There are a lot of different definitions of the word innovation, and we use innovation in a variety of ways. Some say that innovation is creating something brand new. Others say innovation results in a salable product or service. Yet still others define innovation in terms of new or expanded markets for existing products and technologies.
My preferred definition of innovation is the result of a novel application of technology or marketing skills to enhance customer satisfaction with an improved or new product, service, or program. It’s important to build in quality and sales measures (customer satisfaction) lest we confuse invention with innovation.
Regardless of the definition of innovation you prefer, most of us are challenged with selling innovations to sponsors who will fund the effort. Many times innovations do include technical components that allow enhanced features, lower cost production, or improved distribution channels. Technologists need to be able to communicate the benefits of their ideas in order to obtain funding to advance the art and science of innovation. In essence, we need to know how to sell the innovation.
Three Steps in Selling Innovation
Whenever we speak of innovation, there should be three elements that build and support the new product development (NPD) effort: markets, technologies, and product categories. These also make up the three steps in selling innovation.
- Market (share)
- Technology (profit)
- Product (concept)
Markets, technologies, and product categories define the essential components of the innovation strategy. In addition, these three elements bridge the gap in communication between technical development teams and project executive sponsors. Best-in-class innovators may support their NPD process with idea intake templates to help project leaders and teams frame their innovation ideas into applicable markets, technologies, and product categories.
Even if your firm does not have a template for early stage ideation, focusing an innovation conversation with upper management on these three areas will demonstrate respect for his/her time and viewpoint. After all, senior management is not interested in the nitty gritty details – that’s why you’re there – but they are interested in the benefit an idea can bring to the company’s bottom line!
Market is the first element of the innovation strategy. We have described market share as a measure of success in another post. In short, market share is a metric that indicates the percent of product sales from your firm relative to all sales of like products in a given market. The market may be defined as narrowly or broadly as necessary to capture target customers and product uses. Trends in market share over time are meaningful for monitoring and benchmarking product sales, customer satisfaction, and competitive threats.
Innovations must demonstrate sustainable market share over the life cycle of the product or service. Normally, senior management will expect a growth in market share relative to competition for innovations delivering product improvements or enhancements to an existing product line. A new-to-the-world product will, by definition, have 100% market share upon introduction but must demonstrate characteristics (like brand loyalty and quality) that will sustain high market share once competitive products are released in the same target market. A reasonable concern for senior management is investing in a new product that doesn’t sell and then they have to write-off a warehouse full of deficient widgets.
Hand in hand with market share is profit. Companies are in business to make money. When selling your innovation to sponsors, the project leader and the NPD team will need to show how the new product or service can make a profit. Simply put, sales revenues must exceed investment expenses and the manufacturing cost.
Of course, the NPD team will not initially have sales price or sales volume data. Neither will manufacturing costs be available, defined, or detailed during ideation. The NPD process is designed to help senior management accept low levels of investment risk while the NPD team proves the R&D and product concepts with market research. Early stage estimates of costs should be acceptable within a range of +50% to -50% to demonstrate proof-of-principle. A well-designed and efficient NPD process will encourage approval of early stage projects with rough, order-of-magnitude profit estimates since the process will continue to force refinements on technology and market predictions.
Management plays a role in selling innovation from a profit perspective as well. While the NPD teams may try to explain every technical detail that makes the product a success, management must not demand accuracy of sales and expenses that is inconsistent with the NPD process phase. Executives must accept a degree of uncertainty for early stage innovations. Following the life cycle of a similar innovation can bring comfort to both the NPD and management teams approving projects. Analogous development and manufacturing expenses can be compared to similar product sales figures for a rough estimate of profit for a new technology.
Product Category (Competition)
The last arena of innovation strategy is often harder to gauge for senior management and the NPD teams. However, a full strategic analysis for a new product should account for competition. Naturally, the timing and intensity of competition after a new product launch impacts the market share and profit potential of the innovation.
Competition can be analyzed through a traditional SWOT analysis (strengths, weaknesses, opportunities, and threats). The first two element of the SWOT analysis are largely internal within the domain and control of the firm. Opportunities and threats focus externally and can help the firm to identify appropriate competitive actions. The NPD team should use market research data and available trade literature to anticipate competition’s actions in response to the commercial launch of the new product. Patent literature, for example, will indicate the parties and intensity of competitors’ participation in the markets and technologies of interest.
In some cases, an innovation will necessarily follow a first-to-market strategy. In other situations, the firm may choose to implement a fast-follower strategy to best take advantage of competitor’s market-building and technical education of target customers. Explaining the advantages and disadvantages of these product category approaches can help the project leader and NPD team sell the innovation to upper management.
Many times, innovation efforts are led by the technical experts and R&D teams who understand the new product functionality. Unfortunately, a deeply technical conversation may alienate busy executives and forever kill the innovative ideas. New product development practitioners can follow three easy steps to strategically sell innovations to sponsors for funding.
First, NPD project leaders must briefly explain how a product or service innovation will sustain and/or grow market share. Market share is normally a leading indicator of sales revenues and by addressing this key element of markets, an innovation can demonstrate strategic alignment.
Next, the technology matters but management trusts the NPD team for details. Instead, project managers need to focus on explaining how technology improvements, enhancements, and developments will increase profit potential for the firm. Again, senior management doesn’t need to hear about the inner workings of the sub-widget installed in the newly designed thing-a-ma-jig. Instead, busy executives want to be assured that the cost of development and manufacturing will be low enough to make a significant profit in a reasonable time.
Finally, executives are concerned about competitive responses. Presenting a SWOT analysis can help the NPD team support the product development effort by showing internal and external approaches to potential competitive responses, while still demonstrating market share and profitability.
To learn more about managing early stage innovation and R&D projects, please contact Global NP Solutions at firstname.lastname@example.org or by phone at 281-280-8717 for additional details. You may also enjoy learning more about managing projects in an NPDP workshop. Workshops address the processes and best practices leading to successful NPD strategies. NPDP workshops are held monthly through guided webinars or at your own pace in a cost-effective self-study format. We now also offer project management training through our partner, Leap University. Use code GNPS2015 to save $50 on your registration.
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