Overview
Planners of innovative business projects at the first instance should analyze the business scenario around the market and evaluate its suitability to the market players, including consumers. Often companies undergo serious limitations in making complete analysis of the market scenario from the perspective, existing demand and competition, available resources, technology, and lifecycle of the innovative products. This chapter argues that scenario planning is an essential tool for developing innovative business projects. Understanding market scenarios is a superior way of visualizing a business project in order to help managers see how the business environment offers better strategic choices in carrying out innovative projects. Illustrating the experiences of various multinational companies, this chapter maps scenario for exploring innovative business projects in business-to-consumers and business-to-business sectors and offers ways to define the need for innovative differentiation. It is argued in the chapter that analyzing the sociopolitical determinants, and critically examining the micro-and macroeconomic factors would help the managers to develop competitive business projects within the existing business environment in a given marketplace. Doing this will bring organizational learning, enhance executive competencies, broaden project management perspectives, and help everyone involved in the innovative business projects to plan and implement projects in the complex and nonlinear business environment. The attributes of various decision drivers in reference to changing organizational cultures have also been discussed in this chapter.
Analyzing Business Environment
Business scenarios in the geodemographic segments across the markets are changing frequently over the years as the technology is rapidly growing. The consumer preferences in food and beverages, electronics, home décor, over-the-counter pharmaceutical products, automobile, and office equipment have shown dynamic changes since the mid-20th century as companies are engaged continuously toward introducing innovative products to mark competitive advantage in the marketplace. Business scenarios in the business-to-business markets have also shown much advancement by automation of various operations within the company as well as within the network of market players engaged in operations. The growing trend of information technology (IT) has set many uphill challenges for the companies to adapt the automation process, which has driven several start-up companies to introduce innovative concepts through software applications in order to support the automation process. The global business scenario has been altered significantly by the Chinese companies that brought out innovative products in support of industrial automation process by encouraging small start-up enterprises (SUEs) and reached to a larger marketplace across the destinations. These companies are opening up a new front in the global competition based on reengineering the manufacturing and processes by improving the research and development, and innovation processes to introduce differentiation in the business performance at low prices. The innovative business projects in the emerging markets comprising Brazil, India, China, Russia, and South Africa initiated by both SUEs and large companies are carried out at economies of scale, when the marketing testing of innovative products and services are successful. As innovative business projects are largely managed at economies of scale, they turn to be cost-effective, low price, and sustainable for long run.
The emphasis on co-creation of innovation and managing innovation business projects partnering with the local companies is gradually generating technological breakthroughs, allowing emerging companies to reduce the time to bring innovative products and services to the market. The recent trend of carrying out innovation in the business-to-consumer as well as business-to-business segments by companies exhibits different ways of deploying cost and volume advantages in global competition by outsourcing innovation, partnering with SUEs, encouraging open innovation, and driving public–private partnerships. For example, companies from emerging markets like large manufacturers, such as Lenovo Group Ltd. (China), Godrej Consumer Products (India), and Internet players, such as Tencent Inc. (China), are pioneering new ways of industrializing innovation. These companies are engaged in simultaneous engineering by leveraging quick launch, test, and improve cycles combining vertical hierarchy for effective control of manufacturing systems with horizontal flexibility, allowing autonomy among the innovation teams to steer the new insights and experiments within peer groups. Lenovo acquired IBM’s personal computer business in 2005 with its new product development cycle systems spanning 12 to 18 months. In view of growing competition in the laptop and desktop consumer segment, Lenovo geared-up innovation in this segment and has managed to reduce the product introduction cycle to nearly half of its predetermined span. In order to match the innovation and market dynamics, companies should grow as learning organization open to new ideas for driving differentiation, and accelerate continuous innovation across a wide range of industries reaching economies of scale at relatively low costs and acceptable quality that ensure value for money to the consumers. Innovative business projects catering to the emerging market demand and consumer needs are often risky and might not ensure breakthroughs in the market. However, successful implementation of innovative business projects have the potential to powerfully disrupt the profit models of competitors and make space in the market for the innovation to grow over the period. In order to gain manage the innovative business projects efficiently, companies should reengineer their internal innovation processes based on the principles of vertical and horizontal management approaches focusing on time-bound projects involving local partners or workforce (Williamson and Yin 2014).
Adequate capital resource is one of the major indicators for carrying out the innovative business projects successfully in the company. Innovative business projects fail because often companies face the budgetary and time constraints in managing such projects. The cost and time overruns in managing innovative business projects are common. Hence, companies should invest in data management systems, team-training programs, project-management software packages, and adapting best practices to support innovation. Whether a production process or a new-product-development project, the theory of constraints explains that managers of such projects should focus on the vital gaps in the project flow instead of working intensively on the stage-gate process of the projects, so that budget and time frame can be managed besides ensuring the quality of output (Elton and Roe 1998).
Continuous growth in innovation and technologies is the principal stimulant for the companies to gain competitive differentiation and leadership in the global markets, and high brand equity to drive consumers toward new buying preferences and explore new market segments. However, it is often hard for consumers to adopt innovations, gain confidence in deriving values appropriately, and derive competitive advantages from the innovative offerings over the existing and predetermined products and services. The consumer perceptions on the innovative products and technologies are largely influenced by the social and informal networks. Such interconnections among consumers and companies are so strong that often a new product’s adoption by one player depends on its systematic adoption by other players. Traditionally, companies launch innovative products by targeting unique customer segments or developing compelling value propositions. However, companies engaged in continuous innovations orchestrate a change of behavior among consumers across the market segments in order to expand their market outreach. Companies engaged in innovation and competitive gains in the marketplace should explore new market segments, develop and implement strategies that maximize the chances of getting the competitive advantage, complement power players, and position the innovation as an enhancement to products or services. The innovation and technology companies tend to offer coordinated switching incentives to the players (social media, retailer, and salespeople) who add to the innovation’s benefits, the players that act as channels to adopters and early adopters to ensure the value of the products and services (Chakravorti 2004). The elements of a business scenario in a destination market are woven around various macroeconomic factors comprising political, social, economic, technological, and legal factors beside the microeconomic factors within the company and market, as exhibited in Figure 2.1.
A business scenario in a destination country, region, or market is built around the macro-and microeconomic factors exhibited in Figure 2.1 that need to be explored by the companies to identify right innovation project and carry it successfully within the existing environment. The macroeconomic factors that affect the innovation management activities in a company include political support toward innovations in reference to specific sectors, such as energy, public health, IT, low-cost construction, and other areas of public interest. The focus of the government toward investments, incentives, and monetary policies to support innovation and improve consumption culture also affects the companies toward undertaking innovative business projects and plan investment and returns accordingly. Consumers’ engagement in social media to share new ideas across networks drive consumer innovation and technology governance significantly in the society. The macroeconomic factors differ across the developing economies, emerging markets, and local enterprises, but they have become a part of globalization, and influence the innovations in consumer markets. The microeconomic factors are largely confined within the business organization in reference to capabilities and competencies, and marketing-mix strategies of 11 Ps comprising product, price, place, promotion, packaging, pace (time), people (front liners), performance (brand line), psychodynamics (informal communication network), posture (corporate reputation), and proliferation (product extensions). Companies explore innovative business projects that are responsive to the market competition and fit into the consumer demand of specific geodemographic segments in order to avoid the risk and drive easy commercialization. The microeconomic factors of the innovation carrying companies also support the decision-making process of the companies toward developing strategic alliances with the SUEs and other companies anchoring innovative business projects, and carry incremental innovations over the previous generation of innovations. The microeconomic factors are also related to the size of the organization, business philosophy, and organization culture in carrying out innovation in the competitive marketplace.
Figure 2.1 The environment of business innovation projects
Exploring Innovative Business Projects
Innovation is a continuous process and it helps organizations grow. Growth is often measured in terms of business performance, turnover, and profit, which occurs by bringing the competitive differentiation in the marketplace generating knowledge, consumer experience, quality or products, values, and marketing efficiency. Innovation is the process of making changes to something established by introducing something new. As such, it can be radical or incremental that can be applied to products, processes, or services, and in any organization. Innovation can be explored at all levels in an organization as well as in markets by generating consumer involvement in the new product or services development projects. In view of the fast growing market competition, more and more companies are recognizing innovation as the business opportunity created by a focus on sustainability. Such shift in thinking in many companies and industries, where learning-organization principles are being applied to create sustainable business models, has evidenced a change in organizational culture and improvement in the core competencies. Simultaneously, they become inspirational, energetic places to work, where even relationships with customers and suppliers improve. However, a more integrated view will enable companies to innovate for long-term profitability and sustainability. There are three core competencies that learning organizations must master to profit from sustainability, including encouraging systemic thinking, convene strategic market players and customers toward changing conventional thinking, and take the lead in reshaping the economic, political, and societal forces that baffle change (Senge and Carstedt 2001).
Often companies select innovative business projects in terms of its potential for commercialization and gaining high market share in the competitive marketplace. Such strategic thinking helps companies in carrying out innovations and business projects beyond commoditization, and fend off disruptive competitive threats to pave a path to enter new markets successfully. Innovative business projects lead toward transformational growth by determining news of engagement with customers and market players. Companies develop innovation projects with unique concepts with the goal to gain higher profit, brand image, and customer value to customers. Companies can successfully explore innovative business projects in the following manner by:
Identifying the right innovative growth opportunities that could serve the latent demand in the market (where consumers are in need of the product but products are not available), tapping into a hidden or new customer needs with a completely new business model that builds the competitive advantage.
Co-creating innovation projects by engaging customers and designing new business models to achieve desired project outcome efficiently and profitably.
Successfully entering in global and local markets, penetrating the market competition to serve the latent needs of consumers by implementing the innovative business projects successfully.
Creating new systems to support innovative business projects, and set new rules and metrics that enable companies to innovations successfully.
Innovative business projects are fundamentally rethinking of business around consumer needs by realigning corporate resources, processes, and profit formula with this new value propositions. The fundamental elements of a business project, which companies need to understand and manage during the project include variety of factors as discussed as follows:
Definition of the project
Characteristics of projects
The Project Manager
Attributes of project management
Project Lifecycles
The project environment
Project selection
Project planning
Project finance
Risk management
Execution of project
Innovative business projects need not be picked up by the companies driven by emotions and impulse. They should be evaluated at the foreground in reference to the management capabilities as well as their potential for commercialization. Innovation projects often fail as they have a kick-start with loosely or sometimes ambiguously defined objectives, and project managers realize in the midstream of project process that it is going astray. Most SUEs tend to define innovation projects as experimental and exploratory projects and seldom follow loose linear guidelines, and suffer serious setbacks over the project stages. As innovation projects generally need to be sold to project sponsors and funding committees, project teams should be more involved and responsible while carrying out the projects. Innovative business projects are largely laid on multitask and multidecision, a process that is susceptible to risks and uncertainties between the project stages unless a well-developed set of criteria for the project has been developed in advance. Projects carrying out innovations should be time-bound to reduce the risk of commercialization and adaptation among consumers. However, sometime they are dragged on and on with endless tweaks and companies struggle to make adjustments to finish the project and launch the innovation in the market. The consumer involvement in the innovative business projects helps the companies launch innovations and its adoption faster. Hence, the current trend of identifying innovation projects for the companies are largely driven by the stimulating consumer involvement through various approaches of crowdsourcing. For example, Fiat Brazil developed a collaborative platform that combines crowdsourcing, open innovation, and creative commons in order to develop a model concept car called Fiat Mio. In the process of carrying out the innovative automobile project, the Fiat Mio team managed interactions over several months with 17,000 participants, from 160 different nationalities, and analyzed more than 11,000 ideas for developing appropriate innovation concept, its testing, and developing the prototype. The consumer belongingness to the innovation was evidenced by the company when Fiat Mio was launched in December 2010 at the Sao Paulo Auto Show as several people showed up to claim the prototype as their own. Submissions on the crowdsourcing platform allowed participants to communicate the idea of wheels that rotate 90° to make easier parallel parking and use of cameras instead of rearview mirrors and intervehicle communication to avoid collision. The Fiat Mio is a prime example of what can be accomplished with intelligent crowdsourcing of the new product development activities of a company. Such experiment has evidenced that instead of relying solely on internal abilities, connecting to a large community of engineers, startups, and other partners to circumvent the restrictions of limited resources and knowledge, and think outside-the-box could make the innovative business projects perform successfully (Saldanha and Pozzebon 2015). The process of exploring innovative business projects is exhibited in Figure 2.2.
