1. Practical Overview of Innovation Flashcards
Give two important qualities of a successful innovation/idea
- They make people’s lives easier.
- They improve the quality of people’s lives.
What are the three key rules of business?
- You can only sell things if people want to buy them.
- People (largely) don’t want things. Instead, they want the benefits of a product.
- You can only stay in business if you are making money (profit) or if you are loaned money that will make a profit in the future.
What are the three requirements for a successful business venture? (3 part model)
- Need (unmet market need)
- Capability (way to produce + distribute a solution to the problem)
- Reward (profit)
Define unmet market need
Needs (of customers) that are not adequately met by current technology, providing a gap in the market.
What is the solution to an unmet market need?
Producing a product that provides benefit to a customer by making their life easier/better.
How can market need be determined?
By completing market research.
What does a customer base depend on?
- Demographic (affluence)
- Location setting
- Age
- Nationality
A ______ product is one used for pleasure.
Luxury
A ________ product is a necessity to customers for daily life.
Commodity
Give the reason why market dynamics change over time
External factors change customer needs so cause markets to grow/decline.
Define capability
A proven technical concept that matches the market need of the customer. It includes a way to produce and distribute a solution to a problem.
What are the 8 factors that determine whether a solution has the capability to solve an unmet market need?
- Can it be developed as a concept?
- Can it be manufactured and distributed?
- Are there funds to produce and promote it?
- Does it pass health and safety regulations?
- Is it environmentally friendly?
- Does it pass product-specific regulations?
- Is there freedom to operate (ie. does it infringe on any patents/legislation)?
- Does it have a sustainable competitive advantage?
Define reward
The profit a product makes for a company.
How can the potential return of a product be calculated (with equations)?
Estimate how many products will be sold over a given time frame and the price of the product then subtract production costs (revenue and capital costs) to determine the potential return.
(price - revenue cost) x number of customers p.a. = reward p.a.
(reward p.a. x years in business) - capital cost = profit
How can we determine if an innovation is financially viable?
Calculate how much a product is worth and how many products will be sold at that price and compare it to production costs to see if a profit will be made.
What are the three key skills when managing risk in a business?
- Assessing technical and commercial risks.
- Balancing risk against potential reward.
- Balancing risk against commitment (money and time).
Define technical (capability) risk
The risk that the product can’t be developed, manufactured and distributed, and the threat of competitors producing a product faster.
Define commercial (need) risk
The risk that the product doesn’t match the customer’s need or the market size.
What 6 questions have to be asked to balance commercial risk with reward?
- Do we understand the customer’s needs?
- Do we understand the market size?
- Does the product fit our existing business activities?
- Does it fit our future strategy?
- How many additional resources are required?
- How confident are we with all of these questions?
How are risk and commitment balanced?
By trading commitment against risk reduction to minimise potential losses.
The higher the risk, the lower the commitment.
