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Collectedby: FlavioTosi January2013

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BusinessExploration Via8marzo,22 50051Castelfiorentino (Firenze)Italy +393496482225 info@businessexploration.com www.business.exploration.com ANotetotheReader TheRoadmaptoMarket,2.0iscopyrightedbytheauthor:FlavioTosi. Thisisanextraction,focusedoninnovationstrajetories. Itsaworkinprogressdocument,nowatits9threlease. Youcanduplicateitandshareit. Youcandownloadthelastreleaseatwww.businessexploration.com. Youcancopypartofit,orreproducepartofit,quotingtheauthor: FlavioTosiandthewebsite:www.businessexploration.com. Copyright2013,byFlavioTosiBusinessExploration. Allrightsreserved. Papercopiescanberequestedonthewebsiteat11each, asaprintingcontribution.

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INDEX:
Abouttheauthor:.....................................................................................................4 Prefacetothe2.0release:........................................................................................4 Foreword......................................................................................................................5 Introduction:innovating,andnot:innovation.......................................................6 Summary:.....................................................................................................................8 TheRoadmaptoMarket: ..............................................................................................9 PART1.DOYOUHAVEACUSTOMER?..........................................................................9 DoyouhaveaCustomer?........................................................................................9 Ifyes,whichpartofthemarketareyouthinkingtoserve? ......................................9 Areyouunderperforming,orareyouoverperforming?.......................................10 Fightingforthetop:............................................................................................ 10 Integratedarchitecture:...................................................................................... 11 Carefullyplanningnottofail:............................................................................. 11 Areyouoverperforming? ...................................................................................... 12 AreyouleavingroomtoaNewEntrant?...............................................................14 IsthereaThreatoranOpportunity?.....................................................................14 CanmyideadisruptthePerformancestrajectorygame?.....................................15 Ismyideabuiltonanew(modular)architecture?................................................16 Isittherighttypeofmodulararchitecture?..........................................................17 Whoisthecustomerofanewmodulararchitecture?..........................................17 Areyougivingawayyourbusinesstoyoursuppliers?...........................................18 Confess:youdonothaveaCustomer,dontyou?.................................................20 Whothehellmaywantit?..................................................................................... 20 FewWordsaboutinnovation:................................................................................... 22 Whatisinnovation?............................................................................................... 22 Howtheconceptofinnovationevolvedintime:...................................................22 Thewayswereachinnovation:.............................................................................. 23 TIME:IncrementalversusRadicalinnovation.....................................................23 SPACE:ExperimentalversusConceptualinnovation:.........................................24 SOCIAL:CompetitiveversusCollaborativeinnovation:......................................24 Thesourcesofinnovation:..................................................................................... 24
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Innovators:.......................................................................................................... 24 Placesofinnovation:.......................................................................................... 25 TheinnovatorsTalents:....................................................................................... 25 Bibliography:............................................................................................................. 27 FEEDBACKS:............................................................................................................... 27

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Abouttheauthor:
Since2009,FlavioTosihasbeenhelpingindependentsinnovatorstargetingtheOil& Gas,Energy,Aerospaceindustriestodevelopthepotentialoftheirbusinessideas. When they feel concerned about the risks and the best approach to use for launching a new product or service, or starting a new commercial initiative, he complements their gut and instinct bringing on the table latest methodologies and provenbestpractices. For 12 years he has been a manager of General Electric and previously for 2 years, an engineer in the R&D. Flavio was part of the team that brought to the Oil & Gas market some of the most fascinating technologies of the last decades, gaining a deep understanding of New Product Introduction, Business Process Reengineering andProjectManagementmethodologies. And became passionate of the challenges offered by this industry, having fun discoveringnewsolutionsandideasforhisClients. Youcanfindsomeofthemhere:www.businessexploration.com, oryoucancallFlavioat:+393496482225forapreliminarytalk, withoutanyobligation.

Prefacetothe2.0release:
In the last 4 years as an independent consultant I had to find solutions to my clients thatforcedmetoaddnewconceptstomyapproachtogotomarket. I was looking to something in line with my understandings, something that was capable to add to classic marketing, positioning and sales models, few concepts about markets dynamic of innovation, evolution of technology trajectories, search anddevelopingofmarkets. I found them into Prof. Christensen books, that give me a fully complementary point ofviewwithmyprinciples,bestpracticesandkeyassumptions. So I decide to take the gotomarkets key points from these new concepts and synthesizethemintotheRoadmaptoMarket2.0. IaddedaFirstPart:thatwillhelpdefinewhereyourinnovationlaysinacompetitive andevolvingcontest,anddecideifyouareinthepositiontopursueit. And a Third part: that shall give key principles about exploring for new Customers. This is not my favorite starting point, but I have to admit that sometime you may come up with an idea before to have defined who your customer is. Here you will findfewideaonhowtoexploretofindhim. The Second part: just optimizes and adds some clarification to the Roadmap to Market1.0.Soitisalmostunchanged. As usual: your comments and suggestions and questions will be really appreciated: sendthemtoflavio.tosi@businessexploration.com.Thanks!
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Foreword
Ifyoujusthadabrilliantideaforyournextproductorservice,probablynowyouare askingyourselfif:

