Marketing, Innovation, and Growth



When, how and how much to innovate was the central topic at CEIBS' full-day 2008 Centre of Marketing and Innovation Conference. seven experts in integrating innovation into a successful business strategy shared their first-hand advice and anecdotes.




By Daniel Inman


The intersection between marketing and innovation, and how the two concepts affect business development, were the focus of discussion during a full-day conference entitled: "Marketing, Innovation and Business Growth,” held by CEIBS on March 26 on the Shanghai campus. The event, organized by the school’s Centre of Marketing and Innovation (CMI), attracted more than 150 attendees and media. Conference speakers featured seven innovation thought leaders from international business and academia who discussed ground-breaking new thinking in business strategy.

A recurrent theme heard in many of the day’s presentations was that nurturing business growth does not necessarily mean developing new products. One speaker told of how focusing on existing customers can actually block companies from pursuing promising opportunities in new markets. In fact, many success stories shared at the conference proved that growth often comes not from innovation in products but through innovation in the business model. Overall, the event drove home the message that, in today’s fast-moving business environment, cultivating original thinking is not a bonus but a requirement for any successful company.


CEIBS PROF. KWAKU ATUAHENE-GIMA: "TOO MUCH INNOVATION?"

"when your marketing focuses only on your current customers, you can become too customer-focused," CEIBS Professor of Marketing and Innovation Kwaku Atuahene-Gima told attendees of the 2008 CMI Conference. Many companies to fall into the "customer trap" of ignoring potentially lucrative new consumer gruoups.



Surprising audiences with a warning on the over-use of creativity in business, CEIBS Professor of Marketing and Innovation Kwaku Atuahene-Gima stressed that companies must guard against either launching too much marketing or steering your promotions in the wrong direction. “When your marketing focuses only on your current customers, you can become too customer-focused,” he said. In such cases, a company may end up only producing products for its current customer base while ignoring potential growth among other demographic groups.

As two hypothetical examples of companies that had fallen into the “customer trap,” Prof. Atuahene-Gima shared the case of Innoshan, a business that had spent five years developing new products aimed purely at its existing customer set. This approach proved too narrowly focused to be profitable. In another case, Cheman company found that its technology could be applied in new markets but failed to develop the expertise to attract customers in these markets.

An alternative to this model of Market-Driven Innovation, said Prof. Atuahene-Gima, is Outcome-Based Innovation. This new model highlights the need for companies to be "ambidextrous”: meaning that they simultaneously maintain their core customer competencies while also expanding to attract new customer groups. As an example of such flexibility, the professor showcased Shenzhen-based Mindray, China’s first manufacturer of diagnostic equipment to go public on the New York Stock Exchange. When Mindray decided to go abroad, the company adopted a “cut-in” strategy that targeted the middle market - simultaneously attacking top-tier industry players from below while and burrowing into the bottom tier from above. The method worked, Prof. Atuahene-Gima said because Mindray understood its sales strength across the full range of its potential customers - namely that its ultrasound device allows doctors to win trust from patients by performing accurate, technologically advanced checkups. “Customers are interested in both functional outcomes as well as emotional roles,” said Prof. Atuahene-Gima.

The lesson to be learnt from this is to innovate towards new customers, rather than serving only those you already have. Finally, Prof. Atuahene-Gima used the example of a high-tech, new model mobile phone and asked audience members to consider who really uses all available new features? When companies develop products with features that are not used or wanted by consumers, they are overselling themselves. In other words, too much innovation and too much marketing can actually harm business growth. Instead, he said, companies should consider the “customer value frontier,” which he defines as: “Offering products that do specific jobs at a cost that the customer can pay. Nothing more, nothing less.” 

IBM GLOBAL SERVICE(CHINA) PARTNER SIMON BENJAMIN: "THE NEW FRONTIER OF INNOVATION"

In his talk, Simon Benjamin’s aim was to tell “a story about how IBM is changing the way it is thinking about innovation.” He said the company is recently innovating not in terms of improving its products, services or markets, but in a more fundamental way: through improving its business model. Benjamin introduced the importance of “business model innovation” through a survey questioning the attitudes of CEOs towards innovation. According to the findings, business innovators outperform their peers by achieving greater operating margins.

Benjamin pointed out that IBM is no stranger to the importance of innovation. In the early 1980s, Big Blue was regarded as one of the world’s most important multinationals, but only for a decade later, it was widely considered a “dinosaur”. This change in international image provoked the company’s most famous business model transition: swapping from a product supply model to a service supply model. Since then, Benjamin stressed, IBM has undergone many smaller scale changes that have transformed the company, although not making headlines.

