Backcasting from the Future Strategies for Accelerating and De-Risking DiscontinuousInnovations
by Francis D Kim and Rajendra Srivastava
The last decade has seen an acceleration in the rate of innovation. No industry from Agritech to moviemaking (computer graphics) to hospitality (asset light Airbnb) to
pharmaceuticals (precision medicines) to Edu-tech to n-tech has been immune to
disruption by technological innovations and new business models. The rate of innovation is, however, not uniform. While many innovations have been incremental,
“radical” and “discontinuous” innovations are more disruptive and require both vendors and users to make major investments. This article proposes a strategic framework for product-market development and growth for discontinuous innovations.
Some innovations can be painfully slow in their ability to penetrate the market, but once
adopted they can radically alter an industry. AI laboratories were set up in the 1950s, but it took more than 70 years for a product like ChatGPT to become a household name.
Similarly, when personal computers were rst introduced no one really knew how the
market would evolve in both hardware and software applications. For discontinuous
innovation to succeed, multiple vendors have to coalesce to form an ecosystem that
enables a customer solution. The greater the novelty of the product and the greater the
attendant complexity of the solution, the longer the time for product-market evolution and the greater the costs and risks associated with innovation to both sellers and users. This is typically the case when both technological and product developments are necessary to develop an entirely new market.
Discontinuous innovations, often referred to as “disruptive innovations,” are significant and groundbreaking advancements or changes in products, services, technologies, or business models that disrupt existing markets or industries. These innovations are characterized by their transformative nature, as they often introduce entirely new ways of doing things, challenge established norms, and can lead to the displacement of incumbent products or services. In this paper we examine:
1. Accelerating Technology Adoption - Strategies that enable earlier take-off points for
technology diffusion “S-Curves” and acceleration of growth vectors.
This will typically require mechanisms for reducing risks perceived by buyers (via mechanisms such as customer education, product warranties and services) and incentives for manufacturers (e.g., Government subsidies and establishment of product standards).
2. Temporal and Technological Change Strategies that allow us to migrate from
traditional Forecasting methods to “Backcasting” for innovations that embrace both
new technologies and new (non-existing) markets.
An entirely new product introduced to the market to perform a function that no previous product has performed requires new uses for the product to develop and for customers to embrace them. It therefore becomes important for innovators to “imagine the future” regarding how the products would be used and work backward to enable such applications. The roadmap for such discontinuous innovations is hard to predict and traditional market forecasting and demand estimation methods are challenged.
3. Detailed strategy framework as to how radical, discontinuous innovations “learn”
from visions of the future to work backwards develop:
More adaptive product market de nition, be more ambidextrous and rely on market-based intangible assets (brands, demand-chains, and capabilities) to integrate both customer and product management capabilities
Growth Acceleration strategies such as licensing, open systems (instead of proprietary ones), investments in customer acquisition and retention rather than hard assets
De-risking strategies such as platforms and ecosystems that enable sharing costs and risks across multiple products and market segments (e.g., Honda spreading costs and risks related to small engine technology across motorcycles, snowmobiles, wave-runners, and sportsters) and a focus on process integration rather than on core competence, and integration of B2B and B2C markets
Accelerating Technology Adoption
Take the multiple technology diffusion curves illustrated in Figure 1. The “take-off” point
for the traditional “S-Curve” is painfully slow as potential buyers mull over the need for the product, trying to gure out the best option. The contrasting take-off points and the
subsequent growth of discontinuous technologies of Electric Vehicles by Tesla and the
Metaverse by Meta (formerly Facebook) (see Figure 1) are dependent on:
Risk and Uncertainty regarding the evolution of the product market and existence of
use cases that often mitigate perceived risk
Presence of Standards – absence of one implies that greater risk, larger number of
products embracing a standard might imply lower perceived risk (e.g., VHS vs Beta,
for video recorders). Interestingly, the Japanese Ministry of Industries would often
endorse a standard to reduce perceived risk for buyers (who would no longer be
unsure as to whether they were buying the wrong product. Concurrently, this would
help establish the market for Japanese brands.
Competitiveness in the seller and buyer industries fosters innovation, price
reductions and adoption of new technology for ”competitive” reasons – even when
less economically viