Breakthroughs in Innovative Business Projects
Overview
Breakthrough innovations are not just steady improvements projects in business operations. They can destroy competitors and shake up an entire industry. Upon observing the breakthrough dynamics of some large companies such as Dell, Toyota, and Wal-Mart, some companies have made serious attempts toward developing more sustainable business projects and achieve operational excellence over the competing companies. Corporate success depends on breaking through the clutter of market information, and competitive intervention by conducting meticulously the marketing research facing consumers in the marketplace. As the competition is growing continuously in the global market, the risk on traditional decision-making tools and techniques are also in jeopardy. Many local companies are working with low-cost business innovation projects with wide outreach of results posing serious threats to the large companies. This chapter discusses the role of reverse innovation and customer-centric business projects in building competitive postures of companies in a bottom-up business paradigm. The discussions on approaches for cost-effective project planning, managing technology breakthroughs, and running real-time business projects to gain competitive advantage in the marketplace are other significant contributions of this chapter.
Innovation Trends and Taxonomy
Innovation is the critical dimension of economic change in a macro perspective and business growth within the micro perspective. At a macro level, economic change revolves around innovation and catalyzes entrepreneurial activities that lead to drive market power. As the market competition is continuously increasing in the global marketplace, innovation-driven market power could provide better results than conventional wisdom, such as price and promotion competition. Alongside product design and strategy innovation, technological innovation often creates ad hoc monopolies in the market, allowing abnormal profits in a short life cycle. Such temporary monopolies are sometimes necessary to provide incentives for firms to develop new products and processes (Pol and Carroll 2006).
Globalization has opened many sources of growth to the firms operating in mature markets, which has stimulated them to launch unique, superior products with a compelling value proposition to gain competitive advantage. However, few companies bring their bold innovation to the market, while improvements and modifications to existing products are taken up by most of the firms. Improvement in the existing products and services is not innovation as such change serves the firm to only maintain the existing market share, rather than grow the business. Innovations can be successful if the following strategies are meticulously adopted by firms (Cooper 2012):
Linking innovation strategy with the development efforts by exploring opportunities in potential markets as Apple managed its innovation of iPhone and iPad,
Nurturing the right workplace ambience and culture for innovation under the leadership of senior executives, as found at General Electric Company and 3M,
Setting up the stage for seeding proactive ideas, carrying them through a system of innovation evolution as Swarovski and Swatch built their market through continuous efforts on innovation and branding, and
Stepping into the idea launch process and managing the large and complex processes of driving an innovation to market.
The sources of innovation have become dispersed as the market is turning increasingly demanding and the users have formed their niche. Accordingly, innovation has shifted from technology to business models and is more focused on marketing than the social needs. Many innovations are emerging in the market that is simplified or is scaling down on improving the existing products or services and positioning them as innovations. However, managers may align their business strategies with competitive advantages of markets and manage innovation in emerging economies to diffuse and commercialize (De Meyer 2011). Traditionally, positioning innovation of products and services makes a company competitive is a myth in the present state of global marketing. Thus, firms continually reinvent in large and small ways in reference to shifts in market demand and changes in the economy, and develop competitive marketing strategy in reference to shifts in the product and market behavior, knowledge of innovative products, and innovation positions. Though the firms may develop efficiency with regard to the aforementioned strategic positions of product/market, knowledge, and innovation independently, they are still risk averse with innovation (McDonough et al. 2008).
Successful innovation leads to customer involvement and profits, which can be achieved through co-creation by aligning consumers and market players in the innovation process. Some multinational companies have invested resources taking advantage of social media to diffuse new ideas and stimulating co-creation of innovative products and services. For many companies, developing new products does not occur as a chance or coincidence, but innovative products emerge through careful attention to many important criteria. Firms should analyze their innovation practices and capabilities to become more effective in driving innovation as breakthrough and gain the competitive advantage. The contribution of employees toward innovation in products, services, or strategy signifies the value and quality of innovation portfolio of an organization and projects the innovation effectiveness curve of the company (Kandybin 2009). Firms may involve in the innovation process routinely by understanding various perspectives in generating and managing innovative ideas.
Breakthrough innovations in markets are a continuous process, which is backed by the distribution, retailing, and services industry. Innovations leading to commercial breakthroughs demonstrate a highly skewed distribution of use value of inventions explaining that some are useless, a few are of moderate value, and there is rarely one that qualifies as a breakthrough. Those breakthroughs embed the long tail of innovation, and distribution plays a key role in the breakthrough process. It is necessary for the firms to account for the total number of inventions a company generates, the average score of the inventions, and track the number of successful breakthrough inventions. Such corporate awareness may help in developing strategic balance between individual innovation workers and teams. Greater team diversity stimulates building higher involvement in working with breakthrough innovations. Thus, it is the first and foremost requirement for the companies to introspect within the organization and identify how they want to improve their innovation process, take appropriate measures to drive the innovative products and services as breakthrough, and contrary to that address any deficiencies in the process. Such dynamism in innovation process would allow the companies to improve their competencies and capabilities to innovate in ways that make the best sense for the organization and market (Fleming 2007).
Innovation and enterprise integration are two compelling sources of growth in a dynamic competitive marketplace. The ability to coordinate across organizational boundaries largely appears as a critical factor in determining the speed and life cycle of market-driven innovation. Innovations need to be integrated into the larger operations of the corporation at a sufficient level of scale to show a prolific impact on business and sustainability in the marketplace. Many large businesses spend resources on innovations but fail to capitalize on them. However, some organizations use innovations to optimize local operations than integrating them to create consumer value and corporate image. Large organizations spread the innovation tasks among two groups comprising innovation facilities group (IFG) and an innovation assimilation group. The IFG members provide organizational support on the techniques to carry out innovations and applications for the new technology. Firms also engage the IFG to explore new developments in the marketplace on concept, prototypes, or breakthrough of the innovation and impart expert services for in-house initiatives to nurture the innovation within the organization. The innovation assimilation group acts as policy support unit to drive innovation to market. The members of this team provide resources to launch innovation and integrate operations into the business model of the firm. Firms need these support teams to diffuse innovation and grow (Cash, Earl, and Morison 2008).
A variety of innovations are driven by firms in the global marketplace. Innovations are not limited to consumer-centric or market-oriented products and services. Categorically, most of the large firms possess trajectories of innovation and technological change in reference to the consumer requirements (Pavitt 1998). While the market today is very unpredictable, small firms are thrusting more resources to increase innovation to compete with the large industries and commercial brands. Hence, both “invention” and “innovation” are rampant in the competitive marketplace. There are many types of products and services innovations, some of which are listed as follows:
Incremental innovation
Ambidextrous innovation
Process innovation
Red ocean innovation by discovering needs in the known marketplace
Blue ocean innovation by discovering the needs in the unknown marketplace
Services innovations
Business model innovation
Sustainable innovation
Frugal innovation by doing more with less resources, which can also be determined as a low-cost innovation
Radical innovation
User-driven innovation or consumer-centric innovation
Open-market innovation or crowdsourcing innovation
Experience-led innovation
Grapevine innovation, which is based on the collective insights acquired through social media and community networks
Disruptive innovation
Supply chain-led innovation
Random innovation
Reverse innovation or trickle-up innovation, which is back to history to review the first innovation to drive the innovation idea and process
High active innovation, which is derived from the current and active lifestyle
Passive innovation, which is yet to acquire market value as well as social acceptance
Derived innovation, which is emerging as a subsystem innovation of another existing innovation.