In China, IBM also recently has changed its business model to reach untapped markets. He pointed out that, historically, multinationals in China have focused on “the premium markets,” but this might not be the best approach today. “A lot of success has been achieved in these markets, but as they fill up, you need to look elsewhere,” said Benjamin.

In the case of IBM China, the company has recently targeted the mass market for many products. Following that strategy has meant entering China’s third, fourth and fifth tier cities. Here, IBM is now selling to lower-end consumers. “We knew that it would be difficult to enter these markets with the same business model [as Tier 1 cities],” said Benjamin, explaining that IBM had to create an entirely new business model addressing these new markets. The new business model included introducing a broader, yet flatter, channel network; R&D focusing on developing products that fit the needs and price category of the mass market; and getting a management team with deep localized knowledge.

In conclusion, Benjamin passed on key recommendations drawn from IBM’s experiences internationally and in China. He stressed the importance of cultivating innovation that encourages changes to the business model. He also emphasized the use of technology as a catalyst for innovation. Last, he urged listeners to leverage success by cooperating with outside partners whenever feasible: “Push the organization to work with outsiders more, making it systematic and, then, part of your culture.”

DOW CORNING GREATER CHINA PRESIDENT TOM COOK: "GOING BEYOND PRODUCT INNOVATION."

Just seven years ago, in 2001, the future was uncertain for Dow Corning’s China operations. Despite being one of the world’s most successful joint ventures, at the turn of the century, sales had “flatlined” at US$2.4 billion per year. At the time, the silicon-supplying giant was finding it hard to differentiate itself in the market, Dow Corning’s China President Tom Cook told conference-goers. With the industry maturing fast, and the window of opportunity for transformation closing fast, something had to be done. In this talk, Cook explained how the company turned things around.

The answer was not so much in designing new products, he said, but in changing how the company sold silicon, its key product. The solution, Cook explained, was for the company to simultaneously adopt “two totally different ways of doing business within the same company.”

Dow Corning’s first strategy was to develop a new web-based brand that offered a bare-bones alternative to the company’s premium silicon products, but without any of the support services that make the original Dow brand expensive. The new brand offered what Cook describes as: “truly the lowest cost model to bring the product to the customer.”

The company’s second strategy was to enhance the traditional premium branded product line not by introducing new products, but by helping customers to better solve their business problems. “We found that we had knowledge and expertise that was of value to our customers that was beyond our silicon materials,” remembers Cook.

Cook finished by emphasizing two elements necessary to promote innovation within a company: sharing a “common language” with which to discuss new ideas within the company, and directly involving the top company leaders in order to create a corporate culture that supports and nurtures innovation.

ELI LILLY & CO. CEO AND BOARD CHAIRMAN SIDNEY TAUREL: "PHARMACEUTICAL INNOVATION IN THE 21ST CENTURY"

In the conference’s keynote address, Eli Lilly CEO Sidney Taurel drew upon his experiences as a global CEO to share the requirements that must be met before innovation can truly take root in China. Although China has established itself as a cost-effective supplier of products and services, “reaching the next economic frontier” will require three elements, Taurel said: first, a free flow of ideas among talented individuals; second, a reward system for innovation; and third, consumer confidence in innovation. “These are an all-or-nothing proposition,” said Taurel. “They must all be present, or innovation will not happen.” 

Although Taurel believes China is headed in the right direction, he urged more progress in key areas. “China could do more to translate its research into practical solutions,” he said. He recommended learning from the U.S. example, in building cooperative links between the public and private sectors. Turning to his field of expertise - pharmaceuticals - he stressed that improvements to China’s patenting system as well as greater market access would help develop the field. In particular, such changes would promote the development of cutting-edge treatments, such as tailor-made therapies.

Taurel finished his talk by sharing the three most important qualities of a leader. In addition to the ability to always see the forest from the trees, and being able to constantly learn, he stressed the need for a strong ethical code. “Leadership is about leading people though change, and change is very uncomfortable,” he said. “People will not go into the future without a strong, ethical leader.”

ROCHE R&D CENTRE GENERAL MANAGER ANDREAS TSCHIRKY: "PHARMACEUTICALS AND R&D IN CHINA"

"Even crazy scientists need to think about the market.” So stated Andreas Tschirky in his talk outlining the challenges of conducting R&D in pharmaceuticals within China’s fiercely competitive market. Mr. Tschirky made clear that, in the pharmaceutical industry - where it can take US$1 billion dollars and 15 years to get a new product to market - it is essential for scientists to know when to persevere and when to stop a project in its tracks.

