Discovering Opportunities and Threats for Innovation

Discovering Opportunities and Threats for
Innovation

Donna C. L. Prestwood & Paul A. Schumann, Jr.
Glocal Vantage, Inc.

Defining a Market

A market is composed of three major elements: customers, competition, and technology. Customer
needs are anticipated and filled through the use of technology by the enterprise and its
competitors. A market must have, in addition to customers, competition, and technology, a time
frame, geographical reference, scale, and scope. In a market, money, goods, services, and/or
information are exchanged.

Markets have evolved over time. In its earliest use, market referred to a place, usually a juncture
between roads where people were likely to meet. In time, markets became more specific places for
exchange within towns and villages. However, in today's environment markets are no longer
always tied to a concrete locale; instead the term has come more to represent a set of conditions.
These conditions generally are descriptions for each of the elements mentioned above. Defining a
market is not a linear process.

The methodology described in this article assumes that the enterprise has at least a vague sense
of direction. It assumes that there is an ongoing purpose and that the enterprise is attempting to
make decisions about whether to:

Stay where they are

Develop new markets

Develop new products or services

Diversify

Integrate their operations either forward or backward in the supplier-customer value chain as
shown below.

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The process of understanding a market and discovering the opportunities and threats in a market
is integrative. After developing an initial understanding of a market and a strategy, which helps the
enterprise take advantage of that opportunity, it is useful to assess the consequences of that
strategy on the market:

■ How will it affect customer needs?

■ How will competition respond?

■ How will it affect the development of technology?

■ After the enterprise has developed its projects, resources, and culture to produce output, which
will have consequences to a market, another assessment of the market's opportunities and
threats must be conducted.

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Driving Forces Affecting the Market

Once an initial definition of the market is created, the next step involves taking a "world view" of the
driving forces for change and how specific key forces are affecting the current structure and future
development of the market. Driving forces for change can be placed in five categories.

Each category is in itself a collection of trends, events, developments, and realities. Each
represents a strategic context within which we all live and operate. However, it is the interaction
between these categories and their interaction with the market that creates the great force that
culminates in change. And, this change creates needs.

Examples of current driving forces for change at the global level are:
Social: The women's movement
Political: The breakup of the U.S.S. R.
Economic: Recession in Japan
Demographic: The birth rate in China
Scientific: Birth control technologies

It is important to restate that it is the interaction between these categories and in turn their influence
upon the market that creates the turbulence and dynamics of the market. And it is crucial to
remember that, for all the reasons stated this period in history is more turbulent than any other.

Let's bring these forces down from the macro level to the micro level, from global markets to an
individual. A Hispanic American male who is 55 years old (demographic), unmarried, the single
parent of small children (social), a Republican who voted for Clinton (a Democrat) (political),
underemployed (economic), and the owner of a state-of-the-art personal computer with multimedia
capabilities (technical) has a different set of needs in many markets than other people. Markets are
made up of people who individually and collectively respond to and create driving forces for
change. This is why the segmentation of a market is always along one or more of these regions of
driving forces for change, and this is also why traditional market research methods, geared to the
individual, are usually not useful for assessment of customer needs in the strategic time frame.

What is needed to determine the probable strategic needs of customers, capabilities of
technologies, and responses of competition is a methodology to assess the impacts of the driving
forces in the market. This article will describe such a methodology, which has been proven
practical by use.

No method can completely predict the future except in "uninteresting" times. In times and markets
where little or no change is occurring, or change has been following a predictable pattern, it is
easier to predict the future. But, in that case, the enterprise's competitors can also predict the future
and it is difficult to establish sustainable competitive advantage.

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There is an ancient curse, "May you live in interesting times!" As difficult as life is in interesting
times, it is in interesting times that change can be exploited to create or expand markets and to
develop significant competitive advantage.

In interesting times, markets are chaotic. Chaos describes a state which is not random but which
also does not have simple order. The future is always chaotic. There is a higher degree of order in
a chaotic market than meets the eye of a casual observer. To determine the probable futures of a
market, the enterprise must develop knowledge of the strong attractors, the interaction of the
driving forces for change with each other and customer needs, the technological capabilities, and
the competitive responses, around which the future of the market is likely to evolve.

Determination of the driving forces initially is a simple matter:

1. Develop a description of the market.

2. Establish the time frame for the analysis, i.e., five years.

3. List, by category, the driving forces for change that will influence the market you described
over the time frame you have identified. Keep in mind that each category must have at
least one driving force.

4. Rank each of these forces within its category (social, political, economic, demographic,
and scientific).

If this is a new market for the enterprise or a market, which the enterprise does not understand, it is
advisable to obtain help in determining these driving forces. Information can be obtained by
secondary or primary research, calling on expert opinion, using focus groups, or by creating a
facilitated team of people within the enterprise each of whom has partial knowledge.

Customer Needs

Who Are the Customers?

Enterprises have the tendency, over time, to focus on themselves, their own capabilities, and their
own processes. This is especially true if the enterprise has been successful in the past. They begin
to lose contact with customers and begin to trust in their own judgments. This has been
exacerbated by the push to shorten the commercialization cycle. Trusting your own judgment is
quicker than the messy process of staying in touch with customers. To counter these tendencies,
managers are now being encouraged to stay in touch with the customer, or to "listen to the voice of
the customer." Many total quality management programs have a large component of customer
involvement.

These exhortations to "listen to the customer" are fine if taken in the context of the competition and
technology, and the driving forces for change. But the real question is, "Who are the customers?" It
does no good to ask "customers" what they want if you don't know who all the customers are.

In fact there are three different types of customers that an enterprise must contemplate. These

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three types are most easily considered along the lines of whether they currently purchase from the
enterprise or the enterprise's competitors. Current customers are presently customers of the
enterprise, identified potential customers are presently customers of the enterprise's competitors,
and unidentified potential customers are presently not customers of either the enterprise or its
competitors.

As an example, for the market of fast-food hamburgers, McDonald's has Whitney as a current
customer. Donna, her mother, is an identified potential customer, and her grandmother, Louise, is
in the unidentified potential customer category. Louise never goes to purchase a fast-food
hamburger. Donna prefers a Whataburger. Whitney, incented by the advertisements and toys,
always wants to go to McDonald's.

The classification of current, identified potential and unidentified potential customers is a valuable
first pass at segmenting the market. When the enterprise knows little about the market, this
classification system provides a structure that is powerful in focusing its requirements generation
process and its marketing efforts.

Segmentation of a market is essential to the success of any business in today's environment. The
more that is known about the market, the more refined the segmentation can be and therefore the
more targeted the needs and marketing approaches can be.

A simple example of segmentation is the market for faxes. A first impression may be that any
business of any size already has a fax. If, however, the classification of customers is combined with
a segmentation scheme based on the type of customer, some insights emerge.

Customer Classification

Large Enterprise
Small Enterprise
Individual

Current
X

X

Identified Potential
X

Unidentified Potential

X

X
X

In the above table, the X's represent where the primary customers are. In fact, there are some
customers in all classifications and types. Most large enterprises have already purchased faxes,
but there are still some small enterprises that have not purchased faxes, and individuals have just
begun to purchase them for personal use.

This type of analysis obviously provides a way to expand the market for a fax manufacturer. If they
only ask questions of their current customers, the enterprise will only find out how to maintain them
as current customers. This is of vital importance to the enterprise. To not maintain current
customers is to lose market share to its competitors. Requirements obtained from the enterprise's
current customers for faxes will more than likely be focused on the problems of current products

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and services. The enterprise may also hear about some improvements required. However, it is rare
that a current customer will tell the enterprise about significant changes required.

In general, it is only when competitors have begun to make inroads with the enterprise's customers
that the current customer will be able to describe needs that require distinctive or breakthrough
innovations. (There are always rare exceptions, and these are the best type of customers to
cultivate, ones who are knowledgeable about a wide variety of direct, indirect, and structural
competitors.) Ironically, then, when the enterprise has done the best job of current customer
management, is the time when the enterprise learns the least from them. A strong base of highly
satisfied customers who are looking to no other enterprise to meet their needs can be a problem.
When the knowledge eventually becomes available to them, as it always does, and they reluctantly
begin to adopt your competitor's solutions, the changeover is rapid and cataclysmic. By that time, it
is too late; the enterprise has lost its leadership position.

Gathering requirements from the enterprise's competitors' customers helps. This will give the
enterprise information about what it will take to get these customers to switch from the enterprise's
competitors. Finally, gathering information from the class of customers labeled "unidentified
potential" gives the enterprise information about what it would take to convert a person or
enterprise in this class to a customer. This is likely to require at least a distinctive and possibly a
breakthrough innovation.

Segmentation of a market is highly sophisticated in today's economy. It is one of the key elements
of any successful marketing campaign. It is possible, with today's technology and information
databases, to tailor marketing approaches down to an individual level. Called "One to One
Marketing", this is an application of the "mass customization" trend. Enterprises that successfully
determine the appropriate segmentation that facilitates the opportunity and threat analysis
necessary for product planing and development, and marries that with "mass customization" and
"one to one marketing" will create enormous wealth.

What Are Customer Needs?

The purpose of any method used by an enterprise should be to help the people in the enterprise,
and therefore the enterprise itself, to make better decisions. To make better decisions, more or
higher-quality information is required. Enterprises are today immersed in a sea of noise, as there is
such a proliferation of sources and expansion of those sources' capability to create new
information. Without structure and methods to analyze and synthesize all this information, it
remains noise. Wth structure and methods it is possible to develop the information into data that
can be used to make decisions. However, even better decisions can be made if knowledge and
wisdom can be extracted. These provide the basis for the insights which not only help the
enterprise make better decisions but help it determine what questions to ask. The game is not one
of precision but of accuracy. It is far better in today's environment to be approximately correct than
to be precisely wrong. The enterprise must focus on its effectiveness first and then turn its attention
to its efficiency.

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Determining Customer Needs

There are numerous techniques to determine customer needs. Some are focused on the methods
of obtaining the data and some are focused on extracting better knowledge from the data. This is
not a treatise on market research techniques; it would require far too much space even to list and
describe them all here. What is important for our purposes is to determine which type of technique
is best applied to what type of customer. Therefore, this section will focus on methods of obtaining
the information rather than ways of analyzing and displaying the data.

There are four different types of techniques to determine customer needs. In common usage,
these are called market research techniques, but as we define the market to be customers,
competition, and technology, we will call them customer needs analysis techniques. The four types
of techniques are:

■ Surveillance

■ Trend analysis

■ Expert opinion

■ Integrative techniques

Surveillance

Surveillance techniques are based on observation of customers either indirectly, by watching what
is being written or said about or by them, or by direct observation of their actions. Scanning,
monitoring, and tracking of print media is an excellent way to keep track of what the enterprise's
current customers and identified potential customers are up to and what their needs may be.
Scanning means looking at a wide variety of sources of information to pick up the "blips," the early
warning signs of impending change. As with a radar scan, once these signs of change are
detected the enterprise can narrow its surveillance range to the region around the area of change,
switching to monitoring. If the event proves to be important, the enterprise can then switch to
tracking what's being written about the particular customers or application. Surveillance techniques
are particularly good for current and identified potential customers. But, as can be seen, scanning
can even be useful for unidentified potential customers. The Internet, with its hundreds of millions
of pages of information are extraordinarily useful for surveillance. Search engines, robots and
specialty programs facilitate scanning, monitoring and tracking.

For example, a company providing training in the use of personal computer programs would want
to scan the want ads to determine who is hiring people and what personal computer (PC) skills
they require. Articles on growth or problems of companies provide insight into needs, and finding
out what companies have recently purchased computers would be beneficial.

Direct surveillance techniques are most often used by consumer product or service businesses.
Watching how people shop and make decisions, electronic means of counting visits to different
types of displays, and devices to monitor television viewing habits are a few of the many direct
surveillance techniques.

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Surveillance techniques, especially the direct ones, are most useful for determining present needs
of customers. The reason is obvious: it's hard to find a future customer. However, surveillance over
time can establish a trend that can be used to forecast future customer needs.

Trend Analysis

This is a place where the driving forces can be used directly. Faith Popcorn has had an extensive
surveillance program in effect aimed mostly at the social forces affecting the consumer market.
She has identified ten trends that are important in American society today:

1. Cocooning: The need to protect oneself from the harsh, unpredictable realities of the
outside world.

2. Fantasy adventure: Modern age whets our desire for roads untaken.

3. Small indulgences: Stressed-out consumers want to indulge in affordable luxury and seek
ways to reward themselves.

4. Ergonomics: The sterile computer era breeds the desire to make a personal statement.

5. Cashing out: Working women and men, questioning personal career satisfaction and
goals, opt for simpler living.

6. Down-aging: Nostalgic for their carefree childhood, baby boomers find comfort in familiar
pursuits and products of their youth.

7. Staying alive: Awareness that good health extends longevity leads to a new way of life.

8. The vigilante consumer: The consumer manipulates marketing and the marketplace
through pressure, protest, and politics.

9. 99 lives: Too fast a pace, too little time, cause societal schizophrenia and force us to
assume multiple roles and adapt easily.

10. Save our society: The country rediscovers a social conscience of ethics, passion, and
compassion.

Popcorn has demonstrated that the power to judge whether markets, products, and services are in
tune with these trends. She states that in general practice it is important to have at least four of
these trends supportive of a product or service.

Using the market-driven innovation methodology, the impacts of social trends such as those
identified by Popcorn can be converted into potential customer needs, and customer need trends
can be established. However, even in consumer markets, the other driving forces must be
considered. For it is at the intersection of several driving forces and customer needs that significant
opportunities exist.

Traditional methods of trend analysis involve the collection of historical data on customer needs for
specific functions. Speed, accuracy, precision, performance, and defect levels are all examples of

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customer needs on which data can be accumulated over time. Once a trend line has been
established by looking at the past, a forecast of the future can be made. A great deal of caution
must be exercised at this point. Forecasting the future by looking at the past is a lot like trying to
drive a car by looking at where you've been. It'll work fine as long as the road is straight (i.e., the
future is like the past), there are no other cars on the road (i.e., competition does nothing), and
there are no animals or people who cross in front of the car (i.e., no driving forces for change).

When forecasting the future from the past, always look at all the driving forces and ask these
questions: "How will this driving force impact this trend? Will it cause the rate of change in needs to
accelerate? To decelerate? Or will it create entirely new needs?"

Another method of forecasting needs is by looking at early adopters. There is a generally accepted
pattern of adoption of new products or ideas. Early adopters are individuals or enterprises who
have advanced needs or who see the potential in new concepts long before the majority of the
market. These early adopters can act as precursors to the rest of the population if the lead-lag
relationship has been established for previous products or services, or if it can be inferred from the
behavior of the other markets. Determination of the characteristics of early adopters is a well-
refined science and art.

Expert Opinion

Expert opinion techniques constitute the bulk of customer research tools. Experts can, and in many
cases must, be drawn from several categories:

Customers

Competitors

Strategic
Relationships of
Customers

Researchers

Opinion Leaders

Current

Direct

Customers'
Customers

Academics

~

Identified Potential

Indirect

Suppliers

Consultants

Lobbyists

Unidentified
Potential

Structural

Others

Government

Personnel

Association

Personnel

Writers

Special Interest
Groups
Business Leaders

Government Leaders

There are a wide variety of techniques to utilize the capabilities and knowledge of experts:

■ Surveys

■ Oral interviews (personal, telephone)

■ Written (paper, electronic)

■ Group meetings (actual, nominal, electronic, or paper)

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■ Publications

The keys to effective utilization of experts are the proper choice of experts to represent the broad
cross section of views required in order to get a good forecast of future needs; applying nonbiased
methods of posing questions and analyzing answers, and applying methods to have the experts
reflect on the impact of the driving forces on needs, are also essential.

Integrative

Integrative techniques can be as simple as having the experts reflect on the trend analysis, and,
considering the driving forces, determine whether the trend will continue or not. They can employ
complex and highly sophisticated computer models, built for the market being studied, that include
the information developed through the other techniques. These models are built upon theory and
experience of the way the facts being measured can together depict a future need.
It is imperative that information be obtained from a variety of different sources utilizing a variety of
techniques. The results of all this research must then be analyzed and synthesized so that an
adequate understanding of the customer's future needs can be established.

Importance of the Driving Forces

The driving forces for change are integrated in various ways into this process of customer needs
forecasting. The driving forces are used to:

Determine what questions to ask and where to look for answers

Sensitize minds to what to scan for

Determine the impact on trends

Select experts and guide their considerations

Frame integrative models

Any one piece of information obtained about customers' future needs has a high probability of
being wrong. Guiding the selection of what information to develop and how to interpret that
information in light of the driving forces for change improves the probability that the new piece of
information will be correct. Integrating several pieces of information from different sources and with
different techniques guided by the driving forces for change reduces even further the probability of
error.

Determining Customer Needs (Summary)

The following steps must be used to identify and classify customer needs:

1 . Identify and list the types of customers in each of the three categories (current, identified
potential, unidentified potential).