Figure 2.2 Process of exploring innovative business projects
Ideally, exploring innovative business projects is neither emotional nor a peer influence exercise for the companies. Most companies follow a predetermined path to explore the potential innovation to be carried out through standard project management process as exhibited in Figure 2.2. There are five stages that help the companies explore the innovation which that the market potential. In order to choose a product or services innovation, companies should analyze the macro-and microeconomic factors, market demand, and consumption patterns. Upon identifying the innovation to be carried out, the companies also need to identify internal capability and competence in managing innovation process, funding and sponsorship, develop statement of work (SOW), and project charter. The creativity in innovation projects should be based on analyzing consumer preferences, scope of open innovation, and carrying out “experience innovation” involving consumer and stakeholders of the company. Customer-centric companies develop innovation project designs that can generate high consumer use value, competitive differentiation, long and sustainable product lifecycle, and charter of serviceability of innovative products. While exploring the innovations to create competitive differentiation, most companies face the challenge of diffusion of knowledge about the innovation, and inducing adaptability among consumers. It is necessary for the companies also to identify the scope of incremental innovation to carry out further improvements on the innovation in order to develop consumer loyalty, and augment market share and profit contribution of the innovation.
The innovation strategy defines the role of innovation and sets the direction for innovation execution. Companies should explore innovative business opportunities close to the market demand and develop innovation strategies that actually provide them leverage to launch the innovation and make a profitable business in the competitive marketplace. Incremental innovations are carried out by the consumer-centric companies as a routine to improve the business performance of the existing products. Companies build market value through continuous innovation, which is derived by exploring new and incremental innovation business projects, connecting the dots between many singular ideas and crowd-sourced into one big platform innovation, and fully scaling it to maximize the potential benefits. The good innovative business projects should exhibit the potential to generate “me too” feeling upon its commercialization. Research proves that companies that successfully apply a structured process to innovation project management reduce risk in the business process and increase the results of innovation. The criteria associated with a strong innovation should be to develop influencing, ambitious, high perceived use value, and adaptive innovations in the marketplace with unique adaptable propositions. The specific characteristics of innovative business projects should include the following attributes:
Projects have an established objective
Projects have a well-defined life span
Projects require staff participation from across the organization
Projects have a defined schedule and budgets
Projects have limited resources
Projects have multiple, often competing stakeholders
Innovative business projects exhibit change, cross-functionality, uniqueness, and uncertainty as major attributes. A project carrying out innovative business ideas engages people from different seniority and business departments, who work together during the period of the project. For instance, to develop sales software, people from marketing and sales departments should work closely with the IT department. Companies should understand that each innovative business project should be unique, cost-effective, time-bound, and able to generate high customer value. Projects might be divided into the different task segments and should be treated as unique. However, carrying out projects with unique propositions drives uncertainty. An innovative business project is a one-time, once-off activity, never to be repeated exactly the same way again. Hence, the projects are set within specific timeframe. Once the goal is achieved, the organization created for it is disbanded or sometimes it is reconstituted to begin working on a new project. Innovative business projects should be developed on a single definable purpose, process, and outcome. This is usually specified in terms of cost, schedule, and performance requirements. Projects always cut across the regular organizational lines and structures within a firm, because they need to draw the skills and the talents of multiple professions and departments within the firm and sometimes even from other organizations. The complexity of advanced technology often leads to additional project difficulties by creating task interdependencies that may introduce new and unique problems.
Defining and Managing Projects
Managing innovative business projects is a set of functions related to the application of knowledge, process and implementation skills, and project tools and techniques to perform activities to meet the project requirements (Hamel and Tennant 2015). It is necessary for the company to define the projects clearly to carry them out without any problem in moving the tasks through the project pathway and having the ease of decision making at each stage-gate of the project charter. Companies need to consider the following factors while defining the innovative business projects aimed at commercialization in the completive marketplace across geodemographic segments:
Identifying all the requirements, including consumer needs, competition, organizational capability and competence, budgetary requirements, risk management, and compatibility of project with the existing macro-and microeconomic factors.
Establishing clear and achievable objectives.
Balancing the competing demands for quality, scope, time, and costs.
Adapting to the specifications, plans, and expectations of the various stakeholders.
A study on development projects at Chaparral Steel, Digital Equipment, Eastman Kodak, Ford Motor, and Hewlett-Packard reveal that the innovative business projects are small-scale version of an organization and should be carried out parallel to the organizational dynamics. These project could generate powerful, distinctive capabilities upon designing and implementing the project processes meticulously. The most successful projects demonstrate core capabilities, guiding visions, organization and leadership, ownership and commitment, prototypes, and integration (Bowen et al. 1994). In order to remain innovative, companies thrive to develop new products and processes with an objective to implement them rapidly and gain consumer attention. Innovation and its ability to create competitive advantage depend on how dynamic a company is on staying vigilant on the innovative concepts of SUEs, analyzing market information, and developing marketable innovations. Each innovation has different value proposition for the consumers over different spatial and temporal situations. Companies learn innovative ideas largely from crowdsourcing. Open Innovation is one of the central concepts for gaining competitive advantage in the marketplace. Open Innovation implies that innovation processes increasingly require collaboration with several stakeholders, users, suppliers, and experts.
3M Company explored an innovative business project, which has high market potential in the Taiwanese market. The project team of the company exploited the local market needs for 3M Hydrocolloid Dressing, a technology that had existed in the company for many years, but no practical applications were found for commercialization. The local project team suggested applying the material for acne treatment of young consumers. The product would be known as Acne Dressing. As there was no standardized solution for acne treatment in Taiwan, the company decided to develop Acne Dressing as a brand-new product in the local market. However, the biggest challenge for the company was to make the innovation adaptable to the consumers and change local consumer behaviors on new acne-treatment products. Finally, 3M Company launched the Acne Dressing Patches in the Taiwanese market in 2011 with Nexcare brand as the first product application of the company from Hydrocolloid Dressing technology (Williams and Emily 2014).
