Firm Capabilities & Market Opportunities Innovation Management Kevin O’Brien

Learning Objectives Appreciate how competitive success is achieved by aligning firm capabilities with market opportunities Identify the role of technological and marketing capabilities Understand the concept of technology trajectories and the impact of disruptive technologies Understand the concept of market orientation and how this impacts on innovation and new product performance

Marketing and Innovation ‘There is only one valid definition of business purpose: to create a customer ….. It is the customer who determines what the business is ….. Because it is its purpose to create a customer, any business enterprise has two – and only these two – basic functions: marketing and innovation’ Peter F. Drucker, The Practice of Management

Markets and Technology New technology New market opportunities Assets & capabilities New products Lower cost Improved attributes New attributes

Resource-based Marketing Market needs & conditions Organisational resources Marketing strategy Strategy adapted to the needs and requirements of the market Organisational resources needed for implementation of the strategy Organisational resources suited to the markets in which it operates (Hooley et al., 1998)

Technology Trajectories Source: Reproduced from Intel website Millions of transistors per microprocessor (log scale) Pentium 4 processor Pentium III processor Pentium II processor Pentium processor 486 DX Processor 386 processor 286 Processor 8086 processor 8080 processor 8008 processor 4004 processor

Impact of Technological Change Changing product life cycles Changing product technology = shorter life cycles Increased risk in high volume/low cost strategies Changing market segments Less segment stability Increased segment fragmentation Importance of market sensitivity/target marketing New industries/new competitors Shifts in product-market boundaries Importance of competitive intelligence Fights over ‘standards’ Deregulation of markets Globalisation of markets Changing organisation (Adapted from Capon & Glazer, 1987)

Core Competencies Core Competencies at Canon Precision Mechanics Fine OpticsMicro-electronics Basic camera Compact camera Autofocus camera Video still camera Laser beam printer Colour video printer Bubble jet printer Basic fax Laser fax Calculator Plain paper copier Colour copier Laser copier Still video system (Prahalad & Hamel, 1990)

Core Rigidities Core competencies can become obstacles to innovation Cultural norms Preferences for existing technology Established routines and procedures Status hierarchies Economics Values Skills/ knowledge Managerial systems Physical systems High Low Relative difficulty of change (Leonard-Barton, 1992)

Innovations Sustaining innovations Maintain current rate of performance improvement Give customers something more/better in currently valued attributes Disruptive innovations Different attributes from those valued by mainstream customers Often poor performance in mainstream market/applications Used/valued in new markets or applications Often create new markets

Disruptive Innovations Established companies: Develop & commercialise new technologies (incremental & radical) to meet needs of current customers Market research, technology trends, cost structure, profit assessment, resource allocation Entrant companies: Low cost structures Secure a foothold in emerging market Improve technology performance Attack mainstream market

Disruptive Innovations Time Performance Current performance of potentially disruptive technology Expected trajectory of performance improvement Performance improvement required by mainstream market (Bower & Christensen, 1995)

Market Orientation Customer orientation Competitor orientation Focus on the long term Inter-functional co-ordination Market-led organisational culture Kohli & Jaworski (1990), Narver & Slater (1990) Understanding customers & how to create value for them Using all organisational resources to create value for customers Long-term shareholder value as the main business objective Identifying competitors and being aware of their capabilities

Market Orientation & New Products Strong association between market- orientation, innovative capability, and new product success When intensity of market competition and industry hostility are high During the early stages of life-cycle More for incremental than radical changes Marketing capability has most positive effect in firms with strong technical skills Small and large firms (Atuahene-Gima, 1995)

Impact on Business Performance Customer orientation Competitor orientation Interfunctional Coordination Market turbulence Technological turbulence Market Orientation Organizational Innovation Environmental Conditions Organizational performance Technical innovation Administrative innovation (Han et al., 1998)

Marketing Processes Value-defining processes Understanding the environment Market research, buyer behaviour, segmentation, product use etc. Understanding resources & capabilities Assess ‘value created’ Value-developing processes Value proposition for customer Procurement, NPD, distribution, strategic alliances, pricing etc. Value-delivering processes Product/service delivery, customer relationships, communications, customer service etc. (Webster, 1997)

Marketing Capabilities Outside-in processes Inside-out processes Spanning processes External Emphasis Internal Emphasis Market sensing Customer linking Channel bonding Technology monitoring Customer order fulfilment Pricing Purchasing Customer service delivery New product development Strategy development Financial management Cost control Technology development Integrated logistics Manufacturing processes HRM Environment, H&S (Day, 1994)

Marketing Capabilities Market sensing Systematic gathering, interpretation & use of market information Sensing customer & market changes ahead of competitors Customer linking Creating & managing close customer relationships Purposeful cooperation Channel bonding Relationships with suppliers, wholesalers, retailers etc. (Day, 1994)

References Atuahene-Gima, K. (1995) An exploratory analysis of the impact of market orientation on new product performance, J. Prod. Innov. Manag., 12, Bower, J.L. & Christensen, C.M. (1995) Disruptive technologies: catching the wave, Harvard Business Review, 73(Jan-Feb), Capon, N. & Glazer, R. (1987) Marketing and technology: a strategic coalignment, Journal of Marketing, 51(July), Day, G.S. (1994) The capabilities of market-driven organizations, Journal of Marketing, 58(Oct), Han, J.K., Kim, M. and Srivastava, R.K. (1998) Market orientation and organizational performance: is innovation the missing link? Journal of Marketing, 62(October), Hooley, G., Broderick, A. & Moller, K. (1998) Competitive positioning and the resource-based view of the firm, Journal of Strategic Marketing, 6, Kohli, A.K. and Jaworski, B.J. (1990) Market orientation: the construct, research propositions, and managerial implications, Journal of Marketing, 54(April), 1-18.

References Leonard-Barton, D. (1992) Core capabilities and core rigidities: a paradox of managing new product development, Strategic Management Journal, 13, Narver, J.C. and Slater, S.F. (1990) The effect of market orientation on business profitability, Journal of Marketing, 54(October), Prahalad, C.K. & Hamel, G. (1990) The core competence of the corporation, Harvard Business Review, 68, (May-June), Webster, F.E. (1997) The future role of marketing in the organization, in D.R. Lehmann and K.E. Jocz (eds) Reflections on the Futures of Marketing, Cambridge MA: Marketing Science Institute.