2. For each type of customer in each customer category, identify current needs, then
consider the impact of the driving forces on those needs.

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3 . For each type of customer, review all the driving forces for change.

4 . For each driving force, identify the new needs that will result for that type of customer.

Technologies Impacting the Market

What is technology?

Technology is the practical application of knowledge. It manifests itself in a variety of forms:

■ Methods

■ Materials

■ Systems

In a given market, the detailed examples of these can be classified into the three technology types
- direct, supportive, and enabling. Direct technologies are those that are embedded in the product
or service, and are visible to the customer, Supportive technologies are those involved in the
research, development, design, manufacture, sale, and distribution of the product. Enabling
technologies are those that allow improvements in the direct or supportive technologies.

Within a market, technologies exist at many levels. The choice of level of technology is the first key
decision that an enterprise must make. For example, in the intelligent transportation systems (ITS)
market, there is a complicated hierarchy of technologies. ITS is an emerging market that consists
of "smart" cars, "smart" highways, and the communication systems that link them. Technological
change could be forecasted from the top level of ITS all the way down to the metallurgy of
integrated circuits, and at all the levels in between. A balance must be established between the
amount of knowledge required to make a better decision and knowledge of how all the component
technologies are going to behave.

The set point for the level of technologies to be forecasted is established through consideration of
external and internal factors. The process of setting the level is holistic. A number of different
questions must be answered. External questions to be answered are:

■ What is the time frame?

■ What is the market?

■ Who is the customer?

■ How are the needs articulated?

■ What technologies are controlling the development of the market?

■ How pervasive are the technologies?

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With this set of questions, the enterprise is attempting to establish the level of technology that is
controlling the development of the market. The enterprise must establish the level of technology
that is key to fulfilling the needs of customers.

The second set of questions are related to the practicality of performing the forecast:

■ What information is available?

■ How much time is available to conduct the forecast?

■ How much money is available?

■ How many people are available?

■ What are their capabilities?

■ How dedicated are the people to the task?

Assessing Technological Capability

The purpose of technology forecasting in this context is to assess the capability of the technology
to meet the current and forecasted future needs of the customers. This requires in all cases the
translation of customer needs, quite often expressed in terms of benefits, to specifications for price,
function, and form, often thought of as attributes, both at the product level. These in turn must be
converted into performance criteria for the technology. For example, throughput of traffic over a
city's road system may ultimately depend upon the processing speed of microprocessors in remote
locations. If this is a factor controlling the development of that part of ITS, then the speed of
microprocessors must be forecasted.

In making the assessment of future technological capabilities, there are three questions to be
answered. Will the forecasted technological capability:

■ Be sufficient to meet customer needs?

■ Be insufficient to meet customer needs?

■ Surpass forecasted customer needs?

If the technological capability will satisfy customer needs, the question becomes how is the
enterprise going to establish sustainable competitive advantage through technology. If it appears
that technological capability will fall short of satisfying customer needs, the enterprise must decide if
this is a limitation of the technology or the result of the amount of effort being given to advancing
the state of the art. If it is a result of the amount of effort, what effort could the enterprise put in
place that would advance the technology faster than the general market, thereby giving the
enterprise a significant edge? If the capability of technology appears to be in excess of what is
required by its application, then the question the enterprise must answer is, "What new needs is
the availability of this technology likely to create?"

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The enterprise may also want to assess its own technological capability versus that of the industry.
The technology forecasting techniques facilitate this type of assessment.

Forecasting Technological Capability

The necessity to forecast technological capability derives from the requirement to fulfill the future
needs of the customer. Once customer needs are understood, a logical next step is to discern
which of the technologies available are likely to have capabilities to meet the needs at the specified
future time in question. Forecasting is, however, more than trying to precisely pinpoint a single
parameter. Our colleague, Ralph C. Lenz, whom many consider to be the father of technological
forecasting, is fond of quipping, "It's better to be approximately right than precisely wrong!'" Joseph
F. Coates eloquently states, "The burden of the work and the key to making forecasts credible has
increasingly been assumed by the communications process rather than by the more abstract
qualities of technical analysis."

