How to find ideas that markets will love

Birkbeck alum and Innovation Strategy Consultant Melina Padayachy identifies the essential missing link for successful entrepreneurs.

Creativity, Idea, Inspiration, Innovation, Pencil

Finding ideas that markets would love can often seem like a feat that only few people are lucky enough to achieve. Study the stories of Amazon, Google and Starbucks for instance, and you would find that in each case, the innovators almost stumbled upon their ideas by chance.

Indeed, prior to the genesis of Google, Larry Page was a student at Stanford University where he was aspiring to download the internet on his computer and rank web pages based on their popularity. As a result, Google’s proprietary Page Ranking technology was born, making Google the leading search engine in the world.

For Amazon, Jeff Bezos came across an important piece of information about the exponential rise of the internet while researching opportunities for his boss and as a consequence, he created what is now the leading online retailer in the world.

Next, the idea to sell espresso in a coffee bar popped into Howard Shultz’s mind while he was attending a conference in Milan and he saw espresso bars at nearly every road corner. He wanted to import the concept to the United States and today, Starbucks is one of the leading coffee places in the world.

In all three cases, it would seem that the innovators were either in the right place at the right time or they were trying to solve the right problem. As a result, one may be tempted to conclude that innovation is essentially serendipitous and that any attempt to decode it would be futile.

Yet, if you examine how past innovations impacted their markets, you would find certain distinctive patterns that could be emulated. For instance, some innovations capitalised on existing trends while others were caused by growing and changing trends, and still others, created new trends.

Of even more significance, are the facts that based on their respective market impacts, different ideas would need different development, go-to-market and scaling strategies.

The implications are quite significant because often, new ideas are subsumed under the generic banner of innovation and no distinction is made among their respective market impacts. As a result, some fail to take off. Indeed, scroll through the post-mortems of failed ideas and you would see that often, ideas failed because their market impact was either wrongly framed or overlooked, and as a result, the wrong development and go-to-market strategies were applied.

The Link between the market impact of an idea and its development strategies

Amazon.com

Take a look at Amazon.com for instance. In 1994, Jeff Bezos spotted a growing trend in the use of the internet and he noticed it was starting to change the way that books were bought. Internet technology was new at the time and people had just started buying books online. Already cognizant of the facts that internet usage was growing at the rate of 2300% per year and that books were the most sold items on the internet, Bezos decided to launch an online bookstore. However, the uncertainties facing the company were quite high.

To start with, it wasn’t clear whether book buyers would continue adopting the internet and if so, whether they would change their book purchasing habits. In that respect, Amazon relied on market intelligence to gauge the rate at which internet usage was growing.

Also, by observing markets, Jeff Bezos could find that there were already two online booksellers and that the market was growing.

Then, Amazon’s beta test prior to its launch helped identify the barriers to adoption, namely customers’ concerns about storing their credit card information online. Amazon thus came up with a secure credit card system. Incidentally, the company “finished 1996, its first full year in business with net sales of $ 15.7 million- an attention getting 3000 per cent jump over 1995’s $ 511000.” Clearly, the trend had caught on.

Boo.com

Similarly, Boo.com was an online fashion company that was founded in 1998 by Ernst Malstom, Swedish poetry critic, and Kajsa Leander, former Vogue model. Aspiring to be the “premier online location where the cool and the chic would be able to buy their clothes,” Boo.com launched with 400 employees in eight offices.

However, in as much as only 20% of UK households had access to the internet, the company had few visitors to its sites and not enough sales to sustain itself. Furthermore, the website’s features could not be fully accessed with the dial up connection in UK households. As a result, the company had to close down two years later.

Question is: Could Boo.com have done anything differently?

To start with, Boo.com impacted its market in very much the same way that Amazon.com impacted theirs. Indeed, the company capitalised on a growing trend in the use of the internet, to change the way that an existing job was being done, i.e purchase of fashion.

The uncertainties that Boo.com faced were quite similar to those faced by Amazon.com.  Yet, unlike Amazon.com, the company did not understand its market impact and as a result, it did not try to overcome the uncertainties associated with the idea.

For instance, it should first have had market intelligence pertaining to the rate of growth in internet usage in its different markets. Market intelligence would have revealed that only 20% of UK households had access to the internet, and that information would have enabled the founders to adequately gauge the scale of their initial business and potential rate of adoption.

Then, with a Minimum Viable Product (MVP), Boo.com would have identified the barriers to adoption. For instance, it would have discovered sooner that the features on its website were not supported by dial-up connection and it could have perhaps simplified its website or found ways to get around the problem. The MVP would have also allowed the company to test the fit between the service and markets and the fit between the business model and markets.

Instead, the company was focused on scaling and as a result it did not survive.

