked to a particular aspect of innovation

"Micro" technology management issues are particularly sensitive to whether the innovation is open or closed. Open innovation technology management is more challenging than closed innovation management (especially with regards to acquisition and protection issues) (17). This is a key consequence of an increased number of stakeholders; each with slightly different opinions and objectives that need to be balanced. Having said that, the generic frameworks used to manage open and closed innovation are the same. On the other hand, macro technology issues are more influenced by whether the innovation is sustaining or disruptive and the natural evolution Failure to anticipate or predict these changes in enough time can be particularly damaging to a firm.

Adapted from: Kolter, Armstrong and Wong, (1996), Principles

of Marketing, Prentice Hall, Europe

In the short term, successfully capturing the value from a product often lies within the intellectual property (IP). Weak IP will almost always result in a failure to capture value (2), but strong IP is often difficult to attain. This is because IP comes down to strategy, and this can get very complicated and convoluted very quickly. A current example of this is the quasi deadlock situation Apple and Samsung have currently reached with regards to patents - both argue that one violated the other (18) Having said that, "Intellectual property will only protect you for so long. If at all." (2 p. 9)

The long term success in capturing value from product(s)

7 Figure 6 is heavily dependent on the meta product (as well as network and threshold effects). The meta product encompasses everything about the product, as shown in , making its build up rather challenging. Further to this, the ability to capture value is also related to the inner variables, product mix and brand strength. Issues surrounding the product mix are typically governed by the breath, depth and consistency of the product lines 8

, whereas brand concerns pivot around cannibalisation and dilution (19) Further still, once the product has been launched, even with a perfect brand and meta product, the diffuse rate into the market also plays a role in determining how much value can be captured. This can be easily realised by remembering that products have a finite life-cycle. If they do not diffuse quickly enough, they can get superseded by newer products before capturing all the value they had the potential for. This diffusion rate can be quite tricky to predict, however there exists models that help manage its characterisation.

7 In reality, a company aims to design a product range, and not just a standalone product.

8 Breath: How many different types of products are there? Depth: How many products are in that category type? Consistency: How closely related are the different types of products? For example, toothpaste and mouthwash are different types of products, but they are closely related therefore consistent. If there is only one type of toothpaste being offered, then the depth is that category is low.