Companies should define innovative project work with clear SOW as a reference for guiding the innovation projects clearly within the teams. An SOW is a formal document that captures and defines the work activities, deliverables, and timeline a vendor must execute in performance of specified work for a client. The SOW usually includes detailed requirements and pricing, with standard regulatory and governance terms and conditions. It, thus, overlaps in concept with a contract and indeed SOWs are often legally equivalent to contracts. The SOW can be also constituted with a participatory approach involving all members of the innovation team using the Goal Oriented Project Planning (GOPP) approach. In this approach, all members of the innovation team are asked to share their one best response on the project goal, sponsor, project process, approach toward tasks, timeline, deliverables, and potential problems in carrying the project. SOW can be developed by categorizing response on each element of GOPP and later forming an appropriate statement that could serve as the guiding tool for carrying out the innovative business projects. SOW should also delineate the scope of the project, external bids for generating resources in case the innovative business project to be sponsored externally, and description of products and services sponsored by the funding company or organization. The project team should develop a project charter upon forming the SOW, which is a statement of the scope, objectives, and participants in a project and is a critical document to ensure that everyone involved in the project is aware of its purpose and objectives. The project charter is usually a short document that refers to more documents related to the project and also include the “Terms of Reference” of project. The purpose of the project charter is to document the following perspectives in detail:
Reasons for undertaking the project
Objectives and constraints of the project
Directions concerning the solution
Identities of the main stakeholders
In-scope and out-of-scope items
High-level risk management plan
Communication plan
Target project benefits
High-level budget and spending authority
Organizational culture largely determines the ways of achieving outcomes of innovative business projects in reference to the local and global markets. The cultural influence in an organization includes the employee protocol that talks about problems and solutions, workspaces, and temporal rhythms of work. Social interactions on innovation need to interfere with the local innovation project teams, market players, and consumers to explore the marketability of the innovation product and its possible lifecycle to determine the process of incremental innovation and prospects of the next generation of innovation. The impact of innovation work must be redefined to include more than reporting on the data that demonstrates outcomes. Impact includes the entire process of innovating business project management and actions that leads the innovation adaptation among the consumers. The best practices for managing the innovative business projects are woven around the following factors:
Customer need and benefit
Alignment with the market, product, and technology strategy
Market and customer attractiveness
Financial return on investment (ROI)
R&D, manufacturing, and supply chain feasibility
Competitiveness
Sales and distribution factors
The need for innovation and attributes of the innovative products needs to be methodically defined, so that upon completion of the innovation process, it could deliver consistent and profitable breakthroughs. The innovation breakthroughs could be attained by skills, tools, metrics, processes, platforms, incentives, managerial roles, and values. Companies can achieve success in launching the innovations by managing the innovation projects considering various challenges within the company. Innovative business projects are taken up by the companies not only to achieve market leadership through competitive differentiation, but also to overcome the conventional business practices existing within the company over a long period. As the markets tend to grow manifold and stay dynamic, in any company, managerial and operational models lean to converge with the current practices over time. The innovation ideas emerge effectively within the company, provided the managers stay attentive to the market development, and shifts in consumer preferences. In their quest to overturn industry rules, they learn how to distinguish the needed change in the business practice of the company against the ingrained beliefs. A business project for carrying out an innovation could be successful, provided the company is able to harness the latent demand among the target consumer segments and drive the innovation to meet the underappreciated trends. Innovators, SUEs, and companies pay attention to the changing consumer preferences and consumption pattern to explore the right opportunity for developing a new innovative product, following the standard project management process. To bring a successful innovation to the marketplace, companies need to take a long-term perspective than a myopic approach and develop an appropriate business model for launching and managing the innovation in the competitive marketplace. Defining and managing innovative business projects in a company involve three different scenarios comprising internal fit, external fit, and phases of innovation project, as illustrated in Figure 2.3.
The innovation projects move through the three conventional phases comprising preproject phase, implementation phase, and postproject phase. Companies explore business opportunities, develop business plans, and obtain seed funding in the preproject phase. As the project moves further to the implementation phase, the innovation project team engages in defining innovation, developing design, developing project charter, and building prototype and its testing. In the postimplementation phase of the innovative project, companies are engaged in monitoring, evaluation, and preparing for the next generation of innovation. The external fit of innovation projects is woven around the enterprise factor comprising tasks for commercialization of innovation, coordination, and alliances with external companies and SUEs, understanding marketplace conditions, and assigning resources to carry innovations with the social and government norms. Besides, the internal fit for innovative business projects involves developing process and standards for carrying out innovations in a company by determining appropriate tools and techniques, building managerial know-how, and offering expert supports within the organizations.
Figure 2.3 Innovation projects phases and fit within the business environment
Zara, a successful fast-fashion manufacturer and retailer from Spain is quoted in the business lessons for its uncommon business process and building its popular flagship through setting a sustainable strategic vision. The company produces fashion apparel with marginal investment on advertising, overspends on positioning their fashion innovations in the high-end stores, and carries substantially less inventory and sets the prices for its products less than its competitors. The investors of the company initially disagreed with this strategy of the company to market fashion and innovative design apparel. However, the company has proven its strategy of low-cost sensitization of innovative design garments in the high-and low-end markets by establishing as a brand leader in the industry and in emerging markets with its strategy for success. New competitors and growing business disruptions in market threaten alternate innovations that might beat the original innovation of company by successfully copying key components of the successful innovations of the company (Doiron 2015). Emerging companies need to define the innovative business projects, considering the following fundamental characteristics of the project:
Process
Grouping, inputs, and outputs
Initiating, planning, executing, and closing
Develop a project charter
Identify stakeholders
Develop work breakdown structure
A successful innovation process should undergo proper grouping of task and plan for continuous flow of inputs and outputs at various stages of managing the innovative business projects. It requires timely initiation of the project, planning and execution of tasks, and proper closing the project in order to deliver the innovative product, which has the best fit to the marketplace. Developing a comprehensive project charter as a guiding tool for carrying out the innovation and identifying stakeholder of the innovative projects leading to commercialize are considered to be the project pillars. Innovation projects should also have a clear work breakdown structure (WBS) based on the project tasks, time, and deliverables that should be divided across various stages and review gates of the project plan. Innovation often gets thwarted if selected on the self-reference basis, which is largely derived on the emotions of the top management or the impulsive competitive pressure of the market. Such projects tend to fail as they are not developed around customer needs, predetermined core competencies, and strategic goals of the company. Start-up enterprises and amateur innovators review their capability and competence, and the market around them as a portfolio of skills and assets that can be recombined continuously in developing new products and businesses.
Most customers have resistance toward adapting to the new products, which hinders the performance and growth of new and innovative products in the marketplace. Thus, the companies launching new products should develop comprehensive innovation diffusion plan including do-it-yourself product demonstration, product advertisements, and communication on the social media, in order to develop product attractiveness as well as confidence in consumer adaptation to the new products. To manage innovation in a systematic way, it is important for the companies to define innovation and its marketing prospects that would give the company a real feel about the innovation and calculate its pay-offs over the period. Developing “applied innovation” is harder than the “concept innovation” products as a product might stay beyond the popular conventions of consumerism and lack in innovativeness that stimulates the consumers. Cosmetic innovation, such as if a company puts ketchup in a new squeeze bottle, is neither a new nor incremental innovation. However, some marketing strategies that push innovation with value additions could make the innovative products move in the market along with the competitive products. For example, when Comcast, an Internet and media channel providing company in the United States, rolls out a new “triple play” pricing scheme, it not only drives the IT breakthrough, but also promotes consumerism toward the product. An incremental innovation may be described in reference to a consumer goods company, which launches a washing machine that dispenses just the right amount of detergent. This innovation may stay popular as a game-changer in the competitive marketplace. For a product to be innovative in many consumer products companies, it must be unique and compelling to the consumer, create a competitive advantage, have potential to induce incremental innovations, and provide consumers with more value than the available products in the market. The innovation performance can be measured using the following elements of the innovation dashboard:
Inputs: The vital inputs for carrying out innovations include capital, funding investors, raw material, engineering support, employee time devoted to innovation, and timeline from initiation to launch of innovation along with the number of ideas that are generated internally and outside the organization from customers, suppliers, and retailers.