Ismynewideaworthatry?
Someonetakesthisdecisionjustbygutfeeling.Ienvythemalot.Ineverunderstand ifitispurecourage,insanemadnessorjustamatteroffaith. What I know is that, statistically, more than nine out of ten of those guys fail miserably.Andnotmanyoftheremainingcansinghurrah!asmasterofthemarkets. Probably for this reason, Companies that survive recessions, wars, and technology decay have developed guiding principles and techniques to identify and assess the variablesinvolvedinthisriskydecision. But when I started to look around for them, I found a mess of ideas and tools that confounded and embarrassed. Marketing means a lot of different things to different people, and probably for this reason is a word that has no translation in any language,evenitsown. Ineededsomethingworkable.Asyoudo.IfounditwhenIdecidedtostopsearchfor tools and methodologies capable to give answers and started concentrating on Questions. Therightones. And here they are. A list of questions that will guide you in finding all the elements you need to reduce the risk of failure of your next business venture and maximize thechancetomakeitacceptedtotherightcustomer. FollowingthisRoadmaptoMarketYoucanbecomfortabletotouchmost(ifnotall) the key points in taking the final decision. How You answer each question of the Roadmap is up to you. Can be a simple consideration taken around a coffee with a friend, or a complex statistical study commissioned to top International agencies. But I assure You (for having tested it for years in General Electric as Marketing ManagerandasaBusinessConsultantthereafter)thattheRoadmapiscompleteand lean. It will keep You on track and build the understanding of the market in order to maketherightdecision. Then,tomakethatdecision,Youwillneedabitofgut. ButthisisuptoYou. BuonLavoro! Flavio
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Introduction:innovating,andnot:innovation.
Thisbookisaboutinnovating,notabout:innovation. Moreprecisely,ittriestohelpagoodideahitthemarketandgetsold. This part of the innovations journey, the one that goes from when an idea has been invented (found, identified) to when it becomes adopted and creates value, is not reallywelldocumentedinliterature. Is just since few years (since 1997, precisely) that Clayton Christensen has described the path of innovation to market and has characterized some typical routes that are madebythesuccessfulones. Failing to understand the differences among those paths, when they should alternatively pursued, and why making the wrong choice leads to failure, causes to mostoftheInnovatorstowastetimeandresources. Thequestionscollectedhereshouldhelpyoutodecipherthecircumstancesinwhich youareandmaketherightdecisionsaboutwhetherandhowtoproceedtowardthe market. Butwhenwedoinnovate? Innovationis:anewwaytoreachagoal.Ifoundthisdefinitionaboutinnovatingin a paper of Benoit Godin, of INRS Canada, who explained how the concept of innovationevolvedintime. Itstartedmeaning:Change(oftheestablishedbehaviorsoftheuserwhowill adopttheinvention),thenitadded:Rupture(withthepast,notjustdetaching fromit,butmoreprofoundlydestroyingit,toachieveanewanddiversestatus) andlately,inthepastfewcenturies,thewordinnovationhasbeenconnotedwith 2modernelements:creativityandutility. Todayweassigntoaninvention(thecombiningofelementsthatcreatesanew value)thestatusofinnovationonlyiftheinventionbringsinanutility. UtilityinvolvesbothanadoptionbyaCustomer(achangeinhisbehaviors)and theabilityoftheinventiontobemarketable(capabletogenerateanexchangeof value).

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Underthislightitbecomesclearthatthestartingpointofanyinnovatingattemptis intheCustomer.Withouthim,thereisnoUtility. Thisiswhythisbookstartswiththequestion:DoyouhaveaCustomer? Thereareonlytwotheoptions: 1)oryoudohaveaCustomer:youhaveanideaaboutwhoishim,andyoualready bargainwiththisfellow. 2)oryouhavenoideaatall,andyouhavetohopetofindhim.

Thisentitlestotwodifferentkindofproblems: Inthefirstcaseyourtaskistominimizethechanceoffailureforyourinvestments. Thereisahugesetofbestpracticesthatcompaniesaroundtheworldhavecollected inordertomaketheinitiativeofbringinganewideatoexistingCustomers,safer. Thesecondoptionismoretricky:becausetheonlywaytodiscoveryourCustomeris totry.Learnyourwaytohimbytrialanderror,beingreadytochangeyourpath whenabetterwayisencountered.Inotherwordsisamatterofexperimenting: maximizetheopportunitiestolearn,whileusingtheminimumamountofmoney andavoidingthechainsthatcanteardownyourflight. Thesetwocoursesofactionseemsselfevident.Andinrealitytheyareequallyviable inprinciple.WhatChristensenhashighlighted,hasbeenthatthereareprecise circumstancesthatindicatewheneachoneisworthtobepursued. Failingtoidentifythemmayleadtodeadends,fightingagainstwindmills,struggling withresources,findyourselfalonehalfthewayetc. TheRoadmaptoMarketwilltrytoguideyoutotherightpath,andhelpyou identifyallthesignsthatleadtosuccess.
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Summary:
The Roadmap to Market aims at collecting all the information you need, to answer to3basicquestions: 1)IsthereaClientformyidea? 2)ifYes,canIminimizetheriskoffailureformynewproductorService? 3)ifNo,canImaximizethechancestofindtherightone? The First Question will help you recognize the signs to the right Road to market, avoiding deadend paths that have been proven (by others failure) to have the lowestchancesofsuccessifany. The Second one is aimed at collecting all the data needed for an NPV (Net Present Value)analysis:Demand,Share,Contribution MarginandRisklevel.Andisthe route you should take if you own the Clients and you just want to beat competition and leverage your competitive position to get the most out of your idea, with the lowest chancesoffailure. The last one is the most risky but also the most rewarding. Because, if you do not have a Client, you may then discover that your idea is worth to someone you never thoughtbefore,andhewasreallyjustwaitingtoittosolvehispressingproblems. TomakeyouswiminthisBlueOceanofopportunities,youneedtoaskyourselfhow you can discover the route to the Eldorado. And because noone have been there before,maximizingtheresultofeverytrialistherealjobthatbringsyouthere. Caveat: This book collects lessons of several leading Scholars in the Field of Game Theory ( e.g.: DixitNalebuff), Strategy (Porter, Christensen, KimMauborgne) and Marketing (Trout, Reeves, Bly, Stokes, Choun). I sacked wildly their ideas and tried to build a roadmapforinnovators,bridgingtheirtheorieswhereIsawpossiblejoints. Therefore this book is not intended for beginners. You should have a basic understandingofmarketingandbefamiliarofthecommonjargonsused.Inthisway you will multiply the effectiveness of this Roadmap, that organizes sound marketing models. Furthermore I not intended to give you a reading companion, but a working tool where to find rapidly hints about marketing innovation. You will not find many examples.Justbriefexplanationsofwhateachvoiceshouldmean.
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TheRoadmaptoMarket: PART1.DOYOUHAVEACUSTOMER?
DoyouhaveaCustomer?
Wheneverafriendcomestometelling:Ihaveabusinessideathefirstquestion ImakehimisdoyouhaveaClient?.Buttherealwaytoputthequestionshould be.DoesanyCustomerownsyou?. BecauseisnotenoughthatyouhaveanideaofyourtargetClient.Youshouldhave bargainedwithhim.YourpotentialClientshouldhavebeenabletoexperienceyour service,oratleastexperienceyou.Recognizingyouasasolutionprovider.Someone whohastheabilitytosolvehispressingproblem,ortoallowhimtoachievehisgoal. Ifthisisthecase,probablyyouarenotalone.Youmoveintoatrajectorywithothers likeyou,readytoservethatclientatthebestoftheircapability. TheCustomerdictateshisneedsandrequisites,ifnotevenasksawelldefined performanceleveltoanattributeofyoursolution.