User-driven innovation conforms to the consumers’ needs and helps them realize its value at relatively lower costs. Accordingly, firms can “refresh” innovation policy to embrace user-driven innovation and encourage user-driven innovation against high-cost complex market innovations (Martin and Milway 2012). Firms in many industries are under immense pressure to improve their ability to innovate consumer-centric products and services. However, managers know that the best ideas aren’t always coming out of their own research and development laboratory. Hence, a growing number of companies are exploring the idea of open-market innovation, an approach that uses tools such as licensing, joint ventures, and strategic alliances to bring the benefits of free trade to the flow of new ideas (Rigby and Zook 2001). Disruptive innovation is linked to reverse innovation that drives the firms back to the consumers’ buying behavior in reference to 4As paradigm comprising awareness, acceptability, adaptability, and affordability. Reverse innovation refers to developing ideas in an emerging market and persuading them in the existing markets, which drives tough challenges. Such innovation requires a company to overcome the institutionalized thinking that guides its actions and acquires ideas through the social media. Firms following reverse innovation develop a radically simpler and cheaper way of creating products in emerging markets and then position them in the desired consumer segments ( Govindarajan 2012).
Reverse Innovation Business Projects
Deriving innovation ideas from consumer-driven resources to mass customization and global marketing has become the current trend among innovation companies. Customer-centric innovations are largely developed by start-up enterprises analyzing the customer needs within the niche market. Most of the innovations positioned in the premier niche markets are of high quality and high cost, while the innovations targeted toward mass consumers in the local niche are of acceptable quality and deliver value for money. The two factors—cost and marketability—drive the strategy of reverse innovation. Large companies, thus, roll over to the local markets to identify customer-centric innovations developed by the local enterprises and tend to evaluate the economics of their business projects. When a company with the capability of sponsoring the reverse innovation investigates a new product opportunity, it not only defines the problem to which an innovation serves as a solution but also lists the requirements that are needed for commercializing the innovation. The sponsor companies will then develop ways to dictate a viable solution for wider markets independently from the company’s existing lines of similar products to target the adopted reverse innovation in a mass market. Reverse innovation helps companies penetrate the emerging markets or aim to realize opportunities to create high-performance, high-value products, and service at low cost and affordable prices that appeal to consumers with low per capita income. The primary challenge to developing innovations for emerging markets and catering to the customers therein is delivering solutions of adequate quality at a competitive price for the masses.
International innovation companies need to segment their markets—upstream and mass—that fit into the innovation attributes exhibiting the price, value for money, perceived value, performance, and product life cycle, Companies may have to deliver high performance of their products in Western markets equivalents with high price, while the reverse innovation offers the opportunity for companies to enter into emerging markets with the same corporate and extended brand strength. Determining the performance required by a technology as in the case of generic two-wheeler motorbike engines in reference to emissions reduction and longevity of engine life at the price at which it will be adopted is the critical first step in creating products for emerging markets. The commercialization of reverse innovation often gives a radical push to the product, company, and industry as well. Commercializing reverse innovation is a disruptive leap to hit a product in the target market and it demands to develop organizational insight into how a new product could drive an impact in an emerging market. A product that delivers significantly more performance at a lower price may become the basis for a new product platform, which can have features added or removed to adjust its price and performance to the specific needs of wealthy or poor markets, makes the reverse innovation management a success. GE Healthcare has demonstrated this idea with the customization of its low-cost ultrasound and electrocardiogram machines, which started as emerging market products and then evolved into valuable devices for North America and Europe. Companies can envision the process of engineering reverse innovations before any metal is cut, plastic is molded, or prototypes made. The reverse innovation products move slow in the adaptation process in the nonfamiliar consumer segments and also face price constraints in the market. However, based on the solutions that existing technologies provide, companies can envision the reverse innovation to derive the global product line around a new technology platform by using benchmarks of other products in the marketplace to analyze the possibilities of outwitting, outperforming, and outmaneuvering competitors, while delivering the low-cost and better-performing solutions to consumers. By scoping out onto the worldwide market opportunities, and understanding the probable constraints in marketing the products across market segments and destinations, companies can engineer reverse innovations to mark impact on markets and consumers in the global marketplace (Winter and Govindarajan 2015). The process of reverse innovation is illustrated in Figure 3.1.
Figure 3.1 exhibits reverse innovation as a process of co-creation and co-designing of innovations at local markets under the aegis of international companies. Reverse innovation offers scope to the experience, the innovation concept, process, and deliverables in the niche markets and scale them up for a wider market beyond the emerging markets. The start-up enterprises managing innovation need for the relatively smaller geodemographic segments and at the bottom of the pyramid may throw up immense challenges for commercializing the innovations in the international markets. However, it requires a company to follow the institutionalized thinking that guides its actions in the global marketplace. The reverse innovations that are adopted by the sponsor companies need to make design adjustments, and fabricate for the mass consumers in the global markets in a radically simpler and cheaper way to serve the customer with high perceived value. Companies can develop new products in emerging markets by using a radical change from below (generic innovation design) combined with smart leadership from top (up-market strategy). The small start-up enterprises may set audacious goals to match with the new organizational structure of sponsors, and adopt new design and commercialization methods. However, the start-up enterprises may also nurture the reverse innovation provided they could arrange adequate resources to upscale the innovation by shifting the gravity of business beyond emerging markets (Govindarajan 2012).
Figure 3.1 Attributes of the reverse innovation process
Most international companies are engaging in managing the reverse innovation for global markets, in which products are designed first for consumers in low-income countries and then adapted into disruptive offerings for developed economies. But only a handful of companies have managed to do it successfully until now. International companies usually create products by following time-tested methods, struggle to overcome the constraints, and leverage the benefits of emerging markets. They tend to develop reverse innovations by matching market segments to existing products, lowering price by removing features, redesigning technical specification of generic products, and upholding stakeholders’ value, and creating scope for penetrating into low-income markets that could have global appeal. For example, a low-cost wheelchair initially designed in India for navigating through rugged terrain in places with poor infrastructure has been developed by a company for upstream markets upon modifying the design for Western markets, which could serve in the storm and snowfall (Winter and Govindarajan 2015). Reengineering reverse innovation process is discussed in the phases stated as follows:
Phase 1—Analyzing Local Innovation: In this phase, the local innovation is identified and its potential is analyzed from the perspectives of process improvement, deliverables, and potential for commercialization. In the initial look-up of the reverse innovation process, sponsor companies are focusing on developing products for the in-country market with mass production possibilities. The sponsors of reverse innovations also consider the “market-back” with a zero-based assessment of customer’s needs, rather than considering the demand benchmark of the generic product in the given market. Accordingly, the sponsor company adopting the reverse innovation would suggest necessary alterations to the products for up-scaling its production for the redefined market. As teams develop products for the local market, the company enables them to remain connected to, and to benefit from, global resource base.
