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Why NZ firms are missing opportunities

New Zealand companies battling for a bigger slice of the pie are being told to instead make the pie bigger. 

But that requires a different kind of thinking that not many firms are doing, according to two University of Auckland researchers. 

Associate Professor Suvi Nenonen and Professor Kaj Storbacka have completed a three-year project into market innovation, and reached some conventional wisdom-busting conclusions. 

They say instead of just gradually improving or creating new products and services, businesses now need to look at everything that impacts on what they make and how it is used – and shape that wider world. Nearly always, this will involve collaborating with other firms and players - sometimes even with competitors.

It’s called “market-shaping” or “market innovation”. The pair say New Zealand firms seem to have the fundamentals of what it takes to shape markets, but very few are doing it – which is likely to be resulting in many lost opportunities and product failures.

Dr Nenonen, the director of the Graduate School of Management at the Business School, says people are beginning to realise that, with the pace of change and digital disruption, you can no longer predict the market, but you can innovate and shape it. "You can reconfigure the playing field. The old rules say you have to reactively adapt to the environment that you are part of. The new playbook says: seek to proactively adapt that environment to yourself, so it works better for you and others.”

Apple's iphone is given as an example. It wasn't the first smartphone, but it made them popular, drawing in new customers who hadn't thought about owning one before. One of the breakthroughs was that Apple identified a bottleneck in production where it was continually having to come up with enticing new apps - things that actually make the smartphone smart. So it switched business models, outsourcing the role to app developers and focusing on developing hardware and operating systems. 

Why are New Zealand firms not realising their potential to shape and innovate markets? Many new products fail – we believe this is because many managers are stuck in the traditional, narrow view of markets.

Identifying those bottlenecks, or weak points, is key. Fixing them may involve different approaches such as changing from selling machinery to leasing it, meaning customers need less capital to acquire it, and the market expands. Market innovation means deliberately shaping existing markets or creating whole new ones. 

“Market innovation is not simply a matter ‘build it and they will come’,” says Nenonen. “Rarely, if ever, will a new technology be so radical and compelling that it spontaneously calls into being a market. Just like the car needed roads and the iPad needed wireless technology, innovations generally need certain conditions to make them viable. These conditions often involve a whole lot of different players, from suppliers and partners to support infrastructures and regulators."

It's not enough to land a new product on the market - firms have to look at the systems that need to exist to support that product. 

Nenonen and Storbacka received a Marsden Grant for their project Is New Zealand betting on the wrong horse in the international innovation race? The importance of market innovations for small open economies. They looked at 21 companies from New Zealand, Finland, Singapore and Sweden that had a market-shaping innovation, and asked what had allowed them to change the rules of the game. Half of the market-shapers they analysed were SMEs, the other half larger companies. 

They pinpointed 57 factors, including building the infrastructure that supports customers using a product; cutting out middlemen, introducing new terminology, and influencing regulations. 

“Our call to shape markets represents a 180 degree turn for those with a traditional business education,” says Storbacka. “It requires a profound shift in mind-set about how the market works and therefore how to best grow your business. That shift is from fighting for a bigger market share, or piece of the pie, to baking a bigger pie for everyone through systemic innovation.”

One of the oft-repeated quotes they heard during their study was from Mahatma Gandhi - "Be the change that you wish to see in the world". Such changes don't always require an instruction manual, and it's likely some entrepreneurs are already doing this from intuition - acting on their own visions or a hunch, not from a deeper understanding of what they're doing. But the pair say they've been able, with this project, to provide a toolkit for firms of all sizes and at all stages. 

Their analysis also found New Zealand managers lag behind in the ability to introduce radically new products or services; in encouraging customers to look beyond the current use for their product; in influencing what customers are looking for in a product; in trying to use the media to influence the language used to report on their industries; and in influencing how their industry is measured and reported on by official bodies. 

Crucially, they also found that market innovation pays in the long run - although that can take years. It leads to sales growth, improved financial performance and market share, and that it can “grow the pie” across sectors. 

Storbacka says investment costs are usually considerably lower than in traditional research and development, which there is still a place for. The trick is learning when to change tack. 

“Our findings raise the question: why are New Zealand firms not realising their potential to shape and innovate markets? Many new products fail – we believe this is because many managers are stuck in the traditional, narrow view of markets that does not allow for market-shaping.”

Nenonen and Storbacka have co-authored a book on market shaping aimed at managers and entrepreneurs, to be published by Emerald in 2018. Their 2010 book Designing Markets: Are you Market Driven or Market Driving? was awarded best business book in Finland in 2010.

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