From Imagination to Innovation: New Product Development for Quality of Life

From Imagination to Innovation

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A. Coskun Samli

From Imagination to Innovation New Product Development for Quality of Life

A. Coskun Samli Coggin College of Business University of North Florida Jacksonville, FL USA [email protected]

ISBN 978-1-4614-0853-6 e-ISBN 978-1-4614-0854-3 DOI 10.1007/978-1-4614-0854-3 Springer New York Dordrecht Heidelberg London Library of Congress Control Number: 2011934682 © Springer Science+Business Media, LLC 2011 All rights reserved. This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, LLC, 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed is forbidden. The use in this publication of trade names, trademarks, service marks, and similar terms, even if they are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)

This book is dedicated to innovators throughout the world. Your work will make our lives better and happier.

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Preface

Marketing is generating and delivering an improved quality of life by providing innovations that are successfully developed and disseminated. Managing the dissemination of a product should not be taken as a given. Many years ago I had a little company with two patented innovations. We thought such good products will catch the attention of the market immediately. How wrong we were. Those products never hit the market. So, innovations must be disseminated effectively, which requires careful planning. It is impossible to measure the economic and psychological benefits of previous innovations such as the sewing machine, the polio vaccine, or the Internet. What we know is that these innovations have changed our lives as they generated considerable return to the companies that developed the products associated with them. But it is extremely important that such new products and services emerge continually in domestic and global markets and that they improve the prevailing quality of life for everyone around the world. This requires a governmental and global focus on innovation. Unfortunately, too many countries spend much more money on military activities than on innovations. Does this mean we prefer misery and death over happiness and a better quality of life? It is unfortunate that the answer may be yes. Let us establish as fact that the world needs more innovations and breakthroughs so that the next generation will be better off than the current generation. Without a global innovation culture, we are likely to face a deteriorating quality of life and we may even destroy ourselves. If we were to develop a global innovation culture, we would need to establish some critical ground rules: First, generating considerable profit does not necessarily entail taking advantage of consumers or of the society as a whole. Indeed the society is generous and rewards innovators who have created valuable products that enhance quality of life. The market expresses its gratitude by enabling companies to earn much money if their contributions to the quality of life are notable. In fact, such mutual support between companies and the market is the essence of advancement in modern societies. Second, through innovation we must generate benefit for the society as a whole and not at the expense of certain segments. Major breakthroughs in a society cannot be built vii

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on the losses, struggles, or unappreciated toil of some of its people. Major innovations, in other words, cannot be discriminatory. They must reach out and touch everyone. Third, the society must establish an atmosphere that will stimulate the exploration of alternatives for an improved quality of life. This is achieved by major innovations that are breakthroughs that affect all members of society directly or indirectly. But this also requires that society is emphasizing not armaments and death but happiness and constructive living. Fourth, companies that carry out economic activity in modern societies know that they need to adapt and evolve as their respective societies advance. If their respective societies do not receive benefits from the company’s innovations, these companies may not survive (Trott 2008). This means companies and societies owe it to each other to advance for everyone’s sake. Societies advance in time. For example, we did not have the Internet until the 1990s, but today a large proportion of the world population uses it for communication, for research, and for making purchases. Similarly, society had other types of entertainment before the advent of You Tube, the iPhone, the iPod, and the iPad. As the societies change and advance, the need for new industries becomes apparent. The recent BP oil spill has engendered tremendous pressures for the development of renewable energies, and governments as well as industries will have to respond to these powerful pressures. As new sources of energy are developed, new and even unimaginable products will emerge. If these products are good, societies will adopt them, and thus these new innovations will help enhance the quality of life everywhere. This book discusses the innovation and creation of products and services that promote better quality of life and that are financially remunerative for the businesses that develop them. As new innovations help foster a better quality of life, consumers will become aware of new needs. These needs will empower the emergence of many new and advanced products. Thus, new industries will develop and new niche markets will emerge. Innovations expand industries, as new firms emerge that produce somewhat similar products and are engaged in competition (Forbes and Kirsch 2010). As new innovations are introduced to the market, societies and quality of life advance. As the world emerges from the current recession, many economic analysts and researchers believe that new and radical innovations leading to new products are necessary worldwide for the economy to improve. Dream machines (Nathan and Excell 2010) that are developed by the limitless freedom provided by new and radical technologies are leading to the emergence of niche markets (Clemons et al. 2010). These dream machines are creating new norms that organizations must understand and appreciate so that they can survive, adapt, and prosper (Stanley 2010). In short, there must be better ways to innovate so that the economic doldrums are eliminated. An innovation is introduced to the market by a company. But even the most potentially important innovations can fail if they are not effectively introduced in the marketplace. A poor effort to introduce a major innovation can deprive a company, a country, and consumers everywhere of the possible benefits of this product. As is discussed in this book, new products can vary from a simple line extension, such as the same product in a different color, to a radically different new product. This book takes a radical progressive orientation to innovations. Major innovational breakthroughs are most likely to begin with a culture of innovation first within

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a society and then within a corporate entity, and not simply for making money but also for improving quality of life. There is an ongoing competition between making money and improving quality of life. Unfortunately, making money appears to be winning. But our future depends on fostering major innovations, as is advocated in this book. It is critical that properly challenged imaginations be welcomed in the society and in corporate entities so that they lead to the development of much needed innovations. I hope that this book will make a modest impact in that direction.∎ Exhibit P.1 presents a summary of this preface. Innovation is a very critical economic development factor. If the economic might of a country or company reaches into trade leadership, and if the country or company is so oriented, it can directly impact economic growth by creating jobs and by influencing other related industries. Innovations can trigger the development of niche markets. Trade leadership, economic growth, and emerging niche markets may all lead to emerging new industries. Such industries will play an important part in a country’s economic advancement. The value of the enhancement of quality of life cannot be measured by its cost. This book discusses how these developments can take place and how we may organize to succeed in these major endeavors. The world’s future depends on these advancements. The General Model of Innovation’s Role Trade Leadership

Innovation

Economic Growth

Emerging New Industries

SocioEconomic Advancement

Emerging Niche Markets

Exhibit P.1  The general model of innovation’s role

References Clemons, Eric K., Nunes, Paul F., and Reilly, Matt (2010), “Six Strategies For Successful Niche Marketing,” Wall Street Journal, May 24, 1–4. Forbes, Daniel P., and Kirsch, David A. (2010), “The Study of Emerging Industries: Recognizing and Responding to Some Central Problems,” Journal of Business Venturing, January, 1–14. Nathan, Stuart, and Excell, Jon (2010), “Additive Manufacturing. Dream Machines,” The Engineer, May 24, 22–27. Stanley, Marty (2010), “Accountability: The New Normal,” Supervision, July, 16–19.

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Acknowledgments

Forty-five years ago I had a small company in southern Illinois. We had a couple of patented innovations that we were trying to introduce to the market. Throughout those years I lectured and conducted research on new product development, innovations, and the dissemination of innovations. This book had its start in 2008 when I received a book by Alexander Manu, The Imagination Challenge (2007), which I studied very carefully. In 2008 and 2009 I was honored by receiving the Evren professorship for the summers at Florida Atlantic University, where two department heads, Eric Shaw and James Gray, encouraged me to discuss the topics that I considered very important. My mission was to promote “globalization from the bottom up,” which also is the title of a book I wrote in 2008 (published by Springer). However, this can be achieved primarily by “international entrepreneurship,” which is the title of a book I wrote in 2009 (published by Springer). With the emphasis on international entrepreneurship it was inevitable that I deal with innovations because I believe good entrepreneurs are also innovators. By the summer of 2010 I had already outlined this book. While I was discussing parts of it in my graduate class at Florida Atlantic University, my research assistant at the University of North Florida, Rachel Perlmutter, was helping me with literature research. She is instrumental in the development of this book, as she identified some important materials in the literature and discussed with me many aspects of this book before it was written. This helped me to put my ideas together and eventually to present them in this book. Many other people, in addition to my graduate students, made major contributions to my thinking. Professor Joseph Sirgy of Virginia Tech, friend, colleague, and coauthor for many years, has been always there to interact with me and help generate new ideas. Professor Ed Mazze of the University of Rhode Island periodically responded to my sometimes outrageous questions. My local colleagues, Dr. Adel I. El-Ansary, Dr. Ronald Adams, and Fred Pragasam, were always there to interact with me. My other assistants, John Wells and Weston Probst, have been very helpful in finding materials and keeping the discussions going. My daughter, Ayla Samli, with her insightful thinking interacted with me many times over the years. I am also grateful to my new dean, Ajay Samant, for just being there and encouraging me to write, My previous dean had prevented me from writing scholarly books so xi

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Dr. Samant was an extremely welcomed change. Bill Watts helped me with some of the editing, which was desperately needed in the early stages of this book. My brother Osman Samli, who lives in Istanbul, was always one phone call away. He helped me in developing my own concepts. My tennis buddy, Necdet Senhart, who is a successful entrepreneur, was always ready to interact with me. I learned a lot from him. I thank Susan Watts for typing the manuscript. She was able to read my handwriting, which I must admit I sometimes could not read myself. My editor, Nick Philipson, is the best in the world. He has tremendous ideas and he encourages me nonstop. I am especially grateful to him. Finally, my greatest critic, my wife Bea Goldsmith, argued every point and put me in my place, but she also fed me with outstanding meals that were always encouraging. To these and many other people and students with whom I interacted, I am totally grateful. I believe it is important that one continues to work as one ages; I hope that this book will prove it. Ponte Vedra, Florida

A. Coskun Samli

About This Book

This book is based on my 50 years of teaching, research, and consulting. It develops the idea that the world needs innovations, and it discusses how innovations contribute to the quality of life. Chapter 1 presents a general statement regarding how firms generate value for societies. That is the essence of innovation. Chapter 2 explores what imagination is and how it influences major innovations, which in this book are called radical innovations. Without imagination stimulated by free thinking, radical innovations cannot occur. Chapter 3 examines how the process of innovation takes place. Every organization needs to foster an innovation culture. Chapter 4 connects innovation with both imagination and creativity. It posits that without imagination, creativity cannot generate radical innovations. Chapter 5 advocates for radicalism in innovation development. Both imagination and creativity must work in that direction. Chapter 6 analyzes what happens to a firm’s current products in the marketplace. Chapter 7 discusses how organizations can cultivate its workers’ imagination to address megatrends and latent needs, resulting in radical innovation ideas. Chapter 8 emphasizes the importance of the corporate culture in fostering innovation. It examines the critical aspects of how the corporate culture becomes more innovative. Chapter 9 discusses how innovative organizations are learning organizations. As such they need to be developed accordingly. Chapter 10 explores how innovations are disseminated. Without successful dissemination, innovations fail.

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Chapter 11 examines how new product development strategies are constructed. These strategies are connected to product life cycles and emphasize the examination of future product potentials. Chapter 12 emphasizes that all companies need a futuristic product portfolio to survive as market conditions change. Chapter 13 maintains that there will be no future if the companies do not use imagination. Imagination used properly pays off. Chapter 14 describes the futuristic orientation with many innovational ideas, and presents a research agenda. Chapter 15 discusses how a major innovational orientation by corporate entities cannot materialize without a national innovation culture. It discusses how that can be accomplished. Chapter 16 points out that innovations need to be internationalized, without which innovations cannot have a long-lasting impact. Finally, an open letter to readers identifies how innovations are a must and everyone must be engaged in their development.

About the Author

Dr. A. Coskun Samli is Research Professor of Marketing and International Business at the University of North Florida. He received his bachelor’s degree from Istanbul Academy of Commercial Sciences (currently Marmara University), his MBA from the University of Detroit, and his Ph.D. from Michigan State University. As a Ford Foundation Fellow, he has done post-doctoral work at UCLA, the University of Chicago, and as an International Business Program Fellow at New York University. In 1974–1975, he was a Sears-AACSB Federal Faculty Fellow in the Office of Policy and Plans, U.S. Maritime Administration. In 1983, Dr. Samli was invited to New Zealand as the Erskine Distinguished Visiting Scholar to lecture and undertake research at Canterbury University. In 1985, Dr. Samli was a Fulbright Distinguished Lecturer in Turkey. He was selected as the Beta Gamma Sigma L.J. Buchan Distinguished Professor for the academic year 1986–1987 to work at North Carolina Agricultural and Technical University. He was given a research fellowship by the Center of Science Development, South Africa, in February 1995. He was awarded a fellowship by the Finnish Academy of Sciences to teach a doctoral seminar in June 1999. Dr. Samli is the author or coauthor of more than 250 scholarly articles, 21 books, and 30 monographs. Dr. Samli has been invited, as a distinguished scholar, to deliver papers in many parts of the world by many universities. He has lectured extensively in Europe, the Middle East, the Far East, Oceania, and many other parts of the world. He was very active in the Fulbright Commission. Dr. Samli is on the review board of seven major journals. He was a cofounder and the first president and a research fellow of the International Society for Quality of Life Studies (ISQOLS). Dr. Samli is a Distinguished Fellow in the Academy of Marketing Science and a past chairman of its board of governors. He has done some of the earlier studies on the poor and the elderly, and on price discrimination. His most recent books are Entering and Succeeding in Third World Countries, published by Thomson (2004); Up Against the Retail Giants, published by Thomson (2005); Chaotic Markets, published by Praeger (2007); Globalization from the Bottom Up, published by Springer (2008); and International Entrepreneurship, published by Springer (2009).

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Two earlier books, Social Responsibility in Marketing (1993) and Empowering the American Consumer (2001), were considered among the most important academic books in the United States by Choice Magazine, which is managed by librarians. Dr. Samli has worked with hundreds of small and medium-sized businesses as a consultant over a 50-year period, and he has conducted many seminars before hundreds of business managers and graduate students in Turkey. Dr. Samli has had more than 25,000 students from all over the world. Many of them are now professors, successful businessmen, and statesmen. He reviews dissertations as an outside international expert. Dr. Samli was recipient of the Harold Berkman Service to the Discipline Award given by the Academy of Marketing Science in 2008. During the summers of 2008 and 2009 he was the recipient of the Evren Professorship at Florida Atlantic University. In 2010 he was awarded the first James M. Parrish faculty award at the University of North Florida.

Contents

  1 Introduction............................................................................................. The Firm and Its Products......................................................................... An Introduction to the Value Diamond..................................................... The Essence of Innovation........................................................................ References.................................................................................................

1 1 2 4 6

  2 From Imagination to Creativity............................................................. What Is Imagination?................................................................................ The Six Steps............................................................................................ Imagination in Action............................................................................... Imagination Building................................................................................ Enter Creativity......................................................................................... Imagination Versus Creativity................................................................... Cultivating Imagination............................................................................ Using Imagination for Creativity.............................................................. How Does Creativity Work?..................................................................... Summary................................................................................................... References.................................................................................................

7 7 9 9 10 11 11 12 13 14 14 15

  3 Innovation, Innovation, Innovation....................................................... The Process of Innovation......................................................................... Innovative Individuals and Companies..................................................... Active Imagination.................................................................................... Can an Organizational Innovation Culture be Developed?....................... Imagination Plus Creativity...................................................................... Summary................................................................................................... References.................................................................................................

17 18 18 19 20 22 22 23

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Contents

  4 The Road to Innovation.......................................................................... The Innovation Thought Process.............................................................. Creativity-Fueled Innovation.................................................................... Thinking Within the Box Versus Thinking Outside of the Box................ Summary................................................................................................... References.................................................................................................

25 25 26 27 29 30

  5 Thinking Outside of the Box.................................................................. Imagination and Creativity, Pure or Otherwise......................................... From Possibilities to Causalities............................................................... Radicalism All the Way............................................................................ Summary................................................................................................... References.................................................................................................

31 31 33 33 34 34

  6 Existing Demand Versus Nonexisting Demand.................................... What May Happen to Current Products.................................................... Facing Variations in Market Demand....................................................... Product Market Opportunities................................................................... Summary................................................................................................... References.................................................................................................

35 35 36 38 40 40

  7 Putting Imagination to Work................................................................. Creating a Breakthrough Is Not Easy....................................................... Imagination Within the Organization........................................................ From Megatrends to Innovation................................................................ A Brief Description of Megatrends........................................................... Latent Needs............................................................................................. Future-Focused Group.............................................................................. Scenario Building...................................................................................... Consumer Input......................................................................................... Critical Thinking....................................................................................... Basic Research Developments.................................................................. Futuristic Orientation................................................................................ Summary................................................................................................... References.................................................................................................

41 41 43 43 45 45 46 47 47 47 47 48 48 48

  8 The Drive to Innovate............................................................................. Corporate Culture...................................................................................... Proactive Radicalism................................................................................. Further Implementation............................................................................ Exercising Radicalism Forcefully............................................................. The Essentials of Innovative Behavior...................................................... Misconceptions to Watch Out For............................................................ Summary................................................................................................... References.................................................................................................

49 49 51 52 52 53 55 55 56

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  9 Developing Learning Organizations...................................................... The Knowledge Chain.............................................................................. Using the Knowledge Chain..................................................................... The Strategic Information System............................................................ Summary................................................................................................... References.................................................................................................

57 57 58 60 61 62

10 Diffusion of the Innovation.................................................................... The Diffusion Groups............................................................................... Critical Issues with the Diffusion Process................................................ Original Resistance................................................................................... Chasm-Crossing Strategy.......................................................................... From Diffusion to Life Cycle................................................................... Characteristics of the Product Idea-Decay Curve..................................... Incubator Guidance................................................................................... Summary................................................................................................... References.................................................................................................

63 63 65 66 67 67 69 70 71 71

11 Principles of Developing a New Product Strategy............................... Fast-Learning Versus Slow-Learning Products......................................... Ambidexterity Regarding Time................................................................ Developing a New Product Strategy......................................................... Market Performance.................................................................................. Summary................................................................................................... References.................................................................................................

73 73 74 74 76 77 78

12 A Futuristic Portfolio Is a Necessity...................................................... Just What We Should Be Doing................................................................ Contrasting Future Orientation to the Present.......................................... Enter Futuristic Portfolios......................................................................... Developing a Futuristic Product Portfolio................................................ Generating Ideas....................................................................................... The Ideation Stage.................................................................................... Evaluation................................................................................................. Prioritization............................................................................................. Development............................................................................................. Summary................................................................................................... References.................................................................................................

79 79 80 81 82 82 84 85 85 86 87 87

13 The Future Belongs to Those with Imagination................................... Using Imagination Properly...................................................................... Conversion Versus Diversion.................................................................... Budgets and Other Financial Considerations............................................ Imagination’s Pay Off............................................................................... Summary................................................................................................... References.................................................................................................

89 89 92 94 95 96 97

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14 A Future Full of Innovations.................................................................. Innovation Cycle....................................................................................... Should There be a Research Agenda?...................................................... Sustainability............................................................................................ Summary................................................................................................... References.................................................................................................

99 99 101 102 103 103

15 Generating a Culture of Innovation in the United States.................... Problems with Innovations........................................................................ The Innovation Conundrum...................................................................... The Road to Innovation............................................................................. Developing Entrepreneurial Capital.......................................................... A Culture of Innovation............................................................................ Developing a Talent Base.......................................................................... The Mechanics of Developing an Innovation Culture.............................. Reverse the Brain Drain............................................................................ What Is Needed?....................................................................................... National Innovation Systems.................................................................... Summary................................................................................................... References.................................................................................................

105 106 107 108 109 110 112 113 113 114 115 115 116

16 Globalizing Our Innovation................................................................... Globalization Support or Barrier.............................................................. A General Model....................................................................................... Pre-entry to International Markets............................................................ Transferring the Technology..................................................................... Additional Marketing Considerations....................................................... Delivery Capabilities................................................................................. Summary................................................................................................... References.................................................................................................

119 119 120 121 122 123 124 125 126

Epilogue........................................................................................................... 127 Index................................................................................................................. 129

Chapter 1

Introduction

Individuals in every society derive certain meaning or value from their lives. That meaning is individualized and varies from one person to another, and it constitutes that particular individual’s quality of life (Skevington 2002). As societies advance and become more sophisticated, inventive minds imagine and create new things, which we call innovations, to make consumers’ lives better, easier, and, it is hoped, more enjoyable. From the wheel to penicillin and to the computer, and many others, each and every major development has changed and continues changing how people live and work in societies (Demirdjian 2010). However, the rate of change and progress created by these innovations is not the same in every country. It is hypothesized that “productivity growth rates tend to vary inversely with productivity levels” (Abramovitz 1986), implying that economically less developed countries have a greater opportunity to catch up and forge ahead than do industrialized countries. During the past three decades, newly industrialized countries (NICs) such as Asia’s four tigers (Hong Kong, Singapore, Taiwan, and South Korea) have shown that this hypothesis is correct. A similar conclusion can be arrived at for the BRIC countries (Brazil, Russia, India, and China). However, the level of innovativeness and how that can be enhanced so that not only the developing countries can catch up with the industrialized countries (Abramovitz 1986) but also the industrialized countries, instead of stagnating, can forge ahead are currently critical issues that need to be resolved. Advancing the existing quality of life is not a goal of only developing countries but a goal of all countries. Innovation is a major factor in this enhancement of the quality of life.

The Firm and Its Products A firm has to have products or services to offer to the market. In this book we are primarily dealing with products, but much of the information presented is also applicable to services. What is important here is that they are developed and introduced to markets by companies, of either the profit or nonprofit type. A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, DOI 10.1007/978-1-4614-0854-3_1, © Springer Science+Business Media, LLC 2011

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An Introduction to the Value Diamond All new products and services are introduced to society by corporate entities. This is the essence of the market system: corporate entities try to establish a market position empowered by their product or service offerings. If the offering to the market is what the market needs and wants, directly or indirectly, the corporate entity is rewarded by profitable returns on its activities. It is clear that what the corporate entity offers to the market must be evaluated constantly. This is what I call the innovation mind-set. What the firm innovates both in terms of products and services is going to provide market power, which ensures its existence and its profitability. But in a market system this innovation mind-set must be connected to the consumer mind-set. Firms cannot develop products and services willy-nilly and hope that they will be successful. What is in the subconscious mind of consumers, and further what they have not even thought of but would enhance their lives, are parts of the consumer value mind-set that need to be explored. Peter Drucker (1954) stated that American firms have two basic functions: to innovate and to market. I do not believe that these basic functions have changed or disappeared. As depicted in the value diamond in Exhibit 1.1, the marketing mindset must create new products and market them efficiently and effectively. If a firm can combine its innovation mind-set and consumer value mind-set, not only will it be successful in the market system, but also it will contribute to the enhancement of the society’s quality of life. This book discusses constructing and strengthening this value diamond. In dealing with products that would facilitate the value diamond concept, five layers of product group categorization are presented in Exhibit 1.2. This is not a commonly accepted categorization, but it indicates that the stages of innovation are variable. Marketing Mindset

Innovation Mindset

Exhibit 1.1  Value diamond

Consumer Value Mindset

Enhancement of the Quality-of-Life

An Introduction to the Value Diamond

3

Current Products

What the firm has currently

Me Too Products

The firm’s reaction to competitors

Incremental Innovations

Improving current products slowly

Breakthroughs

New products that lived over ten years

Radical Innovation

Brand new products that make a major difference

Exhibit 1.2  The firm’s products

Any company, almost by definition, starts with its current products. This is the first layer. Many newly introduced products fail, but many succeed. The firm develops packaging for these products, determines prices, and distributes and promotes these products. These are standard marketing functions. The firm’s survival and success with its current products depend on how it establishes itself in the marketplace. The second layer of product category in Exhibit 1.2 is what I call “me-too” products. In some very competitive sectors in our economy, a firm introduces products that are similar to those of its competitors; some authors call these companies “copycat” companies (Shenkar 2010). Their products may be called “line extension” products. For example, Tylenol has introduced Precise, which is a pain-relieving patch. The third layer in Exhibit 1.2 is incremental innovation. Most companies explore how they can make their products better, cheaper, perhaps lighter, and so on. This could be good in the short run, but it also could be a serious problem in the long run in that while the company is working on these products, its competitors can come up with a significantly different product performing the same tasks and in a much better manner. This could be deadly for the incrementalist company (Christensen 2003). The fourth layer is what I have coined “breakthroughs.” Any new product that was introduced to the market and has survived for over 10 years is a major breakthrough. It may not be earth shaking, but can be important and lucrative. Certainly if it has lasted a long time in the market it means that consumers like it and are using it to satisfy certain needs that they may not have even known existed. Aspirin and Tylenol were breakthroughs when they were introduced to the market. The fifth layer is radical innovation. Perhaps very few companies achieve an outstanding new product that changes the world or improves everyone’s quality of life. However, the company’s staff must be intellectually motivated to think about

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such an innovation. The television, the computer, and the iPod have made a major and long-lasting impact in terms of both quality of life and corporate profits. The firm that is in the first and second layers is forced to come up with new products in order to survive in the competitive marketplace. In contrast, layers 3, 4, and 5 are futuristic. Of these layers, radical innovations are perhaps the true indication of futuristic behavior. Some innovations that are currently being considered are as follows: • Hairy surfaces: These are artificial surfaces that are water repellent, and thus do not get wet. • Hands-free texting: By applying the voice, cell phone texting while driving becomes a tremendously effective solution to a widespread problem. • Organic transistors: A new generation of computers responds to external stimuli, similar to the way the nervous system responds. • Micro-ring wireless devices: These are tiny silicon devices that have radio transmitters that will be used in high-definition televisions and Internet connectors (Demirdjian 2010). It is not possible to determine yet if any of these innovations will make a major impact on our lifestyle. It depends in part on how the innovation is introduced in the marketplace. It requires a superior marketing strategy.

The Essence of Innovation Any product or service that would revolutionize existing products or yield a new and unexpected improvement in the existing quality of life can be termed a major (or radical) innovation, but basically all new products are innovations. I believe that the essence of innovation is imagination. Imagination is the ability to form images and ideas in the mind. These images and ideas are of things or events that have never been seen or experienced before (Manu 2007). This book posits that the imagination must be cultivated in order to generate significant innovations, but stimulating the imagination requires careful effort, as this book will demonstrate. Although this book focuses on imagination, another concept, creativity, is also very important. Creativity is the ability to develop new and original ideas or things for solving a specific problem or providing an alternative solution. As Exhibit 1.3 demonstrates, a truly significant innovation (which is termed a radical innovation in this book) requires the interaction of both the imagination and creativity. However, it is possible to be creative without imagination. Manu (2007) makes the distinction between imagination and creativity by pointing out that imagination is generating something new, whereas creativity is developing and applying it further. It may be said that imagination helped develop the electric motor, and then creativity applied it to electric blenders, electric hair dryers, electric tools, and the like. As illustrated in Exhibit 1.3, imagination starts with free thinking and creates knowledge. This knowledge is managed through creativity, and the application of the knowledge is the real payoff in the form of a major innovation.

The Essence of Innovation

5

IMAGINATION

Creating Knowledge

Thinking Out of the Box

Creativity

Managing Knowledge

Thinking within the Box

Innovation

Applying Knowledge

Solving the Problem

Exhibit 1.3  The essence of innovation

Imagination is not adequately cultivated in our society, and therefore radical innovations that would make a major impact on the economy and on quality of life are lacking. Instead, widespread product development is taking place in the form of incremental innovation. However, major breakthroughs such as electric motors are essential for future progress in our society. If adequate knowledge is not generated, there will be less and less knowledge to apply. The distinction made between the imagination and creativity is seen in Exhibit 1.3. Distinguishing them and identifying how they need to be cultivated would make a significant impact on the generation of innovations. As indicated in the exhibit, while imagination is connected to the creation of knowledge, creativity is connected to the management of this knowledge. However, once the knowledge is created, which we call radical innovation, the management of this knowledge is much easier. This management is likely to lead to much application development and real or artificial improvements in existing products. This process is called incremental innovation. Creation of knowledge can be thought of as thinking “outside of the box,” which means generating new knowledge without having a specific corporate financial goal in mind. Now this knowledge can be put into a hypothetical box that asks, “How would you use electric motors?” Now we are within the box and thinking specifically about the application of the electric motor. However, creating the basic knowledge leading to the development of the electric motor is the critical factor that will lead to dramatic economic growth and to enhancement of the quality of life. An important issue that is raised in this book is how to think outside of the box and cultivate radical innovations. I believe that thinking outside of the box must be systematic, uninterrupted, and free. If thinking outside of the box is not cultivated properly, society will face a dangerous imagination gap, which means the difference between current capability and future possibility (Manu 2007). The outcome of the imagination gap may be as disastrous as putting a lot of research effort and money into developing, say, Tender Whittles, a cat food, rather than into developing a vaccine to stop the deadly AIDS epidemic. Future possibilities are not known but are worth exploring. One has to consider the difficulties of keeping the imagination up and running. As populations are growing and demand for just about everything is increasing, the sophistication of consumers is also rising. With the pressures coming from policy

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makers, decision makers, stock holders, stake holders, and the rest of society, the chances of developing radical innovations that will be far reaching in terms of economic growth and quality-of-life enhancement is becoming more and more difficult. Particularly in recent years a new requirement, sustainability, has become almost a prerequisite for any economic activity. The 1990 farm bill in the United States Congress put forth the following conditions defining sustainability. It stated that a sustainable agriculture system • • • • •

Should satisfy the needs for food and fiber Should enhance environmental quality Should put much emphasis on renewable resources Should sustain economic viability and Should enhance quality of life (Beachy 2010)

Although these points were constructed for agriculture, they are clearly applicable to production in all kinds of industries. Each firm must be able to come up with similar sets of conditions. Certainly, future innovations will have to satisfy these critical conditions. Thus, as consumer and societal sophistication increase, new and perhaps more ambitious requirements on the part of the marketplace regarding new products and services may be emerging. However, with societal and economic progress, many new restrictions on innovation are also emerging; among these are new medical problems, space-limitation issues, time constraints, and resource utilization. All of these have direct impact on restricting innovations, but at the same time they are generating new opportunities for radical innovations. All of these incremental and radical innovations would contribute to the value diamond. This, of course, is the goal of any society. Providing value for the marketplace and for consumers must be the primary goal of all economic and industrial efforts. It is hoped that this book, by presenting a road map to radicalism in innovation, will bring about a better understanding of innovational needs and how they may be addressed. In short, it is hoped that this book makes a major contribution to the value diamond and enhances the quality of life everywhere.

