Business Growth - The New Rules For Bringing Innovations To Market

It's tough to get consumers to adopt innovations - and it's getting harder all the time. As more markets take on the characteristics of networks, once-reliable tools for introducing new products and services don't work as well as they used to. The efficacy of advertising, promotions, and the sales force has declined; it is more difficult for innovators to rise above the din of information from competing sources; and only hard-to-manage relationship skills seem to make a difference.

Executives need to rethink the way they bring innovations to market. By using game theory, they can develop new strategies for playing in today's networked world. By understanding how social, commercial, and physical networks behave, innovators can develop new tactics. And by working back from an end-game, they can change markets from foes to allies.

Nature's Way

Markets, by their very nature, resist new ideas and products. Despite the risks involved with developing and launching new innovations, companies love them because they drive profits, growth, and shareholder value. Innovations reap such handsome rewards because they are risky. Markets, meanwhile, kill most new products and services and accept the rest only grudgingly.

For instance, television took more than three decades to become a mass medium in the United States - from the first experimental broadcasts in the late 1920s to widespread acceptance in the 1960s. Likewise, the number of transistors on a semiconductor chip has doubled every 18 to 24 months, as Intel cofounder Gordon Moore predicted, but the productivity gains from the improvements in information technology have come at only half that speed - a rule one might call demi-Moore's law.

Markets are inimical to innovation because they crave equilibrium. Equilibrium, as defined by the beautiful mind of Nobel Prize winner John Nash, is a situation where every player in a market believes that he or she is making the best possible choices and that every other player is doing the same. Equilibrium in a market lends stability to the player's expectations, validates their choices, and reinforces their behaviors.

When an innovation enters the market, it upsets the players' expectations and choices and introduces uncertainty in decision making. For example, the U.S. wireless communications industry had found equilibrium by 2002 with several big players, relatively stable technologies, and steady consumer-switching rates. But the government's decision in November 2003 to let consumers take their telephone numbers with them when they changed carriers seemed likely to disrupt the status quo, which is why markets resist them.

A market's hostility to innovations becomes stronger when players are interconnected. In a networked market, each participant will switch to a new product only when it believes others will do so, too. The players' codependent behavior makes it tougher for companies to dislodge the status quo than if each participant were to act autonomously.

"The New Rules for Bringing Innovations to Market", Bhaskar Chakravorti, Harvard Business Review, March 2004.