Thus, by understanding the market impacts of innovations and by understanding their implications for the development, commercialisation and scaling of new ideas, innovators can avoid diving into new ventures armed with only their gut feeling, and can successfully bring their ideas to markets.

Melina Padayachy is an affiliate alumnus of the Birkbeck Centre for Innovation Management Research. This blog is adapted from an excerpt of her new book, The Innovator’s Method: Bringing New Ideas to Markets.

Based on an analysis of past innovations and of start-ups that have failed, The Innovator’s Method identifies a unique link between how an idea would impact the “job to be done” of its market and its ensuing development, go-to-market and scaling strategies.

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Should taxpayers fund university education at a time of crisis?

This post has been contributed by Dr Federica Rossi, lecturer in Birkbeck’s Department of Management, and Aldo Geuna, professor of Economics at the University of Torino, Italy. Their new book The University and the Economy: Pathways to Growth and Economic Development is published by Edward Elgar.

Higher-education-fundingWith the recent financial and debt crisis, the extent to which the public can afford to fund universities has become increasingly controversial: in the context of tight public budgets and widespread cuts to public spending, even in areas perceived as basic services to support the more vulnerable members of society, what reasons could there possibly be for continuing to fund a “luxury” like higher education?  Dr Federica Rossiand Professor Aldo Geuna consider the viability of publicly funded universities and their alternatives.

Some convincing reasons must exist if, as it emerges from data reported by the European University Association’s Public Funding Observatory a majority of 14 European countries, out of 24 for which data are available, have increased public funding for universities in the period 2008 -2012, right through the latest recession. Investment has increased in, among others, Austria, Germany, Poland, Belgium, the Netherlands and the Scandinavian countries. Ireland and the United Kingdom are the only countries in Northern Europe to have decreased investment, together with debt stricken countries in Southern Europe and some Eastern European ones.

The argument against: higher education generates mainly private benefits

The main argument against the public funding of higher education builds on the view that the benefits of higher education are enjoyed mainly by university graduates, in terms of potentially higher future earnings and lower probability of unemployment, rather than being shared across society. If the benefits of higher education are strictly private, then why should the general public pay for it? The cost of higher education instead should be met by the students who will directly benefit from it.

This argument is reinforced by the fact that information and communication technology makes it easy to disseminate and access knowledge: when students anywhere can access the knowledge produced by the best academics in the world at the click of a button, why should governments fund them to physically attend lectures at a local campus? Using openly disseminated materials provided by prestigious universities could provide a way for poorer students, who would not have the upfront resources to pay for university fees, to access the same or even better knowledge at a fraction of the price.

In reality, however, things are rarely this simple. And indeed several theoretical and practical arguments have been made to support the view that there are still good reasons for providing substantial public funding for higher education even (or maybe especially) at a time of crisis.

But: the private benefits of higher education are risky and with a delayed pay back

The opportunity cost of studying is high over the short term while its private benefits are risky and with a delayed pay-back. Given that young people often have no resources of their own, or are either unwilling to undertake the risk, or they have no access to private credit (as financial markets are imperfect), then without incentives, investment in education would be lower than optimal.

The only students who would invest in undertaking higher education would be those who are rich enough to pay upfront, ramping up social and economic inequality. This is even more undesirable when we consider that the private benefits of university education tend to be higher for those individuals who come from less well-off families who generally do not enrol at university.

So there is a general consensus that some form of government intervention is necessary in order to increase the number of students undertaking higher education, and to do so while preserving some form of equal opportunity of access.

One way to do this is to provide full public funding of higher education in order to make it completely free at the point of delivery. However, this is not the only possible approach, and indeed it is becoming less frequent: it has even been shown that blanket funding irrespective of an individual’s income could have regressive effects on the incomes distribution. In most countries, systems are in place according to which students contribute at least in part to the funding of their education, but grants and loans exist to support those students who lack resources of their own.

Recently, for example, the United Kingdom has introduced a loan-based system where students receive a loan from the government in order to fund their education, and pay the loan back once they benefit from higher salaries in the job market. Here, the government is prepared to sustain the risk of students not paying back their loans if their future income does not meet a minimum threshold or if students are impossible to track down – a risk which has an important systemic component (for example, both types of risk would be systematically increased by a recession, where graduates are less likely to reach the minimum income thresholds and also more likely to emigrate in search of better job opportunities).

If such systemic problems were to occur, the cost to the public purse could actually turn out to be quite high. Moreover, even if we accept that students should in part contribute to the cost of their university education, issues like how much they should contribute and whether this contribution should be linked to their ability to pay it, remain open to debate.

The social benefits of higher education are anything but negligible

It has been shown that both an increase in the share of graduate population and an increase in the growth rate of graduates generate a more than proportional increase in economic growth. This suggests that the broader public who have not attended university also benefit from having colleagues and fellow citizens with a higher level of education, thanks to the latter’s contribution to economic growth, which goes beyond their own individual productivity.