References Abramovitz, Moses (1986), “Catching Up, Forging Ahead and Falling Behind,” The Journal of Economic History, June, 385–406. Beachy, Roger N. (2010), “Science and Sustainability: The Emerging Consensus,” Bioscience, June, 406–407. Christensen, Clayton M. (2003), The Innovator’s Dilemma, New York: Harper Business Essentials. Demirdjian, Z.S. (2010), “Trends In Experiential Times,” The Business Review, Summer, 1–2. Drucker, Peter (1954), The Practice of Management, New York: McGraw-Hill. Manu, Alexander (2007), The Imagination Challenge, Berkeley, CA: New Riders. Shenkar, Oded (2010), Copycats, Boston: Harvard Business Press. Skevington, Suzanne M. (2002), “Advancing Cross-Cultural Research on Quality of Life: Obser­ vations Drawn from the WHOQOL Development,” Quality of Life Research, 11, 135–144.

Chapter 2

From Imagination to Creativity

Imagination is the necessary ingredient for major innovational breakthroughs. There have been different explanations as to how imagination might start and how to keep it going. Manu (2007) maintains that starting the imagination journey is triggered by the desire for a better quality of life. However, Epstein (1996) posits that a specific challenge jolts the imagination. This chapter discusses 12 propositions that foster the imagination journey.

What Is Imagination? If superior innovations are the goal and if we agree that imagination is the main mover of the process, then we must ask what imagination is, what makes it start, and how do we keep it going. These questions are important not only for a society, but also for a company trying to survive in the international or national marketplace. If imagination is the ability to form images and ideas about things never seen or experienced before (Manu 2007), then it is creating new knowledge. Imagination has multiple aspects. It can provide the ability to think of something that does not currently exist but may be possible to develop. It can help develop mental images. It can explain events or activities by providing reasons rather than causes. It can foster the ability to create work that would explain human life and how to advance it. But the assumption that only gifted people have imagination is incorrect. Anyone can have imagination that can lead to creative thinking. Imagination, as mentioned Chap. 1, is connected to free thinking and knowledge creation. The starting point in the whole process is provoking the imagination. Some four approaches have been suggested – using words, visualizing, reversals, and alternatives. Imagination can be provoked by using words to explain or visualize certain abstractions, looking at the opposites of events or happenings, reversing the imagined events, and thinking of alternatives for what is being considered (Plesek 1997). Critical thinking that may absorb all these aspects and go beyond them is a real imagination activator.

A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, DOI 10.1007/978-1-4614-0854-3_2, © Springer Science+Business Media, LLC 2011

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2  From Imagination to Creativity Issue

Opinions and Judgments

Individual Preferences Critical Theory

Inner Attitudes

Learning from the Process

Problem Exploration

Recognizing

Questioning Analyzing Critical Thinking Reasoning Evaluating Developing Conclusions

Problem Formulation

Exhibit 2.1  Critical theory and critical thinking: transformation process (Adapted and revised from Weil and Anderson 2000)

As Deming (1993) stated, learning cannot take place without some theory. If critical thinking is likely to lead to learning through imagination, then knowledge may be created, and it may be necessary to examine critical theory as the formulator of critical thinking. Exhibit 2.1 connects the mechanics of critical theory and critical thinking. The theoretical aspect of Exhibit 2.1 illustrates my conception of critical theory. Critical theory is a way of structuring free thinking. Free thinking begins with any type of imagination provoker. It may take different forms depending on the receiving

Imagination in Action

9

individual characteristics as well as the nature and perceived significance of the event, happening, or news. Unlike its traditional interpretation, critical theory as discussed here does not involve criticizing society from some general theory of values and norms. Rather, it uses issues and events to create information. As Exhibit  2.1 illustrates, in this book an orientation toward issues and events go through four modifiers: opinions and judgments, preferences, attitudes, and learning from the process. I believe critical theory is individualistic and varies from one individual to another. As knowledge is created through critical theory, that knowledge is further modified through critical thinking based on six additional steps as seen in Exhibit 2.1: recognizing, questioning, analyzing, reasoning, evaluating, and developing conclusions.

The Six Steps Recognizing an issue, an event, or a societal problem is fostered by exposure to news and other available information. It is the individual’s choice to concentrate on one or few of these issues. Questioning the merit or impact of an issue entails judging its parameters. Analyzing the issue is a natural move for a free-thinking person. Depending on his or her level of sophistication, this step can generate the foundation of new knowledge. Reasoning is part of the analysis, but is more of an advanced form. Here the free thinker tries to determine the causality of the event or the issue. Evaluating the event or the issue is important in determining the importance of exploring it. This is a comprehensive activity that leads to conclusions that may in turn lead to a problem statement that needs to be explored in detail. Thus, as seen in the exhibit, while critical theory systematically explores certain events and activities that may be bothering the individual, critical thinking provides a problem formulation. As indicated in Chap. 1, without a formulated problem there cannot be creativity, and without creativity there cannot be important innovations. It is most important point to transform events into a problem and to solve that problem in a creative manner by generating important innovations. This particular series of transformations is important for the society as a whole; however, it is even more important for companies that are trying to establish a powerful presence in the marketplace and to enjoy the rewards of being very creative in the form of profits while they are enhancing the consumers’ quality of life in the society through their innovations.

Imagination in Action Here is an illustration of the process. Mr. X sees much discussion in the mass media regarding the problem of increasing energy demand in society. He reads about the BP oil spill that was caused by the company’s poor management. Mr. X is a reasonably

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2  From Imagination to Creativity

educated man. He connects the energy problem to his rising monthly energy bill. Since he believes his country must become energy independent, he starts thinking and reading about alternative energy sources. He thinks that environmentally friendly energy production is preferable. He thinks that because digging holes in the beaches, polluting the atmosphere, and creating deadly residues are not environmentally friendly, there must be a better way of developing energy sources. He learns that fuel cells may be the best alternative. They can be used for all sorts of energy generation. They are hydrogen based and they create water rather than pollution. Thus, he learns from the process of examination and elimination that he is now ready to explore the feasibility of this possibility. Thus Mr. X uses critical theory. This basic orientation facilitates his starting to think critically about the general problem area; his thinking can be put in the form of a concrete problem. This is my take on critical theory. I apologize to the purists of this theory, but a theory needed for critical thinking, in the absence of a widely accepted theory, necessitates an approach such as this one to harness the individual imagination for corporate and global gains. Mr. X in this case may not work for an energy company, but he can continue his critical thinking by first recognizing the possibility of fuel cell energy. The next step in Exhibit 2.1 is questioning if this alternative is feasible. Analysis of this possibility against all other major alternatives is the critical next step. Here careful reasoning about why and how this alternative can be considered viable becomes a focal point. After careful evaluation of the process and the formation of positive conclusions, it is in the hands of corporate creativity to develop and market fuel cells as a major energy alternative. Of course, if Mr. X is part of an exploratory group, the results of the critical thinking must find their way to a corporate entity that would take this critical problem as a major focus activity and carry on from there. But unless the organization has the capability to comprehend the seriousness of this problem and initiate a major research activity, this situation becomes a total waste of time (Glynn 1996). Here the failing imagination means not having an innovation to develop. Companies often make routine and innovative responses to novel and complex problems such as the energy issue discussed here (Marcus 1998). Thus, it is extremely critical that the free thinking of imagination is connected to corporate efforts so that by the aid of creativity a superior innovation can be generated.

Imagination Building All societies, all individuals, and all businesses must make an effort to foster imagination. If imagination is provoked by words, visual imagery, considering reversals, and deviation from existing values, then that imagination will be cultivated by the training that critical theory provides, and this process would lead to further critical thinking. That thinking may start with a person who was trained in problem exploration critical theory and who will take that problem and explore it further by critical thinking. Exhibit  2.1 demonstrates recognizing a problem area, recognizing the most critical articulation of the problem area, further questioning its relevance,

Imagination Versus Creativity

11

a­ nalyzing if the problem area can be articulated as a concrete problem and if there is reasoning behind it, and determining how powerful its justification would be in forcing a certain conclusion that at this point is still only a problem formulation.

Enter Creativity Creativity does not have to be connected to imagination. While imagination is free thinking independently and outside of the box, creativity is responding to a problem with the tools and knowledge in existence. It is thinking within the box. The existing knowledge base, without using any imagination, can easily lead in the direction of modest incremental developments in existing products or services. One can easily observe this progression in the example of typewriters. In the beginning, typewriters were bulky and their keyboards were not standardized. So the next step was the standardization of the keyboard. The heavy and difficult to move typewriter gave way to the portable typewriter. But it was still a manual device. The next steps were the slow and incremental development of electric typewriters and then the development of the modern personal computer. The computer made the typewriter obsolete, as computers offered all the features that typewriters offered as well as many improvements. Thus, a radical innovation took over an incrementalized product. Indeed, the computer could not have been invented without a major imagination providing input. But incremental improvements of the typewriter could easily have taken place with some creativity without having a major imaginational input.

Imagination Versus Creativity Although some believe that imagination and creativity are related and interdependent, I believe that they are separate phenomena. This is one of the major issues presented in this book. It is possible to display creativity without imagination. This type of orientation is depicted in this book as thinking within the box. Indeed, some existing products do need incremental adjustments; however, such incrementalism can be detrimental to the company and to the industry. In such situations pure creativity may have a role to play; however, many well-managed companies eventually get into trouble because they emphasize sustaining technologies. Their managers ignore what I call disruptive technologies. A company that has been doing well in terms of profits and position in the industry may be listening to the customers’ comments and utilizing prevailing technologies; hence it is practicing “good management” and may be using creativity only. It may be in danger of facing radical innovations generated by disruptive technologies that are products of the imagination (Christensen 2003). Thus, good management may blind the company and prevent it from investigating new disruptive technologies. Products based on disruptive technologies are typically cheaper, simpler,

12

2  From Imagination to Creativity Exhibit 2.2  Disruptive technology impact Established technology Disruptive technology Silver halide photographic film Digital photography Notebook computers Hand-held digital appliances Offset printing Digital printing Cardiac bypass surgery Angioplasty Wire line telephone Mobile telephones

smaller, and more convenient to use. However, the disruptive technologies based on the use of imagination as well as creativity are likely to be breakthrough products that are also called radical innovations. It has been stated that IBM, by insisting on the ­continued development of main-frame computers and ignoring personal computers, has lost about $15 billion. Similarly, Kodak, by ignoring digital photography, lost billions of dollars. Exhibit 2.2 illustrates some of the products generated by disruptive technologies. A greater combination of imagination and creativity gave us steam engines, iron boats, airplanes, and automobiles. The impact of these products on our quality of life cannot be underestimated. But the key point here is that, above all, imagination must be cultivated.

Cultivating Imagination As seen in Exhibit 2.1, imagination cultivation is most likely related to systematic free thinking and not to a specific problem. At the beginning of this chapter, we discussed provoking the imagination, but it is necessary also to continue stimulating it. Exhibit 2.3 illustrates nine imagination stimulators and their impact. Perhaps the most important point in this case is that trained free thinking is not within the context of business, making money, or solving a specific problem. It is free thinking that is analyzed or formed by critical theory that may lead to formulation of a problem or an issue. The stimulating factor in imagination is abstract thinking. If individuals reach a point of thinking up things that do not yet exist, or have not even been perceived, then the imagination is constantly stimulated. Somewhat connected to the previous point is thinking beyond reality. The ability to develop unreal concepts and think of them as realities can be a positive stimulator. Thinking in fictional terms and making fictional images from realities can be a powerful imagination stimulator. Perceiving events and concepts from the real world and converting them into fictional realities is a very powerful imagination activity. In many ways the first three imagination stimulators can work individually or together to help generate mental images. The key is being to conceptualize beyond the realities of day-to-day living. Then total thinking is stimulated to the point of reasoning and connecting conceptualized mental images. Perhaps at this point events are

Using Imagination for Creativity

13

Exhibit 2.3  Imagination stimulators (Adapted from Plesek 1997) Factors Impact Stimulating abstract thinking Ability to think of something that has not been perceived Thinking beyond reality Unreal concepts are possible realities Thinking in fictional terms Making fictional images from realities Generating mental images Conceptualizing beyond realities Stimulating thinking Ability to reason and put things together Identifying causes Explaining events not by reasons but by causes Generating beliefs Perceptions are transformed into beliefs Appreciating events and happenings Converting events into meaning and value of life Being sensitized by work Expressing work in the form of meaning of human life

explained in terms of causality. Once causality emerges, then beliefs may be generated. All events at this point can have meaning and can have impact on the value of life. This development process can become work related, and the individual’s imagination may work in the direction of a problem area formulation. This is what Jonathan Swift articulated as “vision” – the art of seeing the invisible (Caroselli 1998). Although imagination stimulators may work individually and differently from person to person, these stimulators may also create a cumulative effect. Thus critical thinking systematically can be a continuing activity by the aid of imagination stimulators. The whole process focuses on certain problem areas.

Using Imagination for Creativity This book distinguishes imagination from creativity. Not only are they different, but they may not even coexist. One of our key points in this book is that if imagination and creativity coexist and interact, then the chances of generating major breakthrough innovations are likely to be much higher. Therefore, one of the objectives of this book is to bring the two together. As discussed at the beginning of this chapter, at the end of critical theory conditioned by critical thinking there will be a problem formulated for the management of an organization, at which point creativity takes over to solve the problem. The key point here is to realize that critical free thinking takes place without a problem and at the end articulates a problem. Creativity, on the other hand, starts with a problem and tries to develop new and original ideas and products primarily within the constraints of the problem defined by the imagination earlier. Thus, creativity starts with a challenge and creates a flow of ideas, one of which is likely to lead to the emergence of an innovation (Epstein 1996). Facing the problem that is reasonably articulated does not mean imagination can go to work and come up with a winning innovation automatically, but it is a good start. One of the most critical issues facing organizations is the challenge to come up with a new and improved innovation, preferably a radical innovation. The creativity process, therefore, must take its time and proceed carefully (Burton 2009).

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2  From Imagination to Creativity

Exhibit 2.4  Cultivating creativity Critical steps Needed action Preparation The details of the problem must be carefully studied Exploration Explore in detail the alternative possible solutions Development Scale alternatives down to one or two most viable ones; develop prototypes if possible Action Consider all the details as to how to launch a new product or service

How Does Creativity Work? Over my long professional career I found a general formula that is workable. Exhibit 2.4 illustrates how creativity may be stimulated. Preparation for a problem-solving activity, which in this case may lead to a major innovation, begins with understanding the problem. It means not only that the problem in general must be understood, but also that its details must be carefully examined. Exploration is the second step in the creative process. Here the key alternative solutions for the problem must be explored in detail. Although many alternatives may look equally appealing at the beginning, the critical point is being able to choose the best alternative. In order to identify the best solution there must be one or more evaluated criteria that will help identify the best solution. The development stage is the third step. Once the alternatives are scaled down to one or two viable solutions, then in the product development process there may be one or multiple prototypes that can be tested by a panel of prospective users. Finally, the action step deals with materializing the process by developing the details of how the new product will be launched. The early indicators of the effectiveness of the product must be developed, and a general feedback program must be established to allow quick changes or adjustments in the product.

Summary This chapter discussed a cumbersome but necessary process for developing innovations that are likely to make a difference. Innovations are classified in terms of incremental versus radical. The chapter emphasized that radical innovations that use disruptive technologies are most likely to make a major impact in the society and contribute to the firm’s well-being. It all starts with imagination that is thinking outside of the box, and not in terms of a product or in terms of money making. Imagination is dependent on critical theory and critical thinking. At the end of the imagination, critical thinking poses a problem. This is where creativity enters into the picture and explores how the problem is likely to be solved and how this solution can be translated into an

References

15

innovation. Without imagination, creativity leads to incremental innovation. With imagination, the innovation can be radical such as the electric motor, the telephone, the vaccine, the iron boat, the H-bomb, and the like. If the process in this chapter is followed, the activities related to critical thinking would generate a concrete problem that may lead to developing a significant innovation.

References Burton, Lois (2009), The British Journal of Administrative Management, Autumn, 24–26. Caroselli, Marlene (1998), “Seeing the Invisible,” Executive Excellence, January, 1, 1–16. Christensen, Clayton M. (2003), The Innovator’s Dilemma, New York: Harper Business Essentials. Deming, W.E. (1993), The New Economics, Cambridge, MA: MIT Center for Advanced Engineering Study. Epstein, Robert (1996), “Creativity Requires a Challenge to Start a Flow of New Ideas,” Psychology Today, July/August, 41–44. Glynn, Mary Ann (1996), “Innovative Genius: A Framework for Relating Individual and Organizational Intelligences to Innovation,” The Academy of Management Review, October, 1081–1111. Manu, Alexander (2007), The Imagination Challenge, Berkeley, CA: New Riders. Marcus, A.A. (1998), “Implementing Externally Induced Innovations: A Comparison of RuleBound and Continuous Approaches,” Academy of Management Journal, 14, 77–101. Plesek, Paul E. (1997), Creativity, Innovation, and Quality, Milwaukee: ASQ Quality Press. Weil, D.K., and Anderson H.K. (2000), Perspectives in Critical Thinking: Essays by Teachers in Theory and Practice, New York: P. Lang.

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Chapter 3

Innovation, Innovation, Innovation

All businesses have a product or service to offer to consumers that would make their quality of life better. If that product or service is unique and makes an almost unexpected contribution to the individual’s well-being, then as the society’s quality of life enhances, the firm’s profitability increases. It was Solow (1957) who posited that the main drivers of economic growth are innovation and technical progress. More recently, researchers have commented that innovation is the leading indicator of future growth and profitability (Maddock and Viton 2008). Here two major business orientations can be identified: (1) The firm that is managing for the future and relying on imagination is likely to create a radical innovation. (2) The firm that is managing for the present and working with sustaining technologies is likely to put much emphasis on creativity and develop only incremental innovation (Samli 2007). Although it may be said that after all innovation is innovation regardless of being incremental or radical, that is not quite the case. Radical innovations, if successful, are likely to create major increases in employment as they contribute to the existing qualify of life. Radical innovations are most likely to be developed by smaller start-up companies that create jobs and expand quickly (Friedman 2010). This chapter discusses radical innovation and explores the development of an innovation culture that will provide the foundation for radical innovations based on disruptive technologies. It is maintained here that companies must have a corporate culture that will facilitate the drive to innovate. But if there is no activity in the society to stimulate and encourage innovation, and if there is not a culture of innovation, then corporate entities cannot accomplish much in this area.

A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, DOI 10.1007/978-1-4614-0854-3_3, © Springer Science+Business Media, LLC 2011

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The Process of Innovation Society has been interested in innovation for a long time. Schumpeter (1939) referred to it as creative destruction and attributed it to entrepreneurs. I refer to this concept as creative constructionism (Samli 2009), which I believe modern entrepreneurs display in their efforts. Transcendentalists refer to innovation as the deviant and unpredictable work of creative entrepreneurs. Some sociologists believe in a mechanistic theory that explains innovation as the accumulation of many smaller aspects over a long period of time. Other thinkers combine these two theories. They refuse to think of innovation as a mechanistic affair or as an accidental affair. They maintain that the act of insight needed for a true innovation entails both orientations (Robertson 1967). Manu (2007) posits that innovation is based on the ability to understand, activate, and accelerate imagination. That is ability to create. I believe that Manu’s position is a good start. But that start must be further cultivated by creativity. As stated in the Preface of this book, imagination and creativity must be interactive enough to generate a superior innovation. However, much of the innovational efforts in modern businesses start with a product and a specific question, such as how can we made this product cheaper, smaller, and so on. The outcome is incremental innovation, which Manu (2007) calls tactical as opposed to strategic. He further states that the tactical approach protects and the strategic approach creates. As we maintain here, incremental innovation provides temporary product superiority, and radical innovation generates longer lasting market superiority.

Innovative Individuals and Companies Who are the innovative individuals and what makes them innovative? Innovative people have active imaginations. Chapter 2 stated that innovation begins with critical thinking by those who have been practicing critical theory. That could be anybody, and with training people can develop their active imagination. Exhibit 3.1 illustrates additional forces that keep an imagination active. Knowledge

Experiences

Analytical Thinking

Exhibit 3.1  Active imagination

Information

Perception

Radical Conceptualization

Imagination

Critical Theory Type Background

Active Imagination

19

Active Imagination Perhaps the most important aspect of having an active imagination is wanting to have one. This aspect is important both for individuals and even more so for organizations. Companies have a tendency to discard ideas that they believe they have tried before. Conlin (2006) and Samli (2007) maintain that all ideas and suggestions have some valuable aspects, so no idea should be rejected. Ideas for projects do not arise from the imagination process unless there is already a knowledge base and good information input (Exhibit 3.1). Both the knowledge base and the new information entering the system are evaluated partially from the vantage point of one’s previous critical experiences. This process identifies the general problem area or potential innovation area, as discussed in Chap. 2, and this leads to the conception of a new product. Here the radical conceptualization of a new and unheard of product entails the imagination process as the conception that will bring the process to problem exploration (Exhibit 1.1). This is where the company’s open mindedness and ability to see market possibilities (not potentials yet) become critical. Thinking of this proposed idea and analyzing it critically becomes a necessary undertaking here. This, combined with opinions and judgments, individual preferences, attitudes, and learning from the process (Exhibit 1.1) that has taken place so far will encourage the active imagination to explore a possible innovation. An individual or group’s personal experiences and knowledge modify the information as it is perceived with minds trained in critical theory; thus, the individual or group’s imagination will be further stimulated. Exhibit 3.2 proposes a pattern that would lead to radical innovation development. The stimulated imagination fosters thinking through hindsight, insight, and foresight. This is thinking based on past and present knowledge, resulting in projecting into the future. This process is performed by unstructured free thinking outside of the box, which leads to asking questions and creating scenarios. If some of these questions and scenarios are received positively, they can be a starting point for thinking within the box and for proposing a research assignment to the corporate entity. However, many companies start from this point and ignore the process leading up to it. If this is the starting point, then there will be an imagination gap; current capability is addressed but at the expense of future possibility (Manu 2007) – an incremental innovation. If, on the other hand, imagination leads to creativity, then the current capabilities and thinking within the box will go beyond the current knowledge and will identify the future possibilities and generate a radical innovation. This is how value is created for corporate entities, individuals, and societies at large. From a societal perspective, creating value is more desirable than just adding value. Adding value entails smaller quantities of value enhancing existing value, but creating new value entails providing value where it currently does not exist, which would improve the quality of life. Generating new value has a better chance of reducing the gap between the haves and the have-nots more than does just adding to existing value. Furthermore, generating new value gives society a greater amount of satisfaction than does just adding value. Radical innovations provide market leadership for a firm, which also entails greater recognition and higher revenues. Incremental innovation may give the firm

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3  Innovation, Innovation, Innovation Stimulating Imagination

Thinking through hand sight, insight and foresight

Unstructured free thinking

Thinking out of the box

Imagination

Imagination gap

Future possibility

Creativity

Current capability

Refining thinking within the box

Radical innovation

Future possibility

Using potential signals and ideas to create questions and scenarios

Incremental innovation

Going beyond the current knowledge

Creating value rather than adding value

Exhibit 3.2  Creativity and imagination leading to major innovation

an improved product and perhaps product leadership in the market, but it is likely to be short lived and not as profitable as a radical innovation. It is not necessarily better to aim for radical innovation in all cases, as it is more expensive to generate and more difficult to market. Incremental innovations are easier to introduce to the marketplace and generate revenues faster, which may be needed in some cases. They are also less expensive and faster to produce. Managing for the present entails developing incremental innovations, and managing for the future entails developing radical innovations. This is how innovative individuals and organizations may generate radical innovations, but would this be possible without an organizational innovation culture? Without such a culture, a company cannot make much progress because it will have to depend on others for its basic scientific knowledge and it will be in a weaker competitive position (Kao 2007).

Can an Organizational Innovation Culture be Developed? I strongly believe that an innovation culture can be developed by every company. Contributing to the development of a corporate innovation culture and using it properly are desirable activities for every company regardless of size. Companies must

Can an Organizational Innovation Culture be Developed?

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Knowledge Base

Necessity of radicalism in thinking

Curiosity stimulation

Providing the proper knowledge

Generating the necessary talent

Innovation culture

Constant evolutionary thinking

Creating a futuristic orientation

Identifying the desired quality of life for the future

Exhibit 3.3  Developing a culture of innovation

make a major effort to create and cultivate a critical thinking innovation culture. This will enable them to manage for the future. Developing an organizational culture of innovation is difficult, but cultivating it, contributing to it, and using it are necessary activities for the organization’s survival and progress. Exhibit 3.3 proposes a general model for the formation of a culture of innovation in any organization. Innovation begins with a knowledge base that enables the organization to get ahead, learn more, and think better. Without an adequate knowledge base, the company cannot make any progress. Education and training must be geared toward the company’s overall advancement. They cannot be used for political ploys, religious dogmas, or other false goals that will lead the firm in the wrong direction. The innovation-bound knowledge base must encourage radicalism in thinking and must generate the necessary talent by further stimulating that thinking. Free critical thinking must concentrate on evolutionary change or constant improvement for the organization. Improvement cannot take place without curiosity. Free critical thinking and curiosity lead to sustainable innovation culture development that is essentially futuristic and is as concerned with enhancing quality of life in a society as it is with generating market share for the company. A company or corporate

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3  Innovation, Innovation, Innovation

entity must have this kind of orientation rather than a very narrow and dangerous orientation of increasing the revenue base at any cost and as quickly as possible. As seen in Exhibit  3.3, a corporate culture of innovation is based on three essential activities. First, a radical way of thinking is critical for radical innovations. Second, a proper knowledge base is required for a major innovation to be developed. Third, the necessary talent must be developed or acquired so that the innovation would become a reality. The model presented in Exhibit 3.3 is not the only possible model that can be imagined, nor is it necessarily the best one. But it is a good starting point to think about how innovation cultures can be developed. The most important point here is that such a concept is not simply a figment of the imagination but is a must for future advancement.

Imagination Plus Creativity Free critical thinking is important for individuals, groups, societies, nations, and the world. But when that critical thinking leads to an enriched imagination and connects the imagination to innovation, such a dynamic synergism will provide radical innovations. There is no way of measuring the contributions that the sewing machine, the electric motor, or the steam engine gave to society. However, the impact of the radical innovations of the past may not be even close to the potential impact of radical innovations that are yet to be conceptualized and developed. It must be recognized that developing a culture of innovation precedes many innovational activities. A key example is that Raleigh-Durham’s Research Triangle Park did not materialize without three decades of conscious efforts by state and regional policy makers (Kao 2007). Without such entities, radical innovations will not be developed. Without intention, willpower, and effort to create the culture that could generate the expected and unexpected radical innovations, nothing will materialize. As Robertson (1967) articulated, “innovate or perish” is a position that must be taken very seriously. Although it is unrealistic to think that radical innovations can be programmed, it is critical to think that the biological and psychological studies of imagination must be more readily utilized by the engineering, mathematical, and managerial aspects of creativity. Therein lies a brilliant future.

Summary This chapter focused on innovation development. It first explored the effectiveness of an active imagination. The critical theory type of conditioning stimulates perception and thinking outside of the box. If such active imagination connects with creativity, then there is a great opportunity for a major innovation that would make a difference.

References

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If the process presented in this chapter is not followed, a very restrictive corporate mentality results, which will be unable to foster innovation within the company. Rather, thinking within the box is the result. Free thinking fostered by imagination and creativity is a very positive synergistic situation for generating radical innovations. Without a culture of innovation, however, it is almost impossible to experience an innovational upsurge within the company. This chapter presented a model for creating a culture of innovation that every organization needs. If the futuristic way of thinking takes place and generates potential product ideas that have great possibility but they are not acted upon properly, the innovation gap becomes a critical barrier to progress. Without the type of approach that would eliminate the innovation gap, any company or any organization would be functioning well below its capabilities. That is a loss for an organization, for a country, and for the people.

References Conlin, Michelle (2006), “Champions of Innovation,” Businessweek, June 19, 19–32. Friedman, Thomas L. (2010), “Start-ups, Not Bailouts,” New York Times, April 4, 9. Kao, John (2007), Innovation Nation, New York: Free Press. Maddock, Michael G., and Viton, Louis Raphael (2008), “Believe in Innovation to Win,” Innovation Engine, May 20, 1–2. Manu, Alexander (2007), The Imagination Challenge, Berkeley, CA: New Riders. Robertson, Thomas S. (1967), “The Process of Innovation and the Diffusion of Innovation,” Journal of Marketing, January, 14–18. Samli, A. Coskun (2007), “Achieving Power in Adverse Modern Markets: The Drive to Innovate,” The Marketing Review, Summer, 155–170. Samli, A. Coskun (2009), International Entrepreneurship, New York: Springer. Schumpeter, Joseph A. (1939), Business Cycles, New York: McGraw-Hill. Solow, R. (1957), “Technical Change and the Aggregate Production Function,” Review of Economics and Statistics, 39, 312–320.

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Chapter 4

The Road to Innovation

Having cultivated creativity does not mean automatically being innovative. Furthermore, being innovative at one point does not imply being innovative continually. A company that innovated a major product that was highly profitable may become single-mindedly focused on that product and on improving it incrementally. This focus precludes the development of a radical innovation (Christensen 1964). In some ways this is the challenge of success. Some companies that attained prominence with their innovation were later toppled by newcomers that were not tied down to a single product. Is there an innovation thought process that prevents such an undesirable ending? Can that process keep the organizational entity successful? These are the key questions that this chapter explores.

The Innovation Thought Process As has been discussed thus far, imagination stimulates innovation that, with creativity, leads to the development of a radical innovation. This process begins with thinking outside of the box. However, many companies, after having developed a radical innovation, settle for incremental innovations, thinking that what they have is good enough and should not be changed except through small improvements. But as Katz (1964, p. 132) states, “An organization that depends solely upon its blueprints of prescribed behavior is a very fragile social system.” The same applies to companies that are seeking only minor incremental innovations. There may be situations where incremental innovations are appropriate. But in general, companies that primarily depend on incrementalism may become very vulnerable to other companies’ radical innovations that would make their own products obsolete. A radical innovation can become successful in the market very quickly. Thus, companies that rely mainly or exclusively on incrementalism may face the risk of extinction. However, experience indicates that radical innovations are not accepted by the marketplace quickly. Thus, those companies that rely on incremental innovation have time to make adjustments if they keep alert. A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, DOI 10.1007/978-1-4614-0854-3_4, © Springer Science+Business Media, LLC 2011

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Whether radical or incremental, the process of creating an innovation may not change much because it is thinking within the box. This is creativity at work regardless of the presence or absence of imagination.

