The winner takes it all [innovation]

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<ul><li><p>3ww</p><p>w.ie</p><p>e.or</p><p>g/m</p><p>anuf</p><p>actu</p><p>ring</p><p>TTHSUCHATO MU</p><p>By N</p><p>Winternotio</p><p>Tmateavaila haan Lbundthe ousedacqufirstmus</p><p>032-035_ME_OctNov05_EU.qxd 7/10/05 3:31 pm Page 402 IEE Manufacturing Engineer | October/November 2005</p><p>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.</p><p>something 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.</p><p>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.</p><p>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.he wiERE IS MORE TO BEING ACESSFUL INNOVATOR THAN</p><p>VING AN INNOVATIVE PRODUCT;EARN THE REWARDS THEYST BE FIRST AND BEST</p><p>icholas Hayes</p><p>hat makes a successful innovator?To answer that, let us agree first onjust what an innovator does, usingApples iPod as a simple caseexample. Often the words innova-tion and invention are used</p><p>changeably, so to start, let the Apple iPod dispel anyns that innovation is the same as invention.</p><p>here is nothing new in an Apple iPod: no new exoticrials, no applied science, nothing that wasntable before iPod appeared on the market. An iPod is</p><p>rd drive with a battery, a CPU, an operating system,CD, a network connection and an earpiece. It is ale of ubiquitous parts that existed before. Arguably,nly thing truly new about iPod is how Apple has</p><p> it to change the way we act; specifically, the way weire and organise our music collections: Apple is the company to motivate consumers to willingly shiftic format preference, and to divert their money tonner </p></li><li><p>IndefinaccepreliablauncInnovgoneprogrto prois reado nolater.and amoneregarinnov</p><p>BEINInnov</p><p>Innovation</p><p>ta[</p><p> Imag</p><p>es.co</p><p>032-035_ME_OctNov05_EU.qxd 7/10/05 3:31 pm Page 41Research 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 well buy one to try it, but until you showus that it works over and over, we wont take a larger riskand change our systems.</p><p>Like iPod, this clients 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.</p><p>technology that they propose. Innovators support theiroffer with formal programmes that show customers thatthere is a higher value method than the old one.</p><p>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.</p><p>A business development director there recentlyexpressed frustration with the new idea: the furtheraway from the kernel we get, the less developed we are.</p><p>Since project kick-off, their development resourceshave been focused exclusively on the selection ofcomputing and networking devices and functionality.</p><p>It became clear through customer research that kes it</p><p>m/C</p><p>ORB</p><p>IS] fact, the life and potential of a product is oftened in the moments just after the idea is firstted by commercial buyers. Products that suffer fromility, repeatability or availability (RRA) issues at</p><p>h lose all momentum, and sometimes never recover.ators keep their ideas secret until all the bugs are</p><p>. They test their ideas in confidential pilotammes in order to know what to expect, and whatmise. Innovators also make certain that the productdily available for purchase when they launch. Theyt promise something and deliver it many monthsCompanies that fail to deliver reliable, repeatablevailable products on launch often spend a lot ofy fighting an uphill communication battledless of subsequent results, and cannot be calledators, because they are no longer first.</p><p>G BESTators are best at assisting customers to exploit the</p><p> allArguably, the only thing trulynew about iPod is how Applehas used it to change theway we act</p><p>IEE Manufacturing Engineer | October/November 2005 33</p></li><li><p>cusequmaka pmainovalusysttheappensfig infoana</p><p>34 IEE Manufacturing E</p><p>ww</p><p>w.ie</p><p>e.or</p><p>g/m</p><p>anuf</p><p>actu</p><p>ring</p><p>032-035_ME_OctNov05_EU.qxd 7/10/05 3:31 pm Page 42Rev</p><p>enue</p><p>s $U</p><p>S (M</p><p>)</p><p>Innovator Sales Advantage</p><p>Marketshare:</p><p>Year:</p><p>Total Market</p><p>First and Best</p><p>second and Next Best</p><p>Followers</p><p>100%</p><p>1 2 3 4 5 6 7 8 9 10</p><p>83% 77% 67% 56% 44% 38% 33% 25% 0%</p><p>Source: Five Twelve Group Research</p><p>Fig 2: Innovator Sales and Share over Product Lifetomers do not actually seek condition monitoringipment instead, they believe that instruments maye the way for highly efficient service actions. Wheniece of critical machinery calls for its own</p><p>intenance before it fails catastrophically or at anpportune time, the signal has more tangible economic</p><p>e than the cost of the equipment and the monitoringems combined. Given this, our clients are rethinkingir downstream service model prior to launch lying as much development consideration to theuing business shift as they do to the product. (See 1). They are creating hard links between thermation that will flow from their equipment, thelysis that is performed, and the actions that are</p><p>invoked, as a result. Instead of just launching aninstrument, they will launch an entire service networkand system.