Platt Perspective on Business and Technology

Rethinking innovation in an age of online social media 3: starting from the supply-side perspective

Posted in macroeconomics, social networking and business by Timothy Platt on September 22, 2016

This is my third installment to a series that I see as fitting on the intersection of macroeconomics and economic considerations in general, and the study of the interactive online and social media as a collective source of communicated influence. See Part 1: a supply and demand story and Part 2: setting the stage for a fuller discussion.

I began this series with a brief and perhaps cartoon-like narrative of how pressure to innovate and decision on where and how to do so, have shifted from a primarily producer and seller supply-side, to a much more marketplace and consumer demand-side for their primary drivers (see Part 1.) Then I offered a to-discuss list of issues in Part 2 that I plan on exploring in this series, starting here as I take at least first steps to move past Part 1’s simplistic cartoon understanding of how the nature of innovation is changing under the impact of the interactive online and social media-driven experience. I begin that in this installment, with a fuller discussion of the supply side of all of this as noted in Part 2 in its topics list, point one:

• The pressures for innovation and the economics of it for manufacturers – representing the supply side.

Let me start at the beginning for that. I wrote Part 1 and offered its evolving scenario in terms of impetus to innovate and desire to do so as a means of addressing competitive pressures in meeting consumer needs and preferences. I will address that set of issues and perspectives here too, but note up-front that that only represents one side to a more complex dynamic balance, where:

• Capacity to innovate and desire to do so,
• Both help determine the level of innovative investment that a business can take,
• And the manner in which specific innovative efforts pursued, would be selected and prioritized.

A strictly supply-side approach here, represents a simplest baseline model as it is the one where there are the fewest dynamically balanced and interacting forces in play. In anticipation of my next installment after this one where I will focus on demand-side approaches, I write here of simple systems where the sometimes conflicting pressures of the marketplace are not directly considered as factors. But when I explicitly turn to consider demand-side factors and their interactions, I will still have to include in those considerations, all of the supply-side factors and their interactions too that I would raise here. But for now, let’s just consider the supply side of this and in effect treat the marketplace and in fact the entire demand side here, as a more passively involved simple-appearing single black box component in a supply-side oriented representation.

What enters into the supply side here, when looking past the simple cartoon of this series’ Part 1? I have already begun addressing that question in passing, in the start of this posting, but to offer a fuller answer here, I begin again.

• Businesses collaborate with and cooperate with other businesses, and certainly within supply chain and similar explicit business-to-business relationship systems. But setting those aside, as well as more generally illegal covert arrangements such as price fixing schemes between presumed competitors, most businesses compete with direct competitors within their industries and sectors, for larger market shares and for greater returns on their investments, and for greater profitability.
• This creates pressures to innovate and to offer next generation products and services to their markets and customers. And absent immediate direct input and feedback from their markets and potential customer base, this means deciding where to innovate and what innovations to pursue, and with what priorities, strictly on the reactive basis of what is selling now and what has sold in their past – as tempered by whatever market data and insight their Marketing department can gather, and with that primarily based upon small-sample specific consumer input and demographic generalizations.
• I am offering this from an explicitly pre-internet business and marketing perspective. And with that noted, manufacturers and the distributors and sellers who they worked with have always sought out marketing data and marketplace and consumer-sourced data and insight. It is just that by comparison to what is now available in our still as of this writing, rapidly emerging interactive online and online social media context, pre-internet marketing and the insight that it could provide, was as limited as looking at the world around us through a pin hole. Nuances and complexities were invisible, or at best only faintly visible, and even when genuine effort was made to meaningfully partition overall markets into distinct, within-similar groups for more group-targeted advertising and sales.
• Manufacturers produced what they saw to be selling, and they innovated with a goal of staying competitive in their markets, with essentially all of their data based on recent and past market performance and preferences, and all of their innovation decisions reactive as a result. This is why I referred above, to supply-side markets and customer bases as if a simple-appearing single black box component in a supply-side oriented representation, as I am offering here.
• What information would these manufacturers have that would be most reliable, most complete and the most real-time for them here? Their own data and insight as to where they are now and for what their financial and other resource capabilities are, and their own estimates as to what given development steps in creating and offering new innovations would cost them out of that, for the possible innovations that they might be considering.
• Smaller scale change, and incremental evolutionary change that could feed into and support marketing and sales carry fewer risks and unknowns than would prospective major changes and the possibility of building to offer the disruptively new.
• I raised a question in an earlier series: Keeping Innovation Fresh (at Business Strategy and Operations – 2, postings 241 and following for its Parts 1-16.) Why did the incredible creative and innovative flow coming out of Xerox PARC fail, at least for bringing new sources of value and wealth to its supporting parent company? Their senior and executive management there chose a safer, less risky and more familiar small-improvement, evolutionary change approach to protect their here-and-now and their next business quarter, rather than take the longer-term and less knowable risk of seeking to capitalize on all of this disruptively new that was arriving at their doorstep. Why? I raise this question and that case study example here, because this posting and its line of discussion suggest an answer, or at least a significant element to one. The less outside-sourced, marketplace and consumer data available, and the more reactive any decisions based on it would have to be, the more conservative the “build the same versus innovate” decisions are going to be, with the same fixed level of cost/benefits risk accepted. The leadership of that company did not know enough to be able to tip their risk/benefits assessments in favor of their diving into the unknowns that their research facility offered them, and repeatedly.

I am going to continue this supply-side analysis in the next series installment, and will also at least begin to expand upon it by bringing in demand-side complexities as well, and point two of the too-address list offered in Part 2:

• Marketplace and consumer demand for New and different, and the dynamics of innovation diffusion into a marketplace, and how that impacts upon the scale of the consumer base that would be ready to buy New at any given time – representing the demand side.

Meanwhile, you can find this and related postings at Macroeconomics and Business and its Page 2 continuation. And you can also find this and related material at Social Networking and Business and its continuation page too.

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