How do large companies pursue radical innovation? You know, the kind of new product that changes or creates a market. In my first blog I summarized the 6Ps, a template that I believe could help to increase the output of game-changing innovation. This was followed by the first “P”, PERSPECTIVE. The second “P” is POTENTIAL.
Large companies rarely need lessons in understanding markets; they know all about factors such as size, demographics, trends, behaviours and competition. They are also very good at future scenario planning. However this may not provide the appropriate context from which to estimate the potential of radical innovation. By definition, radical innovation significantly changes behaviour in a way that is difficult to predict from linear trend analysis.
These companies also have a very rational approach to the assessment of investment opportunities. Of course, they find that the expenditure line has a much higher level of confidence than either the timeline or the scale of revenue. For that reason large companies want to increase the level of confidence in the income stream. Various techniques are used; for example, many consumer goods companies will undertake a fairly standard sequential program of qualitative and quantitative market research. This will relate to a database of similar products launched in the past. So, as long as you do the market research correctly, you can reduce your uncertainty and proceed.
But, as I pointed out in a recent blog, if an opportunity can be valued in the way described above, you are probably dealing with tangible facts and an opportunity that is pretty close to what you already have. If there’s a comparative database of similar products, then you’re highly unlikely to be dealing with radical innovation.
Small entrepreneurial companies are much less able – or inclined – to do the forecasting work that large companies do so well. They make up for it with belief in the future presence of a viable market and speed getting there. The issue is not necessarily forecasting the rise or decline of markets. It’s more about taking the market information, then using judgment and as much iterative data as possible to make decisions - fast.
In assessing the future, nothing is absolutely objectively factual and devoid of subjective judgment. I would view this as a continuum, shown below.
Simplistically, large companies need to become more comfortable moving further to the left hand side of the spectrum. Radical innovation needs a higher proportion of judgment, and an iterative approach to development and further assessment of the opportunity. Often programs will start with a “fuzzy” view of the market potential. Iterations in prototypes and market tests, and a mix of novel and conventional consumer research, will build greater confidence as the project moves along. The objective should be gradually but as swiftly as possible, to progress towards the right hand side.
It’s essential to modify the approach to market research. The “cookie cutter” approach that works so well with incremental innovation is unlikely to be appropriate to the early stages of radical innovation. If the market research agency can’t adapt, then find one with a more flexible and creative mindset.
The difference with radical innovation is that you will need to press the “GO” button with fewer facts than when dealing with incremental innovation in existing product and behaviour areas. Innovation deals with parameters of specification (what you want to achieve), cost and time. If you’re too late, it doesn’t matter about the other two parameters, so increasingly speed is becoming the most important one. If you spend too much time trying to get more facts, you run the danger of diminishing potential simply because you become late.
Assessing the potential of radical innovation will of course be subject to the specific characteristics of the industry, market, product range and consumer behavior. Even though determining the potential of radical innovation in financial services or cleaning products will be different, I would argue that the principles are the same. They are;
- Rely much more on judgment to move projects ahead rapidly;
- Don’t apply the same criteria to incremental and radical innovation;
- Use a fast and iterative sequence of prototyping and market testing to learn and reduce uncertainty;
- Go to market as soon as you can, don’t wait for all the facts.
Assessing potential in this way can increase the chances of large companies delivering radical innovation. In the next blog I’ll discuss how prototypes can be used to iterate radical innovation and bring it to life.