Pipeline concepts: Companies get abundant new ideas through crowdsourcing, and it is often a major task to filter the quality ideas to enter the pipeline after initial screening. The filtered ideas or opportunities for innovation are carried forward through a business project, wherein their transition from concept to prototype to commercialization takes longer within the innovation pipeline.
Outputs: From the point of view of commercialization, the outreach of number of innovations in a given market over the determined timeframe and the percentage of revenue derived from new products and services constitute the innovation output.
Leadership: Innovations are generally successful, provided such business projects are backed by the strong leadership. Companies prescribe higher percentage of executive time to be devoted toward mentoring and managing innovation projects and generate proinnovation culture in the organization.
Competence: Innovation-oriented companies believe that the higher the percentage of employees trained as business innovators, the better the quality of innovation. Accordingly, companies are recruiting qualified innovation black belts with expertise on lean manufacturing not only to supervise the innovation projects, but also to serve as change agents in diffusion and adaptation of innovation among consumers.
Ambience: Innovation can be successfully managed if the organizational culture and infrastructure (microenvironment) and the sociobusiness scenario (macroenvironment) are favorable to the innovation process. If the infrastructure for innovation is inadequate, it leads to premature termination of innovation projects, and the investments made toward the innovation projects are often runs as sunk cost.
Project balance: The efficiency of innovation projects is governed by the cost and time ratio that determine the ratio of input and output of an innovation. The mix of different types of innovation, such as product, service, pricing, distribution, operations, and so on, lead to different risk categories, including incremental improvements and cost and time overrun.
As the competition in the global marketplace is increasing, more and more companies are recognizing that their experience with consumers across the geodemographic segments about competitive products are value additions to develop new capabilities within the organization for carrying out innovations. However, managing a global innovation project in the same conventional style of single-location projects would be a very difficult proposition for the companies in reference to size, resources, and contingencies. Single-location projects draw on tacit knowledge and shared experience, unlike the global projects lack. The management challenge among the companies is, therefore, to replicate the positive developing “experience innovation” across the geo-demographic segments while harnessing the opportunities of innovation dispersion (Wilson and Doz 2012).
The recent trend among large companies toward exploring new innovation insights is leaning toward analyzing the innovation tactics and management practices with the local enterprises in emerging markets. Digging deep into the enterprises at the bottom-of-the-pyramid, the multinationals are starting to catch on to the logic of reverse innovation, in which the products are designed first for consumers in low-income geodemographic segments and then adapted into disruptive offerings for developed markets. However, only few companies have managed to do it successfully until recently. It has been observed in various studies that the main problem in carrying out the reverse innovation is the mindset of innovators and sponsoring companies. One of the major challenges in the reverse innovation is matching segments to the existing products, lowering price by removing features, mismatch of technical requirements, convincing stakeholders, and agreeing to developing low-cost innovation products for low-income markets could have global appeal (Govindarajan and Winter 2015).
Understanding Consumers for Innovation Adaptation
Launching innovations in a predetermined marketplace is easier for a company than pushing the innovation among the consumer segments for adaptation, as this is a cognitive process unlike a systematic project management path. The cognitive response on any new product is a complex phenomenon independent of several business-related factors visualized by the companies. Consumers largely depend on crowd cognition process to accept a new product, in which they keep updating their knowledge through social media, consumer blogs, friends and family, and business newspapers and magazines. In such cognition process, consumers set or update beliefs, expectation, and establish relation with their previous experience. If the product is relatively new and of high technology, consumers tend to collect information on the product extensively and also keep alternate brands on their shopping cart. There is a relatively smaller consumer segment, which develops self-reference criterion and takes the decision on adapting the new innovative product with confidence instead of seeking second opinion.
Most companies struggle to educate consumers toward adapting new innovative products for a change, with an impulse tag such as Smart consumer electronics or Diet consumer products. However, such tags also raise questions among consumers as the communications associated with tags are not clear to drive the right perceptions among the consumers. Such situations are more complex for consumers, and companies bring the new products that have identical attributes into the gamut of buying behavior. For example, a native purified water-bottling company Bonafont in Mexico, initially launched the purified water in peach color bottles to position it through the psychographic segmentation for women consumers. Later as the product reached the growth stage, the company developed a sense of diet product among the consumers through a television commercial that visualized a petite women walking into the elevator along with others preboarded trigged the elevator to go up as against a situation earlier when the elevator indicated overload. Such stimuli help the new products, whether identical or similar in attributes, to inculcate positive perception toward adapting them against those existing in the market. The adaptation of consumers to new innovations and technologies is largely based on the efficiency of the companies in diffusing the innovation among consumer before the launch of innovation or simultaneously during the launch. Figure 2.4 exhibited the reasons associated with the low adaptation among consumers to the innovative products and services.
Figure 2.4 Diffusion and adaptation of innovation and related consequences
It has been evidenced since the mid-20th century that the innovation and technology (GIT) is growing at a faster pace than the companies are able to diffuse information on innovation and technology (DIT) among consumers in the marketplace as illustrated in Figure 2.4. As the time management for DIT < GIT, companies have prolonged break-even point (BEP) of innovative products they launch in the market due to initial low market share for, and slow growth of sales of, new technology-led innovative products. Hence, companies should develop suitable consumer education and demonstration policies for innovative products before or during the early launch period to disseminate competitive advantages with unique selling proposition. Innovation companies partner with other enterprises to develop innovation diffusion and consumer communication, including social media communication, advertising, and interactive learning projects like do-it-yourself activities, in-store demonstrations, one-on-one communication with consumers, and telemarketing.