Outlining other challenges in his field of pharmaceutical R&D, Mr. Tschirky stressed that China is not a low-cost market for those in his sector. “We are not here because it is cheap. I’m not saying you can’t get a cost advantage, but it is not cheap,” he said. Instead, the main advantage attracting pharma MNCs to China, he said, is that operating in China allows companies to understand the growing Chinese consumer market for pharmaceuticals - a market that is now 10th largest worldwide and growing fast. “We get to the know the genetics of patients,” he said. 

In order for a research organization to succeed, Tschirky stressed the need to make as many connections with outside organizations - in business, research and academia - as possible. Making such connections offers two advantages, he said: first, it allows your organization to maintain a core specialty while developing a resource network in case problems arise in which outside expertise is needed. Secondly, strategic alliances allow your company to outsource some of the basic work to outside organizations.

DOW CHEMICAL BUSINESS DEVELOPMENT (CHINA) DIRECTOR ANDY RICHARDS: "INNOVATION AT DOW"

In his talk, Dow Chemical Business Development (China) Director Andy Richards outlined the qualities that characterize growth in China. “It is not just growth,” he said, “it is evolving growth.” He emphasized that companies need strong vision in order to grow, but warned firms against cannibalizing existing business solutions while preparing for the future. He urged companies to prepare to grow both in qualitative terms - such as building the company culture - and quantitative terms.

Mr. Richards stressed the importance of developing the following elements in your business: vision; strategic alliances; culture, attitude and skills (which can be altered with market changes); and “passion for the truth.” He urged managers to develop skills in "driving an idea through to fruition” but also cutting your losses if a project is not working.

Sharing a real-life example of how Dow Chemical has had to innovate recently in China, Mr. Richards discussed a coal-to-chemicals project now being developed. Over the last decade, oil costs have rocked to record-breaking heights, seriously impacting the petrochemical industry. Dow Chemical, for one, has had to drastically shift the way it conducts its business. By thinking creatively, however, the company turned a negative change to its advantage. The company is now preparing to adjust its use of coal in case oil prices remain high, Mr Richards explained. By thinking creatively, the company is preparing for various future scenarios, turning uncertainty into a win-win situation.

LILLY CHINA PRESIDENT JORG OSTERTAG: "BUILDING AND LEADING SUCCESSFUL ORGANIZATIONS IN DIFFERENT ASIAN COUNTRIES"

Drawing upon 17 years of management experience in Asia, Lilly China President Dr Jorg Ostertag emphasized that, despite the differences evident throughout this part of the world, MNCs coming to the Asia-Pacific area will find some similar characteristics throughout the region. He urged managers to remember that some key factors are uniform everywhere: “People love their family, they want to do a good job, and they want to be treated with respect,” he said.

Dr Ostertag stressed the need for a company to develop and follow a strong central vision, one that is simple enough to allow employees at every level of the company to take it to heart. He told that, when he arrived in Korea in the mid 1990s, it was in the midst of the Asian financial crisis - a time when recently laid-off office workers filled the park opposite his office, too afraid to tell their families. The situation he had to present to his staff was grave: for every percentage point of discount that his company gave, the company would have to cut employees. This message had an immediate and clear impact upon the staff, Ostertag reported. It gave, in the starkest terms, compelling motivation for his staff to work at full productivity - if they didn’t, they would lose their jobs. The result was that over the following three years, no discounts were given.

When Dr Ostertag came to China several years later, the company’s vision was for Lilly to become the most valued partner for its customers in the pharmaceutical business by 2010. Even more daunting, the corporate mandate was to triple sales within China twice before 2015.

Dr Ostertag said it was essential to make employees understand why the company’s success should matter to them as individuals. They should understand “What’s in it for them?” he said. To accomplish this, he outlined three main strategies for motivating his staff: 1) by supplying more pharmaceutical products, you are helping your customers have a better and longer life, 2) tremendous career development opportunities, and 3) Lilly’s overall growth and expansion. As Dr. Ostertag said, “It’s simply more fun to work for a company that is successful.” He finished by sharing several key lessons learned during his time as a manager abroad:

• Try to understand everything about the culture that you live in, but at the same time remember that there are some things that you will never be able to understand.
• Accept that you will not be able to understand everything, but make sure that your key staff does.
• Focus your organization on three or four carefully selected targets, then implement.