Creativity-Fueled Innovation Without imagination, creativity is destined to produce incremental innovation. But even if the creativity process is stimulated by imagination, it begins with a specific question or well-defined assignment. The process has four critical stages. An organization that is using such a process will have its own style and its own ways of making tactical decisions. Exhibit 4.1 divides the creativity process into four stages. In any of these four stages, the organization may have its idiosyncrasies that it may have developed and may have been using for a number of years. Preparation stage: In order for ideas to be implemented, the creativity process needed to be initiated. The first step in this undertaking is having enthusiastic and

Preparation Stage

Action Stage

Verification Stage

Market Planning Stage

Exhibit 4.1  The four stages of creativity

Description For any kind of problem solving there are certain activities required to get the total activity started.

The actual creative activity takes place here. Those who are involved in this operation follow a procedural map.

The result of the action stage is verified here. Proto types are developed and a decision is made as to the preferred outcome.

Here all the cost and resource utilization is planned and marketing activities are budgeted.

Thinking Within the Box Versus Thinking Outside of the Box

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creative leaders and equally creative workers (Jaussi and Dionne 2003). This type of role modeling is quite beneficial in such processes (De Jong and Hartog 2007). If such leadership exists, then intellectual workers will be stimulated. The workers recognize that the leaders like innovative ideas and they respond accordingly. This situation is further accelerated when all staff members who are engaged in the project are informed about all the information that has been gathered and all the progress that has been made. The leadership should articulate a vision for the workers and should ask for their opinion. In this way the decision is made to proceed with the innovation and the work is delegated. Action stage: In this stage the creative work is performed. A procedural map may show that the goals of the innovative effort may need some support from those who are more experienced in the process; by having such support, the innovation idea is more clearly identified and its application is further mapped out. Influence-based leadership may develop, meaning that the workers with ideas and experience may gain more influence over the group. As the project progresses, feedback should be provided on what has been accomplished thus far. The feedback also recognizes workers for their contributions. This recognition can include rewards to be given to the workers. Verification stage:  The results of the action stage must be inspected and verified. Prototypes of the creativity process can be used as a yardstick to assess the results. Market planning stage:  Market research is planned and costs are estimated for the product development. The desirability of the product and its market potential must be evaluated so that the product can be profitable. Market potential estimates indicate the cost factor for the total production and what kind of pricing strategy should be used.

Thinking Within the Box Versus Thinking Outside of the Box The proposed procedure may be quite workable for a well-defined question or a problem, regardless of whether it is initiated by imagination or by creativity. But if the problem is initiated by thinking outside of the box for a potential radical innovation, or if the problem is initiated by thinking within the box, leading to incremental innovation, there will be some differences. Exhibit 4.2 demonstrates the stages of creativity in radicalism versus the stages in incrementalism. Although the stages of creativity are the same, their application is different. Hypothetically, let us assume two automotive companies are considering certain innovations. The first company is considering improving gas mileage, an incremental innovation. The second company is considering a new product, a fuel-cell automobile, which is a radical innovation. The same general process is used by both companies. However, the details of the procedure are likely to be dramatically different. In the preparation stage, improving the gas mileage is rather easy, since the first company has considerable expertise in the specifics of how to accomplish it.

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4  The Road to Innovation Improvement In Mileage/Gal

Developing Fuel-Cell Car Preparation

Easy Role Modeling Easy Intellectual Stimulation Easy Diffusion of Knowledge Easy Providing Vision Need Less Consulting

Much more Difficult Somewhat Difficult Extremely Difficult Somewhat Capable Need Much Consulting Action

Easy Easy Easy Easy

Ability to Support Procedural Map Equipment Needs Work Group Interaction

Much more Difficult Very Difficult Very Difficult Difficult Interaction Verification

Easy Prototype Development Easy Evaluation of Alternatives Easy Finalizing Decision

Difficult Prototype Development Difficult Evaluation Difficult Decision Market Planning

Easy Cost Estimates Difficult Market Potential Estimation Easy Measuring Consumer Reaction Difficult to Market

Easy Cost Estimates Very Difficult Market Estimations Easy Measuring Consumer Reaction Extremely Difficult Market

Exhibit 4.2  Stages of creativity in radicalism versus incrementalism

On the other hand, for the fuel-cell car, the preparation stage requires tremendous innovation for the second company. Almost all of the details of the preparation stage will be more difficult because there is no previous experience or expertise. Perhaps the most important difference in this stage is that the second company will be much more dependent on outside consultants than will the first company. In the action stage, the same pattern holds. Almost all of the details of this stage are more difficult for the fuel-cell project. Again, with the second company not having had any experience with a similar project and having a major knowledge gap, this project will proceed slowly and with much more difficulty. In fact, our analysis so far demonstrates why major companies go for incremental innovations. They are much easier to produce and they have a faster market impact in terms of profit and corporate image. At the verification stage the same pattern continues. Prototype development, choosing the best alternative, and having the decision finalized are all difficult steps.

Summary

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Finally, at the marketing planning stage, although the gas mileage project will experience some difficulties since a modified product is being introduced to the market, the difficulties that the two projects face are not comparable. Evaluating the market acceptance as well as marketability of a totally new product is very difficult, and it relies significantly on extensive market research. Thus, creativitybased thinking within the box leading to the development of incremental innovation is easier and much more tempting than creativity based thinking outside of the box and leading to radical innovation. The critical complexity of radical innovations comes from at least three key areas. The first is introducing new value to the market, and that value is dependent on consumers’ perception. They may dislike and reject it or they may like and accept it. Second, the company is developing a new line. Is it consistent with its image? Should there be a different name for the product line? Third, should the radical innovation be an attempt to propagate new ideas for the company’s expansion? Or should it be a totally new company dealing with new product concepts? These are critical marketing decisions that could have major benefit for the company and the society if the radical innovation process is done effectively. It has been said that when countries suffer from financial crises, they manage to recover by emphasizing exports. The current recession is different, since many countries are experiencing the recession and are not willing to import. Thus, getting out of a severe recession in a hostile world that is not very eager to import calls for powerful innovations, perhaps particularly in areas of high technology (Coy 2010). This may be a critical lesson to stimulate further thinking outside of the box. Thus, innovation is important not only for companies but also for countries. The new knowledge or the way a new product is offered influences governments and societies (Afuah 2003).

Summary The road to innovation takes two separate paths: incremental or radical. This chapter distinguished these two concepts and presented a general procedure that all innovations go through. This procedure has four stages: preparation, action, verification, and market planning. Although in general terms both types of innovation process go through these stages, the details are very different. Radical innovations are much more difficult to develop, as they take more time and more resources, and face a greater risk of failing and at a much higher cost. This chapter analyzed the details of both types of innovation development processes. The analysis indicated why many successful companies limit themselves to thinking within the box and creating incremental innovations. Radical innovations begin with thinking outside of the box and are based on imagination leading to creativity rather than creativity with no imagination.

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References Afuah, Allan (2003), Innovation Management, New York: Oxford University Press. Coy, Peter (2010), “A $14.5 Trillion Economy Stuck in Neutral,” Bloomberg Businessweek, October 12, 16–17. Christensen, Clayton M. (2003), The Innovator’s Dilemma, New York: Harper Business Essential. De Jong, Jeroen P.J., and Hartog, Deanne N. Den (2007), “How Leaders Influence Employees’ Innovative Behavior,” European Journal of Innovation Management, 10, 41–58. Jaussi, K.S., and Dionne, S.D. (2003), “Leading for Creativity: The Role of Unconventional Leader Behavior,” Leadership Quarterly, 14, 475–498. Katz, D. (1964), “The Motivational Basis of Organizational Behavior,” Behavioral Science, 9, 131–133.

Chapter 5

Thinking Outside of the Box

As Chap. 3 discussed, companies have tendency to improve the products they have, emphasizing incremental innovation. In contrast, radical innovation is primarily generated by imagination, which is thinking outside of the box without having specific products to improve, without having a particular problem to solve, or without being forced to innovate to make money for the company. Thinking outside of the box primarily provides solutions to consumer problems that are not readily recognized as problems. Consumer solutions are intended not to sell products but to improve the quality of life (Jones 2001). This chapter proposes that in corporate cultures every attempt must be made to nurture imagination and not just rely on predetermined product development. It is maintained here that imagination and ­creativity can coexist, but they are not one and the same. All organizations have values and beliefs that activate their functioning. Organizations need a strong and clearly articulated values statement that reflects the organization’s culture (Rigsby and Greco 2003). If the organization culture focuses on imagination cultivation and encourages its key people to think outside of the box, that organization may be an innovative one.

Imagination and Creativity, Pure or Otherwise Although innovation activity primarily starts with a problem to be solved or a condition to be resolved, at the imagination stage that is not the case. As mentioned in Chap. 2, at the creativity stage the problem or the situation is carefully articulated. Although imagination is commonly considered to be the same as creativity, there is a very important difference. Imagination generates ideas from freedom of thought, whereas creativity is related to some aspect of a product, condition, or problem (Manu 2007). Thus, they are closely connected. The more connected they are, the more important the resultant innovation is likely to be. At the end of imagination a

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problem is clearly identified, and at the end of creativity a clear-cut solution is ­proposed. Although the corporate entity tackles the situation at the end of imagination process or the situation is internally articulated at the beginning of creativity process without an imagination-related input, it does not mean that those using creativity are deprived of imagination. Indeed, in tackling the problem at hand, the participants in the process are not equals. The corporate culture may encourage free thinking before innovational activities begin. Therefore, some of the people who are participating in the innovation process might have a greater ability to think. In such cases there is even a greater opportunity to generate better ideas for the corporate entity or the organization where the creativity process is materializing. Certain conditions can nurture thinking, and although it is not the same as nurturing imagination or creativity, nurturing thinking can pay off. Nurturing thinking can be achieved in the following ways: • Asking who, what, when, where, why, and how is critical, but quick answers do not accomplish the nurturing. Penetrating questions need to be answered slowly and thoughtfully. • Asking the right questions is important. If the right question is not asked, the right answer will never emerge. • Developing the ability to exercise multimodal thinking is critical. There may be more than one answer to a question, and some may be better than others. • It is not necessary to search for a complicated solution if that means ignoring the obvious solution. Seeking a complex or too sophisticated solution may cause the obvious solution to be overlooked. We cannot see what we cannot imagine, so being realistic in choosing the solution depends on how clearly one can think. Manu (2007) discusses signals that are all around us. He posits that “what if” questions provide a signal: What if this product were made simpler? What if this product were made smaller? What if this product runs on hydrogen rather than on gasoline? • Making a list of assumptions, paradigms, and rules helps in determining why we are where we are and how we got here. When such an attempt is made, one may realize that an incorrect assumption may have caused an unrealistic decision to be made. • Analyzing the existing patterns can help in finding a good solution. Once again this may relate to the signals and what-if questions. Developing a realistic basis for reaching a satisfactory solution of the problem can be done more effectively by paying attention to the signals that point in the appropriate direction. • Reaching for a solution that was previously not considered should not be discouraged. On the contrary, it may have been thought of and rejected prematurely or it may never have been thought of before, but these are not the issues. Understanding that unthinkable is an artificial boundary that could prevent generating a powerful solution to the problem. Exhibit 5.1 presents a summary of nurturing thinking that reiterates the above seven activities in a simpler manner.

Radicalism All the Way Exhibit 5.1  The process of nurturing thinking Behavior patterns Ask detailed questions, do not answer quickly Explore the right questions Use Multimodal thinking Do not ignore the obvious Make a list of assumptions Establish grounds for analysis Think the unthinkable

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Implications Think carefully before arriving at a conclusion Make sure that reasoning is fully explored Explore alternative answers The answer could be very simple Understand that thinking is to be free Arrive at a satisfactory solution The solution may not be totally familiar

From Possibilities to Causalities In enhancing the ability to innovate by having creativity and imagination interact, perhaps one of the critical points is that for every question or situation there may be many possibilities. It is necessary to choose one or two. Thus, the ability to prioritize plays a critical role in innovativeness. Imagination-driven innovation ideas arise when the right questions are asked and carefully considered. Imaginative questions are not about solving a problem in a conventional way, but rather about uncovering new possibilities for dramatically different situations. Thus, if the questions asked do not predict the future exactly it is not important because at this stage those questions are likely to form the future. There are two types of questions: (1) Questions regarding possibilities may be posited so that the resultant innovation would be an incremental innovation that will add value to consumer satisfaction. (2) Questions regarding direction causalities resultant in innovation and help form the future; they create much consumer value as the society advances. Exhibit 5.2 illustrates this process. It is important to realize that although there is great temptation to follow the incremental route, as pointed out in Chap. 4, the real benefits accrue to the company and the society by radical thinking.

Radicalism All the Way We cannot solve our problems by using the same way of thinking. It is likely that this way of thinking may have started the problem to begin with. The challenge is to develop new and improved ideas, strategies, and innovations (Burton 2009). This entails seeing the invisible. If seeing the invisible is being considered or practiced, there must be clarity in the vision (Caroselli 1998). A clear-cut radical orientation gives the corporate culture the orientation to support creativity. This yields innovations with a general focus on the organization’s thinking. This is the highest priority for a proactive dynamic firm (Sahlberg 2010). Radicalism must always be preferred over conventional thinking. What we have is good, but what we could have may be infinitely better.

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Creativity

Better Incremental Innovation

Adding nominally to existing values

Imagination

Better Radical Innovation

Creating major new values

Nurturing Thinking

Exhibit 5.2  Outcomes of nurtured thinking

Summary Just because the starting point is a well-defined problem or a critical issue, it does not mean necessarily that nourishment for free thinking should be abandoned. This chapter discussed how free thinking is further nurtured. The critical point here is that thinking must be free and must be encouraged. Even though at the corporate level there is a cut-and-dried situation that needs to be coped with, it does not mean it can or should be resolved by nonthinking robots. Thinking radically rather than conventionally may yield the most important result for the company as well as for society. The corporate culture, however, must support this kind of orientation. In order for the corporate culture to take such a radical position, it is necessary that it be comfortable with how radical innovations can be disseminated.

References Burton, Lois (2009), “Creativity and Innovation,” The British Journal of Administrative Management, Autumn, 24. Caroselli, Marlene (1998), “Seeing the Invisible,” Executive Excellence, January, 16. Jones, Daniel J. (2001), “Thinking Outside the Box,” ECR Journal, Summer. Manu, Alexander (2007), The Imagination Challenge, Berkeley, CA: New Riders. Rigsby, Jeffrey A., and Greco, Guy (2003), Mastering Strategy, New York: McGraw-Hill. Sahlberg, Pasi (2010), “Creativity and Innovation Through Lifelong Learning,” Life Long Learning in Europe, January, 1–12.

Chapter 6

Existing Demand Versus Nonexisting Demand

Our analysis thus far has focused on radical innovation. However, there are already thousands of products in the marketplace that may be improved, may be discontinued, or may be replaced with a radical innovation. If the market conditions were to become adverse, some companies’ products or services may become obsolete and may no longer generate consumer value. On the other hand, some companies’ products or services are well placed in the market and may continue to thrive. Thus, there are ­situations that may call for continuation of the status quo. However, to meet the market pressures emanating from increased competition, from changing values in the marketplace, from negative cost functions, and even from changing government requirements to increase consumer safety, the existing products may need to be improved incrementally. Incremental innovation addresses concerns about the product’s viability in the short term. The company may be enjoying good market position and profitability and believes that it can continue its current position or even slightly improve it by nominally modifying its existing products. Alternatively, the company’s current products may be replaced by competition that has developed a different set of products by using disruptive technologies rather than prevailing technologies. Thus, radical innovation takes over.

What May Happen to Current Products Market demand may be analyzed in three different categories: aggregate demand, latent demand, and nonexisting demand. Aggregate demand emanates from the current existing marketplace of products and services. Exhibit  6.1 presents four alternatives for existing products in the aggregate demand. Latent demand, in contrast, occurs when consumers have a need that is not clearly articulated and for which there are no products or services. Finally, what I call nonexisting demand occurs when consumers do not even know that they have a need for product that has not yet been invented.

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Exhibit 6.1  The fate of current products Alternatives Implications They may continue Market conditions indicate that they are well liked They may be improved Market is giving certain signals that incremental improvements are necessary They may be discontinued Market is signaling that they should not continue They may be replaced Radicalism at work; there are much better products emerging in the market

Many existing products are selling well and will continue to do so. In such cases the company may empower its promotional efforts and listen to its customers carefully. It is also in its comfort zone and does not expect any immediate changes. The current product mix may need some improvement, not because competition is gaining on the company’s market share, but because customers are making critical suggestions. Furthermore, economic or legal conditions may require change. Thus, there may be some signals that the current products can be subjected to incremental improvements. Again, most companies would respond to such pressures quickly by adjusting their current products. Some products may need to be discontinued or incrementally modified. The Boston Consulting Group has developed an analysis that may indicate that some products have very low market share and are not part of the growing sectors of the market. The Boston Consulting Group calls these products “dogs,” and the company would be better off by putting more resources into more promising products rather than hanging onto these dogs. Finally, because of a competitor’s radical innovations, based primarily on the use of disruptive technologies, some of the current products are being replaced. Indeed, that is what happened to silver halide photography when digital photography emerged and what is happening to offset printing because of the emergence of digital printing. Here, as can be seen, radicalism takes over. Companies with multiple products must continually assess each product to determine its future. The assessment process entails market research, which is discussed in Chap. 11. It must be emphasized that most successful companies have had one or more outstanding products such as Intel’s microprocessor, Pfizer’s Viagra, and Parke Davis’s Lipitor, and these may not be totally radical innovations. They are certainly breakthroughs (Afuah 2003). Although throughout this book it is maintained that key innovational efforts should not be pursued for monetary gain, as depicted by the few examples cited above major breakthroughs or radical innovations can certainly result in financial rewards.

Facing Variations in Market Demand Demand for products and services varies, which is why marketing and promotion are so important. If a company feels that the demand for its products and services is strong, it is not likely to change its business practices. This is what I call effective

Facing Variations in Market Demand

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demand. Many major companies enjoy such a situation and thus have no intention of changing or improving. Many years ago, consumer groups approached Coca-Cola and said, “You have the most popular soft drink in the history of mankind. Why don’t you add some food value to your product that would enhance consumers’ health?” The response was, “We give consumers what they want.” Indeed, Coca-Cola had a strong market position. There are thousands of companies in a similar situation and with similar reluctance to change, because their products have a strong market position and their market is growing rapidly. The Boston Consulting Group calls these products “stars.” But having a star product should not prevent a company from analyzing consumers’ latent demands. Although there may not be a product or service catering to a latent demand, consumers may have certain unsatisfied needs. Here are two examples of latent demand. The legend goes that the president of Sony was visiting New York. He saw many runners, skate boarders, and roller skaters in the streets, and wondered, Aren’t they bored? Why can’t we give them some music to listen to as they run and skate. Thus, the Sony Walkman was born. Similarly, even though Domino’s Pizza may not have thought quite so systematically, there were many two-paycheck households, many families did not know how to cook, and, even if they did know, there was no time to do so when both parents were working full-time, and they were too exhausted to drive to a restaurant. Thus, they more than welcomed having Domino’s deliver pizza to them, and the company became a big hit. As for nonexisting demand, there may be needs that are not articulated or even recognized. Nobody went to IBM and said, “I am tired of using this manual calculator. Can you combine it with electricity and microchips and give me a computer?” It is not likely that consumers went to Ford and said, “We are tired of taking care of horses. Why don’t you give us a horseless buggy?” Rather, computers, automobiles, and many other products emerged unexpectedly. In these situations, companies are the market driver rather than market driven (Kumar et  al. 2000). Thus, nonexisting demand can be extremely powerful and profitable. In these cases, consumers’ yearnings for new products were not articulated. It was technology-driven supply rather than demand that created these new products (Samli et al. 1987). The consumers’ reactions are unpredictable, but as consumers experienced the benefits of these unexpected products or services, they purchased them in large numbers. There may be situations that consumers not only did not expect, but also did not even think of the possibility of such a product. They certainly did not expect to see a light bulb, penicillin, or polio vaccine. But as these products emerged, there appeared to be very strong surprise demand emerging. Surprise demand is the result of radical innovations, which take a long time to create and which do not yield monetary reward as they are being developed. But radical innovations are the perfect combination of imagination and creativity interacting in a most synergistic manner. Radical innovations are a great risk; if they materialize, however, they are the most profitable alternative. Unfortunately, modern corporations do not have the patience or the resources (in their mind) to wait that long.

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Exhibit 6.2  Time dimension for a company’s innovational orientation Innovation orientation The force behind the demand Time dimension Active demand Consumers need a simple Short term line extension Inactive demand Consumers articulated a need Short term for incremental innovation Intermediate Latent demand Consumers have unsatisfied term needs; borderline incremental radical Long term Unexpected Consumers may have some demand remote problems; breakthroughs Surprise demand Consumers are not aware Longer term of the possibility

Possible profitability Relatively less profit Greater profit opportunity Greater profit opportunity Greater profit opportunity Greatest profit possibility

Exhibit 6.2 presents the four time dimension phases of demand. The Exhibit 6.1 alternatives of continue, improve, discontinue, or replace work in all four of the demands in Exhibit 6.2: active, latent, unexpected, or surprise. In time, all existing products change or are discontinued or replaced. That is the role of innovation in society. Innovation either generates an enhancement in quality of life or it will not survive in the marketplace. Von Hippel’s well-recognized concept of “user-centered innovation systems” is too limiting because consumers do not have the imagination to generate radical innovations. We are primarily referring to supply-pushed rather than demand-pulled innovations. But once the product is accepted by the marketplace, consumers may have many suggestions as to how to improve the product. Thus, democratization of innovation certainly has a major role to play.

Product Market Opportunities On the supply side there is a product or a service; on the demand side there are consumer needs. If the two match up, there are market opportunities. Exhibit 6.3 illustrates five distinct market opportunities they are based on five scenarios. Scenario 1 entails both an existing demand and an existing supply. The key is to bring the two together successfully. Retailers do that and they imitate each other. This is doable in the short term; it is a low risk but also a low revenue generating alternative that does not apply to new products or services. Scenario 2 entails an existing market and a product that is lacking. Clear-cut needs are not readily satisfied. This may be a product line extension or minor deviation from existing products. It is still a short-term solution. Here risk may be a little greater than in scenario 1, but the profit possibilities also are greater. This is more of an incremental innovation development activity.

Innovative designs either taking existing innovations and developing new products or simultaneously creating new products as by-products of others developed Basic research emphasis leading to major breakthroughs and inventions Major innovation based on unexpected critical product or service

Product development function Imitative designs either complementary or substituting for existing products Modifying design either by expanding product line or deviating from it along with some innovation

M market, N need, P product, ROI return of investment

Scenario 4: (M–P–) Ongoing basic research may one day lead to development of new markets Scenario 5: (N, M, or P) There is no indication of a need or a product

Scenario Scenario 1: (M+P+) Market is ready and recognizable, and there are numerous products in existence to satisfy this need Scenario 2: (M+P–) Through existing research and development and technology, new products are being developed; however, there is no obvious market for these products Scenario 3: (M–P+) Through existing research and development and technology, new products are being developed; however, there is no obvious market for these products

Exhibit 6.3  Product market opportunities (Adapted from Samli et al. 1987) Risk factor Low-risk activity; short term, positive ROIs

Intermediate risk activity; short term to immediate term, good ROIs

High-risk activity; possibly numerous high ROIs, but only a few will be very high

Very high-risk activity; great ROIs if product developed Very high cost activity without any ROI expectation

Time frame Very short term

Short term

Intermediate to long term

Very long term

Very long term

Radical product development with potential for increased employment Super-radical product development that has the promise of life-changing impact

Varies between incremental and radical

Incremental product development

Description of the orientation Minimal incremental product development

Product Market Opportunities 39

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Scenario 3 entails having a product but not having a market for it. Innovation activity for product A may have generated product B. Such situations may be resolved in the intermediate to long term. This may be somewhere between latent demand and unexpected demand. It is high-risk activity in that stimulating a nonexisting demand can be very costly. But if it is successful, it can yield high return on the investment. This innovation may be classified as either incremental or radical. Scenario 4 entails nonexisting demand and nonexisting supply. The resulting product appeals to consumers by surprising them. Basic research activities may lead to surprise demand over the long term, with very high cost of production. But if it is successful, it would yield major returns to company. This is a clear-cut radical innovation case. Scenario 5 entails a hypothetical situation of no market, no product, and no indication of any innovation. This situation goes beyond surprise demand to shocked demand if the product appears in the marketplace. Corporate entities may not engage in the research in such situations. But in the very long term an unexpected critical product or service may emerge, such as automobiles or the Internet, that may change society in a major way. This super-radical innovation would have the promise of making a very major contribution to the quality of life.

Summary This chapter analyzed supply and demand in general terms to guide new product development in the right direction. Existing products may continue as is, may be improved, may be eliminated, or may be replaced by radical innovations. There are different types of demand: active, latent, unexpected, and surprise demand. Some authors refer to unexpected demand and surprise demand as latent demand. They do not make a distinction among them. Von Hippel (2005) says they all come from consumers, but I believe distinguishing among latent, unexpected, and surprised demand is critical in terms of timing, efforts, and resources. Much of these do not come from consumers. Finally, the chapter explored product market opportunities. Markets and products do not coexist. There may be one or the other. The corporate entity has to make some critical decisions as to where it stands and where it would like to go.

References Afuah, Allan (2003), Innovation Management, New York: Oxford Press. Kumar, Nirmalya, Scher, Lisa, and Kotler, Philip (2000), “From Market Driven to Market Driving”, European Management Journal, 16, 129–142. Christensen, Clayton M. (2003), The Innovator’s Dilemma, New York: Harper Business Essential. Samli, A. Coskun, Palda, Christian, and Barker, Tansu (1987), “Towards a Mature Marketing Concept,” Sloan Management Review, Winter, 45–51. Von Hippel, Eric (2005), Democratization of Innovation, Cambridge, MA: MIT Press.

Chapter 7

Putting Imagination to Work

Major or radical innovations cannot happen without imagination synergized with creativity. Imagination is thinking outside of the box, and creativity is functioning within the box. These two must interact and reach for a higher plateau. Not all radical innovations are of the same level of importance or the same level of societal impact. Radical innovations may be loosely categorized as either major breakthroughs or superior radical innovations. Imagination and creativity may not be functioning equally in these two types, but they are powerful influences and are critical for the society first and the corporate entity second. This chapter explores how imagination and creativity and may be brought into action on the way to innovation.

Creating a Breakthrough Is Not Easy Developing a successful new product is difficult, but identifying which product idea should be developed is even more difficult. Developing the telescope implant, for instance, which would greatly improve the vision of people who are suffering from macular degeneration, is a radical innovation that may be a critical breakthrough. On the other hand, developing a new type of frozen yogurt that would help fight obesity among children is an incremental innovation. Which one would contribute more to the prevailing quality of life, and which one would generate more profit for the corporate entity? These are very difficult problems. The problem becomes further complicated when what the company considers a radical innovation is introduced to the market. Is it really radical? Would it truly make a difference in the marketplace? How long would it take to determine if it is successful in the market or not? These are typical questions that need to be raised each time a new product is introduced to the market. In the case of a possible radical innovation, these questions become more critical because much research effort and cost have gone into the development and marketing of the product. Assuming a breakthrough is somewhere between an incremental and a radical innovation, Samli and Weber (2000) coined this concept on the basis of survival and A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, DOI 10.1007/978-1-4614-0854-3_7, © Springer Science+Business Media, LLC 2011

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7  Putting Imagination to Work Financial Resources

Breakthrough Product Resources

Human Resources

Company Foresight

Technological Background

Changing Consumer Needs

Possible Market Resistance

Breakthrough Products

Exhibit 7.1  Sustainable breakthrough product development (Adapted from Samli and Weber 2000)

success in the market. They maintained that if a new product has survived over 10 years, it is a breakthrough. They found that of 147 new products, only 29 survived over 10 years. On the basis of market performance, they constructed a model dealing with the sustained generation of breakthrough products. Exhibit 7.1 presents a slightly modified version of Samli and Weber’s model. Many points depicted by the exhibit are also applicable to radical product development on a larger scale, in that radical products are difficult and costly to develop, and require more resources. But the rewards also will be greater than those for breakthroughs. The company must have sufficient financial resources and must decide to use them for developing this product. Financing can be made available if the product has certain outstanding features: • • • • • •

The product must offer a unique consumer benefit. The product must expand or redefine the product category. The product must be distinct from the existing portfolio. The product must require different marketing practices. The product entails high financial risk. The product must be related to emerging consumer trends (Olson 1996).

Breakthroughs go beyond incremental innovations and hence they require significant investment in human resources (Exhibit 7.1). But both human resources and financial resources are required if a company is planning for its future. The company must be substantially futuristic and go beyond merely doing a line extension, which is simply

From Megatrends to Innovation

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responding to market pressures and emphasizing “me-tooism,” which Shenkar (2010) calls “copycatting.” Company foresight, as expressed in Exhibit 7.1, is stimulated by using the company’s technical abilities to address changing consumer needs. If the company cannot produce a new and technologically more advanced product, then a breakthrough would not materialize. If all of the prerequisites are present, there is still a barrier to the successful introduction of a breakthrough – resistance from the marketplace. This consideration stems from the fact that the most new breakthroughs are supplypushed rather than demand-pulled. Chapters 2–4 discussed how imagination takes place outside of the box, which means there may be a product idea developed outside of company constraints. However, proactive and futuristic companies facilitate their workers’ imagination in a constructive way. These imagined ideas are geared less to profit making than to making a valuable contribution to society.

Imagination Within the Organization An organization can establish an imagination utilization group charged with the task of generating new ideas for radical innovations. These new ideas may come from current events, new experiences, and new information. For instance, after the September 11th attacks, American consumers engaged more in home entertainment rather than going out, which created increased demand for home improvement, home theaters, solar energy development, home repairs, and the like. This change may have helped to innovate some incremental and some radical innovations, and may have contributed to certain megatrends and latent demand. Megatrends and latent demand are sophisticated, business-like approaches that can make a major contribution to the innovation program of an organization and can generate consumer value and great profits to the company.