The company-consumer interlocking through effecting diffusion strategies of innovative products works efficiently through the interpersonal communication on social networks and direct marketing approaches. Firms can use to build relationships with co-creative business partners that are more suited to explore new opportunities to unveil innovations among consumers and face emerging threats in new competitive environments to drive the consumption of innovative products sustainable. However, companies should identify the key barriers that prevent networks for discontinuous innovation and presents specific strategies that can stimulate the adaptation process for new products. In order to build synergy among the growth of innovation and technology approaches, and diffusion of innovation strategies, companies may face various challenges, including finding the right partners to engage with, forming relationships with consumers, and then building high-performing innovation dissemination networks (Birkinshaw, Bessant, and Delbridge 2007).
Marketing innovative products and technology solutions along with a bundle of services is a priority in today’s increasingly competitive markets. Companies, however, are not always structured and capable of making such integration in their products and services offerings in the market to gain competitive advantage. Thus, most companies prefer to engage in price competition rather than delivering customer value through integrated products and services. Knowledge and competencies of the company are intangible factors to harness consumer value. Multinational companies like GE Healthcare, Best Buy, and AT&T, have restructured themselves around customer need to deliver customer-focused solutions by information sharing, division of labor, and value-based decision making. Customer-centric companies, such as Cisco Systems, have developed customer satisfaction matrix and laid policies that support incentives in rewarding customer-focused cooperation. Delivering customer-focused solutions requires a mix of employees in an organization to be generalists, instead of specialists. The customer-focused solutions team requires experience with more than one product or service, a deep knowledge of customer needs, and the ability to traverse internal boundaries. By combining the aforementioned attributes companies, we can create cost-effective high-value solutions and stand out in a competitive market (Gulati 2007).
The benefits of customer-centric management include increasing efficiency and effectiveness in maintaining current customers rather than prospecting new customers, and improved competitive advantage. The consumer benefits through consumer learning in such situations can be stored, processed, and retrieved to use in subsequent situations. This leads to an ability to manage future decisions based on simplifying problem-solving situations and reducing risk (Sharma and Seth 1997). Market orientation strategy and customer-centric marketing approaches together have a significant impact on the performance of new products and technologies of the company. Managers should integrate the market orientation and customer services strategies to enhance the customer value. One of the challenges for the dealer firms is to incorporate preferences of the customer into overall performance and services in order to maximize the customer value. An augmented and sustainable customer value builds loyalty toward the product and the brand.
Traditional approaches to innovation strategy of both SUEs and large companies assume that the world is relatively stable and predictable. But globalization, new technologies, and greater transparency have combined to overturn the business environment. Such shift in the business environment has generated more risk and vulnerability among companies in engaging with new innovative projects. Hence, managers are increasingly finding the need to develop organizational capabilities to foster competitive advantage rapidly for encouraging adaptation to innovations among consumers. Instead of frequently innovating a new product that could overlap with the previous products of the company launched in the short span, they should explore prospective innovation partners who could take the responsibility of developing and implementing the consumer information strategies. Companies should also be good at learning how to co-create new things by earning the confidence of market players like business partners, distributors, retailers, and consumers. Companies that thrive to follow the integrate innovation strategies as discussed earlier can alter the consumer behavior quickly and manage the market demand. In order to achieve a sustainable market for innovative products, companies need to experiment rapidly and frequently not only with products and services, but also with business models, processes, and strategies. It is also necessary for the innovation-driven companies to acquire the skills to manage complex multistakeholder systems in an increasingly interconnected world of consumers (Reeves and Deimler 2011).
Customer needs should be appraised continuously by the managers, and appropriate changes should be proposed in a timely manner, which would help in improving market effectiveness, services efficiency, and dealer performance. It is commonly perceived by the marketing managers that a market-oriented campaign is expensive, but actually, it can lower operating costs and increase market share, yielding high sales. It is more profitable for a technology-marketing firm to establish long-term customer relationships than to adopt a short-term transaction-oriented approach. The customer-centric strategies in a firm should go beyond customer relationship and cater to cross-functional integration of processes, people, operations, and marketing capabilities, which is enabled through information, technology, and applications (Payne and Frow 2005).
Implementation of effective customer-centric strategies by the technology-marketing firms results in developing TIC effect among consumers. TIC effect is comprised with three cognitive factors, including trust, involvement, and commitment, thereby driving consumer behavior in a given marketplace. In a retail environment, trust may be understood as a concept that is often related to a customer’s willingness to rely upon technology-marketing firm’s services quality and customer relations. This concept represents quality in the sense that it helps to reduce uncertainty in complex consumer-retailer relationships (Bruhn 2003). Consumers’ involvement with the technology-marketing firm, store brand, and promotions develop loyalty in the long run. When consumers feel satisfaction having their association with the retail brand, their sense of commitment and involvement is enhanced. Higher levels of involvement lead to greater levels of consumer loyalty and a lower need for scarce marketing resources. Hence, involvement does play a significant moderating role, and in most cases, the relationships with the technology-marketing firms and their store brands are stronger for consumers with higher involvement (Baker, Cronin, and Hopkins 2009). Commitment as a concept is closely associated with the customer relationship strategy, where two parties lean toward loyalty and show stability to each other. A common opinion is that customer commitment only relates to a seller or a relationship with a seller. It is also observed that a high commitment level might be seen as an important emotional barrier in switching behavior (Hulten 2007). Customer relationships with retailers are dependent on specific cultural contexts, in which buyers and sellers interact, and the type of relationship developed over the period determines the strength of commitment.
Large innovation-led companies associating their innovation process with the SUEs serve customers through a broad array of interfaces, from retail sales customer relations team to website teams managing voice-response telephone systems to educate consumers on innovations as well as to resolve their problems. However, typical companies believe in investing on various consumer interface tools, but might not use any impressive interface collections due to weak interface system that requires upgrading skills of employees managing such interfaces. Most companies have the impression that smaller set of people and too many machines operating with insufficient coordination tend to raise complexity, costs, and customer dissatisfaction. Such corporate beliefs are turned wrong with the experience of automobile companies despite the plant and process automation, as the employees work with clear division of labor. In a world where companies compete not on what they sell, but on how they sell it, they could easily establish their innovation, brand, services, and customer relations despite the odds in market competition (Rayport and Jaworski 2004).
As consumer goods manufacturing companies and technology marketing channels tailor their value propositions to better address customer needs beyond product specifications and to better align their cost of sales and fulfillment relative to those needs, go-to-market (GTM) strategy plays a central role. To compensate for less-frequent product launches and a focus on integrated solutions rather than specific products, Microsoft now organizes its marketing efforts around annual GTM campaigns. GTM strategies focus Microsoft and its partners on short-term strategic challenges and provide consistent marketing approaches for most of its business products. GTM strategies address the lack of new product releases on which to hang marketing campaigns by identifying a strategic issue facing Microsoft and constructing a framework for addressing it with broad-reach advertising, sales tools for partners and the Microsoft field sales force, and customer and partner incentives. There are as many as 11 determinants of the consumer behavior that influence in buying process. These factors include economic, relational, and personality-led factors that affect the consumer psychology in making buying decisions, getting associated with the product and developing loyalty toward the product, brand, or a retail store.
