Strategy 2 Market Exchange

Innovation has become a hot topic in business these days. Almost any business magazine will have an article discussing some aspect of innovation; many companies cite innovation as a top strategic priority; “BusinessWeek” and “Condé Nast” have announced new publications devoted to innovation. But what exactly is innovation?

Sometime people call an idea innovative, meaning it has the potential to dramatically alter an industry, a market, a firm or the way a customer lives. Some call a firm innovative if it has a propensity for innovating or adopting innovations. Some call a product design innovative if it is fresh, new and ergonomic.

But, does innovation just mean different? No.

An innovation has to create value for the customer in a new and unique way. As Peter Drucker said, a product that is different, but does not create new value for the customer, is merely a novelty. A novelty may temporarily capture a customer’s interest because it is different, but it will quickly be replaced by a new novelty. An innovation, on the other hand, provides new value to the customer and the customer is willing to pay to obtain that new value.

In the late 1990’s, there was a popular belief among electronics manufacturers that consumers would pay for e-books. The consumer would purchase a tablet- shaped computer called an e-book device that would store electronic books easily downloaded through the Internet. The advantages were that the text could be easily searched, the device could be used with text-to-speech software for the benefit of the visually impaired, and downloading would be more convenient than going to a bookstore. For the publisher, it would be significantly less expensive to produce and distribute an e-book than to print and ship actual books. But the devices never caught on because consumers did not see significant new value. E-books were a novelty, not an innovation.

MP3 players might have suffered the same fate were it not for Apple. Early MP3 players did not catch on with consumers due to a myriad of difficulties: converting CDs to digital MP3 files was time- consuming, managing the large files and loading them onto the MP3 player was not easy, and record companies were fighting this new technology due to fears of piracy. Most consumers did not see the value of using an MP3 player given the difficulties associated with it. Apple eliminated all these difficulties and provided a complete solution that consumers did see value in. Apple created value in a new and unique way. The iPod was an innovation when other MP3 players were just a novelty.

The difference between an innovation and a novelty is that an innovation solves an important, unmet need and a novelty does not. The e-book addressed an important, unmet need of publishers – it reduced the cost of publishing and distributing books, but it did not solve an important, unmet need for the buyers and consumers of books. Consumers saw no reason to buy the new devices.

So, how do you know whether your idea is a novelty or a potential innovation? You need to talk with customers. You need to do your front-end research to identify unmet needs. You might use one-on-one interviews, focus groups or ethnography. Once you have identified potential needs, you have to quantify how important the needs are, as well as how well they are met by current solutions. What is the size of the market that will care about your innovation? This is done with a survey to a large-enough sample to generate statistically valid results. Choose important, unmet needs for your new innovation – that’s how you ensure you are not producing a novelty.

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