The Commercialization Process of Innovation in Small and Medium-Sized Firms

The Commercialization Process of Innovation in Small and Medium-Sized Firms Jarkko Pellikka, M.Sc. (Econ.), Ph.D Cand. Savonia Polytechnic 25.5.2005, Iisalmi

Objectives of the Lecture • Why important? • Importance of innovative SMEs • Crucial role of commercialization • What is the process of commercialization? • Definition • Stages • Alternative paths to commercialize innovations • What are the central challenges of the commercialization process? • Central decisions • Resources • Operations

Importance of innovative SMEs • The innovative small and medium-sized firms are widely seen as promoters of economical growth regionally, nationally and internationally • The positive impact of these firms is generally related to their capability to create, transfer and exploit innovations • In addition, some studies have reported that especially growth-oriented small technology firms have a very positive effect on the local employment situation

Benefits of commercialization • In a general level, faster commercialization can secure the firm’s existence, but more importantly it provides several benefits such as the growth of turnover, profits and market share • Additionally, the firms can reach the market leader position in the national as well as in the international level • It is also noticed that the significant cost benefits can accrue from compressing the commercialization process

Why commercialization is important? (1) • In order to realize the benefits of innovation commercialization is required! • New, innovation need to bring to the market • Otherwise innovation is just another expense

Why commercialization is important? (2) • Competitiveness in a dynamic business environment • SMEs need to commercialize their product-based ideas succesfully • Basic requirements: effectiveness (e.g. use of limited resources), rapidity and timing (noticing the customer acceptance, etc.)

Why commercialization is important? (3) • Important especially for the firms operating in the turbulent business environment (e.g. ICT industry) • strongly dependent on one or few technology-based products • acquire, produce and exploit new technological information and knowledge • challenged by the short product-cycles and other market uncertainties

What is the process of commercialization? • The term “commercialization” is defined as a process that starts with the techno-market insight and ends with the sustaining functions of the market-competent product (Jolly, 1997) • The commercialization process includes five main stages: • Imagining • Incubating • Demonstrating • promoting and • Sustaining

THE COMMERCIALIZATION PROCESS of INNOVATION SUBPROCESSES: BUILDING THE VALUE OF A NEW TECHNOLOGY 3. INCUBATING to Define Commercializ- ability 7. PROMOTING Adoption 9. SUSTAINING Commercializa- tion 5. DEMONSTRATING Contextually in Products and Processes • IMAGINING • The Dual • (Techno- • Market) • Insight 2. Mobilizing Interest and Endorsement 8. Mobilizing Complementary Assets for Delivery 6. Mobilizing Market Constituents 4. Mobilizing Resources for Demonstration BRIDGES: SATISFYING AND MOBILIZING STAKEHOLDERS AT EACH STAGE Source: Vijay K. Jolly (1997)

What the firms actually do during the commercialization process? (1) • Imagining stage: • Imagining stage is some kind of an idea stage. In this stage it is important to see if there is any market potential for a innovative-product that probably will be later developed • Proto-typing activities (e.g. engineering and other R&D activities) • Testing (with the key-customer) • Patenting (i.e. securing the immaterial property rights, IPR)

What the firms actually do during the commercialization process? (2) • In the incubating stage, the company defines the commercialization ability of the innovative product idea. In this stage, the idea is already technologically tested • Resources and venture capital is also included to the idea • Market and customer analysis is normally done • Searching re-sellers and building distribution channels

What the firms actually do during the commercialization process? (3) • In the demonstrating stage, the commercialization efforts are concentrated in product promotion • The company should have a specific product concept (e.g. product and support services, help-desc etc.) , which makes it possible to serve better to the demand situation in the market • Strongly focus on the selling and marketing activities with the re-sellers (also abroad depending on the product!)

What the firms actually do during the commercialization process? (4) • The meaning ofthe promoting stage is to get customers to understand and use the new product. It is also important to build a proper infrastructure (e.g. extra services) to help the product users • Focusing furthermore selling and marketing activities internationally • Customer satisfaction is crucial (by improving service and product quality) • Cutting costs and developing production

What the firms actually do during the commercialization process? (5) • The Sustaining stage includes the normal operations that sustain the product’s economical abilities. There are several possibilities to do that, like for example cutting costs and the product improvements • In this stage, it is also important that the company stops the specific product production in the right time (timing) • Focusing on marketing and selling activities, but also on R&D to secure the product competitiveness in the future

Summarizing the commercialization process • The commercialization process combines the central processes of the firm Product-development process Marketing and selling process Commercialization Process of Innovation

Central challenges of the commercialization process • Successful commercialization process requires several activities, resources and decisions • Coordination of this complex entity is very challenging, when it is necessary to identify the critical factors (challenges/problems) that influences to the process

Framework for analysing the problems of commercialization • Based on the several studies the identifiable problem areas divided into: • commercialization environment • marketing • financing • management

Commercialization environment • Availability and content of the support and development services provided by the local institutions (e.g. technology centers, science parks, etc.) • Infrastructure of the business environment (suitable premises and other facilities) • Failure to acquire sufficient resources for the commercialization (skilled employees, experiences managers, etc.)

Marketing • Fail to identify the optimal functionality of the new technology-based product • Fail to access, gather and exploit the market and the customer information • Fail to allocate the marketing activities • Fail to recognize the right timing of marketing efforts • Fail to form the close relationships with the early adopters/lead-users

Financing • Fail to mobilize the adequate financial resources (i.e. lack of money) • Fail to manage financial resources (e.g. focusing too much on product-development) • Problems in availability of appropriate financing during commercialization process (e.g. public finance instruments are often too bureaucratic) • Problems of the capital structure (costs vs. revenues)

Management • Fail to set the measures of commercialization (future incomes, market share, cost-structure, etc.) • Fail to acquire and manage multi-functional resources (marketing, production, engineering, etc.) • Lack of marketing and finance experience • Fail to form collaboration and partnerships (e.g. internationally) • Fail to exploit the new market opportunities rapidly

Discussion • Commercialization is a complex and challenging process for SMEs (see requirements and challenges of the commercialization process) • Important to identify the concrete problems and to raise awareness of these key problems during the commercialization process • Local service providers as well as the policy makers should focus more on the suitability of the services, and generally the ability of the local infrastructure to solve commercialization chellenges of SMEs • In a small open economy internationalization play a critical role even in the very beginning of the commercialization process

Thank You! Questions? Contact: Jarkko Pellikka, M.Sc. (Econ.), Ph.D. Cand. Savonia Polytechnic +358 44 785 6623 jarkko.pellikka@savonia-amk.fi fax +358 17 255 6644

The Commercialization Process of Innovation in Small and Medium-Sized Firms