Blog #4: How to make strategy to prepare for an inexistent market

Key Takeaways:

1. When there is a market that does not exist but has a large market size, companies can utilize an adaptive strategy to prepare for it.
2. An innovation laboratory fits for the adaptive strategy in the technology industry.
3. Strategic objective: Improve the return on investment of the enterprise’s investment portfolio by identifying and investing in the areas with the most opportunities or breakthroughs.

If there is a market that does not exist but has a large market size, how could we prepare for it even though we cannot analyze it?[1] In the field of technology, there will always be a lot of huge industry opportunities, but we may not be able to predict these opportunities in advance. Christensen mentioned in his book “The Dilemma of Innovators” that Intel had become an industry leader through the development of microprocessors, while HP lost money because it manufactures a large number of disk manufacturers that exceed demand. How can a company formulate a strategy when it is not possible to analyze an inexistent market? BCG’s Your Strategy needs a Strategy[2] gives us a great answer.

 

In the BCG’s book, the author proposes that when the market environment is unpredictable and unchangeable, companies should adopt the adaptive strategy. Companies can win the competition through continuous adjustment, adapting to new opportunities and conditions, and promoting growth and maintain advantages. Innovative products need to face an external environment that is difficult to predict and change, and their product forms and customer types are very different from the previous ones. At this time, it is suitable for adaptive strategies, utilizing innovative laboratory methods to achieve breakthrough innovation. The core of the Innovation Lab is to build a strategic experiment portfolio. Not every new product development can succeed, but the success rate must be improved.

Amazon Lab126 is an example of an innovation laboratory. The birth of Lab126 is to solve the problem that the original business boundaries are gradually fixed 10 years after Amazon was established and to enhance Amazon's internal innovation capabilities. It independently developed new products, which are different from the main business but have synergies, and become the source of Amazon’s innovative products. Lab126 has great autonomy in resources, organization, and culture. Amazon provides Lab126 with separately accounted for R&D personnel and funds. The organization is led by an external company VP, recruits people in Silicon Valley instead of Seattle headquarters, and has a cultural philosophy that focuses on innovation, research, and development. It is different from Amazon’s customer-oriented center. Product R&D needs to find a balance between speed and single product economic benefits to improve the overall rate of return. Finally, this lab creates several amazing products such as Kindle, Echo, and so on.

 

In conclusion, when a company tries to prepare for the inexistent market, it should:

Suitable for environments where it is difficult to predict the future of the market and it is difficult to maintain a single long-term competitive advantage

Use the “change-choose-promote” ring model of an adaptive strategy

Create an Innovation Laboratory, which tolerates single failure and pursues overall return.

---

[1] Christensen, C. M. (2000). Chapter 7. In The innovator's dilemma. Boston, MA: Harper Business.

[2] Reeves, M., Haanaes, K., & Sinha, J. K. (2015). Your strategy needs a strategy: How to choose and execute the right approach. Boston, MA: Harvard Business Review Press.