IB MET L12: What are the issues in managing growth through innovation?

Invention vs Innovation

nvention

• Creation of something new

• May come from:

  • Technology push (“we can do this”)

  • Market pull (customer need)

Innovation

• Successful diffusion/commercialisation of an invention in the market

• Occurs when:

  • Technology push + market pull meet

  • Customers are willing to pay for it

👉 Key idea:
An invention becomes an innovation only when it creates market value and is adopted commercially.

Innovation Diffusion Theory & Moore’s Chasm

New technologies are adopted in stages:

• Innovators (“techies”) – 2.5%

• Early adopters (“visionaries”) – 13.5%

• Early majority (“pragmatists”) – 34%

• Late majority (“conservatives”) – 34%

• Laggards (“sceptics”) – 16%

Moore’s Chasm

A major challenge is moving from:

• Early adopters → mainstream pragmatic customers.

Early adopers:

• Like experimenting with new technology

• Accept imperfections/compromises

• Want novelty and strategic advantage

Pragmatists on the other side of the chasm:

• Want technology to clearly improve daily life/business performance

• Expect reliability, ease of use, support, and cost-effectiveness

• Do not want major compromises or risky/unfinished products

Many firms fail at this transition.

Example:

• Google Glass attracted innovators/visionaries but failed to convince mainstream users.

👉 Key idea:
Innovation succeeds when firms “cross the chasm” by turning exciting technology into reliable, practical value for mainstream customers.

Innovation Diffusion & Customer Segments

People adopt innovations at different speeds, so firms need different communication strategies for each group.

Adoption groups

• Innovators → forward-thinking “techies”; try new tech first and share discoveries

• Early adopters → influential trend setters; endorse innovations and help firms cross the chasm

• Early majority → pragmatic users; adopt only once benefits are proven and innovation becomes accepted

• Late majority → resistant to change; adopt mainly due to peer pressure and widespread use

• Laggards → highly resistant; adopt only when innovation is fully mainstream and unavoidable

Crossing the chasm

The key challenge is moving from visionary early adopters to pragmatic majority users who:

• Want reliability and clear benefits

• Do not want compromises or risky products

• Expect the innovation to improve life/work and become the new status quo

Examples

• Social media diffused rapidly across groups

• Solar power took decades to become mainstream

👉 Key idea:
Successful innovation requires adapting products and communication to different adopter groups and crossing the gap between visionary users and mainstream pragmatists.

Crossing the Chasm & Market Maturity

Early-stage innovations are often:

• Expensive

• Imperfect/unreliable

• Socially awkward or difficult to use

• Sometimes risky or impractical

This means early users must be highly passionate or visionary to adopt them.

Crossing the chasm

To reach mainstream markets, firms must improve the innovation by adding:

• Reliability

• Ease of use

• More features

• Better user experience

• Solutions tailored to specific customer needs

Once the chasm is crossed:

• Adoption accelerates

• Products diversify into many variants for different market segments/niches

Examples

• Social media spread rapidly once mainstream value became clear

• Solar power took decades to mature and become widely adopted

👉 Key idea:
Innovations begin as niche products for passionate early users, but successful firms refine and adapt them until they become practical, mainstream solutions for broader markets.

The Relentless Decay of Customer Delight (Kano Model)

Customer expectations change over time.

Types of needs

• Excitement/delighter needs

  • New/unexpected features

  • Create strong excitement initially

• Performance needs

  • Customers compare quality/performance

  • Better performance = higher satisfaction

• Basic/hygiene needs

  • Expected as standard

  • Missing them causes dissatisfaction

Key idea

Innovations often move through all three stages over time:

1. Start as exciting new features

2. Become competitive performance expectations

3. Eventually become basic requirements

Example:

• Electric car starter → exciting innovation

• Then reliable performance feature

• Eventually expected basic functionality

Firms must continuously innovate because customer delight decays as features become normalised.

Types of Innovation (4Ps)

Companies must keep innovating to maintain growth and competitive advantage.

The 4Ps of Innovation

• Product → new/improved products or services

  • e.g. new iPhone models, streaming services

• Process → improved ways of operating/manufacturing

  • e.g. Amazon warehouse robotics, AI drive-thru systems

• Position (Placement) → changing how products are marketed/perceived

  • e.g. Crocs repositioned as fashion products

  • Lucozade was initially a medicine

• Paradigm → changing the business model itself

  • e.g. Virgin expanding from music into airlines, travel, space

Levels of innovation

• Incremental innovation

  • Small continuous improvements

  • “Doing things better”

  • e.g. larger phone screens

• Radical innovation

  • Major transformational change

  • “Doing things differently”

  • e.g. petrol → electric vehicles

👉 Key idea:
Innovation can involve products, processes, market positioning, or entire business models, and may be incremental or radical.