For today's environment, technology forecasting should be defined as the process of discovering
and communicating probable technical capabilities in order to make better decisions and prevent
surprises. Forget the academic exercises and concentrate on discovering the direction, rate, and
nature of the changes taking place in the technologies in question. The tools available for
accomplishing these tasks fall into four general categories of techniques: surveillance, trend
analysis, expert opinion, and integrative. These are the same categories described above in our
discussion of customer needs analysis. Now, their application is focused instead on the issues of
technological capability. The techniques within the four are aimed at discerning the probable
capabilities at the three levels of technology (direct, supportive, and enabling). The types of
techniques used and the efforts employed to forecast are dependent on a series of both internal
and external factors as previously discussed. The main reasons for conducting the forecast are to
make better decisions, and to prevent surprises.

For forecasting purposes the surveillance category is made up of three technique areas: scanning,
monitoring, and tracking. Scanning is the process of looking broadly for events and trends that may
imply an impact (threat or opportunity) upon the technical arena of particular interest. The activity is
not unfocused, nor is it undirected; rather it is purposeful in effort to skim and detect. An individual
who can discipline himself or herself to follow a scanning process can review great volumes of
material in very short periods of time. Once potential information or data is detected, monitoring is
used.

Monitoring is the process of specifically, and with a defined purpose, following the technological
developments in a particular area. Monitoring may be done by an individual or as a team or group
effort. Not only are information and data gathered, they are analyzed for meaning and impact and
the results communicated in some meaningful way. It is virtually impossible to develop a forecast
without using monitoring techniques.

Tracking is the process of carefully and purposefully following a greatly narrowed range of
technological development. The frequency of activity is greatly increased in a technological tracking
mode. The results of this activity are of immediate value and can be used for both operational and
strategic decisions.

Trend analysis as a category consists of many, mostly quantitative, techniques. We identify six
techniques that have proven to be the more useful overall in business environments. They are

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precursor developments, trend extrapolation, the Pearl curve, the learning curve, substitution, and
multiple substitution.

Forecasting using precursor developments can be done when a lead/lag relationship can be
established between two technical areas. This is usually done by observation over a period of
years, and establishing causal connections between the technical areas

Trend extrapolation involves plotting key parameters of technical progress against time. From the
results, regular development patterns can be discerned. An initial assumption can be made that the
patterns, which are rooted in past developments, can be extended into the future for some period
of time. In a large number of technical areas, it has been found that if progress is plotted versus
time, the trace is linear on a semilog graph. This would represent a constant percentage rate of
change

The Pearl curve, named for the American demographer Raymond Pearl, who used it in
demographic forecasting, is one example from a family of growth models. These techniques are
often used to describe technological change patterns that resemble organic growth. The slope of
the Pearl curve is a function of both the distance to go to the upper limit for growth and the distance
already covered.

The learning curve is a production-driven performance technique. Its basic premise is that as the
number of units produced doubles, the labor-hours per unit decrease by a constant factor.

Substitution analysis is used to forecast the rate at which one technology will replace another.
The traditional approach involves the application of the Fisher-Pry model. This model predicts
characteristics loosely analogous to those of biological system growth. Many examples now exist
for technology substitution.

Multiple substitution represents an increasingly common situation in which either more than one
new technology is substituted for an old one or a single new technology is actually replacing more
than one old technology.

The expert opinion forecasting category can be divided into three technique areas: interviews,
surveys, and groups. In today's needs-driven environment the use of expert opinion for forecasting
is imperative.

Interviews can be conducted under two basic conditions-structured and unstructured. Each type
has advantages and disadvantages associated with it. However, given the value of people's time,
structured interviews are optimal.

Surveys are conducted under many different formats and for many different reasons. They can
vary from public opinion surveys administered by enterprises such as Gallup to market research
surveys done by the likes of Good Housekeeping, Gentlemen's Quarterly, Working Woman, or
Money magazines. In large part what differs in a survey focused on technology development rather
than market research or public opinion is the types of questions asked and who is included in the
survey universe. One particular type of survey, the Delphi, can be adapted very well to the rigors of
obtaining both quantitative and qualitative data.

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There are also a myriad of group techniques which can be directed to gaining technological
information for forecasting purposes. These group techniques may range from the familiar focus
group to the highly structured and inclusive morphological analysis.

The integrative category of forecasting techniques consists of four technique areas: opportunity
analysis, scenarios, cross-impact analysis, and mathematical models.

Scenarios generally present in a narrative form the descriptions of multiple forecasts. They can
provide a common context and a vehicle for presentation of very complex concepts and
information.