Phase 2—Adopting Reverse Innovation: Once the generic innovation growing in the local market qualifies for upscaling model of the sponsor company, the adoption of reverse innovation from “in country–for country,” to “cross-country– cross-region” base. The sponsor companies complete the reverse innovation process by taking the innovations originally chartered for poor countries, adapting them, and scaling them up for global markets.
Phase 3—Design to Market: In this phase, reverse innovation sponsor companies modify the product design, improve its functionality to create higher customer value, and make efforts to lower the costs of production. This strategy would drive the product to be competitive in the regional or global marketplace. Accordingly, the companies focus on winning market share by adapting global offerings and also meet local needs to stay in the home market. Innovation still remains originally with home-country needs, but products and services are later modified to win in each market. However, to meet the budgets of customers at the bottom of the pyramid, they sometimes defeature existing products.
Phase 4—Up-scaling Innovation to Market: As the reverse innovations succeed in the test markets and are improved to gain higher customer values, the sponsor companies run the economies of scale on the reverse innovation projects and develop market for products and services around the world. Innovation that has commissioned at home is driven to the new offerings and distributed everywhere.
The fundamental driver of reverse innovation is the disposable income of consumers, consumer culture, cost of innovation, and the price of deliverable to the end-users. As the gap in the innovation process widens across the elements of innovations, the innovative products tend to fall off the market soon that shortens the product life cycle. There is no way to design a product for the American mass market and then simply adapt it for the Chinese or Indian mass market due the elements discussed before. Buyers in emerging markets, who are sensitive to price, demand solutions on an entirely different price–performance curve and turn loyal to the brand if the innovative products satisfy the needs, uphold the value for money, and offer competitive advantage. Consumers would demand new, high-tech solutions that deliver at low costs and match up to their personal standards of “good enough” quality. In fact, reverse innovation is not always a prolific solution for the large companies to boost their revenue and business growth. However, reverse innovation is bottom-up outcome of what consumers look for and, hence, embeds enormous potential for mass marketing. As the Darwinian effect in market evolution is seen in the global marketplace, multinational companies are trying to uncover remote niches of mass market and bottom-of-the-pyramid market segments, while local companies are seeking expansion. Reverse innovations will power the future of large companies (international) to reach consumers in the lesser-known markets. Hence, to stay noticed and sustain the market competition, multinational companies must adopt reverse innovation beyond their home.1 Successful and long-established multinational corporations, who are seeking explosive growth in emerging economies, must now learn new tricks in order to succeed. Reverse innovation directs them how to create innovation in the emerging markets and how such innovations can unlock opportunities throughout the world ( Govindarajan and Trimble 2012).
As information technology is growing manifold in this century, the innovations emerging from the start-up enterprises are receiving incredible boost through Internet-based design platforms. The customer-centric and business-to-business innovations today are being linked through the Internet for generating consumer knowledge and promoting the innovation at the convenience of consumers using digital communications. The social media platforms have enormously helped the start-up companies diffuse their innovation ideas, concepts, prototypes, and lead user experiences through the consumer and social networks such as Facebook and Twitter. Google has invested huge resources in creating its Internet-based operating platform and developing proprietary technology that allows the company to rapidly develop and roll out new services of its own or of its partners. In addition to technology, explicitly designed and built for innovation, Google has a well-considered organizational and cultural strategy that helps the company build strong and efficient work teams (Iyer and Davenport 2008).
Cost-Effective Projects
Cost management is the basic function of project managers and it needs to be carefully examined in the innovation projects by integrating the project plan with the scope, time, and risk factors associated with the project. The quality of the project is largely affected by the cost, time, task, and risk management functions. The variable costs need to be controlled at all stages of the life cycle of a project. The tasks on the work breakdown structure should be linked to the costs audit process in the project and project managers should apply necessary standards to measure the cost flows with appropriate checks and balances. The cost management function includes the processes required to maintain financial control of projects in reference to economic evaluation that initiates the project, estimating, organizing, controlling, analyzing, reporting, and forecasting, and taking the necessary corrective action. Each of the process levels may be required to be expanded into higher activity levels in the project (Georgas 1987). Project managers may consider the following approaches to manage the costs spread efficiently:
Cost estimation: Cost estimation in innovation projects needs to be done for budgeting and predicting costs of the tasks in a project over its life cycle. Project managers should develop the initial cost function chart, real-time spending evaluation, project investment, and cost forecasting. The economic evaluation is the initial planning phase to determine whether a project is economically viable and technically feasible. The cost efficiency in a project may be worked out in reference to the available funds and the schedule of expenditure in the project. It involves the assessment of “order of magnitude” estimates, project profitability, financing, and acceptance. The project investment cost leads to the prediction of future cost even though all the parameters are not fully defined at times during the life cycle of the project. Cost forecasting is the process of developing the future trends along with the assessment of probabilities, uncertainties, and inflation that could occur during the project. The combination of the cost estimation processes mentioned helps in predicting the future financial outcome for a successful project.
Cost budgeting: Estimating costs for the predetermined and contingency tasks is an essential process of the budgeting process and it needs to be followed within the organizational framework and standards. A right cost budgeting would help to allocate resource for the project appropriately and prompt an efficient monitoring system by which the investment cost of the project can be measured and managed. Project managers may discuss the draft budget and explain the process in the planning phase and later the project approval can be obtained. It includes all the accounting functions required to establish procedures and systems to monitor the project.
Cost controls: Although control is an integral part of project management, there are no common activities associated with each task. Hence, cost control measures are implemented to differentiate the cost implications for each task. The process of cost control includes gathering, pooling, analyzing, monitoring, reporting, and managing the costs at the various stages of the projects on an ongoing basis.
Cost applications: In this process, all the special applications of cost techniques that are not included in the other cost processes are incorporated. It also includes associated heads of costs that affect the available resources utilization in the project such as buying computer software and applications, asset value evaluation, buying data sets, or fee on information access and so on.
Most companies in the postliberalization period have focused on driving their business on the two business principles: enhancing the outreach of markets by increasing the market share and establishing leadership, and manufacturing on the economies of scale to stay price competitive in the international marketplace. Since the mid-20th century the protectionist barriers have reduced in developing countries, hence multinational corporations from North America, Western Europe, Japan, and South Korea have penetrated into these markets with innovative product portfolios as many local companies lost market share or sold off businesses. In fact, the innovations that emerged in the local markets have been redesigned to fit into the commercial scope and repositioned in the same markets by the multinational companies.
