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The winner THERE IS MORE TO BEING ASUCCESSFUL INNOVATOR THANHAVING AN INNOVATIVE PRODUCT;TO EARN THE REWARDS THEYMUST BE FIRST AND BEST

By Nicholas Hayes

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What makes a successful innovator?To answer that, let us agree first onjust what an innovator does, usingApple’s iPod as a simple caseexample. Often the words ‘innova-tion’ and ‘invention’ are used

interchangeably, so to start, let the Apple iPod dispel anynotions that innovation is the same as invention.

There is nothing new in an Apple iPod: no new exoticmaterials, no applied science, nothing that wasn’tavailable before iPod appeared on the market. An iPod isa hard drive with a battery, a CPU, an operating system,an LCD, a network connection and an earpiece. It is abundle of ubiquitous parts that existed before. Arguably,the only thing truly new about iPod is how Apple hasused it to change the way we act; specifically, the way weacquire and organise our music collections: Apple is thefirst company to motivate consumers to willingly shiftmusic format preference, and to divert their money tosomething new since the CD appeared on music storeshelves in 1983. Evidenced by sky-high Apple share pricesand continued hyper-demand for iPod, Apple is the best,measured against many others who have triedunsuccessfully to motivate us to change.

Innovators do not have to invent. They do have to befirst, they have to be best, and they are rewarded whenthey are. They have to be first to disrupt the market in away that motivates behavioral change, and they have tobe best at designing the programs that support theircommercial offers to ease adoption. This is true in anymarket from digital music to industrial machinery toprofessional services.

BEING FIRSTInnovators are first to recognise a higher valued use fora technology and prove that their method is better than– while, at the same time, as safe and dependable as – theold way.

Manufacturing Engineer | October/November 2005

For example, we have clients who make machines forthe process industry. To grow, they seek a differentiatedportfolio of products for their customers. Using theirconsiderable industry expertise and intimate customerties, they have created a prototypical smart sensor: aspecial purpose camera and computer that will allow theircustomers to peer into the production process – and usingwhat they see, predict the quality of output from themachines. If successful, the device will make riskymanual process changes unnecessary. Early predictionand automatic adjustment will provide very high valueby allowing customers to set more precise qualitytolerances while also extending the life of their machines.

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takes it allArguably, the only thing trulynew about iPod is how Applehas used it to change theway we act

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Research to understand customer needs revealed amarket willing to buy and try one system, but not willingto change current practice, due entirely to suspicions thatpoor computer reliability would negate the economicvalue of promised throughput gain. Essentially,customers said “we’ll buy one to try it, but until you showus that it works over and over, we won’t take a larger riskand change our systems.”

Like iPod, this client’s idea bundles availabletechnologies that have been proven reliable elsewhere. If,like iPod, this system is shown to be dependable in thecontext of the process, customers will be willing to investin more than a trial.

In fact, the life and potential of a product is oftendefined in the moments just after the idea is firstaccepted by commercial buyers. Products that suffer fromreliability, repeatability or availability (RRA) issues atlaunch lose all momentum, and sometimes never recover.Innovators keep their ideas secret until all the bugs aregone. They test their ideas in confidential pilotprogrammes in order to know what to expect, and whatto promise. Innovators also make certain that the productis readily available for purchase when they launch. Theydo not promise something and deliver it many monthslater. Companies that fail to deliver reliable, repeatableand available products on launch often spend a lot ofmoney fighting an uphill communication battleregardless of subsequent results, and cannot be calledinnovators, because they are no longer first.

BEING BESTInnovators are best at assisting customers to exploit thetechnology that they propose. Innovators support theiroffer with formal programmes that show customers thatthere is a higher value method than the old one.

Another client in the business of transport providesan appropriate case example. This company is a leadingglobal maker of machines that move things. Theirproducts are relatively inexpensive to acquire for theproductivity that they deliver to customers, but costmuch to maintain. To address this issue, the company iswell into a strategy to accessorise their offering withcondition monitoring systems to enable preventativemaintenance.

A business development director there recentlyexpressed frustration with the new idea: “the furtheraway from the kernel we get, the less developed we are.”

Since project kick-off, their development resourceshave been focused exclusively on the selection ofcomputing and networking devices and functionality.

