The successful management of innovation is recognised as a critical factor in maintaining an organisation’s ability to maintain a sustainable competitive advantage. However, many organisations, even some of the largest, still fail due to what Jean-Philippe Deschamps refers to as the “classic root causes of innovation failures”.
Deschamps is an Emeritus Professor at the International Institute for Management Development (IMD) business school located in Lausanne, Switzerland. His research focuses on the management and governance of innovation, and he has published widely in this field.
Writing in a chapter, published in 2017, within Nicole Pfeffermann and Julie Gould’s edited book Strategy and Communication for Innovation, Deschamps lists what he sees as the main causes of why many companies fail when attempting to undertake commercialisation projects.
Failure to anticipate and act with sufficient speed to changes in the external market and industry environment
The first cause of failure is the inability, or unwillingness of firms to keep pace with trends in the market, and maintain a clear understanding of their customers' needs and wants. There are many factors that can change rapidly in a market. These can be driven by technological, demographic, psychographic, social, cultural and regulatory forces.
An example of this is the impact of Apple’s iPhone on the incumbent mobile telecommunications market in 2007, which significantly impacted the incumbent manufacturers of that time such as Nokia and Motorola. It was not that Nokia did not know what a smartphone was. They had developed a clear understanding of the product concept of a smartphone by at least 2003. However, they were unable to move fast enough in response to the iPhone and fell rapidly from being the number 1 handphone manufacturer in the world in 2006, to selling their mobile phone business to Microsoft for a bargain price by 2013.
According to Deschamps, the underlying cause of this failure is firms being too inward looking and myopic, or too obsessed with their incumbent technology and products. This was a trap that Nokia fell into. At the time that Apple launched its iPhone, Nokia was engaged in the creation of a major joint venture with Siemens within the “Networks” business (e.g. responsible for building mobile telecommunications networks within China, India and the Middle East).
Nokia was also closely wedded to its incumbent 2G Symbian operating system (OS). When the iPhone began its rise to market dominance, Nokia responded the following year with the N8500 touch screen smartphone, and in 2010 the N8. This offered a 12-megapixel camera with an autofocus lens, a touchscreen and the 3G Symbian3 OS, with many of the iPhone’s features, look and functionality. However, by then it was too late.
Failure to develop appropriate product development road maps and project management systems
A second common cause of failure in commercialisation is the inability of the firm to coordinate the project via product-technology road-mapping. This involves systematically linking the firm’s R&D, new product development (NPD), operations, IP management, financing, marketing and sales activities together in a coordinated way.
As Deschamps explains in his paper;
“A good process map recognizes the peculiarities of the creative 'fuzzy front-end,' with its unavoidable uncertainties, iterations and loops, and those of the more predictable 'speedy back-end,' which requires a lot of discipline. A good process map should provide elements of structure and solidarity while maintaining adaptive flexibility.”
This is a particular problem for large organisations, which typically have a high degree of bureaucracy and compartmentalisation that separates the various elements from each other. A product-technology road-map allows for the entire project to be viewed, controlled and coordinated. It has the potential to connect all the various functional elements within the business together and locates the project within the firm’s overall business strategy.
According to Richard Albright, from the Albright Strategy Group, the product-technology road-map should serve as a unifying element within the organisation engaged in the commercialisation process. It should address the important questions of “why-what-how” in relation to the project. This is illustrated in the following diagram that shows the unifying nature of the product-technology road-map, as outlined in a research paper by Albright.
A third cause of failure is the inability of the commercialisation process to be designed within a coherent business model. According to David Teece, from the Institute for Business Innovation at the Haas School of Business, University of California, Berkeley, good business model design must meet several important conditions. These are summarised from his 2018 paper published in the journal Long Range Planning:
A deep knowledge of customer needs and the technological and organisational resources that might meet these needs.
An understanding of the incumbent business models within the target market, because most new business models are effectively hybrids of these existing business models.
Alignment and coherence of all the various elements that the organisation will need to assemble to make the business model successful, because all of these elements must be mutually reinforcing.
A close relationship between the business model design and the organisation’s corporate strategy, because strategy shapes business models.
Ensuring that the business model is coupled with the strategies and assets that can help to protect it from imitation by competitors.
Identifying the initial customer segments that should be targeted so that initial learning, member value proposition, and proof of concept testing can be undertaken and the viability of the business model assessed.
Ensuring that both customers and suppliers are actively engaged during the development process.
Utilising the organisation’s skills at business model reengineering, which involves flexibility, adaptive learning and dynamic capabilities management.
