Managing and Marketing Radical Innovations

Marketing New Technology

Birgitta Sandberg

• Publisher: Routledge
• Year: 2008
• eBook ISBN: 9781134081301
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book responds to a growing demand in the academic community for a focus on customer-related proactive behaviour in the study of radical innovation development, combining a thorough theoretical discussion with detailed international case studies considering the role of this proactivity in five firms engaged in the process. Unlike other studies

1 Introduction

1.1 Creating the market for radical innovations

1.1.1 The hidden market for radical innovations

Radical innovations are innovations that are new both for the firm and the market. According to Stefik and Stefik (2006: 3), “they do something that most people did not realize was possible.” It has been claimed that their development is critical to the long-term survival of many firms, since they provide the foundation on which future generations of products or services are created (McDermott and O’Connor 2002: 424). Furthermore, previous studies (e.g. Chaney et al. 1991) indicate that radical innovations have a greater return on investment than less-original new products. Not only do they have an impact on firms, they also affect society and customers, since they are engines of economic growth and sources of better products (Chandy and Tellis 2000: 2).

Although the importance of radical innovations is widely recognized, developing them is still rather poorly understood (Leifer et al. 2001: 102). Further research is thus needed, especially since the failure rate is particularly high due to the various challenges inherent in their development (cf. New Products Management for the 1980s 1982: 9).

The newness of radical innovations creates various challenges for the innovating firms. First, when transforming an idea into an invention, firms need to be able to cope with significant technological uncertainty. Overcoming the technological challenges is not enough to turn invention into innovation, i.e. to make it succeed commercially, however. Commercializing a radical invention also requires coping with considerable market uncertainty (cf. Dougherty 1996: 426–427; McDermott and O’Connor 2002: 430; Veryzer 1998a: 306–307).

Past literature emphasizes the fact that inventions can be turned into innovations when they fulfill customer needs (e.g. Crawford 1977; Holt et al. 1984: 27). It has been suggested that firms developing innovations ought to pay attention to the customers and their needs throughout the development process, from idea generation to launch (Holt et al. 1984: 1). This includes seeing marketing as dispersed in various functions within the firm and not as a separate function (cf. Moorman and Rust 1999: 180).

Creating a radical innovation that fulfills customer needs is extremely difficult, however, since at the earliest stages of the development process the firm may not even know who the customers¹ for the innovation under development might be (Deszca et al. 1999: 617). Furthermore, even if the customers are known, they themselves often cannot articulate the need for a completely new kind of product or service (Hoeffler 2003: 411; Veryzer 1998b: 143). Accordingly, in the case of radical innovations, “user-needs emerge only gradually for the users themselves” (Hyysalo 2004: 208; cf. Berthon et al. 2004: 1067). This may even make the collection of customer feedback insignificant and the results distorted. It has been argued that focusing on customers may even impede radical innovations (Christensen 1997: 208).

In sum, due to the inherent newness, it may be extremely difficult to react to customers’ needs and wishes during the radical innovation development process, even though reactiveness would often increase the chances of success in the marketplace. How, then, are markets for radical innovations created? Is some kind of reaction still possible? Are the firms developing these kinds of innovations able to anticipate the needs or even influence them? In fact, proactive behavior toward customers in terms of anticipating and influencing their needs may play an important role in building bridges between the innovation and the market.

1.1.2 The role of proactiveness in market creation

Proactive behavior, i.e. anticipating changes and even altering the environment, is often seen as a way in which firms can survive and actually benefit from the changes in their environment² (Harper 2000: 75–77; Morgan 1992: 24–37). However, proactiveness does not necessarily lead to success. It has been pointed out in studies by Tan and Litschert (1994: 13) and Liuhto (1999: 105), for example, that there are also situations in which reactive behavior brings better results.

Some earlier studies on innovation management have highlighted the importance of proactive approaches when developing innovations. Kaplan (1999) and Rice et al. (1998) accentuated the role of proactiveness in stimulating radical innovations within the firm. Hyysalo’s (2004) study emphasized the importance of anticipating prospective use during a radical innovation development process, and the study by O′Connor and Veryzer (2001) concentrated on market visioning in radical innovation development.

Narver et al. (2004) studied reactive and proactive market orientation in terms of creating and sustaining new-product success and came to the conclusion that both were needed, but proactive orientation seems to be especially important. Furthermore, Verganti (1999) studied how anticipation and reaction interact in the development of radical innovations. He concentrated only on the early phase of product development—the phase before the start of the detailed product design. He identified four different approaches to combining anticipation and reaction and suggested that none of these was a best practice in itself. He also found that anticipation and reaction were not mutually exclusive but rather interacted with each other. Early planning for reaction measures was considered important. These results are in accordance with those reported in a study by Evans (1991: 78–83) indicating that both proactive and reactive maneuvers are important for high-technology firms.