Ifyes,whichpartofthemarketareyouthinkingtoserve?
Incaseyouknowyourtargetcustomer,hecangiveclearindicationsaboutthelevel ofperformanceneeded.Butbecareful.Notalwayswhatheaskforiswhathereally isgoingtouse.ListeningtoomuchtoClientsrequestsmayenduppushingyour offertowardthehighendofthemarket.

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ThisisaveryattractivesegmentofCustomers.Theyareneversatisfiedandask alwaysmore.Andareevenwillingtopaythisplus.Butthehighertheperformance level,thelessaretheClientstobesatisfied. ThedistributionoftheClientswithinthemarketmayresembleaGaussBellshape: Withfewatthelowandhighends,andamassconcentratingaroundthemedian performance.

Areyouunderperforming,orareyouoverperforming?
Takingasatargetthemediancustomer,iftheperformancesofferedbythemarket arebelowtheexpectation,allthecompetitorsarefightingforthetop.

Fightingforthetop:
Theystrivetosellabetterproductintoanestablishedmarket,andeachtime someonecomeupwithabettersolution,hecausestheimmediatecompetitors reaction. Theprizeatstakeishuge,becauseusuallythemassoftheclientsarestilltobe tackled,andtheopportunitiestosellgrowthebettertheproductis. FurthermoretheClientdoesnotfindabettersolutiononthemarket,soiswillingto payforthebest.Whatyoureallyarefightingforistomakeyourcustomerachievea betterresult,notreallytoassurethatyourproductreachabetterperformance. Inthisraceyoucannotstandstill.Youwillbeleftbehindfightingwithahardto differentiateproduct,andagainstcompetitorswithsimilarcoststructures. Youaregoingtolookforthoseideacapabletoimproveoratleastmaintainyour profitmargins,exploitingyourorganizationsprocesses,coststructureand competitiveadvantages.Alltheinventionsthatcannotdeliverimprovedprofit marginsrelativetothecurrentcoststructure,arediscarded.Becausethecost structureismostprobablyanheavyone.Thearchitectureneededtomanagethe
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complexityandtheuncertaintyunderlyingtheresearchofabetterperformanceisa hugeandcostlyone.Ifyouintendtotakeparttotherace,betterbeequipped.

Integratedarchitecture:
What you need is an integrated architecture. An organization that is a platform capabletoachievenewlevelsintermsofPerformanceandReliabilityofyouroffer. Is a matter of concurrent efforts: you need the ability to develop the components of your offer simultaneously, solving the unknow and unpredictable interdependencies among them. It requires Experience, Talents, ability to manage risksandtime.Andthewillingtosustaintheseeffortsforlongperiods. An integrated architecture can be only proprietary. Is a unique enterprise that demand high Capital Expenditure to cover R&D costs, backup inventories, talented humanresources.Allthiscommandhugemarginsfromeachsale. The high capital expenditure and capital on operating costs ratio of an integrated architecture is the source of differentiation, and the first barrier to entry for new competitors into the offering trajectory. The second barrier to entry is given by the steepeconomyofscalethatisgeneratedbyanintegratedarchitecture. This is why trying to bring a new invention into an existing trajectory could not be a goodidea,unlessyoudohavetheintegratedarchitectureandtheClientstoserve. The race you would willing to participate would not be a race to succeed, but a race tonotfail.

Carefullyplanningnottofail:
Companiesthatplaythisgamehaveorganizations,processes,values,resources,that are committed to stay on track and sustain themselves. Their strategic efforts are dedicated to filter out inventions with lower chances to succeed, with expected marginsinsufficienttosustaintheircoststructure.Theyareoptimizedto extractthe most out of the existing customer base, and in doing so they fight to scale up the existing solution towards higher margins segment of customers: the high end of the market.Anewideathathasthepotentialwillneverbejustaddedtotheoffer.Most probably embedding it into the offering trajectory will require sound practices and experienceinmanagingtheinterdependencieswithallothercomponents. And the more hightech is the idea, e.g. if is an invention coming out of a research laboratory, the more resources are needed to govern it. No wonder that only large corporations can dare to bring on the market the most sophisticated scientific discoveries. They are the only one designed to manage the complexity and costs of suchachallenge. This race has a toll: the quest for higher margins may distract from understanding where the median market is. Listening to customers who ask for more (and promise
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topayforit)mayendupsurpassingthelevelofperformancerequiredbythemass. For these Customers, the marginal increase in price that a Company can sustain for an improved product slowly approaches to zero. This suggests that the marginal utilitythatCustomersderivefromusingtheproductalsoisapproachingzero. Yourproductisactuallyoverperforming.

