CASE STUDY 7
Pre-Launch Decisions which Influence Innovation Success
It has been extensively documented in management literature that an incredibly large share of firms’ investments in technological innovation do not generate substantial financial returns. Three main reasons underlying this phenomenon can be identified. First, technological innovation creates knowledge and technological assets that often remain largely unexploited. Various studies show that between 70 and 90% of corporate technology assets often never get used in core products or lines of business. Second, the likelihood that an innovation project reaches completion and that the new product is introduced into the market is strikingly low. It has been estimated that the probability of new product commercialisation is about 40% in many industries, with some cases (e.g., pharmaceutics) where the mortality of innovation projects is much higher. Finally, a large share of the innovations that ultimately reach the market do not experience a satisfactory diffusion and their sales are discontinued. Empirical studies have shown indeed that on average 40–50% of fully commercialised new products turn out to be commercial failures.
An important managerial question is however left unanswered: which are the levers a manager can act upon to achieve adoption network acceptance and early 329330adopters’ acceptance for a high-tech innovation, having a given functional content and a set of technical specifications, which is introduced within the scope of a given competitive and product strategy (Table 7.5)?
TABLE 7.5 Commercialisation factors influencing the adoption of innovations
|Timing||· – When will the innovation first be launched into the market?|
· – Will the firm announce the innovation to the press long before its market launch?
· – Will the firm partner with external organisations long before the official market launch?
|Targeting and positioning||· – Which market segments will the innovation will be addressed to?|
· – Which will be the position of the innovation in the eyes of potential adopters in each of the targeted market segments?
· – Will the firm target different segments as long as the commercialisation process progresses?
|Inter-firm relationships||· – Which external organisations will the firm partner with during the commercialisation of the innovation?|
· – Which forms of relationships will be most appropriate (e.g., licensing agreements, strategic, long-term partnerships) to organise such relationships?
– Which bundle of additional adds-on, services and functionalities surrounding the ‘core’ innovation will be included in the basic configuration of the new product?
– Which type of distribution strategy (e.g., push or pull) will be needed to streamline the market penetration of the innovation?
– Which types of distribution channels will be chosen to deliver the innovation to market (e.g., retail or specialised distributors)?
– Which critical functions (e.g., customer education) will they be required to perform?
Advertising and promotion
– Which message will be communicated during the pre-announcement and post-launch advertising campaign?
– Which types of communication channels will be employed for these advertising and promotion initiComparing the commercialisation of the successful and unsuccessful systemic innovations in the sample, a number of decisions were taken along the dimensions.
Our analysis indicates that obtaining the support from the critical members of innovation’s adoption network requires chiefly a careful administration of the inter-firm relationships that are established before and along the commercialisation process.
The decision to prevent other companies (e.g., competitors and suppliers of complementary hardware and software) from manufacturing products based on the innovation’s underlying technology is likely to be a first detrimental decision for the large-scale adoption of a high-technology innovation. This is due to the strong network externalities that high-tech markets, because of their tight interconnectedness, are currently experiencing. Accordingly, letting the actors of the adoption network manufacture products based on the innovation’s technology (e.g., through advantageous out-licensing agreements) increases the availability of complementary products and the chances that a potential adopter chooses to purchase the innovation. This in turn exponentially enhances the value of the innovation in the eyes of both subsequent adopters and the other members of the adoption network, in a self-reinforcing double-loop cycle. The effects of this commercialisation decision are very clear when comparing the cases of the Palm Pilot (whose OS operating system was released for free to all manufacturers of adds-on and software applications) with that of Sony Betamax (with the Japanese firm that accepted to licence the underlying technology to Zenith only more than one year after launch, when the incoming success of the VHS by JVC was already undisputable)atives (e.g., mass or specialised channels)?