From Megatrends to Innovation In 1982 Naisbitt published a remarkable book entitled Megatrends that identified ten critical national trends that took place over the previous three decades. The term megatrends can apply to ideas that can be used for innovation purposes. Additional megatrends can be identified today that did not exist when Naisbitt was writing his book. But his original megatrends are illustrative of a thought process that may end up being an innovation. Exhibit 7.2 demonstrates how megatrends relate to innovations. I have discussed these megatrends elsewhere (Samli 2007). They are critical social macro-trends that generate unsatisfied or even unknown sets of consumer needs. If these trends are carefully identified, it is possible to generate new products that will satisfy the specific needs that can be predicted to emerge. Some of these

• Major lifestyle changes, better economic programs

• Increased emphasis on mass customization generating more variety

10. Increased demand for variety by consumers

• Developing systems for networking

• Ability to generate and maintain alliances

• Greater need for general practical information

  9. Population shifts

  7. Greater power for people in government, business, other major decision areas   8. From hierarchies to networks

  3. From self-sufficiency to global interdependence   4. Increasing long-term orientation by companies   5. From top-down to bottom-up management processes in organizations   6. De-emphasizing help from outside, emphasizing self-reliance

• More efficient and versatile production systems being more in touch with markets

• Developing products with global appeal • Developing more futuristic innovations • Visual interactive conference systems, iPads, hand-held computers • Home self-training programs, do-it-yourself courses, better access to practical information • Extensive mass communication systems, interactive communication possibilities • Effective communication among groups, more voice-activated Internet • DVDs, home entertainment centers, more home robotics

• Use of information in all occasions

  2. From high tech to high touch

• The humanization of high tech and making it more tolerable • Identifying needs of global markets • Awareness of need for a futuristic orientation • More equalization than subordination

Potential innovation • Robotics using expert systems in production activity

Exhibit 7.2  From megatrends to innovation (Adapted from Samli 2007) Megatrend Implication   1. From an industrial to an • Fast transfer of information information society for decision making

• Computer use courses, home programs on exercise, cooking, and the like • Advances in information technology, E-business, conferencing systems • Conferencing systems, Starbucks and facsimiles, more information technology • Computerized and more manageable homes, energy efficiency, remote control of home operations • Modular music and information systems, modifiable home architecture

• An AIDS vaccine, a cure for malaria, cheap energy • Biogenetics, the Genome, the Internet • Fast copying, transplanting information fast, e-mail

Related examples • Using Computer Agent Design (CAD) and Computer Agent Manufacturing (CAM) in apparel industry • Voice-activated computers or home security systems

44 7  Putting Imagination to Work

Latent Needs

45

megatrends require immediate attention; others will call for action later on. Thus, developing and introducing new products has a critical time dimension. Companies that are in search of innovations must think in terms of present versus future.

A Brief Description of Megatrends Naisbitt’s ten megatrends are as follows: • From an industrial to an information society: This trend has entailed developing remarkable products in information technology at the expense of not producing enough basic products. This may be a problem for our society since we are now forced to import these basic products. • From high tech to high touch: Overemphasis on high tech has increased the need for more human interaction. More human services and spiritual resources have become available as a result. • From self-sufficiency to global interdependence: Growing global markets and flattening of the world (Friedman 2006) have led to increased international trade. In developing new products, different countries’ needs are carefully considered. • Increasing long-term orientation: More emphasis is placed on breakthroughs and radical innovations. • From top-down to bottom-up: Decentralization of organizations and information created better information technology and better procedures to undertake more team work successfully. • Emphasizing self-reliance: This megatrend created an explosion in do-it-yourself activities. More self-help products and practical courses have become available. • Greater power for people: Allowing consumers to participate in marketing decisions and relying more on their input are important outcomes of this megatrend. • From hierarchies to networks: Establishing sustainable alliances has become a critical movement. Networking has become an important means of selfimprovement. • Population shifts: As the population grows older and as more people retire, societal and consumer trends have evolved. • Increasing demand for variety: Because of society’s increased affluence, more informed consumers are looking for and expecting many new products and services.

Latent Needs As opposed to a systematic analysis of megatrends that may generate innovative new products, latent needs are not as systematically analyzed. These are the needs that consumers have not clearly articulated. If a product satisfied these unrecognized and unarticulated needs, it could be a success in the marketplace.

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Exhibit 7.3  Latent need generators Forces Latent need implications • Inadequate supply of certain • These products or even better ones must be introduced products • New fashions and new trends • These fashions and trends must be satisfied, but where will they lead in terms of new needs and new products? • Rejection or elimination • Is there a need for replacement or significant improvement? of certain products Would it mean the need for new products? • Changing time constraints • How consumers are using their time and what are the alternative uses • Climate change • Are there important influences on products consumers use? • More active life alternatives • How leisure times are spent and what is missing • Special problems of aging • What are and what should be the special needs and how population they are satisfied

As listed in Exhibit 7.3, here are some latent need generators: • Inadequate supply: If some current products are not readily available, a latent need may surface. If, for instance, there is an inadequate supply of flu vaccination, it may increase the demand for nasal flu medication. • New fashions or trends: Some new fashions or trends may lead to identifying a latent demand. In some circles tattoos created a latent demand, as people acquired more complicated tattoos. • Rejection of certain products: Rejection of many fattening foods indicated a latent need for diet foods. • Time changes: Consumers’ dissatisfaction with current communication capabilities identified a latent demand for texting, which became very popular. • Climate change: Extreme heat in certain parts of the country is identifying a latent demand for certain types of cooling, especially those created by solar energy. • More active lifestyle alternatives: As the population ages and more people retire, there is an increase in leisure time, leading to latent needs for new types of recreation. • Special needs of the aged: Retired people are enjoying better health and have more time to travel. They may prefer certain types of transportation and apparel. If companies know their markets and demand conditions, they can determine the possibilities of latent needs. Latent needs are very important for major breakthroughs and radical innovations.

Future-Focused Group Future-focused groups are composed of consumers who are considered to be ­innovators. They are young, well-educated risk takers who are interested in new things and in the future (Rogers 1983). They are capable of assessing the success possibilities of new products (Samli 2007). They must be embraced by companies

Basic Research Developments

47

that hope to be futuristic in their orientation. Organizing and working with these groups of consumers may prove to be extremely productive and lucrative.

Scenario Building This is a technique that has been used in long-range forecasting. It entails exercises in evaluating trends and trying to foresee the future changes in an industry. Imagination and creativity can be used to provide examples of new products for different scenarios. Usually, multiple scenarios are developed and are related to assumptions made about the speed, timing, and impact of the identified changes. Certain product ideas are related to these scenarios. There are two major differences between scenarios and megatrends. First, scenarios are relatively more focused on changes in an industry; as such they are closer to the industry within which the scenario-developing company functions. Second, scenarios are developed by company planners; unlike the megatrends that are often identified by outsiders, scenarios are generated from within (Samli 2007).

Consumer Input Most consumers do not have the kind of imagination that would lead to the development of such major products as the computer and the automobile. But there could be exceptions; some talented consumers could foresee the future. So it is important to identify how consumers respond to products, new or old. Perhaps their responses could lead to a radical innovation or a breakthrough, or more likely to incremental innovations that could make a difference in the company’s current market placement.

Critical Thinking Chapter 2 discussed free thinking. The corporate entity should develop groups of free thinkers who can think critically about megatrends and latent needs, and can come up with important radical innovations that make a major difference in the prevailing quality of life.

Basic Research Developments Many organizations concentrate on basic research, which is conducted exclusively for the sake of gaining knowledge. This research may result in major findings that could lead to new product ideas and developments. During the development of space exploration, for instance, many research findings were used to develop new practical and applicable ideas including new products.

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Futuristic Orientation Although this topic is discussed in detail in Chap. 12, it is important to state here that all organizations, both for profit and not for profit, must have a futuristic agenda. For corporations, this futuristic orientation would translate to a futuristic product portfolio. An organization that ignores the future probably will not survive in the long run.

Summary Corporate entities can create imagination-related activities, which are an important undertaking for proactive and futuristic enterprises. There are seven approaches to fostering new product development: megatrends, latent needs, futuristic focus groups, scenario building, consumer inputs, critical thinking, and basic research developments. These approaches can lead to the development of new products, some of which can be futuristic radical innovations.

References Christensen, Clayton M. (2003), The Innovator’s Dilemma, New York: Harper Business Essential. Friedman, Thomas L. (2006), The World Is Flat, New York: Farrar, Straus and Giroux. Olson, D. (1996), “Creating Customers with Really New Products,” International Journal of Physical Distribution and Logistics Management, July, 50–53. Rogers, Everett (1983), Diffusion of Innovation, New York: The Free Press. Samli, A. Coskun (2007), Chaotic Markets, Westport, CT: Praeger. Samli, A. Coskun, and Weber, Julie Ann E. (2000), “A Theory of Successful Product Breakthrough Management: Learning From Success,” Journal of Product and Brand Management, 9, 35–55. Shenkar, Oded. (2010), Copycats, Boston, Mass: Harvard Business Press.

Chapter 8

The Drive to Innovate

Innovations, whether they are outcomes of imagination, creativity, or both, come from corporate entities. Corporations present new products to the marketplace. The products may be radical innovations, breakthroughs, incremental innovations, or just run-of-the-mill line extensions. Corporations manage the present by developing and introducing products and processes incrementally by using sustaining technologies, or manage the future by radical innovations that are produced by disruptive technologies (Christensen 2003). Radical innovations evolve from thinking outside of the box. This means that the company, along with its current portfolio, is developing a futuristic product portfolio (Samli 2007). If the portfolio is exclusively dealing with incremental changes, it is not futuristic. Making nominal changes or improvements in the existing product offering is not indicating the extent and the force of the company’s drive to innovate. Futuristic portfolios are not typical instruments of corporate planning. The process of innovation must go beyond incrementalism. It must be based on radicalism, which will drive the company to developing products and services dramatically different from what is currently being offered. Such radicalism generates breakthroughs or radical products that have far-reaching implications for the company and for society. The contributions of major product developments such as televisions, radios, computers, and wireless phones are immeasurable, and there must be more such products, which requires a drive to innovate. This chapter discusses developing a corporate drive to innovate.

Corporate Culture Some companies have a tradition of innovation, but most do not. However, generating radical innovations calls for more than just a tradition of innovation; it calls for a drive to innovate. That drive needs to be embedded in the company’s corporate culture, which entails a value system with a unique orientation that commands

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corporate resource allocation. The corporate culture that supports an aggressive innovation drive values innovations above all and is willing to allocate company resources to support, encourage, and facilitate innovation. These resources include substantial financial human and knowledge resources (Samli and Weber 2000) dedicated to developing a futuristic innovation portfolio. In 1956 Wendell Smith published his famous article, “Product Differentiation and Market Segmentation as Alternative Marketing Strategies,” which made a significant impact on the marketing literature. It advocated paying necessary attention to the total product offering of the firm (Smith 1956). Alderson (1965) introduced the concept of differential advantage, which emphasizes technological uses, production processes, and marketing strategies that facilitate gradual program improvement. This was more of an incremental rather than radical innovation orientation. Today, radical innovation requires product and corporate sustainability. The drive to innovate in modern markets is triggered primarily by a suddenly emerging market. Such a shock would indicate either a real immediate risk for a company or an unexpected but substantial market opportunity. The invention of the wireless cell phones must have been seen as a critical threat to companies producing existing telephonic equipment. But some companies have perceived this development as a new and lucrative opportunity. These companies have innovative drive. If the corporate culture perceives the risk or the opportunity in the market and reacts proactively, the drive to innovate may gain extra momentum. Such a drive to innovate goes against the incumbency status quo that exists in the marketplace and in many corporate cultures. Traditionally many companies enjoy the advantages that incumbency status provides, such as entry barriers to new firms and leadership positions for the incumbents. However, the sustainable incumbent advantage is challenged by aggressive firms that have the drive to innovate. They leap frogged over incumbents and took advantage of market opportunities while incumbents suffered from conventional wisdom (Han et al. 2001). As part of the conventional wisdom, incumbent companies used sustainable technologies and concentrated on incremental innovation. But radical product development makes a major contribution even though it does not happen very often (Christensen 2003). In 2009 the federal government had to rescue the American auto makers that had depended on their incumbency status and incremental product development that was no longer profitable and made them vulnerable to radicalism. A radical development such as the fuel-cell-driven cars is likely to create havoc in the automotive and related industries. Thus, industries and companies in the incumbency state must be aware of their vulnerable status and must try to change. Samli (2007) posited that they can eliminate the incumbency status by developing improvisational skills, adopting an ambidextrous orientation (in the literature “ambidextrous” is used as a synonym for multitasking), and emphasizing radicalism. They must have a major drive to innovate (Thomke and Reinertson 1998).

Proactive Radicalism

51

Proactive Radicalism As illustrated in Exhibit 8.1, proactive radicalism is the crux of the drive to innovate. It has three main features. First, incumbency must be eliminated or downplayed as it forces incrementalist behavior. That does not mean that the firm gives up its profitable set of products or conditions. Rather, incumbency should not be a barrier to major innovations or radicalism. This entails more than revising the firm’s orientation; it entails allocating more resources and more thinking to the future. Second, proactive radicalism depends on the firm’s being ambidextrous, that is, capable of undertaking multiple tasks, in this case addressing both the present and the future. In order to enhance its sustainability, the firm must have an idea of where it wants to be in 5 and 10 years. That type of ambidexterity is related to the firm’s futuristic orientation. Apple was very quick in establishing market leadership by developing iPods and then iPads. But a mortgage banking company that has been performing well had never entertained the scenario of significantly reduced interest rates. The financial sector is now having a very difficult time because interest rates are at all-time lows. To compete in the face of dramatic market changes, firms must create portfolios of innovation that extend their existing technical trajectory into different markets with different products. In essence being ambidextrous means creating innovative streams for the present and for the future (Samli 2007). It is wise to develop a current product portfolio as well as a futuristic product portfolio. Third, improvisational skills, which are not taught in schools, are important in exercising proactive radicalism. Ever-increasing market adversities require that management expect the unexpected and think of the unexpected as a great opportunity.

Incumbency Elimination Corporate Culture

Proactive Radicalis

Ability to Detect Risk and Identify Opportunities

Ability to Respond

Balancing Present and Future

Ambidexterity

Willingness to Cannibalize

Improvisation Skills

Exercise Radicalism Forcefully

Shortened Response Time

Exhibit 8.1  The innovative drive (Adapted from Samli 2007)

Innovational Radicalism

Faster Introduction of Innovation

Market Power

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8  The Drive to Innovate

Therein lies the importance of improvisation. The concept is derived from the Latin word improvisus, which means unforeseen. Improvisation combines key aspects of decision making, planning, and implementation. As Samli (2007, p. 60) states, “Improvisation can be seen as a link between planning for the predictable and responding to the unpredictable.” If we recognize that modern markets are in a continual state of flux, then we must consider improvisation as a continual state of development and redevelopment (Alegun and Lynn 2002). At the organizational level, improvisation means continuous exploration and experimentation to be prepared to face the unexpected. Responding to the unexpected calls for a rather purposeful and deliberate type of innovation. Toyota recently recalled eight million cars and did so without an improvisational stance to rely on. In contrast, in the 1980s when Tylenol was tampered with and some consumers were stricken, the company immediately created a tamper-proof container and made this a major promotional issue, indicating a high level of improvisational skills.

Further Implementation Exhibit 8.1 further illustrates that the proactive radicalism expressed by incumbency elimination, ambidexterity, and improvisation must be displayed in the marketplace by the ability to respond quickly to the unexpected and to introduce a new innovation. As can be further seen in Exhibit 8.1, the firm must be able to balance the present and the future, which is the essence of ambidexterity. Additionally and very importantly, the firm must be willing to cannibalize its own products before its competitors do it. However, this is not easy; Grove (1999, p. 68) stated, “A star of a previous era is the last one to adopt to change.” Inertia exists when the corporate entity is doing well. In such cases emerging disruptive technologies may be ignored (Christensen 2003). However, proactive radicalism calls for not only paying major attention to the developments in the industry but also for being able to cope with unexpected changes. If IBM had paid attention to the increasing popularity of PCs rather than focusing solely on main frames, the company might not have lost an estimated $15 billion. Similarly, if Kodak paid attention to the emergence of digital photography, it might not have lost billions of dollars. The critical point is that companies must be in a position to cannibalize its own products by introducing better products and killing the old ones before the competition does it (Chandy and Tellis 1993).

Exercising Radicalism Forcefully Exercising proactive radicalism forcefully in eliminating incumbency is dependent on developing ambidexterity and learning to improvise. The improvisation skills must enable the company to respond quickly to unexpected market conditions and

The Essentials of Innovative Behavior

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respond with innovation. As illustrated in Exhibit 8.1, the present and future must be balanced and the company must be willing to cannibalize its products. Finally, exercising radicalism entails the ability to switch quickly from incrementalization to radicalization (Samli 2007).

The Essentials of Innovative Behavior The corporate culture must exercise proactive radicalism, which means understanding and developing an innovative corporate culture. The drive and passion for innovation must be the key orientation for a successful management not only to be sustainable but also to be a major market force. Such a management must be able to function positively in at least seven identifiable functional areas that are listed in Exhibit 8.2. These functional areas facilitate and accelerate the drive to innovate: • First mover advantage: The innovative and proactive firm realizes that this pivotal force can encourage innovation and quickly yield tremendous profit opportunities. The saying “You may not have a second chance to make a first impression” must be taken very seriously, and the innovative firm knows it. It must be the first to enter the market and establish an advantage in terms of name recognition and profits. • Seeing the market in depth: Since markets are not homogeneous, there are always significant differences in terms of preferences, values, behavior patterns, and interests. The innovating firm, by paying attention to the uniqueness of these markets, can innovate and derive future success as well as avoid unexpected chaotic market changes. As the hockey player Wayne Gretzky said, don’t go where the hockey puck is; go where the puck is likely to be. This is the essence of seeing the market in depth. The innovator will go to where the market is likely to go (Samli 2007).

Exhibit 8.2  The essence of innovative behavior (Adapted from Samli 2007) Key functions Implications • Understanding the first-mover It could provide major revenues and a big advantage reputation • Seeing the market in depth Being able to identify opportunities early • Innovating disruptive Being able to support promising technologies even technologies though they may be at threat • Watching and examining niche Niche markets may be an indication of bigger markets opportunities • Learning to commit resources Company resources must be available for radical for radicalism innovations • Understanding that threats Instead of being threatened, may see tremendous could be opportunities opportunities • Exploring consumer needs Following megatrends and identifying latent needs are keys to great success

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• Innovating disruptive technologies: Although it may be a threat to its current position, the innovating company must support or adopt disruptive technologies before its competition does, and must try to foresee markets that do not yet exist. The use of disruptive technologies over conventional technologies will generate tremendous advantage in the marketplace (Christensen 2003). • Watching and examining niche markets: Niche markets are like bowling alleys; the pins represent parts of the market that may adapt the new product. As pins fall one by one, the market may accept the new innovation (Moore 1995). These niche markets are entered one at a time until the market is cultivated. The innovative and proactive firm is always on the lookout for emerging markets. As a firm enjoying its drive to innovate, it must examine its own flexibility. Clearly the firm will have to be more flexible than the emerging market so that if the conditions in the market change, the firm can change first and hence take advantage of the situation. • Learning to commit resources for radicalism: Developing and maintaining a futuristic portfolio and preparing the foundation for product breakthroughs are critical aspects of innovative dynamics. Breakthroughs are much more costly and risky than developing simple line extensions. But innovative radical products are even more costly and risky. Thus breakthroughs and radical innovations need to be managed differently. They both require large time commitments, as well as financial and human resources (Samli and Weber 2000). Driving this process is the company’s foresight and dedication, which are closely related to the firm’s market knowledge and competence. If the company tries to minimize its risk, it is likely also to minimize its chances of developing radical innovations or breakthroughs. Since the company is going beyond merely developing better quality products in less time for lower cost, it is avoiding what I call “new product myopia.” But the higher the technological complexity and novelty of the innovation, the less likely consumers are to accept it quickly. If a competitor introduces a radical innovation to the marketplace, then the company must also develop a radical product. Since the competitor’s radical innovation has already hit the market, the company’s new and even more radical product is likely to be accepted faster. For instance, the promotion of hybrid cars and their acceptance are likely to play an important and even an accelerated role in the acceptance of fuel-cell cars. The acceptance of hybrid cars creates an opening for even more radical development (Samli 2007). • Understanding that threats could be opportunities: The speed to the market and the introduction of a radically different product to the market can be simply the result of what the competition is doing. Being threatened by competitors can be a very powerful motivation to think that new opportunities are opening up. • Exploring consumer needs: Megatrends and latent needs are the foundations of the drive to innovate. This is where free thinking becomes critical, as it may help in understanding and exploring latent needs. This orientation is futuristic and essential for sound innovative behavior. In the final analysis if an idea for innovation were to materialize, it is necessary to examine the practical aspects of the project. The product’s development expense,

Summary

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Exhibit 8.3  Misconceptions about innovations (Adapted from Nussbaum 2005) Misconception Response • All we have to do is create Not exactly radical innovations are related to major penetrating somewhat new products products as well as services or business models • Crazy creativity will go No; imagination and creativity are not to be misused; there have long ways to be very important needs to be satisfied • Innovation is expensive But it must be understood that failing to innovate can be even and takes time more costly and can have long-lasting impact • We need hundreds of ideas This is true with one exception: if we do not systematically and many fail eliminate many of these ideas, we will not be able to innovate • There are no guarantees Correct, but if Edison or Salk were expecting guarantees we for success would have been deprived of their innovations

estimated unit cost, expected performance, development schedule, overall expected impact, and expected market reaction need to be considered, and planning must proceed accordingly (Thomke and Reinertson 1998). At the same time, it is critical not to develop misconceptions about the innovation activity and its importance.

Misconceptions to Watch Out For Exhibit 8.3 presents five common misconceptions of innovational activities and a response to each. However, a few key points must be considered. Innovation does not entail creating hot and wacky new products. A true innovation makes an impact that will change the lives of millions of consumers around the world. Time, money, and human resource investment may be prohibitive, but not developing an innovation can be much more costly and have a long-lasting impact on the company. If the innovation is successful, it will generate tremendous revenues; thus companies, industries, and even countries must develop their own drives to innovate since the needs, levels of ambition, or available resources are variable.

Summary The drive to innovate at the corporate level is important because innovations are introduced to the market by businesses. An innovative drive is generated by the corporate culture. If the corporate culture goes for proactive radicalism, it will have to eliminate the incumbency syndrome, become ambidextrous, and cultivate improvisation skills so that it has the ability to respond to the unexpected and move faster in innovational development and reaching the market. In order to facilitate this proactive radicalism, the firm must balance present and future. It must be willing to cannibalize its current products and practice radicalism. Without such an orientation, the firm could be eliminated by more aggressive ­competitors in a dynamic market.

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However, innovative behavior does not occur by itself. The firm must understand the benefits of being the first mover; study the market thoroughly; help create disruptive technologies; be aware of emerging niche markets; be willing and able to make major time, money, and effort concessions; understand that radicalism is the way to go; be able to assess opportunities; and explore consumer needs.

References Alderson, Wroe (1965), Dynamic Marketing Behavior, Homewood, IL: Richard D. Irwin. Alegun, Ali E., and Lynn, Gary E. (2002), “New Product Development Team Improvisation and Speed-to-Market: An Extended Model,” European Journal of Innovation Management, 5(3), 117–129. Chandy, Rajesh K., and Tellis Gerard J. (1993), “Organizing for Radical Product Innovation: The Overlooked Role of Willingness to Cannibalize,” Journal of Marketing Research, 35(4): 474–487. Christensen, Clayton M. (2003), The Innovator’s Dilemma, New York: Harper Business Essentials. Grove, Andrew S. (1999), Only the Paranoid Survive, New York: Currency. Han, Jin K., Kim, Namwoon, and Kim, Hong-Bumm (2001), “Entry Barriers: A Dull One- or TwoEdged Sword for Incumbents? Unraveling the Paradox from a Contingency Perspective,” Journal of Marketing, January, 1–14. Moore, Geoffrey A. (1995), Inside the Tornado, New York: Harper Books. Nussbaum, Bruce (2005), “Get Creative,” Business Week, August, 61–67. Samli, A. Coskun (2007), “Achieving Power in Adverse Modern Markets,” The Marketing Review, Summer, 155–170. Samli, A. Coskun, and Weber, Julie Ann, E. (2000), “A Theory of Successful Product Breakthrough Management: Learning from Success,” Journal of Product and Brand Management, January, 35–55. Smith, Wendell (1956), “Product Differentiation and Market Segmentation as Alternative Marketing Strategies,” Journal of Marketing, July, 3–8. Thomke, Stefan, and Reinertson, Donald (1998), “Agile Product Development: Managing Development Flexibility in Uncertain Environment,” Harvard Business Review, 4, January, 1–15.

Chapter 9

Developing Learning Organizations

The corporate culture affects all of the corporation’s activities. The culture entails four key areas: inspiration, reward, atmosphere, and values (Joyce et al. 2003). An innovative organization must address these areas carefully. An organization must be knowledgeable to innovate. Companies that survive in the marketplace recognize that they learn something every day. But mere learning is not enough. Proactive firms that are enhancing their knowledge level are using knowledge as a strategic tool. That is the difference between organizational learning versus learning organizations. Organizational learning naturally occurs in time, whereas learning organizations make sure that they obtain functional strategic information to gain market power. Those organizations that are making this special effort to be learning organizations are most likely to cultivate imagination, apply creativity, and be in a position to develop breakthroughs and radical innovations. They are proactive and think of the company’s future. They develop their future by being aggressive and open minded.

The Knowledge Chain Through imagination and creativity, the company acquires new information that leads to the development of innovations. Just how this knowledge is created, absorbed, and utilized? Although there is a rich literature on knowledge management, which, by definition, is related to organizational learning, the concept of learning organizations is a new one (Samli 2007). A firm surviving in the marketplace is learning; however, such learning is reactive and is not used to enhance the firm’s competitive position in the marketplace (Drucker 1992). In contrast to standard organizational learning, which is reactive, learning organizations generate and manage their information and integrate that information into their decisionmaking processes proactively and selectively. A learning organization, therefore, is skilled at creating, acquiring, and transferring knowledge. This knowledge is used to modify the company’s overall functioning and its strategic stance. Above all, the A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, DOI 10.1007/978-1-4614-0854-3_9, © Springer Science+Business Media, LLC 2011

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learning organization by using its newly acquired information can innovate new products and improve its organizational behavior. Learning in the organization is institutionalized and used proactively to enhance the firm’s market position. The organization develops and utilizes a chain that is creating knowledge for strategic advancement (Samli and Fisher 2003). Even though there is a multibillion-dollar information management market, there is no evidence that learning organizations are generating and using new knowledge in a different manner. Thus, there is an ongoing knowledge chain. It is not clear how it is used and by whom. Those who are aware of the knowledge chain and use it to their advantage would have a greater opportunity to develop market leadership.

Using the Knowledge Chain It is not only how information is generated that is important, but also how it is being absorbed and how it is being utilized. Management of the knowledge chain addresses how data are gathered, converted into information, and implemented by the corporate entity. The knowledge chain is instilled in the organization’s architecture as well as in its functions. Managerial decisions, including new product development, benefit from the constantly incoming information of a proficient knowledge chain. The chain will generate the right type of information to be used in specific functional decision areas. Exhibit 9.1 presents a knowledge chain. If this model is used for product development, it works in the following manner. In Chap. 2 we analyzed the role of our version of the critical theory leading to critical thinking by using the example of fuel-cell energy. Let us assume that after having gone through the specific steps described in Chap. 2, the problem reached an energy company that has been exploring alternative energy options. As shown in Exhibit  9.1, the organizational leadership is guiding this project through the organization’s structure. Different departments of the corporation discuss the feasibility of this project and its real-world possibilities, which would be based on the research capabilities of the firm and on outside market research after the internal analyses are completed. A learning organization not only would develop a powerful set of research capabilities, but also would know what the research needs are and how they can be obtained. At the end of this phase, the information must be gathered and assessed. One critical side issue here is raised by Von Hippel (2005), who advocates the importance of democratization of innovation, meaning that the innovation idea or the innovation itself would reach the market and the market will make additional suggestions to improve the innovation. As our company is creating and managing a knowledge flow downward, Von Hippel suggests that knowledgeable and sophisticated prospective users of this innovation can be part of the innovation process by contributing ideas; Von Hippel calls thus process democratizing innovation.

Using the Knowledge Chain

59 Organizational Leadership

Internal Communication

Adequacy of Research Capabilities Knowledge Chain Management Understanding Research Needs

Information Flow

Impact on Corporate Culture

Exhibit 9.1  The knowledge chain process

The last step in Exhibit 9.1 is the impact on the corporate culture of the learning organization. In this case, while it is continuing with its current activities, if it finds this project is feasible, it may change its corporate culture and be committed to fuel-cell production in the near future. Exhibit  9.1 illustrates also that the knowledge chain process is further facilitated with developing research capabilities and understanding research needs. Here the knowledge chain adds the output of strategic information systems. The learning organization generates information by assessing the feasibility of the proposed innovation and how it can be successfully marketed. Exhibit 9.2 illustrates the six steps of a strategic information system that completes the knowledge chain. If the firm is a learning organization and relying on a fully functioning knowledge chain, that chain will not be functional if a strategic information system is not attached to it. A firm dealing with high tech, low tech, or no tech must have a functional strategic information system that is feeding and strengthening its learning and enhancing the firm’s knowledge chain. The knowledge chain process as depicted in Exhibit 9.1 is an orientation. The basic organization is there even if the firm is not generating and maintaining a knowledge chain. Similarly, the learning organization has a strategic information system that facilitates decisions the firm makes to maintain or enhance its market position. But a strategic information system requires its own organization, which must be developed so that the knowledge chain process is fully functional and the learning organization is fully groomed to be innovative.

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9  Developing Learning Organizations Steps

Results Organize

Direct

Feedback and readjustment

Collect

Information gathering

Process

Data Analysis

Generate

Creating information Critical for the company

Disseminate

Sharing the information for critical decision makers

Use

Implement the strategy based on information

Exhibit 9.2  Strategic information system (Adapted from Samli 2007)

The Strategic Information System An organization that wants to be learning, proactive, and innovative must be connected to its current and prospective markets by a fully functioning and ongoing strategic information system. The system has the following functions: 1. Direction: The direction of the strategic information system varies based on the size, needs, and degree of proactivity of the company. The research activity of a global company differs from that of a small store. The company must decide how a continuous inflow of data or information can be organized so that it will be a learning organization. Decisions are made regarding the firm’s information needs, including expected and unexpected changes in the market, the nature of competition, and the like. The organization must determine what kind of information is needed and how it will be collected. 2. Collection: Data and information are collected from the market. The organization must determine what sources of data to use and how the information is to be gathered. 3. Process: The data and information need to be analyzed to generate information for the firm (Samli 1996). The more complex the problem, the more complex are the data needs and methods of analysis.