Customer satisfaction is perceived to be a key driver of long-term relationships between retailer and customers, especially when customers are well-acquainted with products and markets, and when industries are highly competitive. Technology-marketing efficiency is one of the principal factors, which influences customer satisfaction in a business-to-consumer and consumer-to-consumer context. This would help in building customer–retailer dyadic relationship. The key services indicators, which include effective communication, cross-functional teams, and supplier integration, are followed to develop long-term relationships. Customer satisfaction has long been considered a milestone in the path toward profitability of technology marketing firms. It is widely acknowledged that satisfaction leads to higher market share and stable revenues, while relationship between customer satisfaction levels and quality of customer services influence acquisition of new customers (Rajagopal 2010). High-technology products sales are positively associated with the performance of retailers and distributors in terms of customer service quality, growth in sales, and increase in market share. Manufacturing and services elasticity are widely recognized as critical components in achieving competitive advantage in the marketplace and improving corporate reputation to augment customer value without escalating costs and time overrun.
The need for the competitively advantageous strategies may further be justified, as a large number of firms are increasingly productive in reference to the rapid diffusion of the technologies. The customers’ bargaining power also works out to be an instrument to either broaden or narrow the differences between the competitors. The companies that use intermediaries are often encountered with the task of balancing the power of distribution and delivery of services. In consumer markets, the retail trade is forcing major concessions on the multinational brands. Such strategies hold the access to the retail network through a long chain of channels. Conventionally, the choice of appropriate scale in business and scope thereof were guided by the concepts of the bigger is better and umbrella control of activities. In the current era of globalization, the decentralization of activities and production sharing have become more effective tools in marketing. The profit center approach (PCA), control circles, and total quality management practices have endorsed the success of small integrated units operating in a well-defined market. In view to promote the PCA concepts and maintain the control circles, large companies are increasingly creating the autonomous, small, and entrepreneurial units to find responsive solutions to the customer problems in the well-defined market niches (Frederick 1989). Corporate structures are changing in order to accommodate the concept of PCA and control circles and are exploring for the long-term advantages by way of heavy investment to develop the core competencies.
The technological changes are the main impetus behind new market opportunities. The extent of such change may be explained from super technologies to the appropriate and intermediate technologies. The strategic choices have wide-ranging ripple effects through the organization that determine the key success factors and growth performance. Some companies would be making right strategic choices by improving the implementation process of competitive advantages. These companies are guided by the shared strategic vision and are driven by the responsive attitude toward the market requirements. They emphasize the continuous strive to satisfy the customers. A strategic vision in managing markets may be understood as the guiding theme that explains the nature of business and the future projections thereof. These projections or business intentions depend on the collective analysis of the environment that determines the need for the new developments or diversifications. The vision should be commissioned on a concrete understanding of the business and the ability to foresee the impact of market forces on the growth of business. The vision will motivate the organization for collaborative business planning and implementation. The powerful visions are also the statements of intent that create an obsession with winning throughout the organization (Day 1990).
Product strategies specify the market needs that may be served by different product offerings. The product strategies of the company are duly related to market strategies that eventually come to dominate both the overall strategy and the spirit of the company. Product strategies deal with matters such as the number and diversity of products, product innovations, product scope, and product design. In many companies, to achieve proper coordination among diverse business units, product strategy decisions are made by the top management. In some companies, the overall scope of product strategy is laid out at the corporate level, whereas the actual design is left to business units. Such alternative is more desirable than other arrangements because it is difficult for the top management to deal with the details of product strategy in a diverse company.
Each strategy is examined from the point of view of a business unit or profit center. The term positioning refers to placing a brand in that part of the market where it will receive a favorable reception compared to competing products. Because the market is heterogeneous, one brand cannot make an impact on the entire market. As a matter of strategy, therefore, a product should be matched with the consumer segment of the market in which it is most likely to succeed. The product should be positioned so that it stands apart from the competing brands. Positioning tells what the product stands for, what it is, and how customers should evaluate it. Positioning is achieved by using marketing mix variables, especially design and communication. Although differentiation through positioning is more visible in consumer goods, it is equally true of industrial goods. With some products, positioning can be achieved on the basis of tangible differences (e.g., product features); with many others, intangibles are used to differentiate and position products.
Product choice among consumers will be difficult when products have marginal differentiation in reference to attributes, price, and use value as compared to the competing products available in the market. Hence, many manufacturing and technology-marketing firms provide default options to consumers in order to make their buying process easy. Well-designed defaults benefit both company and consumer, simplifying the buying-decision process of consumers, enhancing the level of satisfaction, reducing risk in purchases, and driving profitable purchases. On the contrary, misconceived options to choose products can leave money on the table, fuel consumer backlashes, put customers at risk, and trigger lawsuits costing companies dearly (Goldstein et al. 2008). As the competition among the companies manufacturing consumer goods and the number of routes to market are increasing, customers today are being forced with an overwhelming array of choices. Thus, companies should stop creating new brands and product extensions to alleviate customer frustration and consolidate product and service functions by following a four R approach, comprising replace, repackage, reposition, and replenish. In the race of acquiring and retaining strategies tested by the companies, customers are rapidly becoming smarter than the companies that pretend to serve them (Locke 2000). The desired position for a product may be determined using the following procedure:
Analyze product attributes that are salient to customers.
Examine the distribution of these attributes among different market segments.
Determine the optimal position for the product with regard to each attribute, taking into consideration the positions occupied by the existing brands.
Choose an overall position for the product (based on the overall match between product attributes and their distribution in the population and the positions of the existing brands).
Companies of consumer and industrial goods seek competitive distinction through product features—some visually or measurably identifiable, some cosmetically implied, and some rhetorically claimed by reference to real or suggested hidden attributes that promise results or values different from those of competitors’ products. The offered product is differentiated, though the generic product is identical.