</p><p>In doing so, they are not just seeking the firstposition; they are also going for best, because this is whatseparates successful innovators from everyone else.</p><p>Once a company has succeeded in beginning the cycleof innovation, how does in realise real sales and profitreturns predictably?</p><p>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 or50%</p><p>45%</p><p>40%</p><p>35%</p><p>30%</p><p>25%</p><p>20%</p><p>15%</p><p>10%</p><p>5%</p><p>0%</p><p>% o</p><p>f R</p><p>esou</p><p>rces</p><p> Inve</p><p>sted</p><p>Value-Based Vs. Classic Product Development</p><p>Value-Based Product Development Process Investment</p><p>Planning Focus:</p><p>Often Met With:</p><p>Function/Price</p><p>Changes to Product</p><p>Problem/Solution</p><p>Integration/Bundles</p><p>Business Challenge</p><p>Infrastructure</p><p>New Behavior</p><p>Support Programs</p><p> Classic Development Process Investment</p><p>Fig 1: Value-based versus Classic developmentngineer | October/November 2005</p></li><li><p>Innovation</p><p>sersuflifelatecomFigconshasecdevreprusgrofeaperthethe</p><p>HperretuammaproexcgenmaovevartimcreverFigto ra ntha</p><p>Fimp</p><p>INNFrocanfirinscuscus</p><p>032-035_ME_OctNov05_EU.qxd 7/10/05 3:31 pm Page 43vice because if it does, its sales and profit potentialfer. Using client sales figures, we plotted the completecycle of a product first introduced by this firm in the 1990s, along with sales of and the number ofpeting products from other companies in the market.</p><p> 2 shows how this innovator launched their well-ceived and supported offer and took sales and marketre lead immediately, a close competitor claimed theond position soon thereafter, and as the marketeloped and more customers adopted the technology,licating competitors entered too, with the majorityhing in at the beginning of the end of the marketswth phase, sending the market into price andture/function warfare. This innovator led in salesformance throughout the lifecycle, gaining most from fastest growth phases, and then led again by exiting market first too.</p><p>owever, more than market share or salesformance, a successful innovator must learn to deliverrns to its investors to survive. Sustained profitability</p><p>ong innovators comes not from sales volume in lateturity stages or from ever owning the low-cost-to-duce position, as some might expect, but almostlusively from the timing of reinvestment in nexteration product and by exiting current generation</p><p>rkets before they become unruly. Using a model thatrlays multiple product lifecycle maps and controlsiables like investment, re-investment timing, exiting, process repeatability and customer loyalty, weated scenarios to demonstrate the effects of flawedses ideal timing in product lifecycle management. 3a shows that to be early or tardy exiting a market isisk both product line sales and profits. To be late withext generation product can create domino-effect lossest can be debilitating.ig 3b is a net profit scenario that assumes ideal, if notrobably perfect, product lifecycle management.</p><p>OVATION FUELS VALUE CREATIONm this comparison, and our previous discussion, we conclude that the overarching characteristics of ast and best innovator are: they own keen customerights they invest to get precise understanding of</p><p>teams investmotivaportfoprodu</p><p>Goouncereconosourcesimplbuildiare ovidea tha lastidelivevalue,</p><p>Nichola</p><p>$US </p><p>(M)</p><p>1</p><p>$US </p><p>(M)</p><p>1</p><p>A successful innovatormust learn to deliverreturns to its investors tosurvive</p><p>Fig 3a: </p><p>Fig 3b: tomer conditions, behaviours, motivators and whattomers value and why; they build skilled, creative</p><p>managto-busthat direct value-based development processes that not just in technology, but in programs thatte adoption; and they direct a multi-generationallio of products and/or services based on best</p><p>ct lifecycle management practicesd business leaders understand that market</p><p>tainty, a systemic condition of the dynamic globalmy, demands that growth must come from novels, especially innovative new offers. The days of</p><p>y adding more salespeople to get more orders orng more production capacity to increase revenueser. Thus, many companies have revived the goodat value creation must be the vehicle for growingng business, and therefore, they must learn tor the full result of innovation, which is to createwhich in turn returns profits. </p><p>s Hayes is a partner at FiveTwelve Group, aement consulting firm specialising in business-iness research, marketing and product strategy</p><p>Flawed Product Lifecycle Management</p><p>Period</p><p>Sales</p><p>Contributed Profit</p><p>Net Profit</p><p>3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37</p><p>Flawed Product Lifecycle Management</p><p>Period</p><p>3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35</p><p>Sales</p><p>Contributed Profit</p><p>Net Profit</p><p>Flawed Product Lifecycle Management</p><p>Ideal Product Lifecycle ManagementIEE Manufacturing Engineer | October/November 2005 35</p></li></ul>