Teece makes the valid point that;
"... Good business model design depends as much on art and intuition as it does on science and analysis.”
Failure to secure technology leadership
Another key factor that causes failure in commercialisation is a firm’s inability to secure leadership in technology. This relates to the overall technological position of the firm within its industry, and the ownership and control that it has over proprietary technologies and systems, and how readily it can secure IP rights protections via patents and design registrations.
Once again, the case of Apple Corporation is instructive. The hugely successful Apple Macintosh microcomputer launched in 1984 was essentially built on technology pioneered in the late 1970s by Xerox at their Palo Alto Research Centre (Xerox PARC). It was shown to Apple founders Steve Jobs, Steve Wozniak and other members of their team by Xerox in 1979, as part of part of a deal to allow Xerox to take a shareholding in Apple prior to their initial public offering (IPO).
Over the years Apple has defended its IP rights, and thereby its technology leadership. It waged bitter legal battles with Microsoft over the Windows operating system in the 1990s, and later with Samsung over its entry into the smartphone and tablet markets. Apple was ultimately unable to stop the momentum of Samsung, which in 2012 owned around 31,524 patents within the mobile computing and telecommunications sector, compared to around 2,000 owned by Apple.
Failure to secure product leadership
Related to technology leadership is the need for the firm to also secure and maintain leadership in product design. Here, the critical elements are the uniqueness of the product’s design, the ability to manufacture the product at scale and cost levels that are competitive, and the ability to secure IP rights over process technologies.
The success of Apple Corporation in the development of its products, from the Macintosh, through the iPod, iPhone and iPad range of products, was built on a winning formula. This blended the right combination of software, hardware design, end-user functionality and additional services such as the iTunes MP3 online music store. It was supported by Apple’s strong branding and the management of its supply-chains.
However, in recent years Apple has experienced problems with its ability to generate breakthrough products and there have been complaints over product quality, plus features and functions that many end-users don’t want. As well as the launch of new products that don’t offer sufficient innovation. As a result of this, Apple fell behind Samsung in terms of global market leadership with the latter taking around 22% of the smartphone market in 2017 compared to Apple’s 15.2%.
Failure to secure market access
Finally, successful commercialisation is dependent on the ability of the firm to secure access to the market and to capture and maintain sufficient market share. Here, the most important elements are the firm’s knowledge of the market they are targeting, and their ability to secure access to adequate marketing and distribution channels. Also, of importance, is the firm’s ability to transfer the brand reputation they might possess in any existing markets, across into the new market.
Once again, the example of Apple is relevant here. The success of the iPhone was not just the inherent quality of the product and its design and functionality. It also leveraged the already well-established brand reputation that Apple had built within the computer technology sector with the Macintosh, and within the MP3 music industry with the iPod and iTunes. Apple’s brand reputation was strong, and it held a loyal and connected customer base, with millions of iPod and iTunes owners, who were willing to try the new iPhone.
Apple also had the opportunity to package their expensive, but desirable iPhone via telecommunications companies such as AT&T in the United States, who retailed the devices within a plan. This enabled consumers to purchase a phone worth around $1,000 for little upfront costs. Traditionally, the telco firms had viewed the handphone as a relatively cheap, disposable product, and had used this to maintain dominance over the manufacturers. However, the iPhone and Apple’s ability to build its brand, enabled Apple to secure lucrative sales agreements.
For example, when the iPhone launched in 2007, the product sold for US $399 via AT&T, and Apple received US $80 per unit sold. In addition, Apple received $240 from AT&T for every two-year contract that a new customer signed. This worked for both Apple and AT&T, who significantly increased their new customer base, and tripled the volume of data they could sell to their customers.
Avoiding the traps of failure
The lessons from this for organisations seeking to avoid commercialisation failures, may be summarised as follows:
Don’t allow your hubris, or passion for your incumbent technology to blind you to the changes taking place in your market.
Keep in close contact with your customers and listen to their voice in relation to the attributes and features that are basic (must have needs), those that the customer or end-user identifies (spoken needs), and those that are not yet identified (unspoken needs), but that you can offer to add a unique value proposition.
Ensure that your commercialisation process engages all parts of the firm from the R&D team to the sales and marketing people. It should see any new product or service being developed with reference to a cross-functional team who ensure that the project has strong foundations and is congruent with the firm’s wider strategy.
Build the project’s business model at the same time as the technology and market development processes are evolving.
Understand the factors that will ensure technology, product and market leadership. These should be written into the business model and assessed with a close eye on the activities of competitors, as well as the needs of lead customers, key suppliers and any complementary actors who can provide support as the project evolves.