Firm Capabilities & Market Opportunities

Innovation Management

Kevin O’Brien

Learning Objectives

Appreciate how competitive success is achieved by aligning firm capabilities with market opportunities

Identify the role of technological and marketing capabilities

Understand the concept of technology trajectories and the impact of disruptive technologies

Understand the concept of market orientation and how this impacts on innovation and new product performance

Marketing and Innovation

‘There is only one valid definition of business purpose: to create a customer ….. It is the customer who determines what the business is ….. Because it is its purpose to create a customer, any business enterprise has two – and only these two – basic functions: marketing and innovation’

Peter F. Drucker, The Practice of Management

Markets and Technology

Newtechnology

Newmarket

opportunities

Assets&

capabilitiesNew products

Lower costImproved attributes

New attributes

Resource-based Marketing

Market needs& conditions

Organisationalresources

Marketingstrategy

Strategy adapted to theneeds and requirements

of the market

Organisational resourcesneeded for implementation of

the strategy

Organisational resourcessuited to the markets in

which it operates

(Hooley et al., 1998)

Technology Trajectories

Source: Reproduced from Intel website http://www.intel.com/research/silicon/mooreslaw.htm Source: Reproduced from Intel website http://www.intel.com/research/silicon/mooreslaw.htm

1,000

10,000

100,000

1,000,000

10,000,000

100,000,000

1970 1975 1980 1985 1990 1995 2000 2005

Millions of transistors per microprocessor

(log scale)

Pentium 4 processor

Pentium III processor

Pentium II processor

Pentium processor

486 DX Processor

386 processor

286 Processor

8086 processor

8080 processor

8008 processor4004 processor

Impact of Technological Change

Changing product life cycles Changing product technology = shorter life cycles Increased risk in high volume/low cost strategies

Changing market segments Less segment stability Increased segment fragmentation Importance of market sensitivity/target marketing

New industries/new competitors Shifts in product-market boundaries Importance of competitive intelligence Fights over ‘standards’

Deregulation of markets Globalisation of markets Changing organisation

(Adapted from Capon & Glazer, 1987)

Core Competencies

Core Competencies at Canon

Precision Mechanics

Fine Optics Micro-electronics

Basic camera

Compact camera

Autofocus camera

Video still camera

Laser beam printer

Colour video printer

Bubble jet printer

Basic fax

Laser fax

Calculator

Plain paper copier

Colour copier

Laser copier

Still video system

(Prahalad & Hamel, 1990)

Core Rigidities

Core competencies can become obstacles to innovation Cultural norms Preferences for

existing technology Established routines

and procedures Status hierarchies Economics

Values

Skills/knowledge

Managerialsystems

Physicalsystems

High

Low

Rel

ativ

e d

iffi

cult

y o

f ch

ang

e

(Leonard-Barton, 1992)

Innovations

Sustaining innovations Maintain current rate of performance improvement Give customers something more/better in currently

valued attributes Disruptive innovations

Different attributes from those valued by mainstream customers

Often poor performance in mainstream market/applications

Used/valued in new markets or applications Often create new markets

Disruptive Innovations

Established companies: Develop & commercialise new technologies

(incremental & radical) to meet needs of current customers

Market research, technology trends, cost structure, profit assessment, resource allocation

Entrant companies: Low cost structures Secure a foothold in emerging market Improve technology performance Attack mainstream market

Disruptive Innovations

Time

Per

form

ance

Current performance of potentially disruptive technology

Expected trajectory of performance improvement

Performance improvement required by

mainstream market

(Bower & Christensen, 1995)

Market Orientation

Customerorientation

Competitororientation

Focus on thelong term

Inter-functionalco-ordination

Market-ledorganisational

culture

Kohli & Jaworski (1990), Narver & Slater (1990)

Understanding customers & how to create value for them

Using all organisational resources to

create value for customers

Long-term shareholder value as the main

business objective

Identifying competitors and being

aware of their capabilities

Market Orientation & New Products

Strong association between market-orientation, innovative capability, and new product success When intensity of market competition and

industry hostility are high During the early stages of life-cycle More for incremental than radical changes

Marketing capability has most positive effect in firms with strong technical skills

Small and large firms(Atuahene-Gima, 1995)

Impact on Business Performance

Customerorientation

Competitororientation

InterfunctionalCoordination

Marketturbulence

TechnologicalturbulenceMarket

Orientation

Organizational Innovation

Environmental Conditions

Organizationalperformance

Technicalinnovation

Administrativeinnovation

(Han et al., 1998)

Marketing Processes

Value-defining processes Understanding the environment

Market research, buyer behaviour, segmentation, product use etc.

Understanding resources & capabilities Assess ‘value created’

Value-developing processes Value proposition for customer

Procurement, NPD, distribution, strategic alliances, pricing etc.

Value-delivering processes Product/service delivery, customer relationships,

communications, customer service etc.

(Webster, 1997)

Marketing Capabilities

Outside-inprocesses

Inside-outprocesses

Spanning processes

External Emphasis Internal Emphasis

Market sensingCustomer linkingChannel bondingTechnology monitoring

Customer order fulfilmentPricingPurchasingCustomer service deliveryNew product developmentStrategy development

Financial managementCost controlTechnology developmentIntegrated logisticsManufacturing processesHRMEnvironment, H&S

(Day, 1994)

Marketing Capabilities

Market sensing Systematic gathering, interpretation & use of

market information Sensing customer & market changes ahead of

competitors Customer linking

Creating & managing close customer relationships Purposeful cooperation

Channel bonding Relationships with suppliers, wholesalers, retailers

etc.

(Day, 1994)

References

Atuahene-Gima, K. (1995) An exploratory analysis of the impact of market orientation on new product performance, J. Prod. Innov. Manag., 12, 275-293.

Bower, J.L. & Christensen, C.M. (1995) Disruptive technologies: catching the wave, Harvard Business Review, 73(Jan-Feb), 43-53.

Capon, N. & Glazer, R. (1987) Marketing and technology: a strategic coalignment, Journal of Marketing, 51(July), 1-14.

Day, G.S. (1994) The capabilities of market-driven organizations, Journal of Marketing, 58(Oct), 37-52.

Han, J.K., Kim, M. and Srivastava, R.K. (1998) Market orientation and organizational performance: is innovation the missing link? Journal of Marketing, 62(October), 30-45.

Hooley, G., Broderick, A. & Moller, K. (1998) Competitive positioning and the resource-based view of the firm, Journal of Strategic Marketing, 6, 97-115.

Kohli, A.K. and Jaworski, B.J. (1990) Market orientation: the construct, research propositions, and managerial implications, Journal of Marketing, 54(April), 1-18.

References

Leonard-Barton, D. (1992) Core capabilities and core rigidities: a paradox of managing new product development, Strategic Management Journal, 13, 111-125.

Narver, J.C. and Slater, S.F. (1990) The effect of market orientation on business profitability, Journal of Marketing, 54(October), 20-35.

Prahalad, C.K. & Hamel, G. (1990) The core competence of the corporation, Harvard Business Review, 68, (May-June), 79-91.

Webster, F.E. (1997) The future role of marketing in the organization, in D.R. Lehmann and K.E. Jocz (eds) Reflections on the Futures of Marketing, Cambridge MA: Marketing Science Institute.