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Commercial Success from Innovation

Guaranteeing the commercial success of an innovation is a key challenge across industries. In fact, a surprisingly high percentage of companies initiating a radical innovation – i.e. an innovation which consists of a novel technology bringing novelty to the market - fail to convert them into commercial success. In this presentation, I look at some examples of successful and unsuccessful launches across various industries to explore and uncover what it takes to take innovation all the way.

Although different industries require different approaches to innovation commercialization, we observe that the barrier to success often is not a failure in technology but the reliance on a commercialization strategy that is not sufficiently innovative. To fuse both the technology/science side and the innovative market perspective, a grassroots innovation process – in which innovation is generated bottom-up with support, however, of top management – is a good approach. Following such a process allows companies to find the “sweet spot” which is a combination of matching an unmet customer need with a great solution and a profit generating strategy.

Successful companies have in common that they identified the right commercialization strategy for their innovations. To achieve this, three steps in successful commercialization are essential. First, developing a solid hypothesis on the market through observation of customers: Customer intimacy -instead of customer surveys- is the key to success here. Dropbox, PatientsLikeMe, and Tesco are good examples of how a market hypothesis through observing the customer led to a successful innovation. Second, experimentation (on a limited scale) to validate that hypothesis early on. Experiments are the best way to find out whether your solution could be effective for your customers. Third, finding a matching business model: pricing and costing is an essential part of the innovation process and not just the job of specialists. Throughout these 3 steps, learning and adapting are key in becoming successful as you can be sure that you will not execute according to the plan. You thus need to prepare for failure in innovation because otherwise, you are probably not innovative enough.

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Commercial Success from Innovation

