Innovation and R&D


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Let us quickly review Part 1 and 2 of this series.

Part 1: “It is better to be first, that it is to be better. If you are First to market you have a chance at 40% market share, Second, 24 % market share, if Third, 14% Market share.” (Ries and Trout – ref. 1)

Part 2: “Getting to market a month earlier improves profits an average 3.1%. Beating the competition by six months improves profits by nearly 12%” (Mckinsey study, Reinertsen, ref. 2)

  • What can we do to change it?
  • Where is it?
  • What does it mean? 
  • What can we do to change it?


Here is a key question: How do you get higher market share and higher profits consistently?

To get organized for rapid growth through innovation, we need a framework, a method for conceptualizing and thinking about it. An S Curve, a growth curve or an Innovation Diffusion Curve provides such a simple framework. Figure 1 shows a simple version of S curve called Product Life Cycle.

A typical business also grows through these four stages. If the owner of a small business, rests on his laurels, and is satisfied with the business performance and income level, he may take the eye of the business; the business may stop growing, reach maturity and may even begin to decline. Another possibility is the market place is competitive and a new product/technology/business lures the customers away from this business. 

An interesting behavior to note is that a business can never operate constantly at the maturity, plateau level. It either grows or declines.

The S Curve or the Growth curve provides a simple framework to look at any business or product line.

       

An excellent way to counter the business revenue decline, and more importantly help the business grow rapidly is by making a series of innovations, introducing new products in the market place in rapid succession. See Figure 2. 

This is a key reason why USA (2.8%), Japan (3.4%) and Germany (2.9%) outspend China (2.0%) and India (0.9%) in yearly R&D Expenditures. (ref. 3)

Roger Everett, in a landmark book, Diffusion of Innovations (ref 4) provides a theory that seeks to explain how, why, and at what rate new ideas and technology spread through cultures.  See Figure 3.

The diffusion of innovations occurs, according to Rogers, with successive groups of consumers, called adopters, adopting the new product/technology.

Rogers defines adopter category as a classification of individuals/users/customers within a social system on the basis of innovativeness. Percentages are Rogers’ estimates using the concept of a Normal distribution.

In late Eighties, Geoffrey Moore, a technology marketer, in Silicon Valley, recognized a marketing problem in marketing/selling products to technology customers. He was using the Rogers Diffusion of Innovation model and recognized that the marketing methods that worked for Early Adopters did not appeal to Early Majority customers. He recognized the discontinuity, and called it, the Chasm, a valley of death. His thesis was that startups need to learn and figure out how to navigate through the Chasm or they will die. A case in point, in late Nineties, I developed a software product, FastR&D™ software, to enable scientists to massively speed-up R&D and quantitatively predict, in one minute or less, their product/process performance. Sales grew from $30K (1995), $120K (1996) to $250K (1997) with customers like Coca-Cola, Este Lauder, Sherwin Williams, BF Goodrich, Ferro Corporation, NOCIL and Pidilite. We practiced the same marketing techniques on a much bigger scale and failed dismally in 1998! For several years, I did not understand why. I had encountered the valley of death!

In early 2000, Geoffrey Moore published another book, Inside the Tornado, where he describes how companies that grow very rapidly, think stacked S curves, grow by essentially ignoring the customers! I remember in mid-Eighties we wanted to test Oracle database technology, a $50,000 investment, and make a decision, whether to go with Ingres or Oracle. Our nearest Oracle Salesman was 150 miles away, a mere three hour car ride. He called me and said, “Mukul, sorry, we do not have the resources to support you. I will send you a software tape and a manual, your people will have to figure out how to install, use and evaluate the software!” Ingress decided that high quality tech support is critical for long term customer satisfaction. They controlled growth, supported us, and we had a new database person already trained in Ingres, so we adopted Ingres. Oracle became a billion dollar database company by growing very rapidly with the organization operating in a tumultuous tornado (a cyclone) like fashion. Ingres did not!

In 2011, Chris Maloney, an Australian marketer, rationalized/integrated several marketing principles from Rogers (Diffusion), Moore (Crossing the Chasm), Malcom Gladwell (Tipping Point), Forrester Research(demographics and psychographics) and Robert Cialdini (Influence, The Psychology of Persuasion). Figure 4 provides a concise summary and insights for technology marketers. Maloney says “Scarcity” as an influence principle for marketing works best with Early Adopters, “Social Proof,” e.g., testimonials, case studies, is the way to go with Early Majority and Late Majority.

Figure 4: Acceleration of Diffusion and Innovation: Maloney’s 16% Rule

Things to Do for R&D

Do you have an S curve for your business, your product line; for                    your competition, for business leaders in your industry?  If not                      draw them.

Where is the inflection point? Where are you as a business or product on the S Curve?

How do you measure your organization’s energy level? How can you increase it?

Do you have a system to monitor your product line(s) and competition? Kaizen?

Are you using the S Curve as a tool? As a weapon? You vs. the Competition?

What are 2-3 key steps you can take next week?

So crank up your Product Development engines...

And let the fun begin!

In the next issue, I will share another key tool for rapid innovation.

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References

1. Al Ries and Jack Trout, 22 Immutable Laws of Marketing, 1994  

2. Donald Reinertsen (McKinsey), National Center for Manufacturing Sciences, Focus, Oct 1991

3.Battelle Global R&D Funding Forecast 2014

4. Everett Rogers, Diffusion of Innovation, Wikipedia http://en.wikipedia.org/wiki/Diffusion_of_innovations 

5. Geoffrey Moore, Crossing the Chasm: Marketing and Selling Technology Products to Mainstream Customers, 1991; Inside The Tornado, 2001

6. Chris Maloney SlideShare http://www.slideshare.net/ChrisMaloney2/the-16-rule-the-secret-to-accelerating-diffusion-of-innovation 2011

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