Wednesday, January 24, 2007

Beyond Innovation Management - towards Value Management (for MINT)



Preliminary results from a PhD thesis on Innovation - Unlocking 3G Consumer Value - The Australian Opportunity - University of Queensland, and University of Melbourne
researcher.

Richard Ferrers (r.ferrers@business.uq.edu.au)

In searching for an answer to why does innovation fail, and why does an innovation take so long to become accepted generally, an initial focus was on the effect of pricing strategies. But an increasing focus on the individual consumer, led to a consideration of value, a subjective perception, rather than price, an objective measure. Initial data collection, and analysis has led to some preliminary findings to explain how consumers understand the value in a new technology - the current research question. The implications of the results has led to the concept of Value Management.




VALUE MANAGEMENT - treating consumers as individuals - beyond segmentation - a new
explanation for innovation adoption and success




The study of how innovations spread has been in progress for some sixty years, and some of the theories to explain innovation adoption are in their fourth decade, for instance, adopter categories was developed by Rogers in 1962, and the Bass model of technology adoption (1969) which models technology spread based on the percentage of innovators (normally around 3%), and the rate of imitators (around 30%).



Using more recent ideas, derived from postmodernism and phenomenology, which looks beyond scientific, one right answer, and based on a grounded theory study (Glaser and Strauss 1967), of how consumers understand the value a new technology, a new perspective has been developed called Value Management. The study involves in-depth interviews with Australian consumers of 3G mobile internet and phone technology. The theory is being tested with three case study companies - an innovative wine retailer, an electric vehicle designer and retailer, and a textual analysis software developer. The theory developed as part of this study, will be compared with major innovation theories including Rogers (2003), Bass (1969), Christensen (1997), Anderson & Tushman (1990), Moore (1991), Bijker (1995), Agarwal & Bayus (2002), Golder and Tellis (1997), Kim and Mauborgne (2005), and Gourville (2006).



What is value?



Value Management proposes that consumers adopt a new technology when individually they see value in making the change. That decision (defining value) is a personal, individual, unique assessment of costs, benefits and risks, reflecting individual circumstances that lead to the purchase decision, choice or attitude, or other action. Assessing value may not lead to a purchase, but it may, for instance lead to passing positive or negative messages on to the social network of the consumer. The assessment of value takes time and as such has a cost. This cost is part of the assessment of value. Value exists where the benefits and the risks that the benefits will be achieved amply exceed the total costs of acquiring the benefit, including the cost in time to make the assessment.



The implication of this definition of value is that value is a moving target. Value moves with new information and experiences, Value moves when our social network delivers that information or we encounter information in the media. Value also degrades over time. While we are continually showered with more information, older information becomes less valuable as it goes out of date. Value is affected by our past decisions. Value is not measured except in attitudes and action. Value causes purchasing.



Implications of Value



Only consumers assess value. Innovators make value offerings, but consumers decide in their individual situation, if value exists for that innovation, for them, there.



Thus, businesses, and innovators need to enter a dialogue with consumers to determine where value is created for the consumer. Customers need to brought metaphorically inside the business, to co-create valuable offerings. Greater dialogue needs to be undertaken with the consumer.



Consumers need to be able to make a value assessment before they will purchase.
The more complex is the pricing structure of a value offering, the more difficult it will be for a consumer to assess the value. Inability to assess the value, will often lead to not purchasing. Thus prices with fixed and variable components require consumers to estimate their usage, for instance call minutes, downloaded megabytes.



Value Management



A possible definition for Value Management is dealing with consumers, through communication, knowledge provision and strategic offerings, to maximise the value to individual consumers of value offerings, for the pursuit of acquiring value for shareholders. In a sense, consumers are seen to be within the boundary of the organisation, and thus their value is something to be managed. Rather than creating products to offer to consumers, management discovers what consumers value and delivers value offerings to consumers. It becomes important to make it easy for customers to assess the value of a value offering. Thus a business becomes more like a family, with the consumers within, than a castle with the consumers like peasants outside the castle walls.



Several business processes suggest themselves to manage the value relationship with a consumer -


  1. The Value Conversation - getting close to customers;

  2. The Value Trajectory - understanding customers don't act immediately on their value assessment, but that they remember their assessment, and as more information adds to the assessment, a threshold may be crossed leading to action - either a purchasing decision, or expressing a positive or negative comment to their social network;

  3. The Value Lifecycle - value is continually assessed, even after purchase, and messages are still passed through to the consumers social network - positive and negative on the value experience, including repairing, replacement, alternate competitor offerings (or announced future offerings), and complementarity eg using a memory card in a digital camera and music player; and

  4. The Value Management System - what would a coherent system look like? Future work is required here.




Implications of Value Management



Businesses will need to assess the value of Value Management. They will need to find the time to make this assessment, and will only adopt the innovation of Value Management if the benefits in their circumstances will justify the time to understand what Value Management is and means. Businesses will enquire of their social network to assist in making the assessment. A risk for business is that a competitor may see the Value of Value Management, where you do not.