Summary

61

4. Generation: The data that are collected and processed must be organized, ­analyzed, and formatted based on the needs of the company. As the data are processed, critical information is generated that becomes a critical part of the knowledge chain the innovating company is using to remain informed. 5. Dissemination: How this generated information is to be disseminated within the company is a critical issue. There is no need for all of the information to go to all of the organization’s staff members. Rather, staff members receive only the information that is pertinent to their work, and decision makers receive only the information that is pertinent to their decisions. The format of the information also needs to be determined. Lastly, if the information is going to be sent to company offices around the world, security concerns must be addressed to prevent industrial espionage. 6. Usage: If the information reaches its most appropriate destination in the proper format, then the marketing strategy of the firm could be successfully developed or modified. As seen in Exhibit 9.2, all of the stages of the strategic information system are subject to modification. The importance of a feedback system here cannot be overstated. Without the most effective strategic information system, the knowledge chain loses its effectiveness and the learning organization becomes an unlearning organization.

Summary No company could be successful without learning. Using learning as a strategic tool empowers a learning organization to be proactive and futuristic (Exhibit  9.3). Critical theory and critical thinking outside of the box by using imagination should be a standard part of a learning organization’s functioning. Unlike the organizational learning that is a function of the corporate longevity, which is reactive, a learning

Learning Organization

Critical Thinking

Knowledge Chain

Strategic Information System

Creativity

Exhibit 9.3  Connecting information to radicalism

Radical Innovation

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9  Developing Learning Organizations

organization uses learning as a strategy, which is proactive. When imagination and creativity become part of the corporate knowledge chain, radical innovation or a major breakthrough is possible. The company facilitates its knowledge chain by developing a strategic information system that will generate additional information about the radical innovation and its finer points. An organization that is not a learning organization cannot generate a radical innovation or a major breakthrough.

References Drucker, Peter F. (1992), Managing for the Future, New York: Truman Talley. Joyce, William, Nitin, Nohria, and Robertson, Bruce (2003), What Really Works, New York: Harper Business. Samli, A. Coskun (1996), Information-Driven Marketing Decisions, Westport, CT: Quorum Books. Samli, A. Coskun (2007), Chaotic Markets, Westport, CT: Praeger. Samli, A. Coskun, and Fisher, Scott (2003), Organizational Learning as a Strategic Tool: Developments in Marketing Science, Miami: Academy of Marketing Science. Von Hippel, Eric (2005), Democratization of Innovation, Cambridge, MA: MIT Press.

Chapter 10

Diffusion of the Innovation

Imagine being the inventor of, say, a clock radio but not having enough money or marketing knowledge to introduce the product to the marketplace. This is supposedly what happened when GE developed the clock radio. Similarly, some 40 years ago there was a rumor that the inventor of the Xerox machine tried to sell his product for 10 years and died broke. These stories may be apocryphal, but as Samli and Weber (2000) pointed out, of 147 potential breakthroughs only 29 survived for 10 years. They called these 29 products “breakthroughs.” Serious radical innovations are even rarer and their survival is not at all guaranteed, as it depends on whether the marketplace is ready to accept them. About 40 years ago the marketplace was more conservative. It did not adopt new products readily, and the more different and unusual the innovation was, the slower the market was in adopting it. Some four decades later, the marketplace is not nearly as conservative. But today it is even more difficult to introduce a radical innovation and expect a quick success, because of the sophistication of the consumers, the complexity of competing products, and higher technological capabilities. As Rogers (1983) maintained, many innovations require a lengthy period in which to win acceptance by the market. It often takes a few years from the time they are imagined to the time they became a reality, and then even more time to be accepted by the market. Rogers (1983) named the process “diffusion of innovation.” He found that five different groups were involved in the diffusion process.

The Diffusion Groups Exhibit 10.1 presents a brief description of the five groups in the diffusion process. Regardless of the nature of the product that is about to be diffused, whether it is a major innovation or a simple line extension, all companies must know the diffusion process and its groups. Exhibit 10.1 addresses the buying intentions of these groups. The groups’ general characteristics enable the company to determine which

A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, DOI 10.1007/978-1-4614-0854-3_10, © Springer Science+Business Media, LLC 2011

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Exhibit 10.1  The diffusion process Percent of the Groups total population Innovators (enthusiasts) 2.5% Early adopters (visionaries)

12.5%

Early majority (pragmatists)

34.0%

Late majority (conservatives)

34.0%

Laggards (skeptics)

16.0%

General characteristics They follow new developments. They are first to buy. Usually they need them They also follow carefully. They are not as much into the innovation. They are not professionals who need the new innovation. They decide to buy the product more because of curiosity They are informed and they believe the product has many beneficial features. They examine the product very carefully They buy the product because everyone they know has it. They have collected many references about the product and its values They are either extremely skeptical or uninformed. Possibly do not have resources to purchase the product. They have many concerns

consumers to target and what kind of marketing practices to use. The five groups are as follows: Innovators:  They generally are well-educated young consumers who are reasonably well off, well informed, and curious. They also are risk takers. They will be not only the first to buy, but also the first to use. Typically, they are in a strong position regarding spreading the word about the new product, whether that word be positive or negative. Early adopters:  They are similar to the innovators, in that they also are well informed, well educated, and reasonably well off. They are not necessarily professionals who may need this product, and they take their cues from the innovators. They may follow the innovators’ decisions to buy or not buy the product. Early majority:  This is a significant portion of the main market, comprised of typical average consumers. They are reasonably well informed about the market and the product. They are practical and they evaluate how well the product features meet their needs. Late majority:  These consumers are generally lower middle class. They are careful with their money. They are not proactive; they observe what the early majority does. They have to be convinced that what the new product offers is in their best interest to buy. Laggards:  These consumers are generally lower middle class or upper lower class. Although they represent approximately 16% of society, they are rather skeptical. They may also be uninformed or may not have the money to buy the product. They may also be waiting for a cheaper model or for used units of the product to hit the market.

Critical Issues with the Diffusion Process

34%

2.5% TIME

1

1. Innovators

65

34%

13.5% 2

16% 3

4

2. Early adopters 3. Early majority 4. Late majority

5 5. Laggards

Exhibit 10.2  Diffusion curves

This diffusion process has been presented by Rogers (1983) as a normal curve. It is displayed in Exhibit 10.2.

Critical Issues with the Diffusion Process There are three critical issues we must address as we consider using the diffusion process for our marketing strategy: consistency of the diffusion process, applicability of the diffusion process, and chasms in the diffusion process. Regarding consistency of the diffusion process, I believe that the diffusion process does not have a normal curve all the time. Exhibit 10.2 illustrates this concept. In some countries, such as Singapore and China, more than 2½% of the consumers are innovators. In other countries, such as some central African countries, more than 16% of the consumers are laggards. So what happens if the diffusion curve is skewed to the right or to the left? Clearly a very high-tech radical innovation will find a big market quickly in countries where the diffusion curve is skewed to the left. On the other hand, an incremental innovation, such as a low-cost but very effective cleaning product, may have a better market in countries where the diffusion curve is skewed to the right. However, to my knowledge the shape of the diffusion curve has not been scientifically analyzed (Samli 1995). Regarding applicability, we should ask, Do all innovations in all markets go through the diffusion process? If the cleaning product cited above likely to appeal mostly to the laggards, should it first be introduced to innovators and early adopters,

66

10  Diffusion of the Innovation

or should it be aimed directly at the laggards? Appealing to the whole market would call for a different marketing strategy than would appealing directly to laggards. Catering directly to one part of the market may be considered to be more efficient and more effective, in that dealing with a specific segment of the market is much less costly than appealing to the whole market, which includes people who are not likely to be interested in this product. It is also effective because communicating specifically with only the potential market would produce better results. Finally, the concept of the chasm is attributed to Moore (1991). It addresses the serious gaps between the diffusion groups. The diffusion process is not necessarily expected to be smooth. The more high tech the product is, the greater the chasms between groups are likely to be. The presence of a chasm is to be expected in the introduction of a highly technical radical innovation, and as the company’s marketing plan must be carefully thought out. Although the goal may be entering the main portions of the market, that is, the early and late majorities, when a radically different product is introduced into the market, pragmatists and conservatives (Exhibit  10.1) may block its acceptance. Thus, a marketing strategy that is designed to include all five diffusion groups and that assumed there are no chasms is not likely to work. Moore (1991) distinguishes between marketing strategies that are sales driven and those that are market driven. Most innovative companies may look at the market and see a very smooth diffusion process, and so they follow one general strategy that they hope will appeal to everyone. This approach would never require stopping selling at any time for any reason. Thus, the company is using a sales-driven strategy. Although for simple products this may be appropriate, for sophisticated, borderline-radical products this approach would not cross the chasm. Crossing the chasm and diffusing special products requires a market-driven strategy (Moore 1991) that has different approaches for the five diffusion groups and that addresses their resistance to the new product.

Original Resistance Chapter 7 discussed possible market resistance. Markets are conservative. They do not like sudden and radical changes. Consumers typically get into a routine and repeatedly purchase the same products rather than trying new ones. It is also possible that a new product might go against the conventional wisdom. For example, while hybrid cars are making inroads into the market, a big objection to them is that they are very quiet. This may be dangerous for pedestrians, who partly use their sense of hearing to help them negotiate in traffic. This objection might limit purchases by consumers who are pragmatists and conservative. Another factor in market resistance to a significantly improved product is performance. Consumers who own the previous product that is still performing properly might wait before replacing it. Thus, a delayed reaction might be displayed toward the new product. But if the company has market-driven and chasm-crossing strategies for each part of the market, this original resistance may subside quickly.

From Diffusion to Life Cycle

67

Chasm-Crossing Strategy If there is a chasm between the diffusion groups, a sales-driven marketing strategy cannot be successful. If the groups are delaying their purchasing decisions, they are creating chasms. Exhibit 10.3 depicts a strategy to cross chasms and shows the key elements of a market-driven strategy: promoting the product, establishing a personalized reputation, and developing market leadership. These elements are to be used in different ways as the company moves between diffusion groups. The concept of the product addresses how the company enters, for example, the innovators’ market. With an unknown product, it is necessary to promote and deliver not just the physical product but rather a complete set of products and services, to ensure that prospective customers will be completely satisfied and that the product will receive the proper attention from this first group of the diffusion curve. In order to establish a good reputation, strong word-of-mouth networking must be utilized to create a critical mass of informed consumers who would buy the new innovation. Developing market leadership requires conveying a full message, as if there were no other competing products and as if the company were the market leader. In each part of the diffusion curve the three functions cited above are used differently, since each of the five diffusion groups must be treated differently. This also enables the product to cross the chasm (Moore 1991).

From Diffusion to Life Cycle The concept of product life cycle addresses the different stages that the product goes, each requiring a different marketing strategy. Exhibit 10.4 illustrates the life cycle concept and its progression. A typical product life cycle has four stages: introduction, growth, maturity, and decline. I believe life cycles are getting shorter, and as a result the growth and decline stages are becoming sharper. If the introduction and growth stages are steep but the product has a long maturity stage, that would be

Promoting the Whole Product

Establishing Personalized Reputation

Exhibit 10.3  Chasm-crossing strategy (Adapted from Moore 1991)

Market Driven Strategy

Developing Market Leadership

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10  Diffusion of the Innovation

Number of Product Ideas

a

b

c

2

a 3

b

c

4

1

Time

Exhibit 10.4  Product life cycle trend. Numbers 1, 2, 3, and 4 correspond to the introduction, growth, maturity, and decline stages of the product life cycle. a, b, c, e are different new product idea-decay curves

preferable. It is difficult to estimate, at the early stages of product development, how long the innovation’s maturity period would be. However, theoretically there may be some indications that it could have a long maturity stage because it is well liked, it is unique, legally it cannot be imitated, it requires much technology investment, and it is marketed with a strong marketing plan. The firm’s ability to generate profits from its innovations depends on how unique the innovations are and how unimitatable they were planned to be (Hamel and Prahalad 1990). This type of foresight mostly depends on the core competency of the firm. The following examples are based on superior core competencies that provide ­market superiority: • • • •

Intel develop microprocessors. Coca-Cola developed products that people paid a premium for. Honda was able to produce high-quality performance engines. 3 M and Motorola developed a wide variety of products.

Many of these products have enjoyed long maturity stages because of the management’s competencies. They may not be radical innovations but they made an impact. Although some researchers do not believe in the importance and management of the product life cycle, I believe not only that it is predictable, but also that it can be a strong guideline to the company’s marketing strategy. It is critical first to identify the curve on the left, the new product idea-decay curve. There have been studies trying to determine how many ideas are needed to develop a new product. One of the unique aspects of Exhibit 10.4 is the fact that the product idea-decay curve is connected to the product life cycle. Product life cycle a is not as tall and narrow as product life cycle b. Product life cycle c is somewhat taller, meaning that it gained acceptance fast, but did not last as long as a and b. I believe this is the current trend.

Characteristics of the Product Idea-Decay Curve

69

There is no reason to assume that radical innovations will not display similar trends. Recent developments of cell phones, iPods, and iPads indicate that these products have similar trends to the one displayed in Exhibit 10.4.

Characteristics of the Product Idea-Decay Curve Manu (2007) notes that one cannot see what one cannot imagine. Therefore, it is necessary to state that even though, in the final analysis, consumers decide which products survive in the marketplace, purely consumer-evaluated new products, particularly radical innovations, may be somewhat handicapped because they may be beyond the consumers’ realm of reality. This is why facing innovators and crossing the chasm call for carefully planned marketing strategies. These plans must handle the degree of uniqueness of the new product with great care. Exhibit 10.5 is a somewhat modified version of the product idea development process. Imagination from outside the box

Idea Generation

Idea Screening

Creativity From Within the Box

Internal Feasibility Assessment

Focusing on the Key Ideas

Feedback

External Feasibility Assessment

Focus Group Evaluation Concept Testing Feedback Product Characteristics

Prototype Development

Incubator

Assessment by Innovators and Early Adopters

Market Evaluation Test Marketing Details of Marketing Plan

Exhibit 10.5  Product idea-decay process (Adapted from Samli 2007)

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10  Diffusion of the Innovation

At the idea-generation stage, imagination and creativity working jointly generate the product idea. The process, as shown in Exhibit 10.4, starts with multiple feasible ideas that need to be narrowed down to a manageable number. There may be serious problems if the company prefers a possible innovation that may yield good returns in the short term as opposed to a product that would be a major breakthrough. If the company is not futuristic in its orientation, it may lose out in the long term. The more radical the product idea, the greater the risk it poses, but similarly the rewards it promises to the company and to society may be greater, too (Trott 2008). Internal feasibility assessment is the second step in Exhibit 10.5. Here it is necessary to assess if the proposed product idea is feasible and within the core competency of the company. The task is much more serious than are the decisions that are made for line or brand extension. A radical innovation or a breakthrough product is more risky and requires a tremendous amount of attention regarding its feasibility. Testing the concept and specifying the characteristics of the proposed product have to be evaluated by focus groups. External assessment is also a necessity at this point. The market’s interest needs to be investigated. Once the product’s features are decided upon, the stage is set for prototype development. There may be a feedback indicating which product features are technically possible, which helps in deciding which of the product features are going to be given more attention and which are going to be pursued critically. The prototype must be evaluated further by a focus group composed of innovators and early adopters. Elsewhere I identify certain unconventional techniques for engaging innovators and early adopters (Samli 2007). Hedonistic analysis explores multisensory fantasy and emotive aspects related to the ownership of a new and different product. This orientation is very important for radical innovations. Similarly, it has been shown that market transaction data can be used to estimate the demand for a product or for its specific characteristics. It has been suggested that the laddering technique may be used to determine the attributes of the proposed product and how they connect to different groups’ socioeconomic values. These and other approaches need to be used carefully to identify the expected impact of the new innovation. Some of this information is gathered by test marketing. Finally, the refined product is ready to be introduced to the market. The marketing plans are carefully refined. Aiming at the innovators and crossing the chasm are planned in detail.

Incubator Guidance Incubation is an educational process to create a knowledge base to decide on how the proposed product may be received by the market and how it may be diffused successfully (Etzkowitz et al. 2005). It facilitates evaluation of products from the bottom up rather than centralizing arbitrarily from the top down. The incubator facilitates the possibility of getting reactions from the consumers or professional buyers of the innovation at hand. It focuses on entrepreneurship, and facilitates

References

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development of new organizations and new ways of thinking that the top management may not be able to achieve. In some way the incubator is the virtual market from which much can be learned before the innovation is introduced to the market.

Summary All products and services need to be marketed and must be accepted by the market. If the new product is to be a success, it has to be diffused effectively. The diffusion curve has five groups: innovators, early adopters, early majority, late majority, and laggards. The diffusion process may not be a normal curve. In some countries the innovators group may be much larger, and in other countries the laggards group may be much larger. More importantly, there may be chasms between the groups, and therefore one marketing plan would not be adequate for the whole diffusion process. The diffusion process does not deal with the life span of a product, but it is necessary to examine the product life cycle. I believe that product life cycles are becoming shorter, and the product acceptance and product decline stages rise and fall swiftly. It is important to predict the state of the life cycle so that the product will not face a sharp decline phase. Quick action at that point will be critical. This is discussed in Chap. 11.

References Etzkowitz, Henry, deMello, Jose Manoel Carvalho, and Almeida, Moriza (2005), “Towards ‘Meta-Innovation’ in Brazil: The Evolution of the Emergence of a Triple Helix,” Research Policy, 34, 411–424. Hamel, G., and Prahalad, C.K. (1990), “The Core Competence of the Corporation,” Harvard Business Review, May/June, 79–91. Manu, Alexander (2007), The Imagination Challenge, Berkeley, CA: New Riders. Moore, Geoffrey A. (1991), Crossing the Chasm, New York: Harper Business. Rogers, Everett (1983), Diffusion of Innovation, New York: The Free Press. Samli, A. Coskun (2007), Chaotic Markets, Westport, CT: Praeger. Samli, A. Coskun, and Weber, Julie Ann E. (2000), “A Theory of Successful Product Breakthrough Management: Learning From Success,” Journal of Product and Brand Management, January, 35–55. Samli, A. Coskun (1995), International Consumer Behavior, Westport, CT: Quorum. Trott, Paul (2008), Innovation Management and New Product Development, Essex, England: Pearson Education Limited.

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Chapter 11

Principles of Developing a New Product Strategy

Market-driven firms perform better than sales-driven firms in terms of profitability and contributing to the quality of life. Even with the best intentions, a firm must have multiple products already in existence and others in development. Product ideas need to be evaluated to determine whether or not the product can be produced and can be successful in the market. This requires a new-product strategy, without which it will be difficult for the firm to introduce to the market new products regardless of whether they are simple line extensions or radical innovations. The product’s success depends on how the company planned and implemented the production and marketing strategies. This chapter explores the parameters for a new product development strategy. Although details of such a strategy differ for each company, the general principles presented in this chapter apply. Without an effective new product development strategy, new products are not likely to be developed and marketed, in which case the company, the consumers, and the society suffer.

Fast-Learning Versus Slow-Learning Products Not all products have the same features or are accepted or rejected by the market at the same rate (Rogers 1993). The introduction of a new healthy cereal will experience quick acceptance by the market if it is good. In contrast, a solar film that is 800 times thinner than traditional solar cells would probably take more time to gain acceptance by the market. Such a product may be called a slow-learning product, as opposed to the new cereal, which is a fast-learning product. The cereal is strictly a product line extension, whereas the film is a breakthrough product and futuristic. Although both products make a contribution to the quality of life, they do so in different proportions and at different times. While the cereal makes contributions in terms of variety and health, the solar film can be an extremely important move for society in terms of energy efficiency and environmental responsibility. A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, DOI 10.1007/978-1-4614-0854-3_11, © Springer Science+Business Media, LLC 2011

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When an unusual innovation is introduced to the market, the diffusion process and crossing the chasm, which are discussed in Chap. 10, must be addressed. In order to accelerate consumers’ learning about the new innovation, there must be carefully developed plans of promotion pricing and other marketing functions. Generally the more unusual the product is, and by definition all radical innovations are unusual, the slower its acceptance by the market. Thus, radical innovation marketing is not easy; it requires carefully developed marketing strategies. Since a company must survive at the present and in the future, it must consider a fast-learning group of products for the present and a series of slow-learning products for the future.

Ambidexterity Regarding Time An ambidextrous management is a management that is versatile in dealing with multiple tasks. I believe the most critical managerial ambidexterity is related to managing the present and the future. Some companies are so busy with the present that they do not have the time or inclination to think about and manage the future. If a company does not succeed in the present, there may not be a future, but if a company is in a dynamic futuristic industry, such as information technology or alternative energy, ignoring the future would be deadly. There is further discussion of this important issue in Chap. 12. Suffice it to say here that a company must have a new product development strategy that will address this time issue and keep the company in a powerful market position. As Moore (1991, p. 114) states, “Too often companies throw their products into the market as if they were tossing bales of hay off the back of a truck. There is no planning for the whole product.” Establishing a forceful market position calls for a new product strategy. The following section explores such a strategy (Samli 2007).

Developing a New Product Strategy Technological advances are becoming common place, economic conditions are constantly changing, new products are introduced in large quantities, consumer preferences are varying in a manner of difficult to predict, competition is becoming keener, and product life cycles are becoming shorter and sharper, as seen in Exhibit 11.1. All of these factors and many others are making new product development processes in companies a necessity. Regardless if the new products are line extensions, incremental innovations, breakthroughs, or radical innovations, they all need a vigorous marketing strategy. Is the new product likely to be successful and how is it to be introduced to the market are always critical questions to address. Exhibit  11.2 presents six components of a new product strategy development. There may be others, but I found these six to be critical. The exhibit includes both do’s and don’ts. All the elements listed in the exhibit are the opposite of what is being done in practice.

Developing a New Product Strategy

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Maturity

$ Maturity Growth Intro.

Decline

Decline Growth Intro.

Time Traditional

Time Modern

Exhibit 11.1  Traditional versus modern life cycles. The shortening of the life cycle is more detectable in dynamic industries such as pharmaceuticals or high tech

Exhibit 11.2  Elements of new product development Elements of behavior Implication • Using multiple decay curves Developing multiple new products • Cannibalization as needed Elimination of old products with questionable future • Avoiding down cycles Not waiting too long before introducing new products • Not too much incrementalism Not too much line extension • Not waiting until the product dies Trying to revive a dead product • Consider prospective life cycles Take advantage of the most appropriate life-cycle ratios

Multiple decay curves:  As presented in Chap. 10, many ideas create eventually one product. This is called the new product idea-decay curve. A company should use multiple decay curves so that it will have other options if one product does not make it or is only partially successful. In developing product idea-decay curves, the firm should use both imagination and creativity, leading perhaps to a breakthrough or even a radical innovation. Cannibalization as needed:  As a company’s products are doing reasonably well in the market, a competitor may come up with a much better product, produced by disruptive technology, which is cheaper and better designed. In response, it may be necessary for the company to cannibalize its own products. By doing so, the firm does not have to acknowledge that it is beaten, does not have to try to revive a product that cannot be revived, and does not use its resources to continue producing a product that is doomed. By cannibalizing that product and using its resources for other products that are doing well, the firm will create much better results for itself. Avoiding down cycles:  Somewhat related to cannibalization, if the firm is planning on reviving the product that is about to be killed by the competitor’s much superior product, then the revival action should not wait until the point that the old version of the product no longer sells. Waiting until that point is not a wise move. Cannibalization or avoidance of down cycles cannot be effective if the company is simply responding

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with standard line extension. That would not create an advantage over the competitor’s products that are already challenging and displacing the company’s products. It is critical to respond to the challenge with at least an incremental innovation that may counteract to the competitor’s product. Reviving a product by incrementalism is possible, but is only a short-term measure. Focusing on incremental innovation puts the company at risk of being tied up with prevailing technologies. Things become risky if a radical innovation produced by disruptive technology takes over. As Christensen (2003) stated, good companies fail because they are not paying enough attention to disruptive technologies that can generate new products that would make existing products obsolete. Not waiting until the product dies:  Although this concept is related to previous elements reported in Exhibit 11.2, it is an important point. The company may have gone through much trouble and expense to market the current product, so it would like to get whatever it can from its existing products that are already in the market. This is partially what happened to the Polaroid camera that developed pictures instantly. It waited until the end of copyright period, by which time other companies came up with better products based on disruptive technologies, and Polaroid disappeared. The lack of a futuristic plan and too much attachment to the prevailing technologies killed the product and the company. While paying attention to disruptive technologies, it is important also to have a futuristic plan and to cannibalize the existing products; this could have saved Polaroid. Examining prospective life cycles:  Companies often have multiple product possibilities to consider. No firm has unlimited resources and hence it will have to choose one or two rather than all of those that are considered. The firm can rely on a ratio of two estimates, the time from ideation to reality, and the time from introduction to decline in the product life cycle stages. Consider two products with just about the same cost of production and price level: Product A went from ideation to reality in 3 years, and from introduction to decline in 5 years; 3 ÷ 5 = 0.60. Product B went from ideation to reality in 2 years, and from introduction to decline in 6 years; 2 ÷ 6 = 0.33. Thus product B is about twice as attractive as product A. It must be remembered that these are estimates. But within the constraints of these estimates, the lower ratio becomes more desirable.

Market Performance Despite their tremendous potential, new product innovations are a hit-or-miss proposition (Kandybin 2009). It becomes very important to follow the reactions of markets after the product is introduced. Early indicators will inform the company as to whether the market is accepting the product unconditionally or whether there are problems with the product. If there are problems, what are the problems and can they be fixed? Exhibit 11.3 presents some of the possible reactions the market could have toward the new innovation.

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Exhibit 11.3  Early indicators of innovation performance Indicator Possible reason Sudden exhaustion of supplies The innovation is well received Excessive returns There are certain flaws in the design Excessive requests for service The new product may be too complicated Special demand for certain parts Those areas need to be carefully examined There are no repeat sales The market has second thoughts about this product

Supply Exhaustion:  This is perhaps the dream of the company introducing the new innovation. If the market buys almost all introduced to the market in a short time that the market very positively received the new innovation. Excessive returns:  If customers are returning the product in large quantities, there may be serious problems with it. The faster the problem is detected and solved, the better for the company. The speed of product improvement can provide information the company can use to promote the improved product. Excessive requests for service:  If the new product is complex, customers may have difficulty using it to their satisfaction. Customer service and customer workshops, although costly, can address these problems, and their availability can be noted in product promotion. Many purchasers of Apple laptops are extremely satisfied with the classes they are getting to learn how to use the special features of their computers. Some Apple purchasers told me that the company is not just selling computers; they are selling service. Demand for certain parts:  Some parts of the new product might not be working well or might be wearing out too quickly. The company must learn about these issues and improve the quality of these parts. Speed, again, would improve the company and product image. Repeat sales:  If certain parts or the product need to be repurchased, such as ink toner for a computer, but such purchases are not being made, it may mean that the market has second thoughts about this product or that competitors have come up with a better product. The company must determine the problem and have a strategy as to what to do about it.

Summary All products – new, old, incrementally improved, or radical – need to be marketed. Marketing a radical innovation is a major challenge. A company cannot just drop its radical innovation into the market like a bale of hay. Companies must be ambidextrous regarding their current versus their future market offerings. Above all, companies must have a new product development

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strategy. Such a strategy must address six considerations: they must use multiple decay curves, they must cannibalize their product if needed, they must avoid down cycles, they may incrementalize existing products only in the short term, they should not wait too long for that incrementalization, and they must determine the time it would take to develop the product and how long the product is likely to live in the market.

References Christensen, Clayton M. (2003), The Innovator’s Dilemma, New York: Harper Business Essentials. Kandybin, Alexander (2009), “Which Innovation Efforts Will Pay,” Sloan Management Review, Fall, 53–60. Moore, Geoffrey A. (1991), Crossing the Chasm, New York: Harper Collins. Rogers, Everett (1983), Diffusion of Innovation, New York: The Free Press. Samli, A. Coskun (2007), Chaotic Markets, Westport, CT: Praeger.

Chapter 12

A Futuristic Portfolio Is a Necessity

Just as Wayne Gretzky, the ice hockey player, said that he goes not where the puck is but where the puck is likely to be (Samli 2007), I believe the true innovator not only understands today’s market but also makes provisions for where that market will be in the future. IBM did not realize that main frame computers would be overtaken by the personal computer. Kodak did not envision that silver halide photography would be overtaken by digital photography. Polaroid did not foresee the changing consumer tastes and disruptive technologies. IBM lost about $15 billion and Polaroid simply died (Powell 2009). Thus a futuristic orientation is a must in dynamic societies and economies. The future is not necessarily a natural continuation of the present. It may be very different from the present.

Just What We Should Be Doing Any company regardless of size, type, and industry must have a good idea as to what it would do in the future. If a business is doing well, it follows that the conventional logic would be to repeat the winning formula. Similarly, if a business is not doing well, the same logic would dictate pushing the winning formula harder and harder (Turock 2002). The key assumption here is the strategies that brought us here inevitably will continue to work just as well. But this is a very dangerous belief. In fact, such an orientation prevents the development of innovational capabilities and particularly radical innovations. The thinking is, we did not use radical innovations and we did well, so why should we start doing such risky and costly activities now? This is a negative orientation that stifles progress within a company and within a society. A company must have a vision of its future. This is what Turock (2002) calls inventing your own future. If the envisioned future is significantly different from the realities of today, the company is risking its future if it is not equipped to make

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that future vision a reality. If the company is not planning for the future, it may not have one. • Starbucks, for example, did not analyze where the coffee industry was headed, it simply invented it. • FedEx repositioned itself as a business helping other businesses eliminate the need for stocking large inventories, as its global shipments are arriving at their target stores just in time and minimizing the stores’ need for stocking large inventories. Throughout this book we have been distinguishing incrementalism from radicalism. Incrementalism relies on key business measures from the recent past; it encourages a linear approach to strategic planning with the assumption that the future is a continuation of the present. As cited above, this is what happened to IBM, Kodak, and Polaroid. In these cases the future became a hostage to the past history (Turock 2002). This means the company is trying to cope with the constantly changing conditions of the economy and marketplace exactly the same way it conducted its business previously. This behavior can become fatal for a business. Radicalism, on the other hand, emphasizes the concept that the future is not the continuation of the present. It emphasizes speculative, visionary, and proactive orientation and inventing one’s own future. By exploring major innovations, radicalism advocates challenging familiar patterns. It is this orientation that is advocated throughout this book. Chapters 10 and 11 discussed ambidextrous management, which in this book refers to managing the present and the future at the same time. Ambidexterity is considering or developing the future that dwells upon radicalism.