Incremental Innovation

Incremental innovation builds on an already successful idea with small improvements or variations.

Example:

• Die Hard films reused the same successful formula in new situations

• Similar approach: Fast & Furious franchise

Why incremental innovation works

1. Firms already understand customer preferences

   • “Give customers a little bit more of what they liked”

2. Easier market adoption

   • Existing brand/customer excitement helps “cross the chasm”

3. Lower risk and complexity

   • Existing production/process knowledge can often be reused with minimal changes

👉 Key idea:
Incremental innovation succeeds by refining proven ideas rather than creating entirely new markets.

Platform Innovation & Growth Challenges

Platform innovation

Companies can reuse a common engineering platform across many products.

Example:

• Volkswagen Group (MQB/PQ35 platforms)

  • Shared across VW, Audi, SEAT, Skoda

  • Different engines, interiors, and body styles built from the same base platform

Benefits:

• Lower development/manufacturing costs

• Faster product development

• Easier incremental innovation across product ranges

Growth and innovation

Small firms are often better at radical innovation because:

• Simple structure

• Fast communication

• Low bureaucracy

• Everyone sees the full project

• Little to lose, high willingness to take risks

Large firms become more complex:

• Specialised departments/functions

• More coordination and structure needed

• Employees become physically and organisationally distant

• Innovation can become slower and harder to manage

Examples:

• Apple, Google, HP all began as very small start-ups before scaling globally.

👉 Key idea:
Small firms often drive radical innovation, while large firms excel at scaling, organising, and exploiting innovations efficiently through structured platforms and processes.

Start-ups vs Established Companies

Key ideas

• Start-ups are not simply “small big companies” — they operate very differently.

• Small firms are often faster and better at radical innovation.

• Large firms are better at scaling, coordination, and exploiting innovations efficiently.

• As start-ups grow, they must introduce more structure and systems to scale successfully.

• Large firms increasingly collaborate with start-ups through open innovation.

Example:

• Dyson successfully launched radical innovations many times, but not all succeeded (e.g. Dyson washing machine).

Balancing Risk and Reward in Innovation

Large firms manage portfolios of innovation projects with different:

• Risks

• Costs

• Potential returns

Managers use tools (e.g. bubble charts) to prioritise projects and allocate budgets.

Innovation trade-off

• Incremental innovation

  • Lower risk

  • Builds on existing products/processes

  • Easier to manufacture and sell

• Radical innovation

  • Higher risk and cost

  • May require redesign of products, factories, supply chains, and skills

  • Can create entirely new markets and competitive advantage

Strategic challenge

Firms must balance:

• Exploiting existing successful products
  with

• Investing in disruptive future technologies

Examples

• Kodak (despite inventing digital camera, kodak refused to embrace digital technology to protect its film led to bankruptcy) and Nokia succeeded with incremental innovation but struggled with radical technological shifts.

• Tesla pushed radical EV innovation, forcing incumbents to redesign products, manufacturing systems, suppliers, servicing, and infrastructure.

👉 Key idea:
Companies need both incremental and radical innovation — focusing only on incremental improvements risks falling behind disruptive technological change.

Key Problems in Managing Growth

Main growth challenges

• Maintaining growth through:

  • New/existing markets

  • New products/services

  • Expansion strategy decisions

Growth strategies

• Organic growth → growing internally

• Acquisitions → buying other firms

• Strategic alliances → partnerships/collaboration

Managing scale

Growth increases:

• Number of people

• Business functions

• Organisational complexity

Other major issue:

• Securing sufficient funding/investment

👉 Key idea:
Growing organisations must balance expansion opportunities with the increasing complexity, coordination, and resource demands that come with scale.

Industry Life Cycle & Innovation

Industries often evolve through repeating stages:

1. Era of ferment/disruption

• Many competing technologies/designs emerge

• High uncertainty and experimentation

• e.g. early cars: combustion vs electric vehicles

2. Dominant design / standards

• One/few designs become industry standard

• Customers and suppliers gain confidence

• Encourages mass adoption and ecosystem growth

Types of standards:

• De facto → widely adopted naturally (QWERTY)

• Industry standards → agreed by firms (Bluetooth)

• Legislated standards → imposed by government (UK plugs)

• Market standards → dominant market platform (Windows)

3. Incremental innovation

• Firms improve cost, quality, efficiency, and features

• Innovation becomes more optimisation-focused

4. Maturity

• Improvements become smaller/harder

• Market growth slows

• New disruptive technologies may restart the cycle

👉 Key idea:
Industries evolve from disruptive experimentation toward dominant standards and incremental improvement, until new technologies create another wave of disruption.