More at http://www.thejoie.com.au/phd/
 (now offline - see www.thejoie.com)


- Unlocking 3G Consumer Value - the Australian Opportunity.
Your comments are welcome by email or on http://www.valman.blogspot.com/.




References:



Agarwal, R. & Bayus, B. L. (2002). The market evolution and sales takeoff of product innovations. Management Science, 48, 8, 1024-1041.

Anderson, P. & Tushman, M. L. (1990). Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change. Administrative Science Quarterly, 35, 4, 604.

Bass, F. M. (1969). A new product growth model for consumer durables. Management Science, 15, January, 215-227.

Bijker, W. E. (1995). Of bicycles, bakelites, and bulbs : toward a theory of sociotechnical change. Cambridge, Mass.: MIT Press.

Christensen, C. M. (1997). The innovator's dilemma : when new technologies cause great firms to fail. Boston, Mass.: Harvard Business School Press.

Glaser, B. G. & Strauss, A. L. (1967). The discovery of grounded theory: strategies for qualitative research. New York: Aldine De Gruyter.

Gourville, J.T. (2006). Eager Sellers and Stony Buyers. Harvard Business Review, 84 (June), 6, xx-xx.

Golder, P. N. & Tellis, G. J. (1997). Will it ever fly? Modeling the takeoff of really new consumer durables. Marketing Science, 16, 3, 256-270.

Kim, W. & Mauborgne, R. (2005b). Blue Ocean Strategy: How to create uncontested market space and make the competition irrelevant Boston, MA: Harvard Business School Press.

Moore, G. A. (1991/2002). Crossing the chasm : marketing and selling high-tech products to mainstream customers (Rev. ed.). New York: Harperbusiness Essentials.

Rogers, E. M. (2003). Diffusion of innovations (5th ed.). New York: Free Press.


13 comments:

Sheila Mello said...

The preliminary results from your PhD thesis on innovation fascinated and heartened me. As a principal at Product Development Consulting, Inc., I work with clients who experience the practical challenges of commercializing innovation. What I found fascinating was the transformation of your initial hypothesis from looking at pricing strategies to looking at value. In assisting companies in capitalizing on innovation to create product portfolios, we have found that value is indeed the key to success (we even wrote a book about it recently, "Value Innovation Portfolio Management"). What I found heartening was that academic research is being conducted to validate the reality of our experience.

However, I would take issue with the assertion that value is "a subjective perception" as opposed to price, which your research summary characterizes as "an objective measure." Contrary to popular belief, there are ways to objectively measure customer value, and creating a successful product portfolio depends on using customer value measurements in conjunction with more traditional financial measures such as price and return-on-investment. I invite you and anyone else interest in these ideas to explore them further at our Web site, www.pdcinc.com, by contacting me directly at smello@pdcinc.com, or by reading "Value Innovation Portfolio Management."

Regards,

-- Sheila Mello
Principal, Product Development Consulting, Inc. and a co-author of "Value Innovation Portfolio Management," published in 2006 by J. Ross Publishing.

A/Prof Manoj Joshi, SAMA, Lucknow said...

Perhaps pl accept my heartiest congratulations for attempt on a current topic "Innovation.", which happens to be my own Interest area.

I though to share some of my views while browsing your work briefly posted to me by MINT.


As I endeavor in my research, I think Value is a combination of the intrinsic and extrinsic desire of the consumer that is a subset of the market place. Innovation in Product/Service/Process hence is driven by the factor termed "Convenience" (usually observed in case of mobile technology, disruptive innovation.) that in turn drives the "Price value" considerably.

Once the product comes closer to the consumer (sub set of the market) (I mean acceptability of technology) it either drives the market and many a times driven by the market and so would the innovation be impacted. I agree [An Innovation fails if it fails to create value] but then most innovations (innovators) do not exploit the opportunity recognition process and end up in "producing intermediate products" (so termed partial innovation) not suiting to the term I just coined/reiterate "Convenience" to the consumer(market). If absorption capacity is high (it differs from consumers to consumers; markets to markets) value would inherently mean high else vice-versa. Yet the dogma is with technology products that are attempting to give so much to the consumer as convenience that innovations are bound to "seed" and "fail". But that's what all is about "Innovation velocity", the battle to survival, the race to create value to the emerging consumer/market.



You may find some of my contributions in the link provided. Pl let me know
if I could be of any help.





Very truly Yours,
Manoj Joshi
Asst Prof (Strat/Entre/Inno)/SAMA/
http://ssrn.com/author=638663

BE, MIE(Mech), PGDFM, MBA, MIMA, DSch (Innovation), Chartered Er
Founder Life Member Association of Knowledge Workers, Lucknow

A/Prof Manoj, Joshi, SAMA, Lucknow said...

Dear Richard,
I think you are going great. The work is denitiely intresting. Were you able to palce my comments on your blog? [Now done rf] I think you must go ahead palcing this detail on the blog and then give me the link. I will pass on to many who have interest on innovation.
Good Luck
Manoj

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