PrintBITS: Why it Pays To Be a Category Creator

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To Read the Full Article, visit the Harvard Business Review at hbr.org

Every company should aspire to be a category creator according to a piece in the latest issue of Harvard Business Review. Authors Eddie Yoon and Linda Deeken discuss research among Fortune’s 100 fastest growing US companies from 2009 – 2011 which found that the 13 companies instrumental in creating their categories accounted for 53% of incremental revenue growth and 74% of incremental market capitalization growth over those three years.

Sometimes category creation involves dreaming up a new class of products that can be sold traditionally, but more often it involves a breakthrough product and breakthrough business model. However, for large companies it is an exception, not the rule.

Research by Nielson in its Breakthrough Innovation Report showed that just 13% of the world’s leading consumer product companies introduced breakthrough innovation from 2008 – 2010 and less than this created a breakthrough business model. When asked why their organizations don’t pursue category creation, senior executives came up with the same three answers:

  • “Start-ups are better at creating breakthrough innovations” Apple was more than 20 years old when it launched iTunes, which enabled it to shift from computers to consumer electronics and media.
  • “We can’t afford to do this” Very often, the most important work is about coming up with an insight about an unmet consumer need.  Many companies spend too much of their market research understanding the current market – Boston Consulting Group in 2009 showed that only 20% – 30% of budgets are spent on strategic, forward looking studies. Yoon and Deeken believe it should be 50%.
  • “Our market is mature; our customers don’t want new things” Smart companies are on a constant search to come up with new ideas. Category creators don’t get hung up on who invented a concept, as long as they find a way to harness it themselves.

The keys to increasing the odds for a category creator:

  • Get the right people into jobs that allow them to look beyond the markets the company currently serves
  • Undertake a market research audit to understand if there is too much spent in understanding the existing market and not enough on predicting future behaviour
  • Think creatively about resources and incentives – consider setting up a budget for category creation
  • Take a hard look at company culture – risk aversion keeps companies from creating new categories – be brave!

To Read the Full Article, visit the Harvard Business Review at hbr.org

Parts taken from Bondy Consulting.

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