In today’s world, value creation has become the cornerstone for all growth that companies undertake. And it is not just any kind of growth, whether you are a fledgling organization or a well established conglomerate, you need to grow in double digits. While this may seem like common industry knowledge, but evidence suggests that over 85% of Forbes 100 has been replaced from its position in the elite list because they failed to grow in double digits.
Double digit growth demands organisations to remain nimble and work on a light footprint, which is assumed to be easy for startups who create new value trajectories, and difficult for established organisations who are working towards governing existing value trajectories. All the same, any firm engaging with innovations must remain cautious of two common pitfalls:
1. Red Queen Effect: “And so the queen said to Alice, to stay in this garden, you must run fast, but if you want to get anywhere soon, you will need to run twice as fast.” This quote from Alice in Wonderland aptly describes the choice most companies face everyday, i.e. when sales fall, the knee-jerk reaction is to increase marketing and sales efforts or invest more in production capacities, running like hell in competitive markets but getting nowhere, rather than investing in R&D.
2. Xerox Rounding Error: In 1950s when Xerox was making sales around $20 bn, it was faced with the daunting task of growing at 10-12% every year. And so, it hired the best engineers and inventors of the world in its Xerox Labs, who would work on cutting edge technology. But when sales projections for the experimental projects were made, they amounted to a few million dollars, “A rounding error” as thought by the senior management. Thus, Xerox systematically gave no-go decisions to inventors who would later found companies like 3M, Symantec and Bell, and failed to recognise its systems and processes had gone wrong somewhere.
Realizing that markets have rapidly turned volatile, uncertain, complex and ambiguous (VUCA, as it is popularly called), systematic methods of research management and marketing of innovations are needed, not just for governing existing value trajectories, but for creating sustainable new value trajectories as well.
Innovations or new product introduction by any firm may fall into one of the several types:
1. Seasonal: Products that are introduced at certain times of the year, and benefit from market cycles.
2. Conversion: Transformed products, by changing existing features or attributes, such as packaging.
3. Me-too: Products that already exist and are known in the market, and are effectively copied by the firm.
4. Line Extension: Introduction of new stock keeping units (SKUs) into the existing portfolio
5. New to the firm: Innovations that involve radical use of components in a manner known in other industries but not in the industry that the firm operates in.
6. New to the world: Products or technologies which have never been seen before, and cannot fall into any of the previous categories
Out of all these categories, Me-Too products contribute over 65% of all revenue streams for most companies, but sustainable profit growth (~30%) is achievable through New to the firm or New to the world products. (Source: Boris Durisin, 2011) Managing this growth portfolio then becomes possible by using frameworks and tools like strategic buckets or bubble diagrams. One SBU in Exxon Chemicals, for instance, uses the following strategic bucket framework.
Source: Crawford and Benedetto, New Products Management, 10th Edition
Such a growth portfolio can easily help managers identify their own position, as well as map competitive dynamics on the same scale. A firm can then utilize several frameworks and tools for effectively managing both existing value trajectories and new value trajectories across all of their phases of development. Starting from opportunity identification right up to launch as well as post launch, it is possible for managers of innovation to take data based decisions.
However, no matter how hard one may try to structure innovation processes, one must keep in mind, that in essence, it is the spark of creativity that managers are dealing with when they head out into uncharted markets. And therefore, there must always be creative space for the next Nicola Tesla’s or Steve Wozniaks of the world, and as managers, it remains our challenge to nurture ideas and make them flourish.
Rijul is a PGP2 member of Entre Club, IIMA. He thought Entrepreneurship was all about change, so he decided to change the logo of the club.