Cross-impact approaches are designed to capture interactions between events or trends and to
represent them formally in a cross interaction model. Mathematical complexities, such as
probabilities, can be deftly handled in a cross-impact matrix. With the advent of PCs and
spreadsheet software the need to construct expensive models has diminished significantly.

A mathematical model uses equations to represent the system in which events occur. It requires
significant time and effort to initiate and construct, and maintaining the model with current data is a
necessary' yet onerous, task. The value of large mathematical models solely for technological
forecasting is negligible in the current environment.

All these categories are useful and important to forecasting technological change. The forecaster
must continuously update any and all projections as well as assess the impacts that the driving
forces for change will have on the development rate and direction of technology.

Determining Technological Capability (Summary)

The following steps must be followed to determine the technological capability to meet the needs
identified earlier:

1. Define the three types of technology (direct, supportive, and enabling) for this market.

2. Determine a comprehensive set of examples of each of the three types of technologies.

3. From this list, identify the few key technologies that control the development of the
products and systems to meet customer needs.

4. For each of the key technologies identified in each of the three types of technology,
determine its current and future capability to meet the needs of the three categories of
customers. This step can be as quantitative as you want it to be. Technology-forecasting
techniques are often essential in the determination of technological capability over the time
frame of the analysis. Match the technology forecasting technique to the application.

5. For each technology, determine the strength of the technological capability against the
needs of the market.

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Competition

What Is the Competition?

Customers provide the "pull" in the market. Their needs attract competition, vying to provide
solutions to those needs. Technology developed by the set of competitors satisfies those needs
but also can create new needs through advanced capability. Technology therefore can be the
"push" of the market. Competition is the "clash" in the market as competitors each seek superior
positions.

There are three different types of competition:

■ Direct

■ Indirect

■ Structural

Direct competitors attempt to satisfy the same need in the same manner. Indirect competitors
attempt to satisfy the same need but in different ways. Structural competitors attempt to do away
with the need.

For example, consider the airline industry. The airline companies are moving goods and people
from place to place. American Airlines, Delta, and Continental are all direct competitors. Indirect
competitors are numerous. Examples of indirect competition are bus companies, trains, ships, and
cars. A structural competitor to the airline industry is telecommunications and computers.
Videoconferences, faxes, phones, and electronic mail are attempting to do away with the need for
face-to-face meetings. In one profoundly large blunder, an airline company held a national meeting
of its management team to address its strategic plan for its future via teleconferencing to save time
and money.

Enterprises often have considerable knowledge of their direct competitors. But in many cases,
even with a lot of information on direct competitors, they lack the understanding of the competitor's
strategy which is key to understanding that competitor's response to future needs. Rarely do
enterprises study and understand their indirect competitors, and almost never do they consider
structural competition. This is a significant failing, for there is considerable wisdom to be gained by
examining these two areas of competition.

IBM's failure in the 1960's to understand the power of semiconductor integrated circuitry to produce
microprocessors and the impact they would have on computer systems is a significant
contemporary example. IBM did not understand the indirect competition of PCs and workstations
with its central processor strategy. The Pullman Company, which produced and staffed quality
sleeping accommodations on passenger trains, did not understand the structural competition of air
travel. And RCA, one of the early developers of transistor technology, failed to comprehend their
impact on vacuum tubes, and therefore the power of indirect competitors like Texas Instruments.

The pharmaceutical companies that commercialized the polio vaccines were structural competitors
of iron lung manufacturers. In the 1930s, the manufacturers of cooked canned foods were

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structural competitors of the ice delivery services for iceboxes. Later, the mechanical refrigerator
companies were indirect competitors of icebox companies. Currently, the marketers of irradiated
and aseptically packaged uncooked foods are structural competitors for the makers of refrigerators.

Dick Davis, a futurist for Whirlpool who foresaw the impact of wrinkle-free fabrics, a structural
competitor to irons, and who helped Whirlpool capitalize on that change said, "No company ever
gets struck by the future in the forehead. They get it in the temple!'" Enterprises do a reasonable,
although sometimes myopic, job of understanding their direct competition, but they frequently fall
short of identifying, understanding, and integrating into the enterprise the impacts of indirect and
structural competitors.

Competitive Response

The process of understanding the competitive response to the strategic needs discovered earlier in
this chapter begins with the definition of the three categories of competitors. Then specific
competitors are listed and ranked in order of current importance to the enterprise. Sometimes it is
not possible, or practical, to list specific indirect or structural competitors. In this case, identify
classes of these types of competitors and describe them.