It became clear through customer research that �

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Value-Based Vs. Classic Product Development

Value-Based Product Development Process Investment

Planning Focus:

Often Met With:

Function/Price

Changes to Product

Problem/Solution

Integration/Bundles

Business Challenge

Infrastructure

New Behavior

Support Programs

Classic Development Process Investment

Fig 1: Value-based versus Classic development

customers do not actually seek condition monitoringequipment – instead, they believe that instruments maymake the way for highly efficient service actions. Whena piece of critical machinery calls for its ownmaintenance before it fails catastrophically or at aninopportune time, the signal has more tangible economicvalue than the cost of the equipment and the monitoringsystems combined. Given this, our clients are rethinkingtheir downstream service model prior to launch –applying as much development consideration to theensuing business shift as they do to the product. (See fig 1). They are creating hard links between theinformation that will flow from their equipment, theanalysis that is performed, and the actions that are

invoked, as a result. Instead of just launching aninstrument, they will launch an entire service networkand system.

In doing so, they are not just seeking the ‘first’position; they are also going for best, because this is whatseparates successful innovators from everyone else.

Once a company has succeeded in beginning the cycleof innovation, how does in realise real sales and profitreturns predictably?

REWARDS FOR FIRST AND BESTIn its role as first and best, an innovator is never willingto succumb to pressure to follow – to be in a market justto take share from others with an equal product or

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83% 77% 67% 56% 44% 38% 33% 25% 0%

Source: Five Twelve Group Research

Fig 2: Innovator Sales and Share over Product Life

facturing Engineer | October/November 2005

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service – because if it does, its sales and profit potentialsuffer. Using client sales figures, we plotted the completelifecycle of a product first introduced by this firm in thelate 1990s, along with sales of and the number ofcompeting products from other companies in the market.Fig 2 shows how this innovator launched their well-conceived and supported offer and took sales and marketshare lead immediately, a close competitor claimed thesecond position soon thereafter, and as the marketdeveloped and more customers adopted the technology,replicating competitors entered too, with the majorityrushing in at the beginning of the end of the market’sgrowth phase, sending the market into price andfeature/function warfare. This innovator led in salesperformance throughout the lifecycle, gaining most fromthe fastest growth phases, and then led again by exitingthe market first too.

However, more than market share or salesperformance, a successful innovator must learn to deliverreturns to its investors to survive. Sustained profitabilityamong innovators comes not from sales volume in latematurity stages or from ever owning the low-cost-to-produce position, as some might expect, but almostexclusively from the timing of reinvestment in nextgeneration product and by exiting current generationmarkets before they become unruly. Using a model thatoverlays multiple product lifecycle maps and controlsvariables like investment, re-investment timing, exittiming, process repeatability and customer loyalty, wecreated scenarios to demonstrate the effects of flawedverses ideal timing in product lifecycle management.Fig 3a shows that to be early or tardy exiting a market isto risk both product line sales and profits. To be late witha next generation product can create domino-effect lossesthat can be debilitating.

Fig 3b is a net profit scenario that assumes ideal, if notimprobably perfect, product lifecycle management.

INNOVATION FUELS VALUE CREATIONFrom this comparison, and our previous discussion, wecan conclude that the overarching characteristics of a‘first and best’ innovator are: they own keen customerinsights – they invest to get precise understanding ofcustomer conditions, behaviours, motivators and whatcustomers value and why; they build skilled, creative

A successful innovatormust learn to deliverreturns to its investors tosurvive

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teams that direct value-based development processes thatinvest not just in technology, but in programs thatmotivate adoption; and they direct a multi-generationalportfolio of products and/or services based on bestproduct lifecycle management practices

Good business leaders understand that marketuncertainty, a systemic condition of the dynamic globaleconomy, demands that growth must come from novelsources, especially innovative new offers. The days ofsimply adding more salespeople to get more orders orbuilding more production capacity to increase revenuesare over. Thus, many companies have revived the goodidea that value creation must be the vehicle for growinga lasting business, and therefore, they must learn todeliver the full result of innovation, which is to createvalue, which in turn returns profits. �

Nicholas Hayes is a partner at FiveTwelve Group, amanagement consulting firm specialising in business-to-business research, marketing and product strategy

Flawed Product Lifecycle Management

Period$U

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Fig 3a: Flawed Product Lifecycle Management

Fig 3b: Ideal Product Lifecycle Management

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