Market-entry strategies for breakthrough innovations

Abstract

Breakthrough innovations differ from incremental innovations in several ways. Probably the most important way in which they differ is in the level of uncertainty. Managers of breakthrough innovations need to work with high degrees of technological, market, and environmental uncertainties. TNO, which has developed a breakthrough carbon capture and utilization concept is now trying to make sense of these uncertainties and is looking for a roadmap for commercialization. Literature is fraught with instances where under uncertain and complex environments, managers, entrepreneurs and investors rely upon mental models in order to make decisions. Mental models have several shortcomings - such as biases and bounded rationality among several others. In this research, an attempt has been made to use tools of system modeling and scenario building in order to build a techno-economic model that could be used for rational decision making. The techno-economic model has been used to generate scenarios to evaluate the value proposition of 6 possible markets for TNO's carbon capture and utilization technology - Phycocyanin, Astaxanthin, Beta carotene, Omega 3 fatty acids, Fish oil and Crude oil for fuel. After analysis of value proposition and risks, it was seen that certain high value markets such as Phycocyanin, Astaxanthin and Beta carotene did not have enough value proposition with the technology. Omega 3 fatty acids however had a good value proposition along with being a high value market. There were also good value proposition for markets such as fish oil and crude oil. However, in order to make profit in these markets, a very big investment is required which was considered as risky because the technology has not been proven yet. Thus the omega 3 fatty acid market is the recommended market for TNO's technology - which is the answer to the main research question addressed in this thesis. Furthermore, a niche market strategy has been recommended, where TNO along with suitable commercial and research partners could possibly enter the omega 3 fatty acid market. TNO could utilize the knowledge and the profits gained in this process to develop the market for fish oil and crude oil. The fish oil market is closer to the omega 3 fatty acid market, as it is an upstream product of the omega 3 process. So no change in algae species or conditions may be required. However developing the technology for fuel (which is a much bigger market in the long term compared to fish oil), is likely to require new algal species and process parameters. This poses a risk in the long term that TNO might never end up in the fuel market. This leads to a difficult dilemma for the technology entrepreneur. If he decides to invest big to concentrate on the crude oil market, there is a huge financial risk involved. On the other end of the spectrum there is also a risk that a golden opportunity of being a market leader in a big market such as bio-based fuels will be missed. Proponents of niche market strategy believe that they can mitigate these risks by investing in niche markets and then move on to mass markets. However, if one analyzes the history of key innovations in the last century, an overwhelming majority of technology pioneers who enter technology niches, do not manage to transform their business processes to suit the mass market. As a result, technology followers take advantage of the progress made by the pioneers in reducing uncertainty, and are able to supply to the mass market. Given this evidence, it could be of interest to understand the factors that affect a technology pioneer's inability to enter mass markets from the beginning. In this research, four main factors were found to play a key role - maturity of the technology at the time of invention, nature of the market - the need to prove the technology in a small scale before large scale adoption, need to maximize investor attractiveness (low investment, low payback time, high returns) and finally the core business model of the innovator at the time of invention. Other elements of academic interest in this report include the successful demonstration of system modeling to arrive at a market entry strategy, demonstration of how scenario building practices could be reinforced using through system modeling and on how case studies could be used to form high level quantitative models.