Macro-and Microeconomic Factors
The analysis of factors of production is an important consideration in international marketing to optimize the comparative advantages over natural resources, labor, capital, and entrepreneurship. Entrepreneurs, thus, play an important role in enabling the economy to adapt to the changing conditions and to new possibilities for material improvements, by creating new production organizations, and even to whole new industries. Because of its essential role in initiating the process of production, entrepreneurship is identified by some economists as a “fourth factor of production,” alongside land, labor, and capital. It may, thus, be explained that higher the productivity of a factor of production, higher may be the income for the company. On the other hand, anything that rises above the expected levels of productivity within a society is responsible for increase in the overall prosperity of the society.
The price indicators in the international markets broadly include export and import price indexes, consumer prices, wholesale prices, and industrial producer prices. The export and import price indexes can be used to determine the impact of exchange rate movements on the prices of exports and imports. International price data have been useful for both multilateral and bilateral trade agreements, as often the countries utilize them to negotiate trade agreements for some of the important industrial and consumer products, such as construction material, plantation crop products like tea and coffee, cotton textiles, oil, airfreight services, and so on. A primary reason for measuring import prices is to track the impact they have on domestic inflation. The movement in import prices can often be an indicator of future inflation since some inputs to domestic production and consumption are imported. Export and import price indexes are essential for assessing the impact of international trade on the domestic economy. Some of their most important uses are analyzing developments in the trade balance, measuring domestic inflation, and deflating nominal values of exports and imports for estimating the volume of gross domestic product (GDP). The Producer Price Index (PPI) is a family of indexes that measures the average change over time in selling prices received by the domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI) that measures price change from the purchaser’s perspective. Sellers’ and purchasers’ prices may differ due to government subsidies, sales and excise taxes, and distribution costs. It is difficult for a marketer to access information about, and review all these indicators from, each country. However, at any given time, the choice of economic indicators may be identified to determine the entry strategies of a firm. These indicators may reflect on the marketer’s domestic operations and the potential business in the host country.
Economic development is directly proportional to the educational and training facilities available in the country. Human resources are not only producers of goods and services, but also their consumers, they play a multifold role in economic development. Economic advancement is characterized by the following factors:
Allocation of labor force to agriculture
Energy available in large amounts at low cost per unit
High level of GDP and income
High levels of per capita consumption
Relatively low rates of population growth
Complex modern facilities for transportation, communication, and exchange
Substantial amount of capital for investment
Urbanization based on production as well as exchange
Diversified manufacturing that accounts for an important share of the labor force
Technology that includes ample media and methods for experiment
These factors may be utilized to examine economic standing of the host country, and an analysis of a large variety of information on these variables may help to categorize the countries on an economic development scale. Besides, many historical, geographic, political, and cultural factors are intimately related to the economic well-being of a nation. Companies moving their production and business operations to the new destinations should meticulously review the macroeconomic conditions and analyze the correlations among the various macroeconomic indicators to take an appropriate decision.
A careful analysis of a microenvironment indicates whether a company can successfully enter a specific market. It can be stated that prosperity of a nation depends on the productivity with which it uses its human capital and natural resources. It is manifested in the way a nation’s firms compete. Productivity, in turn, is a function of the interplay of many factors, including political, legal and macroeconomic context; the quality of the microeconomic business environment; and the sophistication of company operations and strategy. Together they determine the capacity of a nation to create internationally competitive firms and support rising the prosperity. A context that continuously creates pressure for firms to upgrade the source and sophistication of their advantage, and at the same time, supports the upgrading process is a favorable microeconomic context. Pressure for upgrading is applied by demand conditions featuring sophisticated and demanding customers, whose demands spur the local firms to innovate in order to upgrade their product or service offerings. Particularly valuable is the pressure from local customers who anticipate the nature of demand elsewhere in the world. Different competitors, however, might aim to satisfy three different types of demand—existing, latent, or incipient. Existing demand refers to a product bought to satisfy a recognized need. Latent demand applies in a situation where a particular need has been recognized, but no products have been offered, while incipient demand describes a projected need that will emerge when customers become aware of it sometime in the future.
Many companies would be engaged in the market operations in such market, selling competitive products with marginal differentiation that trigger high substitution effect and increase the bargaining power of consumers toward product preferences in reference to price and promotion. One of the procompany demand situations present in the markets is latent demand when the demand for the products exists, but the products are not available. Companies can take advantage of markets in such destination and enjoy near-monopoly for a short period, as it takes time for the local competition to emerge. Companies can use this near-monopoly market situation to architect brand and set price levels, and deliver adequate customer value to generate the brand loyalty. Most companies exploiting the latent demand realize the first mover advantages and attain market leadership. Companies engaged in manufacturing and marketing of high technology and high-value products often need to create demand by educating the consumers on the prescribed and perceived use values of their products and services. Such demand situation is explained as incipient demand. In the incipient demand, though companies enjoy near-monopoly situation for a short period, the market share grows slowly, as most consumers respond slowly to the experimental products. However, in both latent and incipient demand situations, there is threat of emergence of disruptive technology and products that target to attack the market share of these companies.
In making decision on commercializing the innovations, companies generally carry benefit–cost analysis (BCA) if they feel that the advantages of a particular action are likely to outweigh its drawbacks. In the public arena, formal BCA is sometimes a controversial technique for thoroughly and consistently evaluating the pros and cons associated with prospective policy changes. Specifically, it is an attempt to identify and express in dollar terms, all of the effects of proposed government policies or projects. Benefits in a market are measured by the propensity of consumers to pay for the product and services of the firm. The proper calculation of costs is the amount of compensation required to exactly offset negative consequences. The growing market dynamism, innovation, and technologies have posed new challenges toward the competitive advantage and sustainability of companies in reference to improving productivity, quality, and speed, benchmarking, and reengineering of manufacturing and business processes. As a result, dramatic operational improvements have taken place, but these gains have rarely translated into sustainable profitability. And gradually, the tools have substituted strategy to achieve the competitive advantage by undertaking the careful analysis of the microeconomic environment in the host country. A company’s profitability depends partly on the structure of the industry in which it competes. Industry structure resides in five basic forces of competing: the intensity of rivalry among the existing competitors, the threat of new entrants, the threat of substitute products or services, the bargaining power of suppliers, and the bargaining power of buyers. Industry structure is relatively stable, but industries are sometimes transformed by changes in buyer needs, regulation, or technology. Companies can shape the industry structure rather than passively react to it. Many factors determine the nature of competition, including rivals, the economics of particular industries, new entrants, the bargaining power of customers and suppliers, and the threat of substitute services or products. A strategic plan of action based on this might include: positioning the company so that its capabilities provide the best defense against the competitive forces, influencing the balance of forces through strategic moves, and anticipating shifts in the factors underlying competitive forces (Rajagopal 2016).
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