Areyouoverperforming?
HowyoucanrecognizeiftheofferisoverperformingrespectwhattheCustomeris willingtobuy?Afterall,Customersarethosewhoaskformoreinallthe questionnaires,survey,feedbacksandrequestsforquotationyoureceive. Atleastitseemsso.Ononeside,infact,thereisapsychologicalstiffnessofthe customerinconformingtothehighendluxurytastes,akindofirrationalwishful thinking,thatforacertainperiodmayhelpyourcustomerfeelbetter,whenasked abouthisneeds.Ontheothersideyourorganizationtendtoreportasfeedback, onlythosethatarealignedwithwhattheCompanywanttohear:moremargins.
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Andmoremarginscanbefoundonlyinthehighendminorityofthemarket demand.Itsfeedbackisthereforetheonlyonethatsurvivethefilteringscreeningof theCompanyprobes:itsmiddlemanagement. AbetterlookmayshowthatMedianCustomersarestartingnotwillingtopayforthe marginalincrementinperformance.Suddenlytheyshifttheirinterestfrom performance,toReliability.Theyhaveenoughofwhatyourproductrangecan offer.Theywantthattheproductperformthesamewayaslongaspossible.Later on,whenalsothisrequirementbecomesmorethansatisfied,theirinterestshift again.ItmovestoConvenience:thepreferredproductbecomestheonethatis easiertogetanduse.Finallywhenalsothisfeaturebecomesagiven,thelast criteriumofchoiceamongcompetitiveofferingsremainsPrice.

Whenyouarestillontheperformancetrajectory,youmaystartnoticethatyour customersarestartingtobuytheentrylevelproductsofyourproductrange,orof themarketproductsrange.Allofthecompetitorsarestartedtobetreatedalike. Pricebecomesaninterestinggaugeofchoice. Isinthissituationthatathreatsmaterialize:

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AreyouleavingroomtoaNewEntrant?
ThisisthequestionfromaCompetitorstandpoint.Youmayseethatnew competitorswithabetterpricingcanundermineyouroffer.Ifsuchanewplayeris abletocapturecustomersattention,andhasalowercoststructureheisgoingto benefitofhighmarginsuntilthelastcompetitorofthePerformancetrajectory,will stayinthemarket,sustainingthepricelevelstowardsthehighendofthemarket. ThecompetitorsinthePerformancetrajectory,areevenincentivatedintheirrush towardhighermargins,toleavethelowendsegment,movingtheiroffering portfoliotowardsthehighendcustomers.Insodoingtheirportfoliosmargintend toincreaseonaverage,somakingthisattractiontothetopevenfinanciallyjustified (atleastuntilsomeonestarttoseethathigherpricesbylowervolumesdonotcoop withcompanysgrowth).

IsthereaThreatoranOpportunity?
Iffromthecompetitorspack,overperformingcouldbeseenasathreat,fromthe pointofviewofsomeonewithagoodnewidea,thissituationismoreofan opportunity. Anobservationofthelowendcustomersmayleadtodiscovernotonlyawayto penetratethemarket,buteventoexpandit. Amongthelowendcustomerstherearesurelyuserswhoareperfectlyfinewiththe lowendproductsrange.Butacloselookmayshowthatamongthemthereare Clientswho,yesaresatisfiedwiththeminimumperformance,butinrealitytheyare usingotherfeaturesoftheproduct.Featuresthatareconsiderednotimportantor notconsideredatallbytherestoftheMarket.

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Someoftheselowendcustomersneedhelptomaketheproductworkforthem. Theymayneedexpertconsultantswhohelpthemadjustandfittheproductfortheir need.Theylackofthecompetencesortheinfrastructure:tools,systems, information,tojustplugandplaytheproducttosolvetheirproblemorachievetheir goals.AllofthemarelookingforSimplicity.Otherstravelalongdistancejusttoget theproduct.Theyuseonly10%ofit,butthat10%isworthalongtrip.Ifsomeone couldbeabletoofferthesame,justalittlemoreConveniently,wouldbecome instantaneouslytheirpreferredsupplier.OtherCustomerswouldlovetogetthe productbuttheycanbarelyaffordthePrice.Sometimetheyjustbouncebackand goawayandmakewithoutit.Iftheyareluckytheytrytomakewithanemergency solution,somethingthatmakehalfofthework,butisbetterthannothing. Ifyourbrandnewideacanchangethecoststructureoftheoffering,reshufflingitto maketheproductmoresimpletoget,moreconvenient,andsellableatlowerprices: allofthesecustomersareyours.

