UABS KNOWLEDGE

STRATEGY

Suvi Nenonen on shaping the market

13 February 2018

Associate Professor Suvi Nenonen, Director of the Business School's Graduate School of Management, urges New Zealand companies to tap the power of market-shaping. Her book Designing Markets: Are You Market Driven or Market Driving, co-authored with Professor Kaj Storbacka, was awarded the prize for best Finnish book in 2009-2010.

Video Transcript

0:08

Market-shaping turns traditional strategic thinking on its head. If typical companies try to succeed by analysing their operating environment and then adjusting their operations accordingly, market-shapers do it the other way around. They don't take the environment as a given, but they try to shape the environment so that it creates more value for the company and their customers.

Becoming a market-shaper requires a subtle but significant change in how you think. Market-shapers understand that the business of business is not just to produce and sell whatever you are selling, it is to create value for your customer. And the value for the customer is not only dependent on your product, it is also dependent on the system that helps the customer to use the product correctly.

A classic example of market-shaping comes from the '60s, when Rolls Royce understood that you don't necessarily have to sell your jet engines to the airlines – that you can also lease them. And this small change was quite dramatic because by changing from selling the equipment to leasing it they reduced the capital requirements of the airlines considerably.

Another example which is slightly embarrassing for me as a Finn is the smartphone industry, and how that developed. Because, as you probably remember, Nokia was the biggest mobile phone manufacturer in the early 2000s. And they were also the first to introduce their own smartphone. But, unfortunately, Nokia didn't really understand what makes the smartphone smart. It is not just the device, it is the apps. And Nokia didn't actively foster the creation of app developer ecosystems so that entrepreneurs could be developing apps for their smartphones. Apple, on the other hand, understood that, and now we know which of these mobile phone manufacturers ended up being the dominant player in the smartphone market.

2:23 Taking back control

Actually, market-shaping is not a new phenomenon. If you go back 100 and 150 years, you saw a lot of companies doing very active market-shaping. And why we saw lots of market-shaping strategies then was that at that time there was another technological disruption: the invention of electricity and mass production. That opened a lot of opportunities, for example, for car manufacturers or bicycle manufacturers to do market-shaping. Now, in the early 2000s, we have digital disruption, and it is putting things in motion, opening up new opportunities for market-shaping, and also making things less predictable. So, it is easier for companies to try to grab back control by shaping, because it is not possible to predict.

Apart from the fact that it allows you to take back control, typically the benefits are twofold: market-shaping bakes a bigger pie, so almost always market-shapers are enjoying fast turnover growth, and very often they are more profitable than their competitors that are not involved in market-shaping.

3:37 The power of collaboration

Collaboration is absolutely key to market-shaping because if you even just look at the definition, you don't have a market-level change unless also the other people change how they behave. And, also, very few companies are powerful enough to shape the market alone.

One example could be current developments in the electric vehicles market. You don't just need the electric car, you also need the charging infrastructure. So, you need companies who are developing these batteries, and government getting involved so that you get places for the charging stations and so on.

And there is also a beautiful New Zealand example about the power of collaboration when it comes to market-shaping – the New Zealand screw-cap initiative. A small number of New Zealand wineries coming together and making screw-cap closure a dominant way of closing a wine bottle globally.

Market-shaping is also very important when you are trying to commercialise a very innovative product or a completely new technology. You probably know a lot of stories about products that failed, that were just ahead of their time, and timing is one aspect of that. So if we take an example from Apple – the introduction of the iPod. Apple realised that it pays to wait until, for example, the internet speed is sufficiently high for people to download music. But they also understood the system that the consumers need in order to get value from their player. It is not just the player. The consumers also need music, and preferably in an easy and legal way. And then they introduced iTunes – that was the game-changer move in this particular market.

5:35 A strategic toolbox

There are a lot wonderful examples of Kiwi companies shaping their markets very successfully. But, unfortunately, we are not seeing that as much as we do in other countries of similar size. According to our research – it is a bit of an oxymoron – New Zealand companies are punching way beyond their weight when it comes to the antecedents of market-shaping. So, they truly understand value creation and the systemic nature of their markets, but for some reason they are not proactively shaping them. But, in my book that is actually good news, because changing culture would be much more difficult than just taking this new strategic toolbox. So, there are lots of untapped opportunities for New Zealand companies.

In summary, New Zealand produces wonderful products, wonderful services, but what is needed, what is the magic ingredient, is to become more courageous, start proactively shaping markets, also internationally, and do it collaboratively.

 

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