India’s Godrej Consumer Products, ITC, Mahindra and Mahindra as well as China’s Haier Group, and many other corporations in emerging markets are engaged in continuous innovation based on the customer needs. These companies also encourage start-up enterprises, sponsor amateur innovations, periodically restructure their businesses, exploit new opportunities, and build market products of high quality in the international markets. Such integrated approach to innovation and business provide the companies quick returns on their investments in the innovation projects by managing the consumer-cost-time-risk metrics appropriately. Some companies capitalize on local product markets and improve knowledge and skills at the bottom-of-the-pyramid innovations, and explore commercialization of reverse innovations that fits into the framework of upstream and mass markets in global marketplace. The American fast food chains have learned the taste of Hispanic consumers and made necessary improvements in their products to address the needs of the target market. These companies have adapted many features of fast food in Mexico by observing the innovations done in the traditional fast food chain “Hamburguesas Memorables.” This could also be cited as an example of reverse innovation and adopting cost-effective strategies in business. Many such companies have exploited the local innovation, talent, and capital markets, thereby serving customers both at home and abroad in a cost-effective manner. India’s software companies, for instance, recognized the possibility of providing services to overseas customers, which also served as a source to explore the native innovation ideas to map the reverse innovation on a broader canvas (Khanna and Palepu 2006).
The successful innovation companies not only manage low-cost innovation platforms but also develop flexibility and tactical approaches to explore the markets for their innovative products across the markets. The innovation companies tailor the innovation mix (4 Ps) along with the marketing mix (11 Ps). The innovation mix consists of product design, process design, production technology, and patrons of innovation, while the marketing mix spans over the product, price, place, promotion, packaging, pace (time), performance, people (frontline employees those interact with customers), psychodynamics, posture (image), and proliferation (diversification) of products and markets to drive next-generation markets. Cost management in innovation is reinforced in the innovation companies by experimenting and exploring the best fit of several characteristics of different market-oriented production chains. Most companies create cost-effective flexible networks by strategically configuring partially flexible innovation and marketing networks in a way that delivers almost all the benefits of building brand, profiteering, and generating stakeholder value (Tomlin 2014).
Cost management needs the innovation companies to develop a balanced budget for their projects and avoid overbudgeting on account of meeting probable risks. Companies can trace their problems back to the initial planning stages and reevaluate the financial health of the project before finalizing the budget. It is a common practice to keep the cost low by avoiding tasks overlap and building project inventory at initial costs without allocating budget for acquiring late inventories fearing cost escalations. In order to keep the low price of project deliverables, often, project managers underestimate the number of man-hours a project would take, which reduces the quality standards and market competitiveness of the deliverables. To stay cost-effective in innovation projects, managers should work out the unit costs before reaching the total cost estimation. For example, while developing a project proposal, managers should take extra care in estimating project hours for budgeting the staff costs and overheads. While planning the project budget, some space must be left with the project team for making adjustments in case the things go wrong or if the client pushes back and tries to reduce the project cost. However, cost-effectiveness does not mean to reduce the cost that could affect the project time, quality of deliverables, and marketability of the product. Project managers should not encourage budgeting for overtime payments to the staff as it pushes up the overhead costs and creates unhealthy workplace attitude among the team members. It is right for the project manager to make sure that that fewer hours may lead to an unfinished project and, over time, means high cost, which is difficult to recover in the market as the product does not stay price competitive. Earned value management (EVM) analysis is a much more effective method in drafting the right cost estimates. Cost-effectiveness may be built in the project by discouraging overestimations, completing tasks on schedule, and adhering to the approved project scope in order to maintain the completion dates, future team performance, and managing the end-user cost to innovation.
Many innovation projects use earned value analysis as a supplementary tool for project budgeting. Companies often treat new product development (NPD) as a cumbersome process, which can be divided into an early stage that focuses on evaluating prospects and eliminating bad costs, and a late stage that maximizes the market potential of the innovative products. Such strategy would help the project manager to reduce the cost in various stages of the project. In segmented NPD, however, the early-stage organization maintains loyalty to the experiment rather than the product, whereas the late-stage organization pursues commercial success (Bonabeau, Bodick, and Armstrong 2008). The EVM is considered as a process to measure, forecast, and ultimately improve performance. While earned value metrics are not overly complex, EVM suffers from a reputation of being strict and overly burdensome in its use. The benefits of EVM vary significantly across industries depending on norms, project types, contractual benefits, and many other variables. EVM uses earned value to measure, forecast, and improve project performance. It is a very good predictor based on past performance, because cumulative cost performance index (CPI) tends to stabilize once a project is partially complete, approximately to the extent of 20 percent (Fleming and Koppelman 2006). EVM is used to (a) measure, (b) forecast, and (c) improve project performance and regulate the resources flow by minimizing the costs in a project. It measures cost and schedule variances that manage the required and actual costs in a project. The innovation projects management companies today have also initiated business process outsourcing (BPO) as part of the effort to reduce costs and acquire new skills. The services marketing companies in the developed markets are classified as high performing and they deliver substantial long-term improvements by improving their operating efficiency and strategic performance (Lecity and Willcocks 2013). As the cost-effectiveness measures are implemented in the project assuring the quality and delivery of products, the innovation company would then be testing a few combinations of innovation– customer perception attributes to develop possible competitive combinations to drive the innovative product sustainable in the marketplace. The company can then analyze the experiment’s implications for its resources, revenues, and profitability by improving the experimental design techniques to test the company’s marketing campaign for the next-generation innovation (Almquist and Wyner 2001).
The project manager should keep a watch on project costs, and continually evaluate possible adjustments that can keep the project within the budgetary limits and ensure potential increase in its return on investment. Key stakeholders should also be encouraged to keep vigil on project cost to monitor that the product launch would not push up the costs in the marketplace, preventing the product from turning less price competitive. Many projects are for long term, and pass through several changes, thus facing price uncertainty of materials, tools, or applications. Projects are dynamic, not static, and the managers overseeing them must employ project cost management strategies with the flexibility to adapt to the changing circumstances. To address costs that threaten to rise beyond the initial projections, the project manager should consider how available resources can be reallocated. This can be a very useful cost management strategy that keeps the project on budget while addressing potential shortcomings. The ability to engage in creative, multilayered thinking is a key asset for the successful project manager and it is essential to effective project cost management strategies.
