Platt Perspective on Business and Technology

Innovation, disruptive innovation and market volatility 8: modeling and understanding change and innovation per se 7

Posted in macroeconomics by Timothy Platt on January 16, 2015

This is my eighth posting to a series on the economics of innovation, and on how change and innovation can be defined and analyzed in economic and related risk management terms (see Macroeconomics and Business, posting 173 and loosely following for Parts 1-5 and Macroeconomics and Business 2, posting 203 and loosely following for Parts 6 and 7.)

My primary focus in this series is on market-facing products and services, and there primarily on tangible products that would be designed and developed, manufactured, distributed, marketed and sold and in specific targeted markets. And I have been developing this series with a focus on the economics of innovation and in terms of a four category taxonomic model for classifying innovations according to risk and timeframe parameters, as formally outlined in Part 3. (I recommend reviewing that posting as I use the classification terminology developed there, in this posting.)

I have also at least noted business process innovations in passing: innovations that would be developed for use inside of the manufacturing business, while pursuing the more market-facing innovations that are more directly discussed in this series. My goal for this posting is to explicitly shift focus to consider these internal-to-the-business innovations, at least as they create value relevant to this series. And I begin that with the fundamentals:

• Manufacturers, like any businesses, seek to effectively, competitively bring product offerings to their markets that their customers will preferentially seek out to purchase.
• I have in fact been writing this series on one of the key sets of issues that would go into determining what “effectively” and “competitively” mean in this context,
• As a business seeks to bring products to market that are innovatively distinctive enough so they stand out from what their competition is offering,
• That customers will want to buy, and at prices offered that will create sustainable profitability – and certainly when analyzed across the entire portfolio of products offered and as demand levels for individual offerings rise and fall.
• For Quadrant III (short timeframe and low risk) innovations (here using my Part 3 terminology), as exemplified by fads and fad-driven markets, the window of opportunity side to understanding timeframes, as discussed in Part 7 is a crucial consideration if any real profitability is to be obtained and with any reliability.
• A business that can move faster on identifying, developing, manufacturing and distributing, marketing and selling a potentially profitable fad product will do better than their less agile and nimble competitors. And they will be more successful in this because they will be better able to make more effective use of their windows of opportunity for doing business as they arise and while they last. The difference here is all in how a business can support its market-facing innovation opportunities with their behind the scenes business processes.
• For Quadrant IV (long timeframe, low risk) innovations, representing more established product lines that show slow and steady evolutionary change, most such products come to face competition from similar alternatives. So the points of competitive distinction that they offer cannot in general be expected to come entirely from these product offerings themselves.
• Customer supportive services can create an essential defining competitive advantage here: customer-oriented, market-facing business processes. And name brand recognition can too, that can for some businesses be developed and maintained as a legacy source of value. The Coca-Cola Company and its flagship same-name product comes immediately to mind here as a working example, with their capacity to maintain significant market share from how they market to consumers who view their colas as The Colas. And once again, internal business process differences can significantly serve to create a defining competitive advantage here too.
• For Quadrant IV products, consider how a more agile and responsive business is one that can capitalize more quickly and effectively on minor product refinement distinctions and on any marketing advantages that can be developed and maintained. These businesses can meet shifts in market demand more quickly and get their products on the shelf and then off of it as sales, and in marketplace-demanded volumes faster.
• In both my Quadrant III and Quadrant IV scenarios, the business that can innovate towards lean agility more effectively, through development and refinement of better and more innovative internal business processes and I add market-facing business processes too, can be more agile and effective in its marketplace and with its customers too.
• And as a matter of general principle, competitive strength might most directly come from what a business specifically, directly brings to market as its sellable products. But its overall strength comes from its operational processes that develop and bring those marketable offerings to market too.

I have made note of product portfolios a number of times in this series, this installment included. I am going to more explicitly delve into the economics of these suites of marketable offerings in my next series installment, and how the economics of individual products in a portfolio impact upon each other, and on those of potential innovations under development too. Meanwhile, you can find this and related postings at Macroeconomics and Business and its Page 2 continuation.

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