  1. 1. Commercial Success From InnovationProf.dr. Stefan StremerschErasmus University Rotterdam IESE Business SchoolRotterdam, the Netherlands Barcelona, SpainStremersch@ese.eur.nl Sstremersch@iese.edu © Property of Stefan Stremersch©
  2. 2. In Search for Commercial Success… A Great Solution $trategy Unmet Generating Customer Profit$ Needs 2 © Property of Stefan Stremersch©
  3. 3. … From a Structure Perspective…Science Market 3 © Property of Stefan Stremersch©
  4. 4. 1. The Visionary Leader 4 © Property of Stefan Stremersch©
  5. 5. 2. Delegate Responsibility to FunctionsR&D has the responsibility tocome up with innovative ideasand solutions Marketing has the responsibility to understand customer needs 5 © Property of Stefan Stremersch©
  6. 6. “Highway to Hell”Degree ofInvolvementin the job R&D/ Engineering Marketing Discovery Development Launch Growth (Idea  Concept) (Prototyping  Manufacturing) 6 © Property of Stefan Stremersch©
  7. 7. 3. Grassroots InnovationGrassroots Innovation – emerges from the grassroots. 7 © Property of Stefan Stremersch©
  8. 8. Grassroots Innovation: Cases 8 © Property of Stefan Stremersch©
  9. 9. Grassroots Innovation at Alcatel-LucentN. Camacho, I. Verniers, C. García-Pont and S. Stremersch(2012), Alcatel-Lucent: Marketing the Cell Phone as a MobileWallet, IESE Business School, Case M-1279-E. Link:http://www.iesep.com/es/alcatel-lucent-marketing-the-cell-phone-as-a-mobile-wallet-83845.html 9 © Property of Stefan Stremersch©
  10. 10. iTREK: Open Innovation with Students 10 © Property of Stefan Stremersch©
  11. 11. Symbiosis Between Science and MarketDegree ofResponsibilityand Passion R&D/ Engineering Marketing “Stairway to heaven” Discovery Development Launch Growth (Idea  Concept) (Prototyping  Manufacturing) 11 © Property of Stefan Stremersch©
  12. 12. … From a Process Perspective…Science: Market:Discover new technology and hypothesize Discover unmet customer needs andhow it can be used to solve user needs hypothesize how they can be solved 12 © Property of Stefan Stremersch©
  13. 13. The Shortest Distance From Lab to Market Market Early Business Hypothesis Validation Model Learn and Adapt Learn and Adapt 13 © Property of Stefan Stremersch©
  14. 14. When you make a business plan, the only thing you knowfor certain is you will not execute according to the plan“Everybody has a plan until they get punched in the face.” Mike Tyson
  15. 15. Developing Your Market Hypothesis Market Early Business Hypothesis Validation Model Learn and Adapt Learn and Adapt 15 © Property of Stefan Stremersch©
  16. 16. How Do You Find What’s In the Horizon? © Property of Stefan Stremersch© 16
  17. 17. “Prediction is very difficult…”“…especially if its about the future.” Niels Bohr Nobel laureate in Physics (1922) © Property of Stefan Stremersch© 17
  18. 18. Hypotheses from Observation 18 © Property of Stefan Stremersch©
  19. 19. “We found Koreans are thesecond hardest workingpeople in the world. So wedevised a way to have thestore come to the people.” 19 © Property of Stefan Stremersch©
  20. 20. Hypotheses from Observation 20 © Property of Stefan Stremersch©
  21. 21. Hypotheses from Observation 21 © Property of Stefan Stremersch©
  22. 22. Customer Intimacy,Not Customer Surveys. Few Many 22 © Property of Stefan Stremersch©
  23. 23. Early Validationof Your Market Hypothesis Market Early Business Hypothesis Validation Model Learn and Adapt Learn and Adapt 23 © Property of Stefan Stremersch©
  24. 24. Early Validation:Can Only Be Done by Doing It! 24 © Property of Stefan Stremersch©
  25. 25. “If you shipped your product and you’re not ashamed of it,you’ve probably shipped too late.” Reid Hoffman Executive Chairman and co-Founder of LinkedIn © Property of Stefan Stremersch© 25
  26. 26. Validation from Experimentation... 26 © Property of Stefan Stremersch©
  27. 27. Validation from Experimentation... 27 © Property of Stefan Stremersch©
  28. 28. Validation from Experimentation... 28 © Property of Stefan Stremersch©
  29. 29. Validation from Experimentation…“Blockbuster” Roll-Out “Controlled” Roll-Out 29 © Property of Stefan Stremersch©
  30. 30. Business Model Market Early BusinessHypothesis Validation Model Learn and Adapt Learn and Adapt 30 © Property of Stefan Stremersch©
  31. 31. Business Model for Mobile Payment Consumer’s Bank Payment Card Merchant’s (Card Issuer) Network Bank Consumer MerchantN. Camacho and S. Stremersch (2012), Rabobank Corporate Netherlands: Turning theSmartphone into an Engine of Bottom-Line Growth, IESE Business School, Case M-1286E. Available from: http://www.iesep.com/ 31 © Property of Stefan Stremersch©
  32. 32. Business Model for Mobile Payment App-based A Full Solution Software-as- Model for Merchants Service 32 © Property of Stefan Stremersch©
  33. 33. How Can Ryanair Fly You So Cheap? Avgerage Fare (EUR) 324 267 235 94 106.644 65 33 © Property of Stefan Stremersch©
  34. 34. Ryanair Economics: London-Barcelona90 180 5.5 Advertising revenue per Profit passenger 670 4 Subsidies 2 Cost = EUR 7060 Credit card handling fee50 30 Priority boarding40 One bottle of water30 Checking-in bagagge20 35 Ticket price100 34 © Property of Stefan Stremersch©
  35. 35. In Summary:The Hot Spot of Commercial Success Market Early Business Hypothesis Validation Model Learn and Adapt Learn and Adapt 35 © Property of Stefan Stremersch©
  36. 36. In Summary:The Hot Spot of Commercial Success A Great Solution No-Customer No Profit Failure Failure $trategy Unmet Generating Competitive Failure Customer Profit$ Needs 36 © Property of Stefan Stremersch©
  37. 37. In Summary: Conclusions • Grassroots innovation: essential in a firm’s innovation strategy to fuse market and science • Formalize functional co-operation: Avoid highway to hell • The only thing you know for certain is you will not Market Early Business execute according to the plan •Hypothesis Validation Model In innovation, prepare for failure. Otherwise, you are Learn and Learn and Adapt Adapt not innovative enough • Learn & ADAPT! A Great Solution • Customer Intimacy, not customer surveys • Validate quickly by doing it on limited scale $trategy Unmet • Pricing and costing is an integral part of the innovation Generating Customer process not the job of specialists Profit$ Needs 37 © Property of Stefan Stremersch©
  38. 38. Prof. Dr. Stefan StremerschFollow me on Twitter: @StStremersch 38