Customer-Centric Business Projects
Companies operating at the global scale are often concerned with the returns on product as it is one of the key performance indicators. However, measuring returns on products is a painful process, a cost center application, and an area of potential customer dissatisfaction. Many successful organizations have realized that an effective product development and returns strategy can be integrated to provide a number of benefits, such as improved customer service and customer knowledge, effective inventory management, and product positioning. Global manufacturing companies have established product development activities in different countries around the world constituting cross-functional teams to foster close collaboration among engineering, marketing, manufacturing, and supply chain functions. Such functional integration delivers customer-centric product designs, faster time to market, and lower cost of production. However, continuous growth and innovation can be more effective if manufacturing companies adapt to unified global product development operation. Consumers are the pivot of business and success of products, and services largely depend on the feedback of consumers. It is observed that with increasing usage of technology in marketing, direct feedback is making one-way communication of traditional advertising obsolete. Hence, development of new products has become a customer-centric subject than the choice of a manufacturer.
Ideation process for NPD is also effectively managed by the customer-centric companies through mapping the consumer perceptions about their needs and expected products. Perceptual mapping is one of the few marketing research techniques that provide direct input into the strategic marketing planning process. It allows senior marketing planners to take a broad view of the strengths and weaknesses of their product or service offerings relative to the strengths and weaknesses of their competition. It allows the marketing planner to view the customer and the competitor simultaneously in the same realm. Perceptual mapping and preference mapping techniques have been basic tools of the applied marketing research profession for over 20 years now. It is one of the few advanced multivariate techniques that have not suffered much from alternating waves of popularity and disfavor. Although these techniques have been used extensively over a large number of applied research studies, and for a very wide variety of product and service categories, and have been subjected to extensive validations, there still remain some very basic issues as to the procedure’s applicability and usefulness. In addition, there remain many outstanding issues concerning the proper procedures and algorithms that should be used for perceptual mapping.
Customer-centric approaches are practiced efficiently by the call centers to connect the customer issues with appropriate and interactive solutions. Call centers not only offer personalized attention to their problems but also help in building customer loyalty. Customers rely on call centers that have high-value workforce toward services scheduling methods such as queuing system models to achieve optimal performance. Most of these models assume a homogeneous population of servers, or at least a static service capacity per service agent. It is observed that a type of specialization minimizes the steady-state queue size and reduces time of customer services (Ryder, Ross, and Musacchio 2008). Measuring customer satisfaction leads to identifying ways to improve product and services quality of the firm, which in turn leads to increasing the company’s competitive advantage. Services-oriented distributors are applying various listening tools to obtain information about customers’ needs, preferences, and perceptions to manage effectively customer satisfaction measures (Maguire, Koh, and Huang 2006).
One of the highlights of the Six Sigma methodology is the definition of performance standards or service and performance measures of its processes. A performance measure must be flexible and able to adapt to any type of process, manufacturing, or servicing. Most of the metrics used in this methodology are based on possible defects or flaws in the process; however, there are some other metrics that require considering time (Abele 2011). The primary and critical metrics should be considered to measure corresponding performance in the product manufacturing process. Good manufacturing practices are, in general, a quality system (QS) that follows certain basic principles. These principles govern the manufacturing process, including the control and evaluation of process changes, the drafting of documentation, including instructions and procedures, the training of operators; the records of manufacture and distribution, and the handling of recall and complaint. Good manufacturing practices require setting QS regulation for developing a customer-centric product design.
In customer-centric companies, marketing decisions are held singularly accountable for the performance and results of the company realizing not only goals but also driving value among competing external stakeholders. Hence, growth-related business decisions are responsible for linking the inside to the outside considering the following tasks:
Defining the meaningful strategy inside: Such notion emphasizes that consumer is the king in business growth, and company may design and implement the competitive strategies by putting the consumer at the core of the process. The company may also lean toward setting up win–win partnerships with other market players such as retailers and suppliers.
Deciding core strategy: After a thorough analysis of market strengths, current competitive position, and structural conditions, the business strategies may be developed to grow from its core and also to focus more on low-income consumers and developing markets. Such insight would help in streamlining the strategy focus as where to compete and where not to compete.
Balancing present and future strategies: A firm may define realistic growth targets and use a flexible budgeting process with complementary short-term, mid-term, and long-term goals.
Customer-centric innovation projects aim at developing pro-customer strategies to focus on better ways of communicating value propositions and delivering the complete experience to real customers. Learning about customers and experimentation with different segmentations, value propositions, and effective delivery of services associate customer in business and help frontline employees acquire and retain customers with increasing satisfaction in sales and services of the firm. Successful customer-centric project can be developed by the companies by empowering consumers, educating consumers on market competition and attributes of competitors to enable the right decision making, getting customers to choose a particular business over its competitors, enunciating new market segments, and delivering an integrated experience on buying and consumption. Empowering stakeholders in customer-centric projects is a sociopsychological construct related to the individual’s perception with the societal framework to live with the new business models. Increasing competition in the global markets has pushed companies to stay customer-centric and consider improving the convenience to the customers as prime decision-making parameter. In general terms, increasing convenience is a way of raising consumers’ surplus provided new technology is adopted by the banks in order to offer convenience to the customers that may be through an electronic transaction as a substitute for a trip to the branch. Technology-based services imply different combinations of accessibility attributes (time, distance, and search costs), ease of use, and price. Another factor in determining the magnitude of the surplus that the bank can seize is the relative importance of cross-selling.
Innovation business projects can be successfully driven by the customer-centric deliverables approach, when they are communicated to the users in a right way at the right time. Marketing philosophy of firms has taken a turn from market-oriented to customer-centric strategy as the marketing competition is creeping over the years following the globalization moves. Marketers have been spending millions of dollars on elaborately conceived advertising campaigns, but often such campaigns do not drive the brands to be on the consumers’ top of the mind. A word-of-mouth recommendation from a trusted source is perceived to be more influential than corporate communication. Consumers attracted by the product campaigns may feel the taste of traditional marketing; however, a word of mouth cuts through the traditional advertisements quickly and makes a place in the consumers’ mind effectively. In general, word of mouth is something about how people react to variability in product and service performance within a niche. However, as the communication circles expand, the reach of informal communication enhances at various territorial levels. The customer acquisition, retention, and referrals are co-created by the consumers and market players associated with the company in the social media platforms. Communication delivered through such platforms explain that with better consumer perceptions on products and services, the buying decision would turn positive and more consumers would remain with the brand or market, which confirms the link between communication quality and customer satisfaction (Blenko, Rogers, and Mankins 2007). The power of word-of-mouth communication and its influence on consumer decision making is well established in various research studies. The recent adoption of online communication by many consumers has facilitated a fundamental change to the structure of many interpersonal interactions by exposing consumers to electronic word of mouth from virtual strangers. The emergence of the Internet and social networking has spawned an interest among consumer communities that help consumers in decision making (Steffes and Burgee 2009).
