Knowing a Winning Business Idea When You Know One

Topics: Innovation, Business model, Mutual fund Pages: 15 (5858 words) Published: October 23, 2011
Knowing a winning business idea when you see one
Kim, W. Chan; Mauborgne, Renee. Harvard Business Review, Sep/Oct2000, Vol. 78 Issue 5, p129, 9p

Identifying which business ideas have real commercial potential is one of the most difficult challenges that executives face. Three tools--to determine utility, price, and business model-can help them invest wisely.

IN 1998, MOTOROLA ROLLED OUT A PRODUCT that was supposed to redefine the world of mobile telephony. The Iridium, declared the company, would be the first mobile phone to provide uninterrupted wireless communication anywhere in the world, no matter what the terrain or country. It was a complete flop. In its rush to embrace a new technology, Motorola overlooked the product's many drawbacks: the phone was heavy, it needed a host of attachments, and it couldn't be used in a car or building-exactly where jet-setting global executives needed it most. At $3,000, people couldn't see any compelling reason to switch from their $150 cell phones. As this tale illustrates, even the most admired companies can get innovation spectacularly wrong. Sometimes companies rush a new technology to market too soon or at the wrong price. At other times, they ignore the radical idea that another company uses to put them out of business. CNN's competitors, for example, first dismissed its offerings as "Chicken Noodle News." It's not as if companies don't know what the challenges of innovation are. A new product has to offer customers exceptional utility at an attractive price, and the company must be able to deliver it at a tidy profit. But the uncertainties surrounding innovation are so great that even the most insightful managers have a hard time evaluating the commercial readiness and potential of new business ideas. In this article, we offer a systematic approach to reducing the uncertainties of innovation. To understand what underpins the commercial success of a new idea, we've built up a database of more than 100 companies that have innovated successfully and repeatedly. We've also collected data on the companies whose products and services our innovators have displaced. (For more detail on our methodology, see the sidebar "Our Research on Innovation.") From that information, we created three analytic tools to help managers know a winning business idea when they see one- whatever the market space it occupies or creates. The first tool, "the buyer utility map," indicates the likelihood that customers will be attracted to the new idea. The second tool," the price corridor of the mass," identifies what price will unlock the greatest number of customers. The third tool, "the business model guide," offers a framework for figuring out whether and how a company can profitably deliver the new idea at the targeted price.

Applying the tools, though, is not the end of the story. Many innovations have had to overcome adoption hurdles- strong resistance from stakeholders both inside and outside the company. While often overlooked in the planning process, adoption hurdles can make or break the commercial viability of even the most powerful innovative ideas. So we'll conclude by discussing how managers can head off those reactions. First, though, let's look at utility. Creating Exceptional Utility The managers at Motorola responsible for the Iridium fell into a very common trap: they reveled in the bells and whistles of their new technology. But successful innovators focus on the product's utility-that is, they try to identify where and how the new product or service will change the lives of its consumers. Such a difference in perspective is important because it means that how a product is developed becomes less a function of its technical possibilities and more a function of its utility to customers. The buyer utility map helps to get managers thinking from the right perspective. It outlines all the levers companies can pull to deliver utility to customers as well as the different experiences...
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