Found this brilliant article that I happen to agree with COMPLETELY. In fact, I believe Daniel Scocco must have read some of my papers! He says that managing, actually, CREATING new markets is distinctively different from managing current ones. He’s absolutely, positively correct.
While he focuses on reviewing the reason why MBA students don’t learn how to do the latter (because as his Professor correctly pointed out, business schools offer Masters in Business Administration rather than Masters in Business Innovation (MBI)…. The Lally School is addressing this very problem!). I’d like to focus on why companies don’t know how to create new markets.
The fact is, companies don’t have a process for new market creation. They use conventional market management techniques (The Blu-ray HD-DVD tussle is a case in point). Companies refuse to engage with the market early and often when they have a novel technology that could take them down a myriad of application paths. Look at what happened to Analog Devices when they first realized the possiblities for accelerometer technology. They had wanted to enter the automotive market (why?….because it’s BIG. Does that make it a smart choice? NO). So they found a way to make accelerometers that could detonate airbags…for 5% of the cost of the technology that was being used at the time. Now that’s a radical innovation, right?
Great. But they could not make a profit. They priced based on an estimated cost at a full volume, assuming finely honed manufacturing processes that provide cost economies.
In the meantime, they started talking about accelerometer technology. At professional and technical conferences, In the news. Everywhere.
Companies began calling them. “We see a use for this,” said the gaming industry. “How about medical applications?” said a medical instrument company. And there were more. It turned out that these smaller, niche application areas would tolerate higher prices than the automotive industry would.
It’s a phenomenon we’ve seen many times. We call it application migration. For the case of Analog Devices, it looked like this:
So how can companies CREATE new markets for novel technologies?
1. Realize that the application choices your discovery team elects to pursue are for learning the possible market landscape. Don’t focus on implementing the first application explored. Explore many applications, and explore them simultaneously.
2. Get a New Business Creation person (one with an MBI, not an MBA!)…on the technical team. This is different from a New Business Development person. People think of NBD roles as either a) those who find and vet potential acquisition/merger candidates, or b) those who find new markets to sell current products/solutions into. NBC is different. These people create new value chains, find customers for an entirely new to the world product who may never have been identified as a ‘market’ before. It’s a difficult job, but it’s extreme. Fun, that is.
3. Make sure there’s no pressure on the ultimate business unit to deliver high margin profit on the breakthrough platform before the pursuit of applications defines just that, an entire platform of product lines. Most of the time the business unit is so pressured to show profits they commercialized the low hanging fruit of a radical innovation, and then forget the rest. What a waste.
4. Talk about the technology, before it’s perfected. Talk about its promise. You don’t have to reveal HOW it works, only that it works. DuPont used to put ads in trade and science magazines describing the properties of their coolest materials. These ads asked the market (technical people in other companies) what they perceived the material could be used for. What a way to create a market! Here’s one for Biomax, a biodegradable polyester material that we studied long ago.: DuPont doesn’t run such ads anymore. But wow, they sure helped stimulate markets.