The purpose of Innovation is to ferret out value from the market out of technology ideas. Therefore, we foster innovation as an exercise of generating Breakthrough ideas for releasing great new products. However, the most economic value from ideas is created and extracted from making existing good products great out of ideas. Hence, how to make a lateral entry in the innovation race of existing products is a highly important strategy question.
Instead of thinking outside of the box for getting ideas of radically different products, what about making a lateral entry in the innovation race of existing products? In fact, products are in transformation; they are evolving. Creating an entry in this evolution appears to be an opportunity for transferring technology ideas into economic value.
Although we foster innovation for creating out-of-the-box ideas, major economic value out of ideas is created in the evolution of existing products. For example, Carl Benz’s idea of automobiles alone generated $4 trillion in revenue in 2019. In the same year, the Mobile handset produced $400 billion. However, producers have not been selling the same products over the years or decades. Instead, they have been releasing successive better versions and extracting economic value from the Flow of Ideas. Hence, how to create a lateral entry into the innovation race of existing products highly matters.
Underlying forces in creating the opportunity of lateral entry in the innovation race
Irrespective of the greatness of the ideas, every major product has been evolving. Let’s look into the light bulbs, washing machines, microwave oven, airplane, automobile, mobile phone, or televisions. Each of them has been evolving. They are serving our purposes far better than before, and they are also becoming less resource-consuming. Moreover, companies leading their evolution are also changing. For example, GE’s founder Thomas Alpha Edison came up with the idea of the light bulb. But GE is no longer the market leader in the light bulb. Invariably, not only the products are evolving, but also competitors behind the evolution are also changing. How are entry opportunities created, and how can new entrants deliberately create those opportunities are important strategy questions?
Any product has three major components: Natural resources, labor, and ideas. Due to an idea, a product emerges to serve the target purpose. For additional ideas, products also keep evolving in serving target purposes increasingly better. The evolution of products and entry opportunities in such evolutions are influenced by four major factors: i. Technology, ii. Consumer preferences, iii. Competition and iv. Infrastructure.
Technological changes open the opportunity to generate ideas and redesign products—for adding new features and improving existing features. On the other hand, consumer preferences about what products should do and how they should do keep evolving. Besides, infrastructure development also opens the opportunity to add or improve some features for serving consumer preferences far better than before. Of course, there has been competition among incumbents to take advantage of those factors and keep releasing better versions. However, sometimes, incumbent firms remain so obsessed with the existing designs that they fail to leverage the evolving nature of technology, consumer preferences, and infrastructure. Consequentially, it opens the entry opportunity for aspiring new entrants.
Examples of evolution of products, creating lateral entries in the innovation race
Let’s begin with the light bulb. Right after its emergence, firms like Toshiba and Philips started making light bulbs. However, they did not keep making the same light bulb. They figured out that they had to make light bulbs more durable and less energy-wasting for increasing the appeal, thereby expanding the market. Hence, they got into the race of advancing filament technology and redesigning the light bulb. For almost over a century, only a few firms like GE, Toshiba, and Philips kept dominating the light bulb industry.
In the 1970s, there were increasing consumer preferences for having energy-saving lighting solutions. Technology for producing light from LED was showing the promise of meeting this consumer preference. However, incumbents, including GE, were not as serious as they should have been in taking the technology potential to innovate a better light bulb. This gave the entry opportunity to an aspiring new firm—Nichia. This small Japanese company was not in the light bulb making or evolution business before. However, it leveraged LED for creating an entry opportunity. Through its Nobel Prize-winning technology advancement, Nichia has emerged as the world’s best-LED lighting innovation provider.
There are many such examples. Sony took the technology advantage for creating a lateral entry in the innovation race of Radio, TV, and Camera industries. As a company, Sony was born far later than the emergence of those innovative ideas in the market. However, incumbents like RCA or Kodak were not as serious as they should have been in taking advantage of Transistor or CCD in accelerating evolution for meeting unfolding consumer preferences. Thereby, it created entry opportunities, and Sony took advantage of them. Similarly, Apple leveraged undelivered opportunities to make a lateral entry in the innovation race of both a portable music player and mobile handset industries–through iPod and iPhone.
Preparing for entering into the evolution of existing products
First of all, we need ideas for releasing better versions. To get those ideas that matter to consumers in getting their jobs done better, we should focus on i. Passion for Perfection, ii. Design Thinking, iii. Tinkering and Craftsmanship. Instead of pursuing diverse ideas, we should focus on a systematic method to generate highly relevant ideas, demonstrating tinkering and craftsmanship. Passion for perfection and Design Thinking would play a valuable role in generating ideas which matter to customers. We should also focus on evolving consumer preferences in using target products in preferred situations at the idea generation stage. This exercise will offer us a good portfolio of ideas for supporting the evolution of products. However, to release them, we need support from technology and infrastructure.
The technology portfolio that we have is continuously changing. Both the number and maturity of each of the technologies are changing. Hence, we need to keep monitoring and forecasting the state of technologies that matter to the implementation of the idea portfolio. Moreover, we should also develop in-house and partners’ capability for acquiring, advancing, finetuning, and fusing them for implementing ideas. We should also have complementary manufacturing and distribution capacities.
Along with having an idea portfolio and technology capabilities for implementing them, we should be very vigilant to unfolding competition responses, changing consumer preferences, and growing infrastructure readiness. Once this vigilance offers the slot for lateral entry in the innovation race, the highly tuned next version of the target products should be released at the right time. To sustain this entry, we need to keep releasing successive better versions—for consolidating the position in the evolution race of the target products.