In particular, research has suggested that a more educated workforce:

  • has a positive effect on the productivity of colleagues with a lower level of education
  • facilitates and accelerates the adoption of existing technologies not yet implemented
  • is more likely to introduce product and process innovation and therefore to economically exploit radically new technologies – a particularly important process in economies which already operate on the technological frontier.

There are also important indirect effects. Education can improve citizens’ health, stimulate political participation and encourage a sense of civic duty and interpersonal trust, factors that are important for the competent functioning of economic institutions and their performance.

The presence of these external effects provides arguments in support of the general taxpaying public contributing to the funding of higher education, whose benefits are felt across society at all levels. This is one reason why public university fees are, and should be, quite low when compared to the average cost of a student’s university education.

What education, rather than just how much education, matters

If universities’ sources of funds are entirely private, this introduces incentives for universities to maximize enrolments in the short term by focusing on those disciplines for which demand is greater, in order to swell the number of enrolled students and thus increase revenues. Research has shown that privately funded institutions tend, overall, to focus on the most popular subjects. From the perspective of maximizing the contribution of higher education to economic growth, this is likely to lead to dynamic inefficiencies.

First, there is no linear correspondence between students’ demand for higher education and the actual labour market’s needs for specific competences, since student demand for courses is based upon subjective evaluations and incomplete information. This is the reason why, for example, the United Kingdom continues to pour public funds into the teaching of STEM disciplines which are perceived to have high economic importance even though student demand for STEM courses is low.

Second, there is a real difficulty of foreseeing what academic disciplines will turn out to be important in the future. How to anticipate, for example, which subjects will best support the educational needs of individuals and companies in 15 to 20 years’ time? The skills required by an economic system are the result of events that cannot easily be predicted, such as geopolitical changes or the emergence of new technologies. It is important to allow universities to continue to educate students in a broad variety of fields, keeping the system sufficiently flexible and open and allowing for possible adjustment in the event of unexpected changes – something that can be accomplished only if universities are at least in part free from the compelling need to passively respond to market demand.

9781782549482_4_1And finally…can technology be the answer?

While ICT is certainly helpful in broadening access to knowledge, there are numerous arguments that suggest that simply having access to knowledge does not equate gaining an education into a particular field or topic. Being able to access free university courses online does not substitute for the ability to attend a physical institution, for a number of reasons:

  • A certain level of previous education is often required in order to understand advanced knowledge. University institutions can provide the tailored training that weaker students (especially those from disadvantaged backgrounds, who may have the needed qualifications to enter university, but whose quality may not be as good) might need in order to bridge the knowledge gap that separates them from stronger students and allow them to complete their studies
  • The transmission of knowledge is enhanced by direct interactions with teachers
  • It has been shown that being part of a community of practice, though meeting and interacting with other students, enhances learning and motivation
  • Some of the benefits of higher education come from being part of a social community of students and from developing connections that continue after university

While some of these benefits could be re-created virtually (for example virtual communities of practice can be set up), overall it is unlikely that students can derive the same benefits from accessing materials that are openly available online as from attending university courses that are tailor-made for a specific and small group of students. The weaker students in particular are the least likely to have the ability to benefit from this, which invalidates to a large extent the argument that freely available online courses can provide an effective way for school leavers priced out of university to gain the same education as fee paying university students.

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How does academic research really benefit business?

This post has been contributed by Dr Federica Rossi, lecturer in Birkbeck’s Department of Management, and Aldo Geuna, professor of Economics at the University of Torino, Italy. Their new book The University and the Economy: Pathways to Growth and Economic Development is published by Edward Elgar.

The University and the EconomyIn an international economic environment where innovation processes are increasingly open and decentralised, companies’ ability to innovate often depends on acquiring knowledge from external sources: in particular, it depends on companies quickly identifying the knowledge they need and integrating it with their internal research, development and production processes. Interactions with universities allow companies to embed scientific knowledge in their internal innovation processes, an accomplishment which is particularly important in high technology sectors, but increasingly across the board.

While in recent years university-industry interactions have become the focus of a growing academic literature, much remains to be learned about the factors that promote such interactions and about how they really unfold. Our knowledge of how companies engage in technology transfer – how they access, exploit and build upon academic research – is particularly lacking.

Thanks to two original and in-depth surveys of companies and company-based inventors in North-West Italy, we have been able to shed some light on the dynamics of university-industry technology transfer from the companies’ perspective (Geuna and Rossi, 2015). While some of our findings support arguments already made by previous research – among others, that companies value science which is openly disseminated through scientific publications and conferences rather than through proprietary means such as licenses, that the more educated the workforce the better able companies are to exploit academic knowledge and, relatedly, that larger and more research intensive companies are more likely to interact with universities – they also shed light on some as yet unexplored issues, which challenge commonly held ideas about how knowledge transfer occurs.