Profit-oriented customer-centric projects have an opportunity to collaborate with social networks to create new markets for reaching the four billion people who are not yet part of the world’s formal economy. The power of such collaborations lies in the complementary strengths of the partners, including scale of manufacturing, financing, and retailing. Social entrepreneurs offer lower costs, strong social networks, and deep insights into potential customers and communities, and set up hybrid value chain. 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 that is enabled through information, technology, and applications (Payne and Frow 2005). Implementation of effective customer-centric strategies by the retailing firms results in developing trust, involvement, and commitment (TIC) effect among consumers. The TIC effect comprises three cognitive factors, including TIC, 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 a retailing 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 retailing firm, store brand, and promotions develop loyalty in the long run. When consumers feel satisfaction over 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 retailing firms and their store brands are stronger for consumers with higher involvement (Baker, Gentry, and Rittenburg 2005). 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-centric projects realizing the power and the potential of social media for corporate life enable virtual collaboration in cross-functional projects through internal blogs, discussion boards, and YouTube channels. Such interactivity among the market players encourages global conversations and sharing of knowledge. Successful consumer companies engage in sophisticated virtual media campaigns to drive customers and create brand loyalty. Next-generation products are co-developed in open-innovation processes, and companies work on shaping their enterprise with Web 3.0 strategy. Online retailing and the digitization of merchandizing has changed the commercial landscape where virtual shelf space is infinite and consumers can search through innumerable options. Traditional marketing research methods such as test markets, focus groups, and controlled field experiments observe certain limitations. Some are vulnerable to observation and manipulation by competitors, while the virtual store not only addresses those limitations but also broadens the horizons of marketing research (Raymond 1996).
Most customer-centric companies that are continuously engaged in innovations for generating customer value try to increase customer loyalty, marketing efficiency, and brand performance by building communities on the virtual platforms around their brands. However, it appears to be a complex strategy as it is often difficult to understand what brand communities are required to drive the market share and how they work in an increasingly growing competition. The experience of Harley-Davidson Company about building customer value through the brand communities and offering design principles, cautionary tales, and new approaches to leveraging those communities has been very encouraging through the social media. Observing the success of customer-oriented companies in building brand communities, most managers think of using brand co-creation by managing the psychodynamism among consumers for developing an effective marketing strategy. In fact, for a community to have the greatest impact, it must be framed as a corporate strategy. Realizing this, Harley-Davidson, for example, redesigned every aspect of its organization to support building and maintaining its brand community and treated all community-related activities not just as marketing expenses but as a companywide investment. Internet and social media applications such as blogs, Facebook, Twitter, and related applications have significantly involved consumers in the process of brand building through participation of effective brand community members. The brand community members participate in order to fulfill many kinds of needs, such as building relationships, cultivating new interests, and contributing to society. Strong communities work to understand consumers’ needs and to engage participants by offering a variety of roles; however, brand communities must be tightly controlled. In reality, a robust community defies managerial control in the interest of the companies. Effective brand stewards can, however, create an environment in which a community can thrive by sharing multiple experiences that appeal to different audiences (Fourneir and Lee 2009).
The innovative products of contemporary generations are customer-centric based on the need and the demand pull. Hence, the second-generation products move faster in the market at relatively lower investment as compared to those of first generation. Some large firms employ substantial resources to conduct market research and analyze information to know the consumer needs and invite ideas to develop new product from consumers and market players. Firms with applied market research often skip the conventional first-generation process and begin innovation with the attributes of second generation. The progression of the management of new products from first-to fifth-generation processes reveals that the early models of the innovation paradigm are based on a simple linear technology push and need pull (Rothwell 1992).
Innovation Breakthrough Projects
Companies often explore innovation ideas either by activating the crowdsourcing tools, and outside-the-box thinking or by collecting information from the consumers in the existing market and financial data on innovations in reference to the cost and time. A major problem with the crowdsourcing of ideas is that few people are very good at unstructured, abstract brainstorming, but it is difficult for the project teams to ensure as how to fit these ideas into the canvas of economic viability, technological feasibility, marketability, product services, and customer value. The problems with the process of outside-the-box thinking are that databases are usually compiled to describe current market requirements and do not offer strategies for the next-generation products. Hence, there are possibilities that customers rarely come forward to express whether they need or want a product they have never seen. Such situation triggers creating demand for the innovation and would require more resources for the project and consume longer time, which at some point may also be risky as competitors may penetrate in the market with identical or similar products. The secret of new innovations is to generate lots of good ideas, whereas occasionally some great ones may appear simple and marketable. In doing so, it is necessary for the innovation companies to create new boxes for innovation players comprising consumers, trend gatekeepers, product critiques, researchers, and employees of the company, which could generate new ideas in the context of knowledge, skills, and previous experience (Coyne, Clifford, and Dye 2007).
Sustaining innovation is considered to be the key for a company’s long-term success; however, successful innovations are not very frequent. The innovation projects need excellent analytic skills and should have the potential to identify the solutions to the consumer problems. Such approach of innovation projects suggests to nurture customer-centric innovations. The innovation projects to be developed must be socially savvy to align with the consumers and markets. In managing reverse innovations, the right talent-management procedures can help in spotting potential innovators. Developing breakthrough innovations require appropriate mentoring and involvement of peer networks. Mentors provide motivations, set goals, develop entrepreneurial mindset, and resolve budget constraints in reference to the NPD or innovation projects. Peer networks provide a sense of solidarity and a uniquely fertile environment in which to exchange ideas, impart information, and instill hope among the members of the innovation project teams (Cohn, Katzenbach, and Vlak 2008).
Internet and the open innovation have significantly encouraged new ideas and solutions to spur the market for consumer convenience, satisfaction, and business performance of companies. The main challenge faced in managing innovation projects is toward taking advantage of the growing technology and developing convergence with the innovation business project. Innovation-led products in the marketplace should gain the first-mover advantage to survive the competition. An innovation company being first to launch a new product–technology convergence in the industry is relatively less important for an innovation-led product to survive than being first to envision its untapped market potential to enjoy the near monopoly and build its brand. Most companies focus on employing new technologies to better serve customers’ existing needs, while others strive to create products and services that will provide customers with a completely new reason to buy a product as innovative and unique. For example, Nintendo, with the Wii; Apple, with the iPod; and Swatch, with its fashionable and affordable watches provide the rationale of “innovation to market” (Verganti 2011). Commonly, the breakthroughs constitute the “long tail” of innovation. To launch a successful breakthrough, companies need to consider the total number of inventions a company develops in a financial year for different markets, average performance of inventions in the markets in terms of market share and profit contribution of innovative products, and the rate of success of breakthrough inventions measures through the customer values. Various factors that affect the deliverables of an innovation project include innovation alliances with other companies, the innovation team, diversity, and the degree of customization of the product to suit the consumer needs (Fleming 2007).
