How to Profit from Your Innovation

First, we need to define two aspects: the base for every new product or solution comes from organizational knowledge. Creating new products and processes through the development of new knowledge or new combinations of existing knowledge, mostly the latter, is the next step of the innovation path. However, this stage is called invention and is not enough for a company to claim it provides an innovative product.

Innovation is the commercialization of invention. This is done by producing and marketing a new good or service, or by using a new method of production. Once introduced, innovation diffuses on 1) the demand side, e.g. purchase, and 2) on the supply side through imitation by competitors.

The value created by innovation is influenced by conditions that are called regime of appropriability. The value is important for profitability. A strong regime implies that innovation is able to capture a share of the value. Accordingly, a weak regime indicates that other parties derive most of the value from the innovation.

There are several resources that allow profiting from the innovation:

  1. Property rights protect returns to investors. These can be patents (mostly used for chemicals, software, etc.), e.g. exclusive right to innovation; copyrights (exclusive production, publication, sales); trademarks (words, symbols or other marks used to distinguish the product or service); or trade secrets (modest degree of protection for recipes, formulas, processes, customer lists, etc.).
  2. Tacitness and complexity of technology is the extent to which tech knowledge is codifiable. The extent to which innovation can be imitated by a competitor depends on the ease with which the technology can be comprehended and replicated. Respectively, the more complex the technology is, the harder it is to copy.
  3. Lead time, which is a time it takes for innovator’s followers or competitors to catch up with the new product. In the combination of being the first-mover in innovation and creating a big lead time, it is most likely to be successful. Lead time allows companies to move down the learning curve and use it to build capabilities and market position to extend the industry leadership.
  4. Complementary resources needed to finance, produce and market the innovation.

Exploiting innovation is based on two factors:

Characteristics: extent to which a firm can establish clear property rights. Licensing is very important for the success of innovation. Easily commercialized innovation relieves the company from searching for complementaries.

Resources and capabilities affect the choice of how to exploit innovation. The company needs to identify and map their innovation ecosystem and then manage interdependencies in it.

However, technical and market uncertainty creates a lot of risks for companies that are willing to produce innovation. How to manage these? It is important to cooperate with lead users of your innovation: research market trends and customer requirements. Also, limit the risk exposure: avoid debt and keep costs low while you are still on the growing path. Be flexible: create multiple strategies in case the market changes or one of them is not successful. Do not be afraid to try out, and have a back-up plan.

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Crassula

Crassula

Crassula is a software platform that helps businesses and financial institutions to build their own payment systems, wallets, online, mobile banking and more.