Contrasting Future Orientation to the Present Exhibit 12.1 lists the major differences between a futuristic orientation and a present orientation that are used by incrementalists and radicalists. Understanding the difference is the essence of survival and prosperity for a company and economic growth for the society. Exhibit 12.1  Strategic contrast between a present and future orientation (Adapted from Turock 2002) Future orientation Incrementalists Radicalists Nature of the business Same business May be significantly different Future customers No change May be completely different Future competition Continues as it is Likely to be very different Products and services The same but improved version Partially or totally different Sales and distribution The same May be very different systems We must be careful since Core competencies We are doing well and perhaps the core competencies should improve the skills may change radically of the people we have Competitive advantage Remains the same May be very different

Enter Futuristic Portfolios

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The nature of our business:  Incrementalist typically assume that their business would be pretty much the same in 5 years or longer. Radicalists assume that their business would be substantially different from what it is today. Future customers:  Although there may be some minor changes, incrementalists assume that their future customers will be the same ones they have today. Radicalists assume that their future customers would be different from today’s customers. Future competition:  Incrementalists think the competition will remain the same. Radicalists think that the competition may come from different sources and is likely to be totally different. Products and services:  Incrementalists’ perception would be that their products and services would be the same, with some variations and improvements. Radicalists assume that their products and services are most likely to be quite different. Sales and distribution systems:  Incrementalists think they will do more of what they are doing today. Radicalists think sales and distribution will be handled very differently. Core competencies:  Incrementalists believe that there will be no major changes except that the company’s workers’ skills will be further sharpened. Radicalists believe that the workers will need substantially different core competencies. Competitive advantage:  Incrementalists see no difference in their competitive advantage. Radicalists are open to major changes.

Enter Futuristic Portfolios When Intel got out of the memory business and moved from wafers to microprocessing, it invented its own future (Grove 1999). On the other hand, Polaroid could not invented its own future. A company needs to be ambidextrous regarding its future, as discussed in Chaps. 10 and 11. Inventing a company’s own future is being a radicalist and emphasizing innovation of the radical type. A radicalist company inventing its future has a futuristic product portfolio that contains a number of product and service ideas that the company can offer to the market in the future. This process not only enables the company to invent its future, but also protects the company against unexpected chaotic influences or changes in the marketplace (Samli 2007). There are two types of organizational mechanics that generate and maintain an innovation development activity: (1) An organizational knowledge structure guides and directs all organizational activities and further enables the firm to innovate continuously. (2) The organization depends on market and developmental realities to help generate the position the firm should take regarding competitors’ potential changes in the market in the future (Simpson et al. 2006). Unless a special attempt is made to modify the organizational knowledge structure, the first type of organizational mechanics described above is based on transformational

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innovative leadership within the constraints and capabilities existing in the organization (Gumusoglu and Ilsev 2009), which I believe would lead to incremental types of innovation. In such cases, the tendency is to maintain quarterly earnings as targets rather than build long-term value (Wu 2008). This position indicates, basically, that the short term is emphasized over the long term. In such cases a futuristic portfolio emphasizing radical innovation is not likely to emerge. The second type of organizational mechanics described above is consistent with radical innovation that comes from the collaboration of imagination and creativity. The firm fosters imagination as the fuel for its organizational creativity, which, though risky and costly, would lead to the development of a futuristic product portfolio. If proper plans are not made at the present time for the future, there will not be a future for the company.

Developing a Futuristic Product Portfolio Turock (2002) states that uncertainty reveal genius but security conceals it. Being cautious about the future cultivates futuristic innovation-related thinking. From a corporate entity perspective that may mean that the whole business entity may change decisively (Samli 2007). Regardless of the nature, size, or type of company, all firms must have a futuristic product portfolio not only to invent the company’s future and enhance its readiness to cope with unexpected market developments and dramatic changes, but also to generate market value for consumers and the society. Exhibit  12.2 presents a model of constructing a future product portfolio. As can be seen, such a portfolio development goes through four progressive phases: idea generation, evaluation, prioritization, and development.

Generating Ideas Without ideas there can be no innovation. But where do ideas come from? Critical thinking is the key, but critical thinkers need to be freed of focusing on company profits or a continuation of company’s market position. The corporate entity must gather a group of people with such an orientation and charge them with the task of generating ideas for the company’s future. Here are six approaches for generating innovative ideas: 1. Megatrend analysis: As discussed in Chap. 7, this is the best way of generating innovative ideas. 2. Future oriented focus groups: These groups are composed primarily of innovators and early adopters who are more open minded than the average person. They assess the possibilities of new product ideas. Although there are a number of techniques developed to identify these people, each company needs to develop

Generating Ideas Megatrend Analysis Future Oriented Focus Groups

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Latent Demand Analysis

Economic Evaluation

Improvisation to Generate Innovations

Scenario Building Customer Input Following Basic Research Developments

Feasibility Analysis

Portfolio of Prioritized Product Ideas

Further R&D and Market Development

Radical Innovation Ideas

Access to Free Thinkers

Phase 1 Generating Ideas

Phase 2 Evaluation

Phase 3 Prioritization

Phase 4 Development

Exhibit 12.2  A futuristic product portfolio development process (Adapted and revised from Samli 2007)

the details of this assessment according to its own needs and specifications. When there is a need for a realistic assessment of a new product idea, there should be not only an accurate visual and functional description of the product in question, but also a detailed outline of the product’s potential uses (Samli 1993). 3. Scenario building: This is not a technique that would be used in forecasting the success of an innovation. Rather, it is a technique to foresee what may be some of the key future changes in an industry. This is accomplished by first monitoring the existing environment and the emerging societal and technical changes. The resultant strategic, societal, and industry-related issues are carefully identified. By using a variety of these issues, scenarios are created for the future of the business, the industry, and the society in 3, 5, and 10 years. Usually more than one scenario is developed, and all are based on the assumptions that are made about speed, timing, and expected impact of the assumed or identified changes (Samli 2007). Out of multiple scenarios that are developed, choosing the one that is the most appropriate is a delicate and critical task. If such a scenario is decided upon, then

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the possible and unexpected changes in current markets are deduced and the ­resultant innovational opportunities are identified. This can be a very fertile ground to generate futuristic product ideas and their possible impact in the marketplace. Although scenario building remotely resembles megatrend analysis, there are two notable differences. First, scenarios are much more focused on the changes in an industry and the market. In scenario building, environmental monitoring identifies major trends and developments in an industry, while megatrend research focuses on the implications of broad trends in the society. Second, scenarios are developed by the company’s staff, whereas megatrends are identified by free thinkers outside the company. Although these two approaches differ significantly, they complement each other and each can make a major contribution to the futuristic portfolio. 4. Customer input: Customer input, both solicited and unsolicited, can be very valuable in terms not only of product development or incremental innovation, but also of possible radical innovation. Consumer complaints can indicate latent needs. Some of these latent needs can be identified as the conceptual beginning of a radical innovation. Similarly, customer suggestions and reactions could be very useful. 5. Basic research developments: Many nonprofit organizations and governmental agencies such as the National Science Foundation, the National Institutes of Health, and the United States armed forces, along with many research-oriented universities, are conducting basic research. Although this research is conducted to gain knowledge for its own the sake, the results of these research activities can generate consumer products. The human genome project, nanotechnologies, wireless communications platforms, and many other research endeavors present tremendous possibilities for new product development. Basic research enables an ambitious company to produce many new futuristic product ideas. 6. Access to free thinkers: Profound thinkers are critical in enabling a company to generate an idea that may prove to be extremely important and profitable in the future.

The Ideation Stage These six approaches can directly or indirectly generate new product ideas. These ideas need to be evaluated by three progressive steps. First, the idea’s relation to latent demand or future needs has to be identified. For example, the idea can be a line extension, an incremental innovation, a breakthrough, or a radical innovation. The idea needs to be analyzed to determine if it would be a part of the current product portfolio or the futuristic portfolio. Second, the extent to which the idea might respond to unexpected events or developments needs to be assessed. Some new product ideas may be saved for the future to respond to the unexpected developments in the competition or the market behavior of consumers. Third, it must be determined if the idea, especially if it is intended for the futuristic portfolio, is ready to be developed

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and tested. The idea should entail some very specific descriptions about product attributes and how they are likely to be connected to consumers’ personal values. Radical innovation ideas are especially needed for futuristic portfolios.

Evaluation The next phase of a futuristic product development is evaluation. Whether it is strictly a product line extension or a radical innovation, the idea needs to be market tested. If the market would not accept the product, regardless of how radical or valuable the innovation, it will not succeed. Economic evaluation determines if the product can be produced economically and can be made available to consumers at a reasonable price. Japan is rumored to be capable of producing fuel-cell cars but only at a consumer price of $1 million each. Thus much more work need to be done on this project. Feasibility evaluation asks the following questions: • • • • •

Would the consumers like the product? Is it easy to operate? Is its appearance suitable for the whole market or only for specific segments? Are there some maintenance issues that need to be addressed? Would the consumers expect the original price to go down?

These and many other questions need to be answered by market research at the point of classifying the products in the futuristic product portfolio.

Prioritization Once a number of futuristic product ideas are evaluated, they become part of the firm’s futuristic product portfolio. But these ideas have different levels of importance, and so they need to be prioritized, which is a complicated process. The most promising “stars,” as identified by the Boston Consulting Group, need to be assessed by the research and development (R&D) department of the firm. As these products are developed, the patterns, changes, and unexpected events in the market must be detected, analyzed, and related to the products in development. Simultaneously informing and cultivating the carefully identified target markets facilitates the successful introduction of the futuristic products. The firm’s current market position, the changing competition, the emerging niche markets, and the expected growth and needs of future markets are all guides for the prioritization process. The specifics of the process differ for each company. Thus, the process varies from company to company on the basis of its internal priority analysis of the futuristic product ideas.

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Development Once the futuristic portfolio is developed and prioritization is completed, product development is the next step. The firm does not have unlimited resources and hence all the entries into the futuristic portfolio are not going to be developed simultaneously. Some can be introduced to the market quickly, some eventually, and some will take considerable extra work. This last group is likely to be composed of radical innovations. Unless there are special circumstances that the firm is facing, such as certain product groups emerging and changing fast, as currently is happening in the communication systems from iPods to iPads, the company must focus on all the futuristic products including those that can be introduced to the market fast, those that will take some time, and those that are radical innovations and will take extra effort to introduce to the market. It is essential to develop marketing plans for each high-priority product. An example of such a plan is presented in Exhibit 12.3. If the market and its segments are not assessed, a new product will go nowhere. A segmented market is easier to target. Once the target is identified, then the product must be positioned. If the competitions’ products are directly or indirectly competing with the firm’s product, they need to be identified, assessed, and compared with the firm’s product. There should be enough ammunition to differentiate the firm’s product properly (Trout 2000). It then becomes necessary to focus on the product’s differentiated features to create a strong market position. Then the product is introduced to the market (Ries 1996). The R&D activity of the company continues to generate the best possible product market combination. This is a continuous process, constantly looking at the future and striving for improvement. However, regardless of the present or future orientation, sustainability of a new product is extremely important. Sustainability begins with the product’s acceptance by the market, but this success is not sufficient for sustainability. Environmental issues need to be considered also. Products that use renewable energy resources rather than scarce resources are preferable. Products should not release pollution into air, water, or soil. Every product should be environmentally friendly and must make a contribution to our fragile planet as well.

Segment

Target

Position

Exhibit 12.3  A marketing plan for a futuristic product

Differentiate

Focus

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Summary Society must benefit from a radical innovation in the company’s futuristic portfolio, and the company must earn major returns on its efforts. This chapter distinguished between futuristic and present orientation in terms of radicalist versus incrementalist behaviors. The firm may need both, but what it has in the market at the present time is not likely to prepare it for the future. Firms need a futuristic portfolio that goes through four major stages: idea generation, evaluation, prioritization, and development. Each stage requires careful work and an open mind. It is not only the future of the company but also the future of our fragile planet that may be dependent on it. Additionally, this advocated the need for carefully developed marketing plan for the futuristic portfolio. Such a marketing plan would include segmentation, targeting, positioning, differentiation, and focus. Regardless of how significant or insignificant an idea in the futuristic portfolio is, it must have a powerful marketing plan. The sustainability of the product must be considered not only in terms of market success but also in terms of the environment and the economy. Every new product must use renewable resources as much as possible and must be environmentally friendly.

References Grove, Andrew S. (1999), Only the Paranoid Survive, New York: Currency. Gumusoglu, Lale, and Ilsev, Arzu (2009), “Transformational Leadership Creativity, and Organizational Innovation,” Journal of Business Research, 62, 461–473. Powell, Gareth (2009), “Polaroid: Destroyed by Fraud and Changing Times,” Photo Blorge, January 2, 1–6. Ries, Al (1996), Focus, New York: Harper Business. Samli, A. Coskun (1993), Counterturbulence Marketing, Westport, CT: Quorum Books. Samli, A. Coskun (2007), Chaotic Markets, Westport, CT: Currency. Simpson, Penny M, Siguaw, Judy A, and Enz, Cathy A. (2006), “Innovation Orientation Outcomes: The Good and the Bad,” Journal of Business Research, 59, 1133–1141. Trout, Jack (2000), Differentiate or Die, New York: John Wiley and Sons. Turock, Art (2002), Invent Business Opportunities, Franklin Lakes, NJ: Career Press. Wu, Hsueh-Liang (2008), “When Does Internal Governance Make Firms Innovative,” Journal of Business Research, 61, 141–153.

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Chapter 13

The Future Belongs to Those with Imagination

Having a futuristic product portfolio, as discussed in Chap. 12, is one thing; having a futuristic orientation is something else. Managing the future is admirable, but inventing the future is outstanding. An active imagination and free thinking enables a firm to invent its future. However, having an active imagination has very little to do with innovation per se. The imagination must be fostered, but it must also be used for innovation. This chapter discusses using imagination in many different ways so that it can generate ideas that become major innovations. One key issue that is emphasized here is conversion versus diversion in innovational activities. Conversion is incrementalist and diversion is radicalist.

Using Imagination Properly Exhibit 13.1 presents a number of ways to use imagination for innovation. All of the ways of using imagination presented in the exhibit reflect critical thinking, which can be done within the company or outside the company. Forward-looking companies foster imagination within the company (Friedman 2008). Here are some ways imagination can be used for innovation purposes: 1. Analyzing the market in depth: The market’s characteristics, nuances, changes, and future are important to assess. This is a very fertile field, and concentrating on it helps create innovative ideas. 2. Supporting disruptive technologies: If Kodak had supported the development of digital photography, it would not have lost billions of dollars. Disruptive technologies cannot be looked at as a fad, a passing fancy, an enemy, or child’s play. Disruptive technologies, in contrast to the current company activities, must be assessed and encouraged. Some disruptive technologies can be created in house, which is preferable to a competitor creating shock waves for the company by introducing a product evolving from disruptive technology that will make the A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, DOI 10.1007/978-1-4614-0854-3_13, © Springer Science+Business Media, LLC 2011

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Analyzing the Market In depth

Supporting Disruptive Technologies

Imagination

Keeping Track of Niche Markets

Innovation Ideas

Committing Resources on Breakthroughs

Distinguishing Opportunities and Threats

Exploring Latent Needs and Megatrends

Identify Conversion Vs. Diversion

Exhibit 13.1  Using imagination for innovation

company’s current products obsolete. At that point the damage is done; the radical innovation has overtaken the conventional product. A proactive, futuristic company should not wait until that point. 3. Keeping track of niche markets: Ethnic niche markets, high-tech niche markets, and health care niche markets are proliferating steadily. Each niche market has product desires, latent needs, and needs that it does not know even existed. Identifying these needs can lead to generating innovative ideas. 4. Committing resources to breakthroughs: Managing or inventing the future entails committing resources to futuristic breakthroughs. Whether it is a breakthrough or a radical innovation, that product will not become a reality unless human and financial resources and time are committed to it. It may be a risky proposition but it should not be ignored. 5. Distinguishing opportunities and threats: In a market system every threat can be considered an opportunity and every change can be a new development for a company. Although many researchers maintain that the company must become a “complex adaptive system” (Wah 1998), I question that concept. I believe that

Using Imagination Properly

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The Outlook

Functions

Detecting a threat

Focusing on possible impact on the company

Organizational Potential

Emphasizing on what the company could do

Event and information based policies

Identifying and matching events to activities

Assessing every change as a possible opportunity

Considering all changes as new market opportunities

Based on emerging conditions innovating swiftly

Developing new products or services according to newly assessed opportunities swiftly

Exhibit 13.2  Opportunity versus threat (Adapted from Samli 2007)

the corporate entity must stay at the cutting edge of dynamic markets. Exhibit 13.2 lists ways in which a company can stay at the cutting edge of a dynamic market. First, a threat must be detected. If a photographic film producing company, such as Kodak, does not realize that there is a new process called digital photography, or if a traditional wire line telephone company, such as AT&T, does not recognize a new development called mobile telephone technology (Christensen 2003), then the threats are not detected and the process described in Exhibit 13.2 does not take place. Thus a company must be alert enough to detect a threat by keeping track of developments in the market. However, the above two companies became cognizant of the emerging threat belatedly. They were big and powerful enough to survive these costly treats, but smaller companies under such circumstances may not be able to survive. Once the threat is detected, the company’s organizational potential must respond to it. Is there anything that can be done about the new development that is causing a threat? If there are a number of threatening events, what can be done in terms of innovation to counteract each threat? The innovation possibilities need to be assessed so that they can be prioritized. All these threats can present new market opportunities and must be treated as such. Once the prioritization is completed, developing new products or services swiftly becomes the key challenge.

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As an example, Perkin-Elmer Applied Biosystems has been the world leader in the development, manufacturing, and marketing of the science systems and analytical instrumentation used in different markets such a biotechnology, DNA sequencing and synthesizing, and others. The company has shown a nearly 20% annual growth rate for the past two decades, but also every year 50–65% of its sales are generated by products that did not exist the year before. In such a dynamic market, instead of seeing threats, seeing opportunities and staying at the cutting edge is an impressive display of using imagination very positively to develop innovations (St. James Press 1993). 6. Exploring latent needs and megatrends: Latent needs in recent years have given us radical innovations created by disruptive technologies (Christensen 2003). Digital photography, mobile telephone systems, hand-held digital appliances, and online retailing are all related not to an existing or effective demand but to a latent demand. Consumers did not demand them but happily accepted them. Megatrends are more of a macro concept that do not entail analyzing or interviewing consumers. Inadequate roads and ever increasing numbers of motor vehicles are not only creating transportation problems but also may be pushing for radical innovations such as flying motor vehicles and moving highways. Detecting the trend, imagining its future, and finding possible solutions are what matters. There are also beginning, ongoing, and perhaps ending megatrends. It is critical to identify the real megatrends that would remain for a long time and move the society in one or another direction. These may direct possible innovational considerations.

Conversion Versus Diversion Hand-held devices tend to outdo each other. Each new one introduced to the market is claimed to do more than the previous one. Although these incremental improvements are important and provide short-term product superiority, they do not provide the firm with longer-lasting market superiority. While previously one gadget was used for communication and another one for music, the new gadget does both. This is called convergence, and based on the prevailing technologies it is incremental innovation. In contrast, divergence is a radical innovation. As the cable and telephone industries converge into one mega-industry, information entertainment goods and services are brought to people’s homes and offices. Thus a critical innovation paradigm is created that brings industries together to create new and desirable products. This cultivates incremental innovations that are practical, less costly, and reach markets quickly. Most large corporations emphasize such an approach since it is low risk and profitable in the short term (Christensen 2003). This is conversion, which is the most popular and active innovation activity at the present time. This is how, for instance, hybrid cars using both electricity and gasoline came about. Modern products such as iPhones and iPads are emerging in a similar manner. Exhibit 13.3 illustrates the convergence concept. Two industries together pioneer a

Conversion Versus Diversion

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Industry A Pioneering New Industry

Creating Expansion And Authority

Industry B

Success in Markets by new Product cost Cutting and Incrementalism

Exhibit 13.3  Developing convergence (Adapted from Samli 2007)

new industry using prevailing technologies and leading to expansion of the business or industry, capturing product superiority temporarily through an incrementalist orientation. One may question whether combining two industries is or is not somewhat narrow. Collins (2001) popularized a very important phrase: “Good is the enemy of great.” I believe incrementalism is the enemy of radicalism. If we spend our resources on incremental innovations, there may not be enough resources left for radical innovations that the world is waiting for. The hybrid car should be considered only a bridge between conventional cars and a totally radical product such as fuel-cell cars. The most convergence type of innovations are simply a bridge between the present and more important future innovations. But such incremental innovations, in which the American economy is primarily engaged, can be detrimental because the radical innovations that are essential for major progress in the future are not likely to materialize (Friedman 2010; Samli 2007). Rather, divergence is needed. Radical innovations based on disruptive technologies are the fruits of imagination, creativity, and the functions of what I call “effective innovation culture,” which are supporting forward-looking corporate entities. Moore (1996) illustrated the concept of divergence by stating the importance of paying attention to the major shapers of the future by gleaning insights from the influencers and interests of these shaping industries. By paying close attention to the existing economic environment and to the factors influencing evaluation, new products and industries can be developed. These activities can result in divergence, which means radical innovation. When Friedman (2008) discusses the desperate needs for a green revolution, he is not advocating convergence. Rather, he is urging basic research to go in the green direction, which is still an unconventional research area. Similarly incrementalism or convergence has done nothing for the automotive industry. Jet-fueled automobiles and airplanes are divergence products. Exhibit 13.4 illustrates this concept. Divergence or radicalism begins with thinking beyond company and industry boundaries. By putting new ideas, players, and ­customers together, new industries and breakthroughs are pioneered. This process generates major control in the newly emerging industry or the product line through radicalism in the innovation process. Radicalism in innovation is important for major basic research efforts. History is full of these types of developments. They are industry pushed rather than market pulled. Television, antibiotics, heart pacemakers, and oral contraceptives are all primarily industry-pushed products. Diversion innovation that is radical is very costly, but with the proper innovation culture focus (Samli and Weber 2000)

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13  The Future Belongs to Those with Imagination Thinking Beyond Company and Industry Boundaries

Putting New Ideas, Players And Customers Together

Pioneering New Industries or Breakthroughs That is Non-Conventional

Creating Major Control Through Radicalism in Emerging Markets

Exhibit 13.4  Developing divergence (Adapted from Samli 2007)

and long-term orientation, they are also extremely profitable. The critical issue is ­finding the ways to stimulate the development of disruptive technologies that will generate radical innovations that will succeed. There are many diversion possibilities in energy technology, biological sciences, the transportation industry, nano industries, and the like (Kao 2007; Mandel 2004).

Budgets and Other Financial Considerations How does a proactive dynamic enterprise think about developing a viable futuristic portfolio? It uses imagination within the constraints of the ideas put forth in this chapter, but it also moves quickly to convert the changes in the market to major innovational opportunities. The firm has to be committed to organized, continuous, and disciplined efforts to maintain an opportunistic outlook. This outlook requires a major commitment by the company in terms of financial resources. Drucker (1980), in dealing with this type of orientation, proposed a new concept that he coined “opportunity budgeting.” He maintained that in order to develop a proactive outlook there must be two budgets. The first is the operational budget for the things that are already being done. The second is the opportunity budget for the proposed new and different ventures. However, he also raised at least three questions in dealing with this opportunity budget: • Is this the right opportunity? • If so, what are its requirements in terms of money and other resources? • Could the opportunity budget possibly generate the highest rate of return? Thus, the opportunity budget is proactive and futuristic. It indicates the ambidextrous orientation of the firm. Identification, prioritization, and costing of the new opportunities leading to radical innovations have to be carefully studied. The opportunity

Imagination’s Pay Off

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budget not only determines the future survival of the company, but also plays a critical role in the development and introduction of radical innovations. This means that while the funding for different opportunities needs to be commensurate with the priority ordering that is given to them, there also should be adequate or ample resources allocated to unforeseen opportunities as well as to drastic and unexpected changes in the prioritization of the ranking of these opportunities (Samli 2007).

Imagination’s Pay Off Consumers need innovation, organizations need innovation, and society needs innovation in dynamic markets. Innovations are not only new products and services, but also new types of communication, different types of pricing, and different types of distribution. All products of the imagination activity discussed in this chapter must be carefully considered, developed, and delivered. Understanding which of the approaches drives successful innovation is critical. That approach can be given more impetus for future activities. As discussed earlier in this book, what imagination brings in, creativity develops further. Creativity is a critical property of the innovation process. It can be acquired, used, and improved through practice and knowledge. Such a dynamic development process would enhance the individual’s or the organization’s capability of developing something new, different, and powerful that would enhance the market position of the firm and contribute to the improvement of the prevailing quality of life. The vision to innovate becomes indispensible. The term vision is derived from the Latin word vide, to see. As Manu (2007) suggests, we cannot imagine what we cannot see, which implies that vision combines knowledge and foresight. The implication is that we cannot rely on the position that the firm has enough survival experience and enough resources to react to an unexpected market aberration, so therefore it does not have to do anything. That is not the proper vision. It does not facilitate innovations or enhance progress (daCuncha 1999). A progressive vision is not naturally present; it has to be developed. Without it there may not be a proper direction for innovativeness. In one of my earlier books I said that planning for the predictable is responding to the unpredictable (Samli 2007). I believe that a company can do even better than just responding to the unpredictable; it can be ahead of it. The unpredictable becomes a winning point. This point is very strongly related to not seeing the future as a normal extension of the present. Surely, past and present performance has had some impact in shaping the future, but emphasizing the future as an entity within itself keeps the firm at the cutting edge (Turock 2002). This calls for different ways of thinking. Trying to accommodate a fully bloomed reality of tomorrow is too late. Instead, the futuristic orientation calls for detecting early indicators and using imagination for innovation as described in this chapter. Paying careful attention to direct and indirect early indicators, vision, and dedication will help invent the future. There are innumerable examples of both direct and indirect early indicators. It is important to identify, categorize, and prioritize them. Some examples are presented

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Exhibit 13.5  Direct versus indirect early indicators (Adapted from Samli 2007) Direct Indirect Our new product is an instant success There is a market demand for similar products Our new product has been returned The market is rejecting similar products in large numbers Our star product has become a dog All similar products are being rejected Our low-cost product is taking a beating All of the competing products are having the same experience Our snack food introduction is a total There is a strong and growing trend for healthy success snack foods

in Exhibit 13.5. There can be many similar indicators that would show the level of success or failure that the newly introduced product is experiencing. One last point related to introducing a new product to the market is speed. Since markets are very dynamic and changeable, introducing the new product as quickly as possible is important. In this age of high-tech competition, one must also be concerned with computer security. Reaching the market fast and establishing a market position would at least partially counteract the risk of a security breach (Samli 2007). Introducing the innovation swiftly requires fast development of the new product. Some companies, as they put special emphasis on innovation, establish critical time frames for the proposed new developments. The 37 Signals LLC is a small Chicago company that has a strict rule in generating new products. The new product development will never take more than 3½ months. The company believes that such a rule makes the company run well. Instead of advanced planning, the creative workers of the firm start creating and testing. They make sure that the innovations can do a few things well. The company functions beyond focus groups and standard market research. Screening and evaluating new ideas is done by being in touch with experts worldwide (Hamm 2006).

Summary This chapter discussed the major theme of this book, imagination. It is maintained, once again, that radical innovations are extremely important for business entities, consumers, and society. Radical imagination is the key to radical innovation. Thus, firms must develop, maintain, and use imagination. This chapter emphasized the ways imagination connects with innovation ideas. Seven specific ways are identified: analyzing markets in depth, supporting disruptive technologies, keeping track of niche markets, committing resources on breakthroughs, distinguishing opportunities and threats, exploring latent needs and megatrends, and identifying conversion versus diversion. Two of these, opportunity and threat, and convergence versus divergence, were given special attention because they play a more critical role in guiding radical innovations. Radical or not, innovations are introduced to the market by companies. As these innovations are introduced to the market, direct versus indirect early indicators need

References

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to be identified, classified, and prioritized. These early indicators identify what else might be done to make the new innovation successful. In addition, this chapter identified a critical concept: opportunity budgeting. Opportunities need to be connected to innovations and provisions must be made for their development. Finally, the chapter raised the issue of the speed to market. If the innovation is not developed swiftly and introduced to the market as quickly as possible, it is possible that changing conditions may reduce the prevailing market opportunities.

References Christensen, C.M. (2003), The Innovator’s Dilemma, New York: Harper Business Essentials. Collins, Jim (2001), Good to Great, New York, Collins: Harper Business. DaCuncha, Joao Vieira (1999), “Improvisation in Global Virtual Terms,” E-mail, Lisbon, Portugal. Drucker, Peter F. (1980), Managing in Turbulent Times, New York: Harper and Row. Friedman, Thomas L. (2008), Hot, Flat, and Crowded, New York: Farrar, Straus and Giroux. Friedman, Thomas L. (2010), “Start-ups, Not Bailouts,” New York Times, April 4, 9. Hamm, Steve (2006), “How Smart Companies are Creating New Products—and Whole New Businesses—Almost Overnight,” Businessweek, March 27, 68–76. Kao, J. (2007), Innovation Nation, New York: Free Press. Mandel, M.J. (2004), “The Way to the Future,” Businessweek, October 11, 92–98. Manu, Alexander (2007), The Imagination Challenge, Berkeley, CA: New Riders. Moore, J.F. (1996), The Death of Competition, New York: Harper Business. Samli, A. Coskun (2007), Chaotic Markets, Westport, CT: Praeger. Samli, A. Coskun and Weber, Julie Ann E. (2000), “A Theory of Successful Product Breakthrough Management: Learning from Success,” Journal of Product and Brand Management, 9, 35–55. St. James Press (1993), International Directory of Company Histories, Vol. 7. Turock, Art (2002), Invent Business Opportunities No One Else Imagined, Franklin Lakes, NJ: Career Press. Wah, Louisa (1998), “The Edge,” Management Review, November, 25–29.

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Chapter 14

A Future Full of Innovations

Throughout history, innovations have made lives better, easier, and more enjoyable. As Demirdjian (2010, p. 1) stated, “Man did not get out of the stone age because he ran out of stones. His large brain made him find other materials such as iron to make stronger instruments out of it.” Certainly, in complex times this process should not come to a standstill but rather must accelerate. This chapter discusses this process by exploring three critical areas: the full cycle of radical innovation from ideation to a market reality, research that identifies critical weaknesses and suggests future studies, and innovation cultures within the firm and within society.