Most companies expect their product development teams to create breakthroughs in reference to new products that will allow the innovative products to grow rapidly in the target markets and maintain high market share, leading to higher profit contribution. The involvement of project teams in breakthroughs is expensive and time consuming. However, product line extensions can help the bottom line immediately to position an incremental innovation over the existing product. It has been observed that innovators are often not efficient marketers to achieve breakthroughs and it is required that innovation teams educate the marketing teams on the innovation-led products meticulously and educate them on product attributes, technology, lifecycle, functionality, and serviceability. By the mid-1990s, the lack of such a system was a problem even for an innovative company such as 3M. Then, a project team in 3M’s Medical-Surgical Markets Division became acquainted with a method for developing breakthrough products: the lead user process. The process is based on the fact that many commercially important products are initially thought of and even prototyped by “lead users”—companies, organizations, or individuals that are well ahead of market trends. Their needs are so far beyond those of the average user that lead users create innovations on their own that may later contribute to commercially attractive breakthroughs. The lead user process transforms the job of inventing breakthroughs into a systematic task of identifying lead users and learning from them (von Hippel, Thomke, and Sonnack 1999). Another example can be explained as the process of innovative new projects at General Electric (GE) Company to market as breakthrough innovation that would serve as the centerpiece of GE’s organic growth initiative. The breakthrough process follows the company as these changes are driven through the business units, focusing on GE Transportation as it launches a series of groundbreaking, green products from the Evolution Locomotive to the Hybrid Locomotive. The growth process transforms the culture within GE Transportation, leading to a redefinition of the marketing role, the implementation of a “growth leader” profile, and new decision-making processes to encourage innovation and risk (Bartlet, Hall, and Bennett 2007).
Innovations Projects and Butterfly Effects
Butterfly effect drives lesser time to market, wider outreach of changes, and shorter product life cycles for companies that are engaged in introducing new products more frequently. While new or competitively differentiated products can offer tremendous value, product introductions, and transitions pose enormous challenges to managers. One of the common problems in managing butterfly effects across the markets and consumer segments is consumer uncertainty in making the buying decisions toward the innovative products. Besides the consumer indecisiveness, lack of a formal process to guide managerial decisions also makes the companies suffer from marketing the differentiated products efficiently. However, there always exists the risks in managing the new products transition, and companies need to identify the factors across departments tracking those risks. It is also necessary for the companies to monitor the evolution of markets for the new products over time and develop consumer cognitive mapping scenarios of risks and responses. Such strategies help the company to monitor the new competitive products efficiently across the markets and reduce the chance and impact of unanticipated outcomes. This process also assists managers in designing and implementing appropriate policies to boost-up sales for new products and hold sales for existing products, balancing the supply and demand for both so that combined sales can grow smoothly (Erhun, Gonçalves, and Hopman 2007).
Product differentiation by adopting new technologies is difficult for some firms due to high cost involvement and low competencies in using the technologies for manufacturing at the economies of scale. The East-man Kodak Company filed the petition for solvency as it faced difficulties in growing along the streamline manufacturing and marketing while core business transitioned from an analog to a digital photographic equipment. Over more than a century, the company had developed the complex manufacturing process and high-speed coating technologies that offered the company a near-monopoly market situation till the mid-1980s. At the same time, the company had used high technology, which discouraged competitors to get into its market. Kodak faced a particularly challenging analog-to-digital transition, like many companies that have faced the waves of creative destruction wrought by technological innovation since 2010 (Shih 2012). The challenge that faced Kodak is the same challenge that companies like many photo and video equipment manufacturing are facing, and telecom equipment companies are experiencing the extreme changes in underlying technology since the mid-20th century.
It is observed that whenever product differentiations with new technologies emerge in the global marketplace, they drive butterfly effect and threaten many existing businesses. There appears a big dilemma among many companies whether to make a seamless transition to the change or to cordon their markets with the existing products and plunge into niche until they could develop the new business model to cope with the technology change and new manufacturing process. However, at times, both strategies may not sustain to compete with the change in the marketplace. It clearly indicates that managing transitions of technology, manufacturing process, and carrying out competitive differentiations in products and services is a complex phenomenon. However, companies may adapt to retrenchment to a niche of the traditional market, where the old technology has an advantage over the new one in addressing customer needs or relocate to a new market (Adner and Snow 2010). Any of these strategies need a company to demonstrate high competency in managing the transitional crisis and build capabilities to absorb the market shocks.
Most firms believe that competing through business models is critical for success, but developing appropriate business strategies to push technology and innovations through the business models is a difficult task. Technology firms focus on creating innovative models and evaluating their efficacy. However, the success or failure of a company’s business model depends largely on how it interacts with the players within the industry and the competitive marketplace. Any business model will perform efficiently in pure monopolistic or temporary monopolistic market conditions. As firms build technology and innovation-based products in isolation of market competition, they routinely deploy conventional business models. Moreover, many companies ignore the dynamic elements of business models and fail to realize that they can design business models to generate winner-takes-all effects similar to the network externalities that high-tech companies such as Microsoft, eBay, and Facebook often create. A good business model creates sustainable cycles that, over time, result in competitive advantage (Casadesus-Masanell and Ricart 2011).
The contemporary global business models explain that firms tend to structure themselves as one of four organizational types: international, multidomestic, global, and transnational. Depending on the type, a company’s assets and capabilities are either centralized or decentralized, knowledge is developed and diffused in either one direction or in many, and the importance of the overseas office to the home office varies. International marketing refers to exchanges across national boundaries for the satisfaction of human needs and wants. The various marketing functions coordinated and integrated across the multiple-country markets may be referred to as global marketing. The process of such integration may involve product standardization, uniform packaging, and homogeneity in brand architecture, identical brand names, synchronized product positioning, and commonality in communication strategies or well-coordinated sales campaigns across the markets of different countries. The term “global” does not convey the literal meaning of penetration into all countries of the world. However, it needs to be understood in relative sense and even a regionalization or operating in a cluster of countries may also be taken as a global operation in an applied perspective. The regional marketing efforts like Trans-Asian or Pan-European marketing operations may also be viewed as examples of global marketing. The suppliers of products ranging from Budweiser beer to BMW cars have been able to keep growing without succumbing to the pricing pressures of an intensely promotional environment. A strong brand also can open the door when growth depends on breaking into new markets. Starbucks Corporation (Khermouch 2002), among the fastest-growing brands, recently set up shop in Vienna, one of Europe’s cafe capitals, with many new stores planned for opening at overseas locations. The companies succeed in regional integration across multiple countries as they follow similar strategies and management principles.
The global corporation operates with staunch loyalty at relatively low costs with standardization. Coca-Cola and Pepsi-Cola companies have standardized their products globally according to the regional and ethnic preferences of consumers. The most effective world competitors integrate quality and trust attributes into their cost structure. Such companies compete on the basis of appropriate value of price, quality, trust, and delivery systems. These values are considered by the companies in reference to the product design, function, and changing consumer preferences such as fashion. The multinational corporations know a lot about the business environment in a country, put their efforts on adapting to the given environment, and set gradual penetration process in the country. On the contrary, the global corporations recognize the absolute need to be competitive and drive through lower prices by standardizing their marketing operations (Rajagopal 2008).
