Perspective: The Innovation Dilemma: How to Innovate When the Market Is Mature

Abstract

Most companies have ambitious growth goals. The trouble is there are only so many sources of market growth. Markets in many countries and industries are mature and increasingly commoditized; achieving growth in market share is expensive; and acquisitions often do not work. For most companies, product development means line extensions, improvements, and product modifications, and only serves to maintain market share. Markets aren't growing, so firms increasingly compete for a piece of a shrinking pie by introducing one insignificant new product after another. The launch of a truly differentiated new product in mature markets is rare these days. As a result, development portfolios have become decidedly less innovative since the mid-1990s, and R&D productivity is down. The answer is bold innovation—breakthrough products, services and solutions that create growth engines for the future. This means larger-scope and more systems-oriented solutions and service packages. Examples such as Apple's iPod are often cited. (Note that Apple did not invent the MP3 player, nor was this opportunity in a blue ocean; in fact there were 43 competitors when Apple launched!) What Apple did succeed in was in identifying an attractive strategic arena (MP3s) where it could leverage its strengths to its advantage and then to develop a solution that solved users’ problems. The result—an easy-to-use, easy-to-download MP3 system, which also happened to be “cool.” Our benchmarking studies reveal that five vectors must be in place to undertake this type of innovation to yield bolder and more imaginative development projects. First, develop a bold innovation strategy that focuses your business on the right strategic arenas that promise to be engines of real growth. Most businesses focus their efforts in the wrong areas—on flat markets, mature technologies, and tired product categories. Break out of this box towards more promising strategic arenas with extreme opportunities. Next, foster a climate and culture that promotes bolder innovation. Leadership is vital to success. If senior management does not have the appetite for these big concepts, then all your efforts and systems will fail. Senior management plays a vital role here in promoting an innovative climate in your business. Next, create “big ideas” for integrated product-service solutions. The best methods for generating breakthrough new product ideas are identified in this paper. Then drive these “big concepts” to market quickly via a systematic and disciplined idea-to-launch system designed for major innovation initiatives. Just because these projects are imaginative and bold is no reason to throw discipline out the window. In fact, quite the reverse is true. Finally build a solid business case and focus on the winners. Most innovation teams don't get the facts, and consequently build weak business cases; the result is that many worthwhile innovations don't get the support they need to be commercialized. It's essential to do the front-end homework, and so build a compelling business case. Then make the right investment decisions—evaluating “big concepts” for development when little information is available. Note that financial models don't work well when it comes to evaluating major innovations, because the data are often wrong. But other methods can be used to make these tough go/kill decisions. Illustrations and examples are provided from many industries and companies to show how to implement these five vectors.

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