Innovation Cycle An innovation cycle introduces the product to the market. No matter how outstanding the innovation is, unless it is introduced to the right market at the right time in an effective manner, it might not succeed. Radical innovations make a positive impact on the prevailing quality of life and create market superiority for the company that developed it. Exhibit 14.1 illustrates the radical innovation cycle. This is a slightly simplified version of Exhibit 10.5. The cycle begins with imagination, which is identified as thinking outside of the box. I believe that without imagination radical innovations cannot materialize. Creativity, in contrast to imagination, is thinking within the box. But without imagination, creativity would mostly accomplish incremental, as opposed to radical, innovations. Incremental innovations provide product superiority for a short while but not market superiority. If imagination and creativity can work together, then a major (radical) innovation can emerge. When an innovation idea emerges, it must be tested. Futuristic focus groups assess the functionality of the proposed innovation idea. If the innovation idea is accepted, then the critical issue is to determine the details of the idea or the product in question. The characteristics of the product are specified because without these details the product cannot materialize. A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, DOI 10.1007/978-1-4614-0854-3_14, © Springer Science+Business Media, LLC 2011

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14  A Future Full of Innovations Imagination

Creativity

Innovation Idea

Concept Testing

Specification

Development

Economic Evaluation

Market Introduction

Early Indicators

Product Adjustment

Incremental Changes

Marketing Adjustment

Exhibit 14.1  Radical innovation cycle

Then a prototype of the product is developed and evaluated to determine if the product meets the planning specifications and is financially feasible to produce and distribute. A marketing plan is designed to introduce the product to the market. This plan addresses distribution, pricing, and promotion. The marketing plan must assess where the market is likely to be. It cannot be assumed that the market is not changing. On the contrary, it must be assumed that the market is changing and will continue to change, and that introducing the new innovation can enable it to change even faster and possibly in a different direction. The marketing plan also addresses how the product is going to be promoted and diffused, the chasms between the different diffusion groups, and how these chasms are going to be managed. If the product is a radical innovation, convincing a suspicious market may be even more difficult than introducing a product that is a regular line extension or an incremental innovation. The most important aspect of introducing the product to the market is assessing the early indicators of the market’s reaction to the product. These indicators give good information to the company about the status of the new product in the market

Should There be a Research Agenda?

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and about any adjustments that the company must make to the product. The product may be too bulky or awkward looking or may be using too much energy. These problems and any others must be addressed immediately and the product must be adjusted accordingly. These incremental adjustments can also be used as new information to include about the product when promoting it. These incremental changes must be genuine, so that consumers can see the difference. In addition to adjusting or debugging the product, the marketing plan itself must be evaluated and adjusted based on the feedback received from the market. The innovation cycle should be applied not only to existing products but also to all of the products in the futuristic product portfolio. It is also important to evaluate the innovation cycle. Is it instrumental in analyzing a product’s life cycle? Are there areas in the innovation cycle that need to be modified? Should there be minor or major variations in the innovation cycles?

Should There be a Research Agenda? Innovation is the most dynamic and demanding area not only in a business but also in a society. But without innovations of all kinds, the human race would stagnate. There are many research areas that need to be cultivated and put to use for the ­betterment of quality of life and for economic well-being. Exhibit 14.2 presents seven key research issues related to innovation. The first one is imagination research. Imagination-related free thinking is most critical for innovations. This book has addressed how imagination works, how it can be made a part of the corporate entity’s orientation so that product ideas can be generated, and how imagination interacts with creativity. The cultivation of imagination and its Exhibit 14.2  Research priorities Imagination research How does it work? How can it be connected to the corporate entity? Formulation of innovation What format? ideas How much early support? What is the immediate and futuristic impact? Innovation deployment How is it introduced to the market? What are the best ways to get an early reaction? Early indicators What are the best indicators? How are they measured? What are the expected changes? Systematic assessment Where is the product in its life cycle? Are there ways to accelerate it? Is it time to think of cannibalizing other products? Others recent issues Are the methods used adequate? What are new areas to explore? Sustainability What is the sustainability of the innovation in the marketplace? What is its role in societal sustainability and global sustainability?

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interaction with creativity make tremendous contributions to innovation activity and to future research. As the innovation is formulated, questions will arise regarding its format, its design, its marketing plan, and its futuristic impact. These issues constitute a second phase of research activity that must be addressed. If the product is not likely to have much of a futuristic impact, it would be wise to focus on its immediate introduction. But if the product has a strong potential futuristic impact, then the focus should be less on introducing it and more on continuing to promote it. Deployment of the innovation, regardless of whether it is a simple line extension, an incremental innovation, or a radical innovation, is a serious research issue. There are different ways of marketing a new product, but finding and implementing the best way of marketing a particular product is very important so that the product can succeed in the marketplace. Thus, it is also important to assess the market’s early reaction to the product, using the early indicators. Each new product may have its own early indicators, so they must be determined for each product. The early indicators must be able to identify quickly any minor problems with the product, which must be remedied immediately to enhance the market performance of the new innovation. As a product continues moving along its life cycle, there must be a continual systematic assessment. This is part of the marketing strategy. But as the product moves through the stages of introduction, growth, maturity, and decline, research must be conducted at each stage. This area is not well developed. The chasms that were discussed earlier in this book need to be addressed, but if it is not known where the product is in its life cycle, these chasms may be hard to identify and address. It will also be difficult to respond to the indicators regarding market demand for major or minor product adjustments. This situation becomes extremely critical when the product approaches a stage at which it might be cannibalized by a competitor. There may be other issues related to the innovation that need to be explored. But above all questions must be raised regarding the adequacy of the methods used for research and the correctness of their measurements. The development and marketing of innovations is a learning experience for the company, and changes in organizational and marketing behavior will take place as needed so that the innovations and their life cycles can be successful. The decision makers must have the proper information to enhance the market performance of their innovations (Samli 1996). Innovation-based critical research must be managed and improved to enhance the success probability of the new product or service. Finally, sustainability must be carefully researched. Grewal and Leavy (2008) state that “building a sustainable competitive advantage [is] something the firm can persistently do better than its competitors.” This is what is meant by market superiority.

Sustainability Innovations create a competitive advantage for a company (Alderson 1957). Alderson called this the differential advantage, which in fact creates a competitive advantage.

References

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There may be many ways to establish competitive advantage; however, the most visible aspect of it is the products the company offers to the market. These products, the consumer value they create, and the consumer loyalty they generate all constitute sustainability. Surviving in the market for a long time is what marketing strategies try to accomplish. That is sustainability of the product, which also generates sustainability for the firm. Any time an innovation is introduced to the market, not only its sustainability in the market but also the sustainability of industries and the sustainability of this fragile planet are all impacted. A sustainable society requires a population size that is stabilized, energy that is used efficiently, energy sources that are renewable, and environmental issues that are addressed (Doob 1995). Petroleum and natural gas are unreplenishable resources that will be depleted someday. Environment-related (green-related) innovation reduces the process of global warming. Solar heating units are preferable to coal for generating electricity. In addition of green-related innovations, there may be innovations that would enhance quality of life and global sustainability. Certain foods, medications, and lifestyle adjustments could improve the quality and sustainability of life. I hope this book encourages their development.

Summary Innovation cycles are critical not only to the companies that are introducing products to the market but also to the success of those products. A review of the cycle was presented in this chapter. Understanding its specificities increases the possibility of success for the innovation. There is a great need for future research in the areas of innovation idea formulation, innovation deployment, early indicators, systematic assessment, sustainability, and others. Sustainability is a critical area that is gaining a lot of attention. It is difficult to imagine a new, and particularly a radical, innovation that would not be examined for its sustainability and its environmental impact.

References Alderson, Wroe (1957), Marketing Behavior and Executive Action, Homewood, IL: Richard D. Irwin. Demirdjian, Z.S. (2010), “Trends in Exponential Times,” The Business Review, Summer, 1–2. Doob, Leonard W. (1995), Sustainers and Sustainability, Westport, CT: Praeger. Grewal, Dhruv, and Leavy, Michael (2008), Marketing, New York: McGraw-Hill Irwin. Samli, A. Coskun (1996), Information-Driven Marketing Decisions, Westport, CT: Quorum Books

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Chapter 15

Generating a Culture of Innovation in the United States

Throughout this book I have talked about an innovation culture within the corporate entity. But there also must be an innovation culture within the society. This chapter explores this all important topic in some detail. The United States always has been very active in having an innovative spirit. But that spirit has been dwindling for the past two decades (Mandel 2009). Perhaps the most critical current problem that the U.S. economy is facing is its ever-increasing foreign indebtedness. Given the current recession, American consumers are not likely to give up the cheaper essential products that are imported primarily from China because money is tight and Chinese products are still a bargain. Thus, in order to reduce the ever-increasing trade deficit, it will be necessary to increase American exports. This means we have to create a large number of start-up businesses that are managed by smart, creative, and inspired risk takers who are entrepreneurs promoting innovation-related activities (Friedman 2010). They will reduce foreign indebtedness and create much needed new jobs. In the past, the U.S. did quite well in exporting such products as automobiles, computers, and information technology. These products were the result of long-term and intensive innovational efforts. But now American innovativeness appears to be on the wane. Without some new exportable products that are attractive to the global markets, there will be no opportunity to reduce America’s foreign indebtedness. Innovation also creates economic and social progress that our society needs now, too. Thus, cultivating American innovativeness is one of the most formidable issues that the U.S. is facing (Drucker 1995; Samli 1994). Innovation needs to be fostered by society. If there are not enough innovations, society is likely to struggle with mediocrity and economic regression. Companies cannot put together innovation teams or hire potential innovators if a culture of innovation is not present. Corporate entities must create innovative groups (Florida 2004; Malanga 2004; Steiner 1965). If a society wants to innovate, first it must create a culture of innovation, and second it must stimulate corporations to encourage innovation. This chapter discusses creating a culture of innovation. Peter Drucker (1999) characterized innovation as a systematic policy for creating change, meaning not

A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, 105 DOI 10.1007/978-1-4614-0854-3_15, © Springer Science+Business Media, LLC 2011

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just change but also economic progress. Such a policy would require much work and thinking outside of the box. American innovativeness appears to be rather flat now and therefore America’s international economic leadership is in jeopardy, exacerbating the recessionary conditions at home. This chapter explores the characteristics of a culture of innovation and shows how America’s innovativeness is lacking. It primarily aims at developing a culture of innovation that would put the U.S. in the world leadership position once again (Friedman 2008).

Problems with Innovations The spirit of American innovativeness has been down for almost two decades (Mandel 2009). Innovation economics is the forerunner of economic development. It stimulates emerging new markets, facilitates a major increase in exports, and improves the economic quality of life. The lack of innovativeness for an advanced industrial nation such as the U.S. is a very serious problem. Between 1980 and 2005 almost all the new jobs created in the U.S. were created by the firms that were at most 5 years old. Indeed new firms created about 40 million jobs. These were all start-ups (not bailouts). Thus, America has had very powerful, growing innovative new companies. Today, these entrepreneurial dynamic entities are not getting enough attention or support. There is a desperate need for many more of them (Friedman 2010). A nation that depends on others for its basic scientific knowledge and its creativity is flirting with doom in terms of its industrial progress and its global competitiveness (Kao 2007). Pessimism about America’s future is growing and is connected to the poor showing of its innovation economics (Mandel 2008). America’s innovation economics is facing a multidimensional conundrum. The first dimension of our innovation conundrum is that America’s innovation expenditures are not yielding the expected or hoped for results. Vazquez-Barquero (2002) explains this conundrum as European and American theorists’ argument that capital creates the environment in which economic development occurs. But how this capital is used becomes a major issue. Asian scholars, unlike Western scholars, emphasize that individuals are not given enough attention in Western ideology. It is not the financial capital but the human capital that is needed. Thus, Europeans and Americans do not put enough emphasis on people, particularly on entrepreneurs. Asian scholars believe that people create major innovations (Yamamoto 2007). The financial aspect of this innovation conundrum, therefore, is simply that the lack of development of entrepreneurship capital is jeopardizing the future of the U.S. economy. Moore (1996) posited that in turbulent times there are basically two key solutions: downsizing or developing new markets. Currently, the American business sector has been primarily downsizing. Downsizing is closely related to cost cutting, and companies that are trying to cut costs are not likely to be futuristic and support innovational efforts. Many innovators, or innovators-to-be, are likely to be laid off in this process of cost cutting, and there is decreasing encouragement for a culture of innovation to develop.

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107

The Innovation Conundrum Exhibit 15.1 illustrates not only that the amount of money spent on innovation or research and development (R&D) has been decreasing, but also that the research activity has been going in the direction of the military. As seen in Exhibit  15.1, during the period analyzed military R&D activity increased over 110% while the private R&D contribution increased only 43%. The third column in Exhibit 15.1 is the shocker: government funding for R&D activity in the private sector took a very deep drop, registering over a 10% decrease. The total sum of money that is available for R&D in the private sector has become relatively small and intermittent. Thus, the financial conundrum also implies a cycle of self-destruction in that not enough emphasis is being put on innovation. As can be seen, Mandel’s (2008) statement that the U.S. is spending large quantities of money on innovation that is not quite yielding the expected results is somewhat misleading. As seen in Exhibit 15.1, the money, in reality, has become rather scarce. Furthermore, the general orientation of downsizing is not helping the utilization of human resources for innovation and economic development. In absolute terms the U.S. is spending large sums of money on innovation, but the changing trends are likely to be a major aspect of an innovation conundrum. Sadly what is quite evident is an obsession with cost cutting. Truly innovative efforts such as cultivating new and progressive development are not supported. Much emphasis is being put on incremental innovations, and radical innovations are not adequately emphasized (Christensen 2003). Certainly, the current picture of innovation deficiency indicates that something else is needed. Just what is that Exhibit 15.1  Research and development (R&D) dependency on dollars Change in U.S. industry research expenditures funded Change in military Change in U.S. industry by the federal government R&D spending from R&D expenditures from from year prior (%)c year prior (%)a year prior (%)b Year 1997 – – – 1998 1.9 7.3 0.2 1999 2.5 9.9 8.5 2000 1.7 10.7 18.3 2001 7.7 −1.1 −3.6 2002 16.5 −5.8 −4.6 2003 19.9 0.9 6.3 2004 10.4 −0.1 10.7 2005 7.7 5.2 4.7 2006 4.9 6.0 7.5 2007 6.7 5.0 −2.0 a  Starting with $36 billion, the total increase during this period is 112.6 %. b  Starting with $140 billion, the total increase during this period is 43.6 %. c  Starting with $22 billion, the total decrease during this period is −10.6 %. Sources: Original figures are from the U.S. Department of Defense Budgets and the National Science Foundation. Calculations were made by the author.

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something else? Can it be achieved in the short run? Of course the conundrum is not just for the U.S. As Trott (2008) posits, companies must be able to adapt and evolve if they want to survive in the modern chaotic markets. This ability to adapt and evolve is directly connected to innovation. In fact some scholars think that not being able to innovate in our dynamic market system is the kiss of death (Freeman 1982; Samli 2007). Drucker (1954) stated that a business enterprise has two key functions: innovation and marketing. It appears that most big businesses in these troubled times are not receiving good grades on either one of these functions. Schumpeter (1934) was considered to be the founder of modern economic growth theory. He posited that the development and diffusion of new technologies is the key to economic progress due to sustained economic growth created by competition among firms. But if spending more on innovation is less than adequate in terms of satisfactory results, how do we reverse the trend?

The Road to Innovation Researchers and analysts maintain that the only way the U.S. can get out of the current economic hole is by developing new products, new services, and new ways of doing business. In other words, innovation, innovation, innovation (Mandel 2008; Samli 2007). Prajogo and Ahmed (2006) posited that without innovation stimuli and innovation capacity, there cannot be any innovation. It appears that the aforementioned financial conundrum is also creating just such a dangerous situation, that is, systemic declines in both the incentive and the capacity to innovate. Relatively speaking, the inadequate spending on innovation reduces the innovation stimulus and shrinks the innovative capacity. Just where does innovation begin and how is it cultivated? As Kao (2007) points out, when it comes to innovation, it is not how much money or resources we have but how much knowledge we have that counts. Without a certain amount of knowledge, nothing is likely to happen. Indeed many thinkers believe that the tools and methods of innovation are there and ready to be deployed (Kao 2007; Mandel 2004). It can be maintained that the pieces of innovation are in place in our society. However, the process itself is very delicate and needs nurturing. Perhaps the key is the commitment to innovation. Such a commitment is the strength of the intention to develop and continue a stable and long-term innovational activity (Morgan and Hunt 1994; Samli and Weber 2000), which will lead to global industrial leadership. However, recently the commitment to innovation has been more of a commitment to short-run profit making, which is limiting genuine innovational activity by opting for incrementalism rather than radicalism (Christensen 2003; Samli 2007). Trying to make existing products and services more profitable (incrementalism), which results in very slow, if any, economic progress, is overshadowing the real innovational efforts (radicalism) that would make a positive impact on the economy. Both the process and the foundation of innovation are based on knowledge and education, which is a necessary component of an innovation culture. But with

Developing Entrepreneurial Capital

109

increased levels of home schooling and with dramatic cuts in education budgets, the educational level is deteriorating. The American educational system is not adequately providing the necessary stimuli to learn more, to explore, and subsequently to innovate. An increasing proportion of U.S. patents are being issued to immigrants. While the number of patents awarded to scientists born in the U.S. is declining, the share of all of the patents awarded to scientists born outside the U.S. more than tripled in the second half of the twentieth century (The Economist 2009). Paradoxically, most immigrant innovators work for major American companies that use primarily sustaining technologies and that do not generate radical innovations. Sustaining the existing technologies fits the values of these companies since they prefer quick and improved profit margins and cost reductions rather than putting resources into disruptive technologies (Christensen and Raynor 2003). Thus, innovations and individual independence on creative pursuits are both compromised in favor of short-term profit motives, even though the innovativeness of immigrant workers has been on the rise. Major innovative breakthroughs may yield much greater benefits but only in the long term (Samli and Weber 2000). Quick results and payoffs are generally preferred by corporate entities. In fact, as Christensen (2003) stated, most larger companies, or as Friedman refers to them, bailouts, become vulnerable to competitors’ radical innovations in the long term, meaning that while large companies are opting for the short-term quick results, they are becoming vulnerable to major industrial changes in the long term. This implies that the major industrial giants are not encouraging key breakthroughs or radical innovations.

Developing Entrepreneurial Capital Without putting enough emphasis on people and on generating entrepreneurial capital, it is not possible to create an innovation culture. Without such a culture it will be almost impossible to create innovational breakthroughs. Audretsch and Keilbach (2004), in discussing entrepreneurial capital, maintain that there must be individuals who are willing to take the risk of starting new businesses, developing new activities, and creating an innovative milieu. The presence of an innovative milieu depends on having an innovation culture. It takes more than just one company to innovate. There is no general structural entity that will initiate, coordinate, facilitate, and carry out innovational efforts in this country. Exhibit 15.2 identifies different organizations within the country that need to be coordinated by a national innovator. This activity cannot be only a private endeavor, since innovations require much time, know-how, people, and capital. But if research universities were to join with nonprofit research organizations, with Silicon Valley facsimiles (look-alikes), and other information exchanges entities, a powerful culture of innovation can be initiated. This super-organization of innovation will see to it that the functions of an innovation culture will be present and fully active. Exhibit 15.3 lists nine such functional aspects of an innovation culture.

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Non-Profit Research Organizations Government Initiatives

The Innovation Culture Silicon Valley Facsimiles

Institutional Information Exchanges

Exhibit 15.2  It takes more than just one company to innovate

Exhibit 15.3  The functions of an innovation culture The necessary conditions Implications Fostering knowledge-based development There are enough educated people to innovate Cultivating curiosity Serious challenge for curiosity to explore Identifying the desired future Having mature and ambitious goals Keeping a constant state of evolution Understanding the dynamic nature of markets Making radicalism the key Cultivating radical concepts and changes Generating the necessary talent Talent can be cultivated by education and motivation Creating a futuristic orientation Not being satisfied with the present conditions and always looking for improvement Balancing applied versus basic research Researching not only for current problems but also for future explorations Putting special emphasis on radical Understanding that major innovational progress innovations will come from radicalism

A Culture of Innovation A country that is not committed to continuously reinventing its innovation ­capabilities is not likely to become an economic and political leader. Such a leader needs a constantly expanding economy and leadership in international markets (Kao 2007). Knowledge base is the essence of the starting point for a society’s innovative capabilities. Perhaps the two worst things that can be done to an education system to stifle its development are first, to create the private versus public education dichotomy debate that politicizes the educational process and does not give ­credence

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to the fact that education is a right, not a privilege. But all the efforts in recent years to privatize education support the idea that education is a privilege. The second is to decentralize education to the point that curricula are significantly different in every community. This results in suboptimization of the education system and does not foster an enlightened society of innovation generators. If there are not enough educated people, particularly in the higher echelons, a sustained innovational culture cannot emerge. In fact Bok (2006) raises the issue that despite more resources, more powerful technologies, and hundreds of new courses, American education is underachieving. Curiosity cultivation will not take place if the first prerequisite in Exhibit 15.2 is not in place. But if it is, by investing more in human capital it is possible to generate people with ideas, talent, and entrepreneurial zeal. Furthermore, these people will have the vision and the organizational ability to cultivate innovation. Finland in recent years has shown the power of curiosity cultivation and talent creation by emphasizing education and creating a major cell phone industry (Kao 2007). In this case, a proper attitude is more critical than simply making funds available. However, if the funding is deteriorating, then an innovation culture will be hampered before it even begins. Thinking schools create learning nations, and they are likely to have a greater opportunity to motivate national talent. This talent becomes more curious, and, in return, identifies the desired future. In the whole process of developing an innovation culture, the conception of desired future accomplishments needs to be identified. Innovation is more than just a serendipitous activity. That desired future can be raising the country’s technological capabilities to higher levels by developing highly advanced green products, advanced communication technology, and so on (Trott 2008). One of the key requirements of a culture of innovation is having a constant state of evolution in the society’s creativity that can benefit from incubators for new ideas and new concepts, regional centers of innovation excellence that cultivate exceptional talent, and the geographic concentration of interconnected companies to cross-germinate innovational efforts (Kao 2007). All of these and similar systemic organizations keep innovational zeal alive. Companies that are doing well within comfortable limits are in great danger of losing ground to the advances that companies using disruptive technologies can generate in a dynamic society. Because these comfortable companies have done well in the past, they do not see making radical changes as necessary and they typically make only incremental changes, if any, in their products, processes, and business activities (Christensen 2003). Such incrementalism is quite vulnerable to radicalism practiced by the companies that are engaged in disruptive technologies that are going to make the existing products obsolete. This was experienced by the manufacturers of silver halide photography as digital photography emerged, and by the manufacturers of notebook computers when hand-held digital devices began to emerge. Radical innovational developments stimulated by disruptive technologies are critically important for the economy. In fact, the industries that currently are in trouble, such as the automotive and banking industries, need radical innovational developments in order to function well in an era of dramatic financial vacillation.

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As the American society changed radically, these industries stayed the same, and hence they are in serious trouble now because they have not been actively innovating the products and services the society needs. If and when a society successfully provides for the needed basic level of education, then the next step that must be taken is the generation of the necessary talent. As Florida (2003) stated, if our talent base weakens, our lead in technology, business, and economics is most likely to fade away. Although the U.S. is in the very top rank in spending on education, the results are unsatisfactory. It is necessary to launch a national program based on the lessons learned from a host of effective state and local educational initiatives (Kao 2007). To cope with the innovation conundrum, generating proper talent is absolutely essential.

Developing a Talent Base The talent base in an innovative society must have a futuristic orientation (Samli 2009). A dogma-free environment must create a democratic innovational class that believes in itself and looks forward to future successes. The innovational class must reach out and convince corporate executives to take a chance on radical approaches. If much of the innovation-related activities are futuristic, then the innovation foundation of the country must develop a futuristic agenda. The American innovation culture lacks this agenda. Instead of increased productivity and the breakthroughs and benefits to be shared with everyone, in recent decades American industry has been overly concerned with cost cutting and differentiation, in which the benefits are not widely shared. This behavior mode has been more present-oriented than future-oriented. It has been more discriminating in terms of benefiting certain groups of people in society (in the case of the U.S., the very rich). The futuristic orientation must focus not on cost cutting and catering to privileged few but on solving major problems for the whole society. But this is not happening. Organizations unwittingly block the disruptive potential new ideas if they are not cost cutting and differentiation related (Christensen and Raynor 2003). Developing new products or services with this lack of radicalism needs to be questioned and modified. The futuristic versus present orientation leads to a basic versus applied research dichotomy. Basic research that is likely to be radical is commonly put on the back burner. Many researchers and companies are paying more attention to pull marketing, meaning that major innovations are market pulled or incremental innovation based. To facilitate this activity, they are emphasizing consumer-expressed needs (Sinha and Foscht 2007). This type of activity is primarily applied research and may not lead to major innovations, since consumers do not quite know what they would need in the future. Such activity cultivates incrementalism rather than radicalism. In fact as Manu (2007, p. 2) stated, “One cannot see what one cannot imagine.” Thus, emphasizing consumer imagination is most likely to generate applied research, which does not lead to major products and breakthroughs that will be generated by basic research.

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Perhaps one key bridge between asking consumers what their needs are and basic research is being engaged in by the exploration of latent needs (Samli 2007). If the key factors that influence latent needs are identified, some meaningful products can be generated. However, these are not likely to be long-lasting innovations that can be labeled major breakthroughs (Samli and Weber 2000). If basic research exploring latent needs can be directed in such a way that it will facilitate the creation of products and services that are most important in consumer quality-of-life enhancement, then the effort becomes most meaningful. Basic research orientation, that is, exploration for exploration sake, is particularly critical in developing innovation cultures. Consumer-oriented research is primarily related to paying extra attention to potential niche markets and latent need exploration (Samli 2007). Finally, and perhaps most importantly, the movement from incrementalism to radicalism needs to be considered a major factor in the innovation culture. I believe that most important innovations are not an improvement of existing products (incrementalism) but the creation of totally new products (radicalism).

The Mechanics of Developing an Innovation Culture Talking about the need for the development of an innovation culture is important; however, it is critical to discuss how such a culture can be developed. To facilitate the characteristics listed in Exhibit 15.2, three key forces must be present and working in unison: the government, the education system, and technology companies. The government must encourage and partially finance research and development without political and financial pressures coming from various sources in a complex society. Financial support should not go mainly to the military. Universities must pursue information generation, decision making, and problem solving for prevailing market conditions in the present, and must emphasize entrepreneurial development efforts as currently seen in China and Singapore (Samli 2009; Tan 2003; Zhang and Yang 2006). Finally, technology companies must hire the best minds that are available and help them to become successful entrepreneurs. These companies are not only intellectual centers but also grouping places for the smartest students and most talented workers who need to be challenged (Isaak 2005; Samli 2009). They can use the valuable information generated by universities to help entrepreneurial generate ideas for innovations.

Reverse the Brain Drain The last aspect of the American innovation conundrum is the reversed brain drain. The U.S. has been benefiting from talented immigrants for a long time. According to Wadhwa (2009a, b), in the past about 80% of the Chinese and Indian students who earned a Ph.D. in science, technology, engineering, or mathematics in the U.S. stayed in the U.S. They provided critical support for the U.S. economy and participated in

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over 40% of the total patent applications. According to estimates in 2005, immigrantfounded tech companies generated $52 billion in revenue and employed 450,000 workers (Wadhwa 2009a). They contributed significantly to the country’s intellectual property. But the U.S. has been taking the immigrant contribution for granted. As a result, combined with the current recession, economic growth in India and China are increasing xenophobic sentiment and practices in the U.S., and thus young and highly educated immigrants are leaving the country (Wadhwa 2009b). As reported by Wadhwa (2009a), 1,203 highly skilled Indian and Chinese workers were surveyed; 44% of Indian and 36% of Chinese respondents either have gone home or intend to. The lack of definitive efforts to build or strengthen our innovation culture not only is not generating an innovation group but also is discouraging its possible expansion because of the brain drain. Only 10% of Indian and 9% of Chinese respondents stated that they may stay in the U.S. This is simply a most alarming bit of information. The innovation culture must reverse this trend.

What Is Needed? If the U.S. or any major country wants to develop its economy and establish its leadership and its competitive advantage in global markets, innovation is required. Innovation generates new and critically different products and services that could give an industrialized country global leadership. However, the U.S. is not spending enough money on education and basic research. Therefore, its innovativeness has suffered. Not having a steady flow of financial resources and not having a focused orientation make the situation much worse. Also, the profit motive forces companies to focus on innovations that primarily yield a short-term gain. This emphasis on profit orientation is not likely to bring about genuine innovational breakthroughs. In these cases, financial rewards are considered first as the innovational efforts are generated. It is necessary to generate a culture of innovation based on entrepreneurial capital. But there must also be an orientation to explore radicalism. Finally, the brain drain deprives the U.S. economy of important progress in developing an innovation culture. It must be reversed. In order to have a successful innovation activity, a critical emphasis must be put on developing a culture of innovation. There are at least nine critical areas that need to be satisfied in such a culture. Using Friedman’s (2010) terminology, there is a desperate need for start-ups rather than bailouts. Much research is needed to examine the detailed characteristics of these nine critical areas and how they can be brought together in the form of a culture of innovation culture. If such a culture is properly developed, then futuristic basic research supported divergence is likely to be successful. Incrementalism in innovation is not good enough. There must be radicalism based on a fully developed culture of innovation. This is a requirement for any country that strives for economic development and global leadership. Innovation in a society requires two main prongs: a culture of innovation and management for innovation in corporations. This chapter deals with the first prong.

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Many ideas are put forth in this chapter. These ideas are related to in-depth innovation development for which further research is not only necessary but also overdue. The U.S. must regain its global industrial leadership. But this leadership cannot be achieved without proper emphasis on innovation, which is facilitated by education and a powerful innovation culture.