Despite globalization skills of many companies while introducing a new technology, managers implementing the change strategies must bridge the gap between the differentiation designs, technologies, and the users of the innovated or competitively differentiated products to make the transition smooth without affecting the existing market and consumer segments. This task turns complex when met with implementation incongruity, lack of competence of employees, and consumer resistance (Leonard-Barton and Kraus 1985). Most companies attempt to change in response to market call for competitive differentiation through shifts in technology or customer demands. In fairly stable markets, companies can manage transition in an effective way to deal with change, but successful companies in rapidly changing, intensely competitive industries change proactively. Companies that carry the changes in tune with the market needs build momentum, and companies that effectively manage transitions sustain in the market competition (Eissenhardt and Brown 1998).
Product differentiation or reconstruction involves a continuum of activities from recycling to refurbishing to innovation or cosmetic differentiation that allows companies to sell high-performance goods at competitive prices and realizing high profits. Product differentiation may open new markets for companies, but simultaneously call for taking all precautions to protect the products from counterfeit products and disruptive marketing. Companies should work out the product differentiations primarily to cater to the needs of following taxonomy of consumers:
Those who need to retain the differentiated product because it has a high perceived use value,
End-users who are critical to change and tend to gather more approval from peers,
Customers who make low utilization of differentiated products but love to have it as a lifestyle product,
Those who wish to continue using a product, which has turned obsolete in the market but the differentiated product may work as its substitute,
People who simply want to be experimental toward the new products, and
Customers who are interested in change and value-added products.
In order to overcome the competition complexity in the market, companies must meticulously analyze the consumer attitudes on the product differentiation and develop efficient sales force that has abilities to acquire customers (Pearce 2009). The market complexities in rapidly shifting global competitive conditions are caused also due to customer location, market competition, product utility, price, and services availability. The key factors that affect decisions of companies on market intervention through the competitive product differentiation include the customer value, price, complementarity, and life cycle of the intervening or new products. Because of the complexity involved in setting marketing goals of differentiated products—strategic or tactical—the key risk factors inherent in the competitive markets such as consumer defection, tactical promotions, offering value-added benefits to the channel, and aggressive sales by competing companies need to be addressed by the companies engaging in differentiations.
Cannibalization in global marketplace is very common in the liberal entry policies adopted by many countries in response to globalization. The expansion of product lines and continuous innovations drive the cannibalization not only for the competing products but also within the product line of a company. Companies often design product lines by segmenting their markets on quality attributes that exhibit a “more is better” or “value for money” property for all consumers. Since products within a product line with marginal differentiation are close substitutes and consumers can self-select the products they want to purchase, they often threaten competition among the products within the product line. Multiproduct firms need to meticulously address the cannibalization problem in designing their product lines and avoid product overlaps. It has been observed that if lower-quality products are attractive, consumers having concern for “value for money” may find them beneficial to buy lower-quality products rather than the higher-quality products targeted to them. Accordingly, lower-quality products can potentially cannibalize higher-quality products. The cannibalization problem forces the firm to provide only the highest-valuation segment with its preferred quality, while other segments get qualities lower than anticipated. The firm may not serve some of the lowest-valuation segments when the cannibalization problem is very severe. However, not much is known about how and when the cannibalization problem affects product line design in an oligopoly. Also, consumers may differ not only in their quality valuations but also in their taste preferences (Desai 2001). Cannibalization has also become a critical phenomenon in selling products and services of identical nature in the competitive consumer segment. Consider a seller who faces two customer segments with differing valuations of quality of a durable product where demand is stationary and known, the technology exists to release two products simultaneously, and the seller can commit in advance to subsequent prices and qualities. Should he introduce two differentiated products simultaneously? Under the simultaneous strategy, the lower quality would cannibalize demand for the higher quality. To reduce cannibalization, the seller could lower the quality of the low-end model and reduce the price of the high-end model. Alternatively, he could increase the quality of the low-end model, but delay its release (Moorthy and Png 1992).
Firms cannibalize in the marketplace to seize each other’s market share using different approaches. Large firms adopt long-term plans as competitive strategies, while small firms follow tactical and myopic approaches to gain higher market share in a short span surpassing the existing firms. The common attributes of cannibalization include use of disruptive technology, engaging in price war, introduction of new products, developing extensive customer loyalty programs, improving customer services, enhancing quality, and augmenting value for money. The firms that have innovative strategies also exhibit the cannibalization attributes. The success of such attackers in gaining market share has created a big dilemma for established companies. Established companies can potentially take advantage of a great growth opportunity by embracing the new business models that the innovators have introduced in their markets. The new business models often conflict with the established ones. It has been observed that the challenge for companies is to balance the benefits of keeping the new and existing business models separate, while at the same time integrating them enough so as to allow them to exploit synergies with one another (Markides and Charitou 2004).
Large firms operate on economies of scale in the market with low cost and high differentiation of products and services. Such strategy leads the firms in the mass market and drives them to gain high market share. Many firms operate at the same time in a given marketplace and competition among the firms turns fierce. Some firms operate at high cost but also go for high differentiation of products and services. Firms with such attributes locate themselves in the premium market and struggle for achieving high brand equity. On the contrary, firms that have low differentiation of products and services and low cost of marketing operate in niche by following defensive marketing strategies. In case the firms have low differentiation of products and services at high cost of marketing, the business growth turns slow, affecting the brand equity of the firm. If this situation prevails for a long time with such firms, it may cause disaster in the long run. Many small firms that emerge with high cost and low differentiation stay out of market competition and become extinct over a period either by shutting down operations or by merging with stronger firms.
Many firms stay in global competition believing that they need to develop innovative products or leading brands before venturing abroad. Some firms become global players in their industries by excelling at old-fashioned capabilities. They skip the risky, expensive strategy of opening their own facilities and extend their reach through acquisitions and alliances. Speed of innovation also appears to be an important factor in the success of newly emerging firms. Faster and appropriate customer-centric business strategies allow the new entrants to pull ahead of competing firms and drive vertical integration. Newly emerging firms with such attributes are able to get products quickly and cost-effectively to far-flung customers (Guillen and Garcia-Canal 2010).
To survive in a competitive marketplace, it is important for the firms to have an obvious sense of advantage and drive the business to achieve its predefined objective. Defining the objective, scope, and advantage requires to manage the trade-offs amidst market competition. If a firm pursues growth or size, profitability will be jeopardized, which, in case the firm chooses to serve institutional clients, may ignore retail customers. Hence, trade-offs in the marketplace will bounce if appropriate decision is not taken by the firms to sustain the market competition. On the contrary, a firm may derive its competitive advantage from scale economies and it may not be able to accommodate idiosyncratic customer needs. Accordingly, growth of local firms may emerge with high brand equity in niche amidst the threats of large firms, while large firms can follow a combination of long-run and short-run strategies to outwit regional firms.
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