CanmyideadisruptthePerformancestrajectorygame?
IfamongyourCustomersyoufindsomeonethatbehavesassaidbefore:lookingfor simplicity,convenienceandprice,orjustbouncingaway,chancearetherethata largercrowdofthesametypemaybeserved. Unfortunatelymanytimethepeoplethatspottheseopportunity,lackoffantasy. Ihaveseenpeoplespinningoffoneofthecompetitors,justtorephrasethesame offer,atlowerprice,orforjustsomeopportunistcustomer,butreallywithout bringinganythingnewonthemarket.Justgivingawaymargin,andtryingtomake theirwaycuttingfixedcosts(branding,service,R&D)fromtheoriginalcompetitor coststructure. Thisisquiteeasytoseehappeningfromtheservicesideoftheoriginalcompetitor.It isquiteeasytospotthehugemarginsthatthecompanyismakingwithitsservice business,stoleafewofthebestservicemendoublingtheirsalary,promiselower pricestosomefriendcustomeranddentingforawhilethesalesoftheoriginal company. Thismayworkinanupswingeconomy,wheretheserviceofferingcapacitymaybe notfullysatisfied.Butgenerallydoesnotlasttheshakeoutofadownturn,orofa companythathaditenoughofthosebitestoitsrevenuebase. Soifyouspottedtheopportunity,bettertomakeasanitycheckandverifyifthe moveisbackedupbyanewideacapabletobringthesamevalue,butwithanew typeofcoststructure. Thepeoplethatsucceedingrabbingtheopportunity,generallyhavespottedthat theproductsonthemarketarefarmorecomplexthanwhatisneededtodeliverthe performanceusedbytheCustomer.(remember:customerstendtoaskformore,
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evenwheninrealityuselessthanwhatyouoffer)sotheyfindawaytopull togetherthekeycomponentsoftheproductontoamoresimplerandstandardized architecture.Amodularsystemwheretheinterfacesarefixed,andthecomponents canbepluggedintoachievethesufficientlevelofperformance. ThisperformancebecomesagivenfortheCustomer:whatheisreallylookingfor isspeed,responsiveness,convenienceandprice. Ifmyideaisbuiltonamodulararchitecture,andthisisaninventionthatcandeliver thelowendperformancelevelrequired:therearechancesthatmoreofthealmost customerswillswitchtothisnewsolution. Ifthisinventioncanachievealevelofperformancethatcansatisfythemedian customers,withafaster,simplerandcheapersolution.Theareverygoodchances thatthemajorityoftheCustomerswillmovetoyourinnovation. Disruptingtheoriginalmarket.

Ismyideabuiltonanew(modular)architecture?
Intheorythenewideaarchitecture,shouldnotnecessarilybemodular.Forsureis newdifferentrespecttheoneinusebythecompetitorsonthemarket.Butifitis anintegrated,complexone,thechancesthatthecoststructurewillallowalower pricearefew.Thechancesthatastartupnewentrant,canmanagethecomplexity, withouttheexperience,andcollectresourceswithoutacustomerbase,arefew. Sobeforetomove,letscheckiftheideaisbuiltona(new)modulararchitecture. Thekeypointhereisthatthecomponentsoftheproductshallbepluggedinthe supportingarchitecturewithouthavetotuneittotheothercomponents.Inother wordsthemodulararchitectureinterfacesshallnothaveunpredictable(notyet know)interdependencies.Inthiswayeachcomponentcanbedevelopedseparately aslongastheymeettheinterfacesspecifications.Thecomponentsspecifications limitthedegreeoffreedomofthewholeproduct,sotheytendtoleadtoasub optimizationofitsperformance.Butthisisnotaproblemaslongtheperformance achievableareenoughtosatisfythelowendcustomers(betterif:themedian Customer).Whatcountstomakethefinalproductperformance,isnothowthe componentsintegrate(coordinate),buthowwelleachofthemperforms. Thegreatadvantageisthattheperformanceofeachcomponentcanbeoptimized, withouthavingtoreinventtheentireproduct. Furthermorethemodulararchitectureallowsoutsourcing,leveraginginthiswaythe economyofscaleofthesupplier.Youcandosoifyourarchitecturemeetsthe criteriaofSpecificability(youknowwhatiscrucialforeachcomponent), verificability(youareabletospecifyitandtomeasureit),Predictability(you cansaythattherearenopoorlyunderstoodorunpredictableinterdependencies amongcomponents)
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Isittherighttypeofmodulararchitecture?
Notallthemodulararchitecturesareequallyinteresting,fromabusinesspointof view.Ifitisaproprietarymodulararchitecturetheownerofit,willretainmostof themargin,attheexpensesofhiscomponentssuppliers. Hecanspecifythecomponentsinterfaces,inauniqueway.Hissupplierscanonly buildaproducttofitthem,withoutbeingcapabletoofferthesameproductto otherClients.TheOwneroftheproprietaryarchitecturewillmakethemoney,while thesupplierswillfightwithcompetitorstogivethebestpricepossible. (thisisthecaseforexampleofaGasturbinemanufacturer,thatcanspecifythe bladesofitsturbine,andsupplierscompetetosatisfythosespecswithouthaving thechancetoofferthesamebladetootherturbinesmanufacturers) Ifonthecontrary,themodulararchitectureisanindustrystandard,andother playerscanusethesame,theownerofthearchitecturebecomesalowcost integrator,andthesuppliermakesthemoney.(seewhathappenwithindustry packagersofsimpleindustrialskids) Inbothcase,themodulararchitectureallowslowercostsstructures(R&D, Inventory,HR)andpermitstosellatlowerpricestoalargerpoolofcustomers. Thedifferenceiswherethemoneygoes.