National Innovation Systems In generating a culture of innovation one of the key forces is national innovation systems. This concept has been used to create innovation surveys that have been directing innovational and technological changes (Scerri 2010). Almost simultaneously, the triple-helix model emerged, which is composed of university-industrygovernment relations and is intended to examine institutional analysis of knowledge infrastructure (Etzkowitz and Leydesdorff 1995) and its evolutionary progress (David and Foray 1994, Nelson 1993). Thus a knowledge-based system has been identified with a triple helix model (Leydesdorff and Meyer 2006). The evolution of the triple helix has generated a major meta-innovation system in Brazil (Etzkowitz et al. 2005). These meta-innovation activities have been incorporating linear modalities of academic research and social and industrial explorations. However, from my perspective, these national innovation systems have certain built-in limitations. They may not be suitable for the development of radical innovations, which are particularly necessary for coping with recessions and helping to reduce or eliminate trade deficits. A major problem with national innovation systems is that most countries do not have such a system, and in those that do, the systems reflect the culture, in which case they may be driven by individuals who made prior decisions that do not facilitate innovations, particularly radical ones (Etzkowitz and Leydesdorff 1995). Synchronizing the triple helix may be a big problem if the participants are more evolutionary than revolutionary. Innovations within the context of the triple helix may be relying to what is and what has been rather than on free thinking. National innovation systems that are in transition may support incrementalism rather than radicalism. National innovation systems must have the intention of supporting and utilizing free thinking. Furthermore, they must be relying on progressive orientation. They are very important for a country’s innovational activity if they support free thinking and be motivated to explore the unknown, but above all, if they are knowledge based.

Summary This chapter explored why there is not a culture of innovation and how that can be remedied. Having ample resources deployed in the right direction is important. But even more important than resources is the development of entrepreneurial capital.

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Developing proper human resources and how a culture can accomplish that were explored in some detail. The chapter identified what needs to be done to further cultivate the innovational capabilities of the U.S.

References Audretsch, D., and Keilbach, M. (2004), Entrepreneurship Capital Development: Determinants and Impact. Discussion Papers on Entrepreneurship, Growth, and Public Policy, N3704, Max Placke Institute of Economics. Bok, Derek (2006), Our Underachieving Colleges, Princeton: Princeton University Press. Christensen, C.M. (2003), The Innovator’s Dilemma, New York: Harper Business Essentials. Christensen, C.M., and Raynor, M.E. (2003), The Innovator’s Solution, Boston: Harvard Business School Press. David, P.A., and Foray, D. (1994), “Dynamics of Competitive Technology Diffusion,” New Directions in Technology Studies, London: Pinto, 63–78. Drucker, P. (1954), The Practice of Management, New York: McGraw-Hill. Drucker, P. (1995), Managing in a Time of Great Change, New York: Turman Talley Books. Drucker, P. (1999), Management Challenges for the 21st Century, New York: Harper Collins. The Economist (2009), “Give Me Your Scientist?” The Economist, March 7, 1–2. Etzkowitz, H., and Leydesdorff, L. (1995), “The Triple Helix-University-Industry-Government Relations,” EASST Review, 14, 14–19. Etzkowitz, Henry, deMello, Jose Manoel Carvalho, and Almeida, Mariza (2005), “Towards Meta Innovation in Brazil: The Evolution of the Incubator and the Emergence of a Triple Helix,” Research Policy, 34, 411–424. Florida, R. (2003), The Rise of the Creative Class, New York: Basic Books. Florida, R. (2004), “Creative Class War,” Washington Monthly, January/February, 30–38. Freeman, C. (1982), The Economics of Industrial Innovation, London: Frances Pinter. Friedman, Thomas L. (2008), Hot, Flat and Crowded, New York: Farrar, Straus and Giroux. Friedman, Thomas L. (2010) “Start-ups, Not Bailouts,” New York Times, April 4, 9. Isaak, Robert (2005), The Globalization Gap, Upper Saddle River, NJ: Prentice Hall. Kao, J. (2007), Innovation Nation, New York: Free Press Leydesdorff, Loet, and Meyer, Martin (2006), “Triple Helix Indicators of Knowledge-Based Innovation Systems,” Research Policy, 35, 1441–1449. Malanga, Steven (2004), “The Curse of the Creative Class,” City Journal, Winter. Mandel, M.J. (2004), “The Way to the Future,” Business Week, October 11, 92–98. Mandel, M.J. (2008), “Innovation Economics Shows How Smart Ideas Turn Into Jobs and Growth,” Business Week, September 22, 52–70. Mandel, M.J. (2009), “Innovation Interrupted,” Business Week, June 15, 34–40. Manu, Alexander (2007), The Imagination Challenge, Berkeley, CA: New Riders. Moore, J.F. (1996), The Death of Competition, New York: Harper Business. Morgan, R.M., and Hunt, S.D. (1994), “The Commitment-Trust Theory of Relationship Marketing,” Journal of Marketing, July, 20–38. Nelson, R.R. (1993), National Innovation Systems: A Comprehensive Study, New York: Oxford Press. Prajogo, D.T., and Ahmed, P.K. (2006), “Relationships Between Innovation Stimulus, Innovation Capacity and Innovation Performance,” R&D Management, 36(5), 499–515. Samli, A. Coskun (2004), “Corporate Search for Market Power: The Seven Strategic Megatrends of the Twentieth Century,” Business and Society Review, Summer, 263–280. Samli, A. Coskun (2007), Chaotic Markets, Westport, CT: Praeger. Samli, A. Coskun (2009), International Entrepreneurship, New York: Springer.

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Samli, A. Coskun, and Weber, J.A. (2000), “A Theory of Successful Breakthrough Management: Learning from Success,” Journal of Product and Brand Management, January, 35–45. Scerri, Mario (2010), “The Conceptual Fluidity of National Innovation Systems: Implications for Innovation Measures,” Measuring Innovation: A New Perspective, Paris: OECD, 9–19. Schumpeter, J.A. (1934), The Theory of Economic Development, Boston: Harvard University Press. Sinha, Indrajit, and Foscht, T. (2007), Reverse Psychology Marketing, New York: Palgrave. Steiner, Gary (1965), The Creative Organization, Chicago: University of Chicago Press. Tan, Wee-Liang (2003), “Entrepreneurship Challenges Ahead for Singapore,” Entrepreneurship in Asia: Playbook for Prosperity, Missoula, Montana: University of Montana. Trott, P. (2008), Innovation Management and New Product Development, New York: Prentice Hall–Financial Times. Vazquez-Barquero, A. (2002), Endogenous Development. New York; Taylor & Francis. Wadhwa, Vivek (2009a), “Tapping Talent in a Global Economy,” Issues on Science and Technology on Line, Dallas: University of Texas. Wadhwa, Vivek (2009b), “An Outflow of Talent: Nativism and the U.S. Brain Drain,” Harvard International Review, Spring, 76–81. Yamamoto, T. (2007), “East Meets West in an Entrepreneurial Village in Japan,” Business and Economic History Online, 5, 1–13. Zhang, Yuli, and Yang, Jun (2006), “New Venture Creation: Evidence from an Investigation into Chinese Entrepreneurship,” Journal of Small Business and Enterprise Development, 13, 160–173.

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Chapter 16

Globalizing Our Innovation

The discussion in this book is applicable to both domestic and international markets, but without a global innovation culture, this fragile planet would be facing difficult times. Each country and international firm must pursue its innovation possibilities, and American innovation must be diffused globally. This chapter discusses globalization of innovation.

Globalization Support or Barrier Globalization is the closer integration of the countries and peoples of the world through improvements in transportation and communication and through reduction of barriers to the flows of goods, services, capital, and knowledge (Stiglitz 2002). Elsewhere I described four flows of goods and services in globalization: capital flow, information flow, technology flow, and know-how flow (Samli 2008). Innovation is involved in this latter flow. However, rather than letting the flow of goods and services take its own course, it is more effective and profitable if the diffusion of the new innovation is managed proactively. Some global giants, such as Procter and Gamble, Apple, Ikea, and Bungie Studios, develop their new products with global markets in mind. They have innovational research activities in many parts of the world (Rosario 2006). Products are marketed differently in different parts of the world. For example, a product such as intelligent refrigerators that track food inventories and provide a hardcopy shopping list or send an electronic list to home delivery service (Salzman and Matathia 1998) is marketed differently in different markets. But first let’s start with a general model and then make adjustments to it.

A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, 119 DOI 10.1007/978-1-4614-0854-3_16, © Springer Science+Business Media, LLC 2011

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A General Model Exhibit 16.1 presents a general model of globalization of innovation. The model is particularly applicable to entrepreneurial U.S. innovators who are planning on ­globalizing their innovations. Whether a product is appropriate for globalization must be determined. Not all countries will have the same degree of enthusiasm, need, or desire for a new product. There is a critical question relating to an innovation: Is it technology pushed or market pulled? Technology-pushed products cater to latent demand. They may be breakthroughs or radicals. They create new needs, new expectations, and new behaviors. The need for cooking things fast did not come about until microwave ovens appeared in markets. Market-pulled products are much more likely to be incremental. Children’s Tylenol is a typical example. The market wanted to have a children’s cold medication and Tylenol produced one. The internationalization of an innovation is not an easy task, and it gets even more complicated as the complexity of the product increases. If the product is a radical innovation depicting a sophisticated high-tech way of changing lifestyles, then it may have a more limited global market, at least at the beginning. But that market potential would vary depending on the makeup of the market. Abraham Maslow (1987) Global Acceptability

The Nature of Innovation

Global Future Markets

Needed Possible Adjustments to Localize

Target Marketing

Focusing on Innovators

American Innovation

Making Sure They Are Informed

Creating Delivery Capabilities Developing Plans to Globalize Always Making Service Being Available

Exhibit 16.1  Globalization of innovation

Pre-entry to International Markets

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Key Products and Services

Group Orientation

Education, Culture, Art

Self Actualization

Personal Growth

External and Internal Esteem

Relatedness

New Luxuries, Fashion

Computers

Medicine, Sports Food, Shelter

Social

Safety

Existence

Physiological

Exhibit 16.2  Maslow’s hierarchy of global consumption (Adapted from Samli 1995)

presented a model dealing with market profiles. Exhibit 16.2 presents my version of Maslow’s hierarchy. Primarily relatedness and personal growth seeking consumers are likely to be particularly interested in breakthroughs or radical products. They have enough sophistication, curiosity, and money to buy these products. But the size of these groups varies from one market to another. It may be necessary to identify the largest market and enter that one first. In this age of information technology, communicating with these rather special markets is a high priority. Elsewhere I made the distinction between individualistic societies and collectivistic societies (Samli 1995). Whereas in individualistic cultures it is important to directly communicate with individuals and provide them with the information about the new innovation, in collectivistic cultures it is important to communicate with the leaders of key groups in order to promote the new innovation. These leaders will pass onto their followers their opinions about the new innovation. In countries such as China or India that have access to information technology, the sophisticated groups need to be approached more carefully as they are the major prospective purchasers.

Pre-entry to International Markets If there are indications that a particular market may have considerable demand for the new innovation, it can be produced there. The innovating company then has to  decide if it should produce the innovation itself or acquire a local partner.

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The deciding factor might be that the proposed product requires major adjustments because of the needs or preferences of the local culture. The pre-entry activity will also consider future global markets that are likely to be composed of innovators or early adopters who are in advanced relatedness or personal growth stages in Maslow’s hierarchy. These considerations also influence decisions as to where to produce the product. If the new innovation requires some serious technological activity, the innovating company will face technology transfer issues regardless of whether it is producing the product or a partner is producing it.

Transferring the Technology Technology transfer is one of the most critical issues in economic development as well as world marketing. Emerson and Samsung, two South Korean companies, received technology from Japan and for years produced products for Japan. Many years later they transferred the technology to China. But technology transfer can engender serious problems. In a classic example, Union Carbide’s gas leak at Bhopal, India, resulted in the death of thousands and many more thousands were injured. The incident became a very costly and serious problem. Exhibit 16.3 illustrates the basics of the technology transfer process. In situations where a sensitive technology is to be transferred, government clearance may be needed. If the technology is related to national defense, it may not be in the best interest of the country to transfer it. The transferring company must have a good understanding of the receiver’s capabilities and what the market needs are. The receiver has to have the capability to adopt the technology and use it effectively,

Government Clearance

Innovation Co.

Readiness to Produce

Sender’s Understanding of Market Needs

Sender

Ability to Service as Needed

Receiver

Developed Technology Eliminating Barriers

Exhibit 16.3  Technology transfer for the innovation (Adapted from Samli 1985)

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which entails eliminating the barriers to technology transfer and being able to ­service the technology when buyers need assistance. The variables that might present barriers to technology transfer were identified by Samli and Berkman (1988); they include education, degree of internationalization, culture, political climate, urbanization, and infrastructure. Successful technology transfer means that the transferred technology is totally functional in the receiving country. However, this functionality may face seven key barriers. Unless they are removed, the technology is not successfully transferred. The barriers are the following: 1. The lack of education in the receiving country would hinder it in adopting the proposed technology, especially if the technology is complex. 2. The lack of internationalization in the receiving country hinders adopting the new technology. For example, if the technology requires various parts and supplies to be imported, the receiving country must be trading with the countries from which the supplies are shipped. 3. The lack of openness in the culture of the receiving country may hinder its receptiveness to radical innovations produced by disruptive technologies. 4. An anti-American political climate in the receiving country could hinder the country’s acceptance of an American brand or an American innovation. 5. The lack of urbanization in the receiving country, that is, the lack of urban centers with large populations, may make it difficult to find sufficient numbers of workers to produce the new technology or sufficient numbers of consumers to purchase it. 6. The lack of a transportation infrastructure in the receiving country may make it difficult to transport materials, supplies, and parts to the production facility, and to transport the finished product to markets. 7. The lack of complexity of the receiving country’s technology capability may make it difficult for its consumers to use the new innovation. Without an outstanding service component, a complex technology’s transfer will not be satisfactory and the new innovation will not be readily accepted by the market. For example, Apple’s success has been built on not only producing outstanding computers but also providing first-class customer service. Knowledge is context ­specific, and hence it may not be easily transferable to another country; thus, the innovator must determine which institutions in the receiving country can be used to disseminate information (Scerry 2010).

Additional Marketing Considerations The right-hand side of Exhibit 16.1 lists additional marketing considerations. These considerations are the heart of the marketing activity in globalization efforts. Targeting specific markets is imperative for the diffusion of the new innovation. It is necessary to identify the most promising market segments, and then target the ones with the greatest potential.

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Innovators who are interested in personal growth would be considered the main targets. In emerging countries, people with computers are often the elite, and it is easy to communicate with them. However, the India and China markets are likely to be different in that these countries have widespread computer usage but communicating with the innovators would require more than just having access to the Internet. The potential markets must be well informed about the new innovation, its capabilities, how it should be used, and what significant difference it would make. Von Hippel (2005) calls this process democratization of innovation. Von Hippel suggests that prospective customers may have some special needs or insights that would improve the new innovation and would make it more locally acceptable. Adaptation of the new innovation to the local needs or tastes would offer greater value to local consumers. The innovating company or its foreign partner must be equipped to deliver services to customers to help them use, maintain, and repair the new product or the new technology (Samli 1995). This facilitates the transfer of the technology.

Delivery Capabilities Although global logistics in recent decades have been significantly improved, the target markets must be identified before the new innovation reaches the market. If the new innovation cannot reach the target market, the diffusion process will not succeed. The innovation not only must be well received, but also must be reasonably long lived in that market. If and when the innovation is being considered for global distribution, particularly if the innovating company is rather small, there will be a need for considering alternative entry strategies. Samli and Hill (1998) describe 13 entry strategies. A single entry strategy cannot be used for different parts of the world with different needs, value systems, and lifestyles. The entry strategies can make use of wholly owned subsidiaries, joint ventures, and a few other types of strategic alliances. Motorola entered the Japanese market by developing an alliance with Toshiba. This type of alliance reduces the risk by sharing it (Hill and Jones 1995). Similarly Toys ‘R’ Us partnered with manufacturers in Japan. In a somewhat simplified manner it can be assumed that two sets of information may be needed for diffusing the innovation internationally: technological information needs and market information needs. Exhibit 16.4 is based on this premise. In the upper left quadrant the innovator knows the receiving country, its technology needs, and its market system. These needs are low and thus this is a very good situation. This situation would call for a global distribution if these conditions prevail everywhere. It is necessary, however, to cultivate all of these markets extensively. But in isolated countries, the market information needs for the innovator groups are high. The innovator of the product knows the consumers are sophisticated, but their market systems are unknown to the innovator; thus distribution will be selective and done in one country at a time.

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Exhibit 16.4  Information needs for international distribution (Adapted from Afuah 2003) Technological Information Needs Low Market information needs

Low

High

Other Industrialized countries (global distribution) Politically and culturally isolated countries (selective distribution)

High Other industrialized Countries (global distribution) Newly industrialized countries

(one country at a time)

If the need for technological information is high, but the country’s market systems are quite well known, then the innovator of the new product may consider regional distribution for a few adjacent countries. In such cases, facilitating regional distribution may be more functional. Finally, in emerging newly industrialized countries the need for technological information is high but the market system is not well known. These conditions require promotion and distribution of the new innovation one country at a time. Being overambitious and trying to cultivate an entire region at once may not be a good idea.

Summary Globalization of the new innovation is a necessity because the innovating company has spent large sums of money to develop it, and so large numbers of markets are needed in which to sell it if the company hopes to recoup its costs and make a profit. But beyond that, the new innovation may be very much needed in many other countries, especially if it would make a major difference in the lives of many people. But if the innovation is not well marketed, it will fail. This chapter presented a general model for the globalization effort. It is necessary to determine if the new product is acceptable globally. If so, will there be future markets for the new product and will these markets need certain adjustments? Smaller innovating companies will need to globalize their product with overseas partners. In such cases the technology is likely to be transferred. Each potential market must be carefully analyzed to identify the potential customers. Finally, deciding how to enter each country’s market and what type of information is needed to inform the potential customers about the benefit of the new innovation makes a critical difference in the globalization efforts of the firm. Without accurate information about the markets and their information systems, disseminating the new innovations will not succeed.

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References Afuah, Allan (2003), Innovation Management, New York: Oxford University Press. Hill, C.W.L., and Jones, G.R. (1995), Strategic Management: An Integrated Approach. Maslow, Abraham H. (1987), Marketing and Personality, New York: Harper and Row. Rosario, Loida (2006), “Borderless Innovation,” Visions, June, 22–29. Salzman, Marian, and Matathia, Ira (1998), “Lifestyles of the Next Millennium: 65 Forecasts,” The Futurist, July-August. Samli, A. Coskun (1985), Technology Transfer, Westport, CT: Quorum Books. Samli, A. Coskun (1995), International Consumer Behavior, Westport, CT: Quorum Books. Samli, A. Coskun (2008), Globalization from the Bottom Up, New York: Springer. Samli, A. Coskun, and Berkman, Harold W. (1988), “International Technology Transfer,” In Khalil, T.E., Bayrakdar, B.A., and Edesermwon, P.E. (Eds), Technology Management, Interscience Enterprises, 147–153. Samli, A. Coskun, Hill, John (1998), Marketing Globally, LincolnWood, Illinois: NTC Business Books. Scerry, Mario (2010), “Conceptual Fluidity of National Innovation systems: Implications for Innovation Measures,” Measuring Innovation: A New Perspective, Paris: OECD, Paris, 9–19. Stiglitz, Joseph E. (2002), Globalization and Its Discontents, New York: W.W. Norton and Company. Von Hippel, Eric (2005), Democratization of Innovation, Cambridge, MT: MIT Press.

Epilogue

This book has discussed creativity in society and how it fosters innovation. There must be a national innovation plan that has six features. First, the country’s economy should move from being resource-led to innovationled, which is not easy to accomplish. Some struggling third-world countries will have to change their orientation. In the United States the response to ideas often is, Who is going to pay for it? But the cost of doing certain things often is lower than the cost of not doing them. Second, market-driven innovations must be identified and pursued. These incremental innovations facilitate the development of radical innovations. Third, basic science must be emphasized in the education curriculum so that when these students graduate they can contribute to the development of marketdriven innovations. Without a proper knowledge base, innovations cannot be developed. Fourth, certain technologies are too expensive for the private sector to afford, and governmental assistance is necessary. Needs must be prioritized on the basis of costs and benefits. This is a serious and sophisticated activity requiring the most knowledgeable people. Fifth, the funding of innovations must be based on opportunity estimation, which in turn is based on the cost/benefit ratio, which is complicated to calculate. Sixth, there are always risks in introducing an innovation to the market. The diffusion of innovation must be carefully planned and implemented. National innovation plans must be connected to corporate cultures. If corporations are satisfied with what they are doing and if they lack ambition, this creates a serious problem for a country’s economic progress. Thus, the national innovation plans must reach out and bring corporate entities into this critical undertaking. If the corporate entities were to enter into the picture, and certainly they must, there are another six points to address. First, the firm must be a learning organization. Using new and additional information as a strategic tool is a difficult but lucrative activity.

A.C. Samli, From Imagination to Innovation: New Product Development for Quality of Life, 127 DOI 10.1007/978-1-4614-0854-3, © Springer Science+Business Media, LLC 2011

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Epilogue

Second, corporations must stimulate free thinking within their constraints and reach out to other free thinkers outside the corporate entity. Without free thinking it is impossible to go outside of the box and think of the unthinkable. Third, the free thinking within and outside the organization must be connected to the corporate creativity. It is necessary to connect imagination, which is free thinking, to creativity, which is developing further or improving the products or ideas that are conceptualized by free thinking. Fourth, corporations must be futuristic in their orientation to foster radical innovations. Without such innovations the society stagnates. If there are many radical innovation ideas, the best ones should be chosen. Fifth, plans for the diffusion of the innovation must be carefully developed for the advancement of society. Advisory services may be needed. Sixth, marketing plans must be developed and implemented. Innovations must reach and be accepted by the market. To counteract inertia, companies must continually grow. If they just do more of what they have been doing, outside disruptive technologies might make their products obsolete by radical innovations. Thus, inertia is counterproductive. But large companies are particularly subject to inertia; as companies become too big they lose their agility. They become passive, insensitive, inflexible, and, far removed from the markets and consumers. These companies are no longer innovative and progressive. They may have enough power to do what they may consider to be stabilizing the economy, but that is just stagnation. Unchecked, all industries and all markets can end up like that. It is, therefore, extremely critical to support lean, mean, competing, and innovating entrepreneurships.

Index

A Abramovitz, 1 Active imagination, 18–20, 22, 89 Alderson, W., 50, 102 Ambidexterity, 51, 52, 74, 80 B Brain-drain, 113–114 Breakthroughs, vii, viii, 3, 5, 7, 36–39, 41–43, 45, 46, 49, 54, 57, 63, 74, 90, 93, 94, 96, 109, 112–114, 120, 121 Breakthroughs, creation of, 5, 113 BRIC (Brazil, Russia, India, China), 1 C Cannibalization, 75 Chasm, crossing of, 66, 67, 69, 70, 74 Chasms, 65–67, 71, 100, 102. See also Diffusion process Christensen, C.M., 3, 11, 25, 49, 50, 52, 54, 76, 91, 92, 107–109, 111, 112 Competitive advantage, 80, 81, 102, 103, 114 Complex adaptive system, 90 Consumer’s dissatisfaction, 46 Conversion, 89, 90, 92–94, 96 Core competencies, 68, 80, 81 Corporate culture, 17, 22, 31–34, 49–51, 53, 55, 57, 59 Critical thinking, 7–10, 13–15, 18, 19, 21, 22, 47, 48, 58, 61, 82, 89. See also diversion Culture of innovation, viii, 17, 21–23, 105–116 Curiosity cultivation, 111 Current products, 3, 35–36, 46, 55, 90

D Demand existing, 35–40 unexisting, 35–40 variations in, 36–38 Deming, W. E., 8 Diffusion of innovations diffusion groups, 63–66 early adopter, 64, 65, 70, 71 early majority, 64, 71 innovator, 64, 65, 70, 71 laggards, 64–66, 71 late majority, 64, 65, 70 Diffusion process application, 65 chasms, 65, 66, 71 consistency, 65 critical issues of, 65–66 Disruptive technologies, 11, 12, 14, 17, 35, 36, 49, 52–54, 56, 76, 79, 89, 92–94, 96, 109, 111, 123 Diversion, 89, 92–94, 96. See also Conversion Domino’s, 37 Down cycles, 75, 78. See also New product strategy Drucker, P. F., 2, 57, 94, 105, 108 E Effective innovation culture, 93 Entrepreneurial capital, 109–110, 114, 115 Experiences, 18, 19, 43 F Fast learning products, 73. See also Slow learning products 129

130 Feasibility assessment, 70 Feedback, 14, 27, 61, 70, 101 First mover advantage, 53 Four stages of creativity action, 26–29 market planning, 26, 29 preparation, 14, 26–29 verification, 27–29 Four stages of portfolio development development, 82, 83 evaluation, 82, 85, 87 generating ideas, 82–84 prioritization, 82, 85–87 Free thinking, 4, 7–13, 19–21, 23, 32, 34, 47, 54, 89, 101, 115 Fuel cell automobiles, 27 Future-focused groups, 46–47 Future orientation, 80–81, 86 Futuristic orientation, 44, 48, 51, 79, 80, 89, 95, 110, 112 Futuristic portfolio (the phases of) development, 86 evaluation, 85 idea generation, 82–84 prioritization, 85 G Globalization of innovation, 119, 120 Gretzky, W., 53, 79. See also Gretzky principle Gretzky principle, 53, 79 Grove, A.S., 52, 81 I IBM, 12, 37, 52, 79, 80 Idea generation, 70, 82–84, 87 Imagination building, 10–11 Imagination gap, 5, 19 Imagination, proper use of, 32 Improvisation, 50–52, 55 Inadequate supply, 46 Incremental innovations, 20, 25, 28, 29, 38, 42, 47, 49, 74, 92, 93, 99, 107 Incubators, 111 Incumbency, 50–52, 55 Innovation, vii–ix, 1–7, 9–15, 17–23, 25–29, 31–59, 62–71, 73–77, 79–87, 89–97, 99–103, 105–116, 119–125 Innovation conundrum, 107–108, 112, 113 Innovation, diffusion of, 63–71, 108, 119, 123 Innovative firms, viii, 2, 50, 51, 87, 106, 107 Innovative individuals, 18, 20 Ipad, viii, 44, 51, 86, 92

Index IPod, viii, 4, 51, 69, 86 J Japan, 85, 122, 124 Japanese progress, K Kao, J., 20, 22, 94, 106, 108, 110–112 Knowledge applying, 4 chain, 57–59, 61, 62 creation of, 5 managing, 20, 58 Kodak, 12, 52, 79, 80, 89, 91 L Latent needs, 45–48, 53, 54, 84, 90, 92, 96, 113 Learning organizations, 57–62 Leydesdorff, L., 115 Lifecycle, 75 M Mandel, M. J., 94, 105–108 Manu, A., 4, 5, 7, 18, 19, 31, 32, 69, 95, 112 Marketing, vii, 2–4, 26, 29, 36, 41, 42, 45, 50, 61, 63–71, 73, 74, 77, 86, 87, 92, 100–103, 108, 112, 122–124 Marketing strategies, sales driven vs. market driven, 50, 66, 67, 69, 73, 74, 103 Market performance demand for certain parts, 77 evaluation of, 70 excessive requests for service, 77 excessive returns, 77 repeat sales, 77 supply exhaustion, 77 Markets, seeing in depth, 53 Market superiority, 18, 68, 92, 94, 102 Maslow’s hierarchy, 121, 122 Megatrends, 43–45, 47, 53, 54, 84, 92, 96 Me too products, 3 Moore, G. A., 54, 66, 67, 74, 93, 106 Moore, J. F., 93, 106 N Naisbitt, 43, 45 National innovation systems, 115 New fashions, 46 Newly industrialized countries (NICs), 1, 125

Index New product development strategy–parameters of, 73, 74 New product myopia, 54 New product strategy avoiding down cycles, 75 cannibalization, 75 choosing the best ratio, 76 multiple decay curve, 75 Not waiting until the product dies, 75, 76 Niche markets, viii, ix, 53, 54, 56, 85, 90, 113 NICs. See Newly industrialized countries Nurturing thinking, 32–33 O Opportunity detection, 50, 51, 91 Organizational innovation, 20–22 Organizational learning, 57, 61 P Perceptions, 13, 22, 29, 81 Perkin-Elmer, 92 Plesek, P. E., 7, 13 Polaroid, 76, 79–81 Portfolio, 42, 48–51, 54, 79–87, 89, 94, 101. See also Futuristic orientation Proactivity, 60 Problem solving, 14, 26, 113 Problems with innovation, 106 Product idea decay curve, 68–70, 75 Product life cycle, 67, 68, 71, 74, 76 Product market opportunities, 38–40 Product portfolio, 48, 49, 51, 81–85, 89, 101 futuristic, 48, 49, 51, 54, 81–86, 89, 101 Prototypes, 14, 27, 28, 70, 100 Q Quality of life, vii, viii, ix, 1–7, 9, 12, 17, 19, 21, 31, 38, 40, 41, 47, 73, 95, 99, 101, 103, 106, 113 R Radical conceptualization, 19 Radical innovation, viii, 3–6, 11–14, 17–20, 22, 23, 25, 27, 29, 31, 34–38, 40, 41, 43, 45–50, 53–55, 57, 62, 63, 65, 66, 68–70, 73–77, 79, 82, 84–87, 90, 92–96, 99, 100, 102, 103, 107, 109–111, 115, 120, 123 Radicalism, 6, 21, 27, 28, 33–34, 36, 49–56, 61, 80, 93, 108, 110–115

131 proactive, 53, 55 Research agenda, 101–102 Resistance to Innovation, 66. See also chasm crossing Rogers, E., 46, 63, 65 Routines, 10, 66 S Samli, A.C., 17–19, 37, 39, 41–44, 46, 47, 49–54, 57, 60, 63, 65, 69, 70, 79, 81–83, 91, 93–96, 102, 108, 109, 112, 113, 119, 121–124 Scenario building, 47, 83, 84 Schumpeter, J. A., 18, 108 Segmentation of markets, 50. See also Markets Slow learning products, 73–74 Smith, W., 50 Socio economic advancement, 70 Starbucks, 44, 80 Strategic information system collect, 60 direct, 60 disseminate, 61 generate, 61 process, 60 use, 61 Strategies chasm crossing, 66–67 new product development, 73–77 Sustainability, 6, 50, 51, 86, 101, 103 T Talent base, 112–113 Technology transfer, 122–123 Test marketing, 70 The 37 signals LLC, 96 Thinking out of the box, 5 Thinking within the box, 5, 11, 19, 26–29, 99 Triple helix, 115 Turock, A., 79, 80, 82, 95 U Unexpected events, 84, 85 Unlearning, 61 V Value diamond, 2–4, 6 Value generating vs. adding, 19 Visionary orientation, 80. See radicalism Von Hippel, E., 38, 58, 124