The next steps involve the development of an understanding of the competitor's current strategy.
This is followed by an assessment of each competitor's response to the forecasted needs. The
techniques for understanding competitors' strategies and their likely response to future needs can
be categorized in the same way as needs forecasting and technology-forecasting techniques:
surveillance, trend analysis, expert opinion, and integrative techniques.

This is also not a treatise on competitive analysis. Our purpose here is to give an overview of the
techniques, and, more important, show how to integrate them into an overall opportunity and threat
analysis.

Many of the technology-forecasting techniques can be and are applied to competitive analysis. It's
just that their focus is shifted from the technology to the competitors. Some of the customer needs
analysis and forecasting techniques are also applicable here. Three of the techniques unique to
competitive analysis are:

■ Benchmarking

■ Reverse engineering

■ Executive analysis

Benchmarking has been made very popular because of the stress on quality and the focus on
"best" practices. Benchmarking is a way to obtain and share information about processes used
within enterprises. Reverse engineering, buying a competitor's product and analyzing its
components and its design, and inferring processes can give concise, direct information about a
competitor's current capability. An analysis of executives' personalities can add information on the
competitor's likely response to change.

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Assessing Competitive Response (Summary)

The following steps must be used to identify the competitive response to the needs identified in the
previous section:

1. Define the types of competition (direct, indirect, and structural) for this market.

2. Identify the types of competition and list as many specific examples as reasonable in each
of the three categories.

3. For each competitor type identified, determine the competitive response to the needs. It is
helpful here to reconsider all the needs each time an innovation response is determined.

4. For each response determined, identify the strength of the response. Use the same five-
point scale as was used in the determination of customer needs.

Additional Insights on Technology

At this point it is useful to revisit the assessment of technology. Often, the direct technologies
considered are all those used by the direct competitors. Add to the technology list those that are
associated with the indirect and structural competitors. Select those that are key to development of
your enterprise's competitors' ability to meet the needs of customers. Use technology-forecasting
techniques to ascertain if the enterprise's indirect competitors are going to be able to replace the
enterprise's products or whether the enterprise's structural competitors are going to be able to do
away with the need for those products.

Synthesizing Market Opportunity or Threat

The synthesizing of customer needs, technological capability, and competitive response into a view
of the opportunity and threat in a market provides significant insight. However, the enterprise
should not lose sight of the details of the analysis of or the insights that have been developed by
the process it has gone through to get to this point. It is useful throughout this synthesis process to
keep a "trail" from the synthesized statement to the details that made it up. For while the synthesis
is helpful in creating a strategy and comparing the opportunity and threat to the enterprise culture, it
is from the details that project focus is determined.

The elements that determine opportunities and threats in a market for an enterprise are shown
schematically below. Customer needs, technological capabilities and competitive responses to
those needs and capabilities all interact on each other. These three elements are set in a milieu of
driving forces for change that act on each of the three elements of the market as well as each
other. The result is a chaotic swirl of opportunities and threats that must be teased out.

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The steps taken next depend upon the use of the knowledge gained from the analysis. If the goal
is develop specific product or technological development plans, it may be better to use a cross
impact type of approach and work with linear lists, weighed or prioritized. If the goal is to develop
strategies for the market, it may be better to develop scenarios that the teams developing the
strategies can respond to. This is an integrative approach that relies upon synthesis of all the
information garnered in the analysis. The goal of this process is to determine nodes or attractors
around which multiple scenarios can be written. We have found it very useful to search for four
different scenarios. This avoids the problem, in a three scenario approach, of having most people
select a middle scenario. It also avoids the problem of having people have to make a decision
between two, often polar, scenarios that may divide the effort. Four scenarios provide a rich context
for people to think about the alternative futures. We have found that that thinking and the resulting
discussions create more wisdom for the enterprise.

About the Authors

Paul Schumann and Donna Prestwood are the founders of Glocal Vantage, Inc., an Austin, Texas
based consulting firm. They offer consulting, training, seminars and speeches on developing
innovation strategies. More information about Glocal Vantage can be obtained at
www.glocalvantage.com . This article was excerpted from their book, Innovate!, McGraw-Hill,
1994.

GLOCAL VANTAGE, INC., PO BOX 26947, AUSTIN, TX 78755-0947, (512) 302-1935,
info@glocalvantaqe.com , www.glocalvantage.com