What Are the Advantages and Risks of Product Innovation — And How Can a Digital Innovation Consultant Help?
Product innovation isn’t an option in today’s business world – it’s a necessity. Long gone are the days when companies could rely on their flagship products, long product cycles, or traditional business models to sustain growth.
Now, companies must keep pace with the rapid changes in technology and consumer behavior by either innovating new solutions or improving existing products in order to drive growth and profitability.
That’s a realization shared by 93% of executives who took part in PricewaterhouseCoopers’ (PwC) 2014 global business innovation study Breakthrough innovation and growth. In this study, nearly three quarters (74%) of participants believed that innovation is just as important to success as operational effectiveness.
Today’s executives know that product innovation holds many business advantages, but reward never comes without risk.
Advantages of Product Innovation
The "popular" definition of product innovation is that it’s only about inventing new products. However, it also constitutes improving the design and function of existing products, as well as using new technologies, manufacturing processes, and materials to differentiate them from competitors’ products.
Successful product innovation can lead not just to products that satisfy the existing needs of customers — it can also lead to market expanding breakthrough products that satisfy needs that customers never knew they had.
A great example is Apple’s first iPhone, which introduced consumers to the "touch-screen" interface at a time when the smartphone market was still dominated by devices with styluses and keyboards.
Keep in mind that companies cannot "buy" their way to success, as there is no direct correlation between research and development (R&D) spending and business success. However, there is a direct correlation between innovation and growth, as the top 20% most innovative companies grew at a rate 16% higher than the the bottom 20%.
Here are some of the advantages product innovation can deliver:
- Increased Market Share: Innovating a product that alleviates customer "pain points" and disrupts the target market can greatly improve market share, which can enable economies of scale and increase a company’s market power.
- Increased Profit: Developing an innovative product that’s unique and superior to what the competition offers can lead to profit growth. In fact, more than 90% of the world’s 100 most innovative companies have experienced positive sales growth due to innovation, according to a recent Forbes report.
- Success in Failure: The "failed" result of innovation for one target market can end up being a disruptive and profitable innovation that can be applied to other markets. Penicillin, plastic, saccharin, WD-40, and the pacemaker are key examples of “successful” innovation failures/mistakes.
Risks of Product Innovation
With its ability to generate profit and increased market share, it’s easy to see why the vast majority of C-level executives are championing product innovation. But when the investment in time, manpower, expenses, and risks are factored – many companies are understandably cautious about product innovation.
Here are some of the risks companies face when investing in product innovation:
- Innovation Is Costly: While the amount of time and resources invested in product innovation varies, companies can expect to spend around 3.5% to more than 20% of their total revenue in R&D, with the pharma and technology industries spending the most to innovate.
- Unwanted Market Cannibalization: Introducing an innovative “new” product to expand market share can backfire if a company’s product ends up eating into the market share of its other products, which can reduce product life cycles and lead to little or no sales growth.
- Wasted Time and Resources: A company can spend months and a 5- to 7-figure budget developing a new product only to see it fail because competitors went to market faster or the market was simply uninterested in the product.
- Employee Dilemmas: Developing an innovative product that improves efficiency and saves costs can also render employees redundant, leaving companies with the tough dilemma of either having to retrench staff, or invest time and resources retraining them for other tasks.
Is Product Innovation Worth the Risk?
That can be a tough question to answer, especially when you consider that the product innovation failure rate is high — 40% to 90%, depending on which industry studies and sources you reference.
Unfortunately, some companies wrongly assume that little or no investment in product innovation has no impact on their business success. The reality is that companies at the bottom 10% of R&D spending significantly underperformed against their competitors .
As Steve Jobs once said, "Innovation distinguishes between a leader and a follower."
The reality is that companies must answer many key questions before making the decision to invest resources in product innovation such as:
- Is there a clear customer demand for this product and will the market be large enough to sustain profitability?
- Is there a clear innovation strategy to define the product’s features and characteristics?
- Does the product have a clear competitive advantage and can the advantages be sustained and improved upon?
- Will this product have a positive return on investment (ROI) and does it support the company’s overall growth strategy?
- Is the product innovation risk worth it?
Answering these questions can be a daunting task for companies, especially if they lack an innovation strategy that maximizes the latest digital technologies. However, companies can still get the answers they need to invest in innovation — with a little outside help.
How Can a Digital Innovation Consultant Help?
There’s nothing more dangerous in today’s digital marketplace than staying idle while the competition develops market-grabbing products. Sadly, many companies are too paralyzed by uncertainty and a lack of innovation experience to do anything about it.
Fortunately, companies can overcome innovation barriers by hiring a digital consultant with the experience, capabilities, and resources they need to stay competitive.
Most companies want to innovate, but they don’t have the culture, resources, or right methodology to do it.
Says Aaron Shumaker, Japan Country Manager for InnoCellence Systems Pte Ltd.
By working with an external partner, you can tap into their experience to jump-start your innovation program rather than wasting time, energy, and resources trying to reinvent the wheel.
Today’s digital innovation consultants can support companies in a variety of ways including:
- Auditing a company’s internal strategies and capabilities
- Conducting market research and competitive analysis
- Working with companies to develop a solid product innovation strategy
- Administering Proof of Concept (POC) testing
- Utilizing the latest user-centric design methodologies to deliver innovative digital products
While experience and capabilities are good enough reasons to hire a digital innovation consultant, synergy is absolutely essential. Companies should seek a digital innovation consultant that can become a collaborative partner in success rather than just a typical vendor.
After all, who would you rather have as your company’s product innovation parter — a transaction-based mercenary who sees your company as a project number, or a trusted partner that knows your business and functions as an extension of your team?