Whoisthecustomerofanewmodulararchitecture?
Ifyourideahaspassedthetestforarchitecture,isworthtorecapthebattleyouare goingtofight,beforetoproceed,andbesureyouunderstandwhoarethe customersyouarelookingfor.
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Youaregoingtoofferyourinnovation,basedonanewkindofcoststructureand architecture,toanexistingcustomerbase.Youareanewentrantonanexisting performancetrajectory.Youcompeteforcustomersthatarealreadyconsuminga product,andthelargemajorityofthemarewelloverservedbytheexistingoffer. Yourentrycustomersarethelowendsegmentofthemarket.Arethosethatarethe mostoverserved,theleastprofitable,andthereforelesswantedbytheincumbent competition.Youaregoingtoproposetothosecustomersalowercostsolution. YourstrategyleveragesamodulararchitecturethatgrantyouaCostAdvantage. Thisadvantageisthereonlytillthesamecustomersarealsoservedbythe incumbentcompetition.Aslongasthelastofthecompetitorsowningtheoriginal architectureabandonethefight:yourcompetitiveadvantagewillfadeaway. Youwillfindyourselffightingagainstequallyequipped(remember:youmost probablyhaveanindustrystandardmodulararchitecture)competitorsatough pricewar.Sobereadytoenjoythemarginsuntilthelastincumbentcompetitoris stillthere. Youronlywaytoenjoymarginsistoprecedetheabandonmentofthelast incumbentcompetitor,invadinghisspace.Yournexttargetisthereforehighertire customers.Andtodosoyoumustbereadytoextendyourmodulararchitecture stretchingitsperformanceuntilyousatisfythosehighertirecustomers. Todosoyoucanonlycountonyoursupplier.Youmustbereadytoincorporate whateveradvancementtheycanofferfortheircomponent,thatcanallowto increaseyoursystemperformance.Thearchitectureinfactisagiven,andyoucan notcountonittoincreasetheperformanceorgaincompetitiveness. Speedinadoptingthenewcomponentsisofmaximumimportance:inordertobe thefirsttoreachthenewmarketsegment,whiletheincumbentsretreatfromit.

Areyougivingawayyourbusinesstoyoursuppliers?
Theothersideofthismechanismisthattheonlywaytogainsomethingintermsof architectureoptimizationistooutsourcetothesuppliersareasalwaysmorelargeof yourplatform.Inthiswaythesuppliercanintegratedtheareaandofferanenlarged subsystem,optimizednotonlyintermsofprice,butalsointermsofperformance. Andyouhaveverygoodreasontodothis:yourcoststructurewillbenefit,cause architecturesbasecostsgetsqueezed. Thenaturalpathisthatwhileyouaretacklingthehighertirecustomersservedby interdependentarchitectureplayers,simultaneouslyyougiveawayalwayslarger chunksofyourarchitecturetosuppliers.Theyexpandthescopeoftheir (interdependent)architecturetofulfillalltherequirementsofallthepossible subsystemsofyourproduct.Theywillfinallyendupofferingtoyourclienta solutionthatisfullycommoditized:isaffordable,undifferentiated,overperforming, reliableandconvenient.
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 Atthatpointtheonlydifferentiationleft,goesintothedistributingchannel:and amongthem:theonlycapabletoprovideanythinganytimewillprevail. Thisiswhathappenedwiththesportclothsindustry:wherethetailormade solution,arenowsupersededbylargeretailchain,offeringproductsbrandedwith thechannelname(Decathlon,tomakeanexample). Thegamethereforeneverends,isatokenpassinghands:theinterdependent architectureispulledtowardsthehighendniches,untilthemarketisdisintegrated andsupersededbyamodulararchitecturethatisthensupersededbya commoditizedintegratedarchitecturewithadifferentiatingdistribution channel...etc.

Canyouavoidit?Notreally.Whatyoucando,ifyouareasavvycompetitorusingan interdependentarchitecture,istorecognizetheemergenceofamodular architecture,andanticipatethemovesofthenewentrant,destructuringyouroffer intothekeycomponents,standardizingtheirinterfacesandsellingthemtothenew entrant,thatinthiswayispushedintoaindustrystandardarchitecture,beforethat hefullydevelopitsown,andreducehimtothestatusofalowcostpackager. Youwillretainthetechnologyofthekeycomponents,andwithit,thelargestshare ofmarginthenewvaluechaingenerates.

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Confess:youdonothaveaCustomer,dontyou?
IfyouarenotsurewhoyourClientcanbe,probablyyouareoneofthoseguythat afterbeingimmersedintoatechnologytrajectoryforawhile,yousawawaytofind thesamethingbutmuchmoresimply. Youprobablybelongstotheengineering,marketingorservicedepartmentofoneof theleadingplayers.Somethingtriggedyourattentionandyoupulledtogetherpieces ofthesolutionassemblingoutoftheshelfcomponentsonamodulararchitecture andobtainingwhatitlookslikeanotenoughperformingabort.Butitswaymore cheap,fasttobuild,easytopurchase.Andthesuppliersbelongstoatotallydifferent valuechain,generallyspeaking,muchlessdemandingandbranded. Theabort,sorry:idea,thatyoupulledtogetherdoesnotworkfortheusual customersbelongingtoyourperformancetrajectory.Atmaximumcanalmostserve thelowestendofyourcustomerssegments. Yourbosshasridiculizedtheidea.Customersfeedbackisliketohavepresented thematoy.Yoursolutiondoesnotshowtohavethemarginrequiredtobeableto contributetotheexistingproductportfolio. Butithasaveryimportantattribute:itworks.Furthermoreitssimple.Anyonecan useit,itsmuchcheaper,becausetherearenotinhousebuiltpreciouscomponents: everythingwasavailableonthemarket. IfyouonlyhadaClient!