All in all, there are a very limited number of studies that concentrate on proactiveness and even fewer that concentrate on customer-related proactiveness in developing radical innovations. Further, there seems to be a lack of studies dealing especially with proactiveness during the whole innovation development process or concentrating on how to influence or create proactiveness in this process. This is rather surprising, since anticipating changes and influencing the environment seem to be crucial in developing radical innovations because products, markets and competitive boundaries are in a state of flux at that time (cf. Evans 1991: 68).

Firms creating radical innovations are frequently cited as examples of proactiveness (e.g. O’Connor 1998: 152; Salavou and Lioukas 2003: 103). However, the overall proactiveness of these firms may be questioned, since behavior toward customers may still be quite conventional, limited to selling the ready product to those who might not even know what they want (cf. Workman 1993a). Hence, these firms may behave proactively in the technical aspects of product development, but still be reactive toward their customers.

Nevertheless, in situations in which customer needs cannot be reacted to, proactive behavior toward them may enable firms to link new inventions to market opportunities (e.g. Nayak and Ketteringham 1986). Thus, it seems especially important to study customer-related proactiveness during the development of radical innovations more carefully. Since radical innovations are often targeted at international markets (e.g. Acs et al. 2001), the international aspect of the development cannot be ignored.

1.2 The globalization of radical innovation development

1.2.1 The utilization of knowledge on the global scale

Research on how globalization is affecting radical innovations is scarce. However, on the basis of findings from the few studies carried out on its effect on innovations in general (e.g. Acs et al. 2001; Devinney 1995; Gerybadze and Reger 1999; Golder 2000b), it could be concluded that it is redefining the nature of radical innovations as well. According to Devinney (1995: 74), since globalization is increasing the amount and diversity of information, and because the management of the innovation process is almost synonymous with the management of information acquisition, it is obvious that globalization is likely to lead to more innovation opportunities. However, realizing these opportunities also demands the effective dissemination and utilization of that information (cf. Kohli and Jaworski 1990: 3).

According to the study carried out by Gerybadze and Reger (1999: 264–266), distributed research and development activities and globally dispersed innovation processes are driven by the need to secure access to the most critical resources.³ One of the most critical resources for radical innovations is knowledge. The knowledge needed in innovation development could be categorized as R&D-based and market-based. R&D-based knowledge regarding the creation of the radical innovation is new raw information and thus is often communicated through face-to-face communication⁴ (see Meyer 1995: 180–181). Consequently, especially in R&D-intensive industries, the innovative activity tends to cluster spatially (Audretsch and Feldman 1996). This creates pressures toward concentration of the whole radical innovation development process in one location.

On the other hand, global competitiveness often requires tapping sources of technology around the world (Meyer 1995: 194). The extent of the internationalization of R&D activities has increased considerably since the 1980s (Gerybadze and Reger 1999: 254). Large multinational firms have been the drivers of this trend by extending their R&D to different foreign locations, which has led to the creation of multiple centers of knowledge in several geographical locations. Consequently, firms that strive to be among the leading innovators need to be present in more than one of these prime centers of science and technology. This global sourcing in the area of research and technology means that corporate learning can take place in various distributed knowledge centers (Gerybadze and Reger 1999: 254–255). Sölvell and Zander (1995: 21–23) use the concept “selective tapping” to describe how the firm creates its core technology in the home base and simultaneously use subsidiaries to tap the international environment to support this creation. They emphasize the fact that, even though it is rather easy to source basic factors of production worldwide, it is much more difficult to tap advanced factors and tacit knowledge from abroad.

The emphasis on access to R&D-based knowledge has lately been broadened to cover access to knowledge about lead markets. Presence in lead markets and learning from them is becoming increasingly important for innovative firms, as comparative advantage is apparently built on the efficient coupling of lead marketing, R&D and innovation (Beise 2004; Gerybadze and Reger 1999: 264–271). Nevertheless, this coupling on the international scale is rather demanding. Golder (2000b) studied the innovation development process in international markets and came to the conclusion that, although firms recognize the importance of sharing market intelligence, they admit that it is not done sufficiently on the international scale.

In any case, although a presence in the knowledge centers and/or lead markets can enhance the firm’s absorptive capacities⁵ (Cohen and Levinthal 1990; Holden 2002: 251–253), these capacities are also increasingly acquired externally through cooperation and networks (cf. Ritter and Gemünden 2003). The extent of this external procurement depends on both internal resources and transaction costs (cf. Nooteboom 2000).

