Many factors drive innovation, but in most of our market research, we encounter four unique categories of drivers that create the impetus and direction leading to the development of innovative new products and services. The four drivers are:
- Changes in Regulations
- A change in industry regulations that forces new innovative ways of doing things.
- Market Needs Driven
- The development of a new creative solution to a recognized market issue, need, or problem.
- Response to a Single Customer Request
- Expanding a customer request into a new product or service.
- Technology Push
- A new technology is available that drives the development of new products and services.
Many may disagree when I say that for companies that have an ongoing innovation process the challenge is not developing new and creative product and service innovations, the challenge is commercialization. Moreover, often behind the difficulty of commercialization is the lack of a full understanding of the answers to three fundamental questions.
- What problem or issue does the innovation solve or eliminate?
- What is the full value of the solution?
- How large is the addressable market?
The overall market success of any innovation will ultimately be determined by the answer to the question; does it solve a current problem or need in the marketplace and how much is the solution worth?
If the innovation is in response to a “Change in Regulations,” by definition, the focus of the new product or service provides a solution to a new regulation or legislation. Common regulatory factors driving innovation often include increased sustainability requirements, or enhanced safety guidelines. In the majority of cases, when reacting to new laws or regulations, the value of most innovations is the avoidance of a financial penalty or having your product altogether banned from the market. Therefore, the need, the value of the solution, and the addressable market for the innovation is easy to determine and quantify.
When innovation is “Market Needs Driven,” the entire innovation process focuses on solving a specific problem or issue recognized by the entire market. Therefore, the market need has been pre-determined. The challenge in this scenario is quantifying the value of the solution and determining the ultimate size of the addressable market opportunity.
However, if the innovation is a result of a “Technology Push” it is not a given that the innovation provides a solution to a market need or problem. In addition, if the innovation is a result of an “Expanded Customer Request,” there is no guarantee that the solution is applicable beyond a single customer. Both of these innovation categories run the risk of yielding products and services that may fall into the well-known (and dreaded) category of “a solution looking for a problem.” Furthermore, even if these solutions do answer a need in the marketplace there remains two additional questions; Does the solution deliver quantifiable value? And, is the addressable market large enough to pursue?
There is no single driver behind all innovation, and good innovative solutions can result from all types of innovation drivers. However, to reduce the risk of failed commercialization efforts, which can cost companies millions of dollars, it is prudent to conduct the market research necessary to understand the need, determine the value of the solution, and size the addressable market.