Whothehellmaywantit?
Thisistheproblemwithgoodideasthatarecheaperandsimpler,butdonot performenough.Yourusualcustomersdonotwantit,andyoudonotknowwho may.Yourcolleague,instead,theonethathasproposedthebiginvestmentneeded toimproveofthe1%theperformanceoftheexistingproductline,passedthetest. Hisidea,wasrisky,difficulttorealize,butwasinlinewithwhatcustomerswere demanding.AndwhatCustomeraskfor:getprecedence. Hisproblemwastomakealltheplantomitigatetheriskoffailure.Whatthe companyhasdoneistocarefullycheck,andeliminateanyriskofpromisingto customerssomethingthecompanyisnotabletodeliver. Yourideaisdifferent.Isthere.Itworks.JustneedtofindaCustomer. Theproblemistheopposite:isnotamatterofreducingthechanceoffailure.You needtomaximizetheopportunitiestobumpintotherightcustomer. Andonethingissure:isnotthecustomerthatyoualreadyknow. Probablyissomeonethatisstrivingtodoajob,wherethetypeofsolutionyou proposemayhelpalot.Buttodayisnotoffered.Thesepotentialcustomersprobably usesomethingdifferent,asuboptimalproduct,thatperformsunsatisfactorily. Onthoserespects,yourideawouldbeasubstituteproduct. Probablyyourproductwouldenablethosepotential(nonyetconsuming) Customers,thatlackedthemoney,theskillsorcouldnoteasilyreachthesolution.
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Whoarethosecustomersandhowmany,nobodyknows.Theonlywaytofindthem istodesignasetofexperimentscapabletoidentifythemandthebestwaytoserve them. Andbecausetheyarenotknow,youdonotevenknowthroughwhichchannelyou canreachthem.Youknowonlythat,becausetheyareaskingsomethingcheaper, easierandfaster,speedandresponsivenesswillbeakeyfeatureoftheright channel. Andcannotbethesamechannelusedbyyourcompanysforitsproducts. Becauseyoucannotofferthesameshareofmarginstothem.Youneedtofinda channeltomarketthatcanbehappywithyourlowermargins:forwhichyour productmayofferhighermarginsrespecttheirexistingportfolio.Someonethatwill beenthusiasttoaddyourproducttotheiroffering. Therearegoodnewsforyou,however:first:thereisamethodologytohelpyoufind therightcustomer.IscalledDiscoveryplanningandissummarizedinthe3dtpart ofthisbook.Second:youareasubstituteproduct:thismeansthatyoucompete againstdoingnothingandlivewithitor,atworst,againstatemporary,sub optimalsolution.Third:youaregoingtouseavaluenetworkthatnobodyisusing now.Youarethefirst,theonlyonethathasenvisagedthemodulararchitecturethat cansolvetheproblem,andevenifyouaregoingtostealfewcustomersfromthe originalmarket,thecompetitionwillnotevennoticeit,becausetheyaretheone withlowestmargins(forthem). YoujustneedaplantodiscovertherightpathtoCustomers,andlearningbydoing, adjustingyourwayuptohighervolumesandbetterprofits,intoanewBlueOcean ofopportunities.

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FewWordsaboutinnovation:

Whatisinnovation?
Becausethisbookwantstohelpmarketinginnovation,Ispentfewtimelookingfor adefinitionofinnovationandhowwearrivetogenerateit. ThebestdefinitionIfoundisthatinnovationisanewwaytoreachagoal. Thishasaprofoundimplication: ItisnottruethatinnovationcomesbeforeCustomer.Buttheexactoppositeistrue: FirstcomesCustomer,withhisGoals,hisjobtobedone,hisappetiteforasolution tohisproblem,hiswaytomeasureajobwelldone. Thencomessolutions:innovativewaystofillagapbetweenajobwelldoneanda jobpoorlydoneornotdoneatall.Anideacapabletorespondtotheneedto performthatjob,tillnowunderperformed.Possiblytodoitwhileotherpeopleis notdoingit:so,inbusinessterms,thatparticularjobisnotonlyunderperformed, butisalsounderserved. ForthisreasonIdonotbelieveinfundingresearchforitself. FirstcomesGoals.Thencomesjobstobedone,thencomesneeds,finallyinnovation respondstothatneeds.FundingR&Dforitself,andhopingtofindaCustomerhas thesamechancestobuildbusinessofoneoftheancientexplorersdumpedinthe jungle:thereare,buttheyareamatterofluck.Youcanwinandwinbig:butthe greatestchancesarethatyougetlost.

Howtheconceptofinnovationevolvedintime:
Ittookawhiletothehumanitytodeveloptheconceptofinnovationlikewetendto usetoday.Alongthehistoryitwentfrominvention:tofindsomething,tostandfor amoreprecisemeaninginvolvingtheconceptofchangeofestablishedcustoms. Isinthisformthatthewordinnovationhasbecometosignarupturewiththe past.Notjustdetachingfromit,butmoreprofoundlydestroyingit,toachieveanew anddiversestatus. Forthelargesocialimplicationsthatthepowerofinnovationhashadinthelastfew centuries,innovationhasbeenconnotedwith2modernelements:creativityand utility.Whatwetodaymeanwiththisword,isnotonlythechangeofhabitsand
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therupturewiththepast,butalsotheabilitytobecreative,combiningelementsto bringanewusefulnesstothesociety. Forthisreasonweassigntoaninventionthestatusofinnovationonlyifthe inventionbringsinanutility.Andthisiswitnessedbyachangeinthebehaviorofthe userwhowilladopttheinvention. Thereisafurtherelementoftheconceptofinnovation(andisthesubjectofthis book):becauseofourwaytopassthevalueamongthemembersofourcommunity isbasedmostlyonmarket,weassigntotheconceptofinnovationalsothe behaviortobe:marketable. (Withalltheimplicationintermsofprotectionofintellectualpropertyand feasibilityofacommercialization,thatitimplies.)

