In the last post we saw the difference between two approaches to R&D – ‘What is possible’ ( Science) versus ‘What is needed’ ( technology). Let us move to the marriage terms between S&M and R&D.
There are two types of errors in new technology business. In the type 1 error, the business strategy assumes incorrectly that there is a market for a new technology. In type 2 error, it assumes incorrectly that none exists. Of these, the type 2 error creates a much larger damages. It occurs when the marketing people know of a market need but do not think that a solution is possible ( We did not know you could do that). Another kind of missed opportunity occurs when the inventors know of an invention but don;r realize there is a market for it. ( Who would have though that anyone would need that). The trick lies in knowing how to match the technology and the market and is best carried out as an iterative exercise.
The first question in the exercise has to be ‘ What is the size of the market?’ Failing to consider this part of the search is to fall in the trap of type 1 error. Of course, this question will get followed up by ‘ How much of the market is accessible?’ and ‘ What will be our portion of profit on this?’
But beware. When the evaluation logic is limited to this form it can seem that almost no invention is worth pursuing. This line of thinking overlooks the fact that new technologies can create new markets altogether. When that occurs, different methods of estimating value are needed and so are different questions. This is exactly the point where type 2 errors take place. Who are the potential customers for the new invention? How many of them could we serve? Why do they need the new invention? How is the need being satisfied now?
Except for the question bearing on market size, these questions are essentially what is known as ‘Heilmeiers Catechism‘.
- What are you trying to do? Articulate your objectives using absolutely no jargon.
- How is it done today, and what are the limits of current practice?
- What’s new in your approach and why do you think it will be successful?
- Who cares?
- If you’re successful, what difference will it make?
- What are the risks and the payoffs?
- How much will it cost?
- How long will it take?
- What are the midterm and final “exams” to check for success?