Not all university-industry knowledge transfer involves universities

A lot of technology transfer occurs under the radar of university institutions, through personal contacts (and contracts) between businesses and academics. Direct interactions between industry-based inventors and academic researchers are an established channel through which companies access academic knowledge, and they are particularly important because they contribute to the production of valuable inventions. The share of companies that interact with universities exclusively through direct personal interactions with academics, without any involvement of university structures, is almost as large as the share of companies that formalise their interactions with the university institutions (alongside, possibly, direct interactions with academics).

Companies that do not collaborate with universities are over-represented among small companies and under-represented among large ones, and are less likely to invest in internal R&D. This suggests that company staff need an adequate level of education and competence in order to collaborate with academic staff. Among the companies that do not interact with universities, however, it is possible to identify different groups: those that do not interact because they find it unnecessary or too difficult and/or expensive, and those that do not interact with university institutions but instead they interact with individual academics outside of these institutional channels.

The latter companies are an interesting group because they are smaller and they are more likely to adopt open innovation strategies than the companies that interact with universities through institutional channels. Direct interactions with individual academics are, therefore, particularly appealing to dynamic small and medium size enterprises which probably find institutional channels too cumbersome.

The social sciences have a key role to play in regional knowledge transfer

Much university-industry technology transfer does not involve technology at all. Rather, a lot of interactions between companies and universities focus on providing solutions to legal, logistic, marketing, management and organisational problems. This is particularly so for interactions that occur between companies and universities based in the same region, while interactions between more distant universities (outside the company’s own region and sometimes even internationally) are more likely to concern technological issues.

Why do companies prefer to interact with regional universities, as opposed to distant ones, in order to solve business problems? The reason may depend on the fact that business problem-solving (for example, problems that have to do with human resource management, marketing, legal compliance, and so on) builds upon detailed knowledge of the socioeconomic and legal-institutional context in which the firm operates.

This requires direct interactions that allow the transfer of tacit knowledge. Instead, collaborations with distant universities involve more often codified and abstract forms of knowledge, the transmission of which does not require direct communications. Companies may also look at distant universities when they are seeking very specific knowledge that does not exist in the region.

Companies that collaborate with distant universities are often larger and tend to invest more, since technology-focused projects are usually more expensive than those focused on the solution of business problems. Nonetheless, collaborations with universities in the same region are very frequent and have important roles to play for the competitiveness of businesses and of the region overall.

Theoretical academic knowledge is particularly valuable to business

Our survey of company inventors has allowed us to investigate what modes of interaction between industrial inventors and academic researchers led to the realisation of more valuable inventions.

We have found that collaboration setups that involve direct interactions between industry researchers and academics tend to lead to more valuable inventions. Also, interactions where universities transfer theoretical knowledge and scientific principles (instead of more applied knowledge) lead to more valuable inventions. This is an unexpected result, since it is commonly believed that the theoretical knowledge developed by academics is quite far from having an impact on industrial innovation processes. Instead the companies and the industry inventors that we interviewed find that theoretical academic knowledge directly supported their innovation processes.

What does this mean for universities?

In short, these results suggest three immediate implications for universities. First, universities should focus on enabling academics to interact with industry whatever the governance of the collaborations, instead of insisting on regulating all interactions between academics and companies – in fact, direct personal interactions often fit companies’ needs better and are more productive than those that are formalised through the involvement of the university institutions.

Second, universities should exploit their business problem-solving competences (residing particularly in social science departments) to support the needs of local businesses and to strengthen intra-regional collaborations. Third, universities should not forget that their key source of competitive advantage resides in the development of advanced, cutting edge theories and methods rather than in the pursuit of very applied knowledge, which could also be provided by other actors in the economy.

Rather than focusing on providing solutions to immediate day-to-day problems, universities should continue to put their resources into producing the high level knowledge that very few other organizations in the economy are capable of generating.

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References

Geuna, A., F. Rossi (2015) The University and the Economy Pathways to Growth and Economic Development Cheltenham: Edward Elgar.

See also:

Bodas Freitas, I., Geuna, A., Lawson, C. and F. Rossi (2014) How do industry inventors collaborate with academic researchers? The choice between shared and unilateral governance forms, in Patrucco, P. (ed.) The economics of knowledge generation and distribution. The role of interactions in the system dynamics of innovation and growth, London: Routledge.

Bodas Freitas, I., Geuna, A. and F. Rossi (2013) Finding the right partners: Institutional and personal modes of governance of university–industry interactions, Research Policy, 42(1): 50-62.

Bodas Freitas, I., Rossi, F. and A. Geuna (2014) Collaboration objectives and the location of the university partner: evidence from the Piedmont region in Italy, Papers in Regional Science, 93(S1): S203-S226.

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