UABS KNOWLEDGE

INNOVATION

Why companies should shape, not predict, the market

11 January 2018

Suvi Nenonen and Kaj Storbacka argue for a radical rethink by New Zealand companies about how markets work and, therefore, how best to grow business.

Instead of merely working to improve existing products and services, or create new ones, businesses should look at everything that affects what they make and how it is used – and shape that wider ecosystem. And nearly always, this will involve collaboration – sometimes, even with competitors.

So say Business School researchers Associate Professor Suvi Nenonen and Professor Kaj Storbacka, who have completed a three-year project on market innovation.

"People are beginning to realise that, with the pace of change and digital disruption, you can no longer predict the market, but you can reconfigure the playing field," say the researchers.

They say New Zealand firms appear capable of shaping markets in this way, but few do so – and this is likely resulting in many lost opportunities and product failures.

"The old rules say you have to reactively adapt to the environment that you are part of. The new playbook says: seek to proactively adapt that environment to yourself, so it works better for you and others."

This process may or may not involve tech innovations, they say. Essentially, it is about identifying choke points in the wider system – points where the need for a particular resource holds everything up – and fixing them. For instance, switching from selling machinery to leasing it – as Rolls Royce did with its aero engines – to reduce the capital that customers need, thus enlarging the market.

"Market innovation is not simply a matter of 'build it and they will come'," says Dr Nenonen.

"Rarely, if ever, will a new technology be so radical and compelling that it spontaneously calls into being a market. Just as the car needed roads and an iPad needed wireless technology, innovations generally require certain conditions to make them viable. And these conditions often involve a range of players, from suppliers and partners to support infrastructure and government regulators.

"To create a new market, it is not enough to create a 'minimum viable product'. Firms now must identify the 'minimum viable system' that their product needs."

For their Marsden-funded project, Nenonen and Storbacka looked at 21 companies from Finland, New Zealand, Singapore, and Sweden that had a market-shaping innovation, and studied the capabilities and activities that had enabled them to change the rules of the game. Half of them were SMEs and the rest large companies.

They pinpointed 57 factors, including building infrastructure that supported customers using a product, cutting out intermediaries, introducing new terminology, and influencing regulations.

"Our call to shape markets represents a 180-degree turn for those with a traditional business education," says Dr Storbacka.

He says that it requires a profound shift in thinking about how the market works, and therefore how best to grow a business. That shift is from fighting for a bigger market share (zero-sum game) to growing the market for everyone (positive-sum game) via systemic innovation.

"Entrepreneurs may intuitively practice some of the market-shaping capabilities and activities we identified, but often that comes from their personal vision or hunch, not from a deeper understanding and systematic approach," says Nenonen.

"With this research, for the first time, we have provided a playbook and a toolkit for firms of all sizes and at all stages."

Among capabilities New Zealand firms lag behind in, the researchers list the ability to:

• Introduce radically new products or services

• Encourage customers to look beyond the current use of their product

• Influence what customers are looking for in their product

• Engage with media to influence the language used to report on their industry

• Influence how their industry is measured and reported on by official bodies

The pair have co-authored a book on market shaping aimed at managers and entrepreneurs, to be published by Emerald in 2018. Their 2010 book, Designing Markets: Are You Market Driven or Market Driving?, was awarded best business book in Finland.

Suvi Nenonen

Associate Professor Suvi Nenonen is Director of the University of Auckland Business School's Graduate School of Management.

s.nenonen@auckland.ac.nz
Kaj Storbacka

Kaj Storbacka is Professor of Markets and Strategy at the University of Auckland Business School's Graduate School of Management.

k.storbacka@auckland.ac.nz

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