Thewayswereachinnovation:
Taking innovation to the market is difficult (ask Galileo and any marketer) and requiresagooddealofinnovativethinkingperse. We can get some help, if we are able to track the steps that leaded to the invention at the core of our innovation. A better understanding of the innovative process can help identify adopters, differentiate the offering, overcome resistances, communicatewithbetterlanguages. Ifound3preferredwaysthatleadtoinnovation:

TIME:IncrementalversusRadicalinnovation.
The first way is characterized by how the innovator embrace the direction towards the invention. He can decide to look to the past and try to improve, or look to the future and search a new pathway. Romans identified this point of origin with the GodIanus,anamethathasitsrootsin:day,morning,doorandgo. Incrementalbringsintheconcepttoimprove,reorganize,redirect, Radical brings in the concepts of imported, imitated, reshaped, invented, created, discovered,substitute,equivalent,recombination,adoption,originate,changed
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SPACE:ExperimentalversusConceptualinnovation:
Wheninnovating,youcanstartfromyourrealityandshapeitinyourwayor form your idea of the reality and create it. It sounds like the fight between Galileo andAristotle:betweentheprecedenceamongthinkingandtouching. Experimentalitstypicalofseekers,peoplethatlovetry&error,Hunters Conceptualisforfinderspeoplethatliketoimagine,Fishermen

SOCIAL:CompetitiveversusCollaborativeinnovation:
When innovating, you may want to pursue it alone, avoiding the distress of the mass, or ask everybody to contribute with their best skills. Is not only a personal attitude, is much influenced by dominating culture and the moment in time. Leonardo was a pioneer, but Nash has demonstrated that cooperation can bring morevalue. Competitiveinnovationmeansmorecontrol,pioneering,butalsosolitude, Collaborativeinnovationitsopenandthereforecoordinatedorchaotic. The3dimensionsalongwhichtheinnovationcandeveloparemixable: Competitive+radical+conceptualvsCollaborative+incremental+experimental aretypical,butnotexclusivewaystoinnovate.

Thesourcesofinnovation:
When marketing innovation, there could be the need to explain the source of the original idea. Is not only a matter of ownership, it also help define some original characteristics,andhelpwideningthespacebetweenexistingsolutions.

Innovators:
Innovationsparksintotheheadofaperson.Thepersonalcharacteroftheinnovator canwellbereflectedintheinnovation,andusedtomarketit. Experimental innovators can increase the trust around the innovation: they are kind of seekers, who tend to work gradually, often taking just one faltering step at time. Theytendtodotheirbestworklaterintheircareers. Conceptualinnovatorscanbebetteracceptedamongyoungergenerations:they are finders,whopursueinnovationsbasedonboldnewideas.Theytendtodotheirbest
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workwhentheyareyoung.(adaptedfrom:DavidGalenson,UniversityofChicago)

Placesofinnovation:
The place where the innovation has been found, may well impact how it is communicatedandacceptedbytheuser. Take:placeinabroadmeaning,andyougetplaceslikethese: Imitationotherpersonsorcultures Inventionotherpathwaysorgatheringpoints Discoveryotherplacesorlocations Imaginationaspirations:oursorbelongingtoothers Ingenuitythevacuum,orinkids,navepersonsorplaces Culturalchangeotherrules SocialChangeotherpriorities Organizationalchangeotherlogics Politicalinnovationotherfoundationsorcommongrounds Creativitynofoundations Technologicalchangeothertools Technologicalinnovationnewtools Commercializedinnovationonthemarket

TheinnovatorsTalents:
Finally: I have found some traits that distinguish innovative people and I want to highlightthemhere,causetheymaybeusefulwhenwelackofideas: 1)Associating: This measn to be courious, but also tolerant: capable to accept others point of view,and even solitary: cause to get the right association you need to take your time andabitofquiettothink. 2)Questioning: Japanese invented the 7 whys as a model to chase after the real reason behind a customer request. An innovator shall chase with his questions the Goal of a Csutomer. Sometime we have to swimm against the current: doing the contrary of what all other people do. And also play stupid pretending not to understand what isgoingon. 3)Observing: Finding new ideas means to be always in search of new things: we should be Explorers. And as monkeys, we should be ready to copy what others do, even if we
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really do not understand why thay are doing: Experimenting is the only way to discover. Than we must be a bit of a cook: ready to put different stuf in the pot and seeifourmealcomeswithagoodtaste. 4)Socializing: Cause innovating has a lot with associating: we must be ready to socialize: we have to be interesting for others, capable to bring other people into the game, open to newcomers. 5)Exploring: And of course we should be ready to experiment new things: try hard, try loose. We should be ready to take what we have in front apart. To understand who it works, what are the components. And Test: probe, verify, if what we discover and understandisconsistentandcanbereplicatedinsimilarcircumstances. These traits have been collected from the books of prof. Christensen, that has really openawindowoverthewaywedealwithinnovation. And take advantage of the work of Mr. Ulwick on the way we should think about innovation. I hope this short list of questions may help you bring your best ideas on the market andsellthemforthevaluetheycanbringtotheCustomer. Anyfeedbackiswelcomed.Thisisaworkinprogresscollectionofpracticalhintsthat iscontinuouslyupdated.TobeinformedofnextreleasesjoinmeonLinkedin. Andhaveanicework,becausewelovetoseenewideaswalktheworld!

FlavioTosi
Ifyoulikedthisbook,tellittoyourfriends,onyourpreferredsocialnetworkandto whomyouthinkcanbehelpedbyitsreading. Do not forget to send me a note and any feedback, comment, suggestion and encouragement,Iwillreallyappreciate. Write to: flavio.tosi@businessexploration.com, I will do my best to answer promptly.

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Bibliography:
HeresomeofthebooksfromwhichIstolenplentyhands:tryingtoputtheir teachingatserviceoftheinnovationsGoToMarket. UnderstandingglobalculturesGannon nexusscienceofnetworksBuchanan "theArtofstrategyDixit,Nalebuff theinnovatorsdilemmaChristensen PositioningTrout RealityinAdvertisingReeves thecopywriterhandbookBly UltimateguidetoPPCadvetsingStokes TopDogSalesSecretsJohnson Hopetheywillnotsueme

FEEDBACKS: Pleasesendanykindoffeedbackandsuggestionto: flavio.tosi@businessexploration.com Iwillreallyappreciate.

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