However, since the studies presented above did not particularly focus on radical innovations or customer-related proactiveness, these findings are of limited use for this study. Although the dependence of the innovation development process on external knowledge exchange has been widely acknowledged (e.g. Golder 2000b; von Hippel 1986; Zander and Sölvell 2000), the results of studies on radical innovations indicate that their newness may considerably hinder the utilization of external knowledge (Christensen 1997; Veryzer 1998b). Nevertheless, it would be especially important to be able to apply external knowledge in the development of radical innovations, which often tend to be targeted toward international markets.

1.2.2 Targeting global markets

The international perspective also seems to be important in the search for markets for radical innovations. According to Acs et al. (2001), firms creating them almost always have to go international. It is extremely difficult to operate locally and simultaneously to find protection from intellectual piracy from abroad, and it is thus of paramount importance to be able to introduce innovations in many countries simultaneously. (Acs et al. 2001: 239; cf. Chryssochoidis and Wong 1996: 179; Millier 1999: 32).

In any case, large markets are needed to cover the high cost and risk associated with the development of a radical innovation (cf. Devinney 1995: 72). The need for international markets is particularly prevalent in situations in which the firm operates in narrow niches that are scattered thinly around the world (Hurmelinna et al. 2002).

According to Oesterle (1997), the internationalization of firms producing radical innovations is dependent on the climate in the home market. If the climate is hostile, i.e. buying power is low, the acceptance rate is generally low and competitors are defending their market share aggressively, the radical innovation is immediately taken to international markets. However, if the climate is friendly, radical innovations are first launched in the home market, and the internationalization follows the sequential process of market entry (Oesterle 1997: 141–144).

Even though radical inventions are often created in small firms, multinationals tend to have advantages in terms of their global commercialization because they are able to quickly introduce them in various countries simultaneously. Small firms, on the other hand, may lose control over their intellectual property, since they are often forced to use licensing when introducing their innovation internationally, for example. Since the risk of intellectual piracy is particularly accentuated in the case of radical innovations, it has been suggested that small and large firms could act together as symbiotic partners in creating global markets for them (Acs et al. 2001: 239–241).

In sum, the globalization of markets seems to put more pressure on globalscale market proactiveness: competitors can turn up anywhere at any time. It is also causing worldwide convergence of market structures (Levitt 1983) and thus creating more possibilities for international market proactiveness. The significance of international markets is generally recognized in innovation management, although most studies deal with incremental innovations and the coordination of their development in multinational firms (e.g. Golder 2000b; Ridderstråle 1996). Radical innovations are not usually considered, nor is the variety in size of the firms creating them. Hence, there seems to be a lack of studies on the presence of the international context in the radical innovation development process.

1.3 The research setting

1.3.1 The purpose of the study

Various researchers (e.g. John et al. 1999: 78; Workman 1993a: 405) have stated that there is a need for studies that concentrate on the linkage between innovation and the customers. Drucker (1974: 64–67) even argued that the two essential activities of business are “innovation” and “marketing,” and both of them are needed for long-term success.

However, as stated in Section 1.1, coupling innovation development with customer needs seems to be particularly difficult in the development of radical innovations. Their newness hinders reaction to customer needs. Therefore, customer-related proactiveness (i.e. acting based on the information gathered about the customers before their behavior has had a direct impact on the firm or deliberately influencing and creating changes in customer behavior) may play an important role in creating a market that did not even exist when the innovation development began.

The purpose of this study is to analyze the role of customer-related proactiveness in the process of developing radical innovations. In order to achieve this understanding, it is first necessary to deliberate on the concept of customer-related proactiveness more carefully, thereby enabling analysis of its degree and international scope along the innovation development process. Furthermore, since it has been argued that understanding an organizational process includes understanding the context (cf. Pettigrew 1988), the role of organizational variables in the creation of proactiveness ought to be considered as well. Consequently, the purpose of the study could be further divided into the following sub-objectives:

1. to analyze what customer-related proactiveness in developing radical innovations encompasses;
2. to anal...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of figures
• List of tables
• Preface
• Acknowledgments
• 1 Introduction
• 2 Proactiveness in the firm
• 3 Proactiveness toward customers
• 4 Developing radical innovations
• 5 Customer-related proactiveness in the case innovations
• 6 A modified framework of customer-related proactiveness during the development process
• 7 Conclusions
• 8 Summary
• Appendix 1: glossary of key concepts as defined in this study
• Appendix 2: list of interviews, discussions and correspondence
• Appendix 3: the most important publications utilized to complement the case descriptions
• Appendix 4: the most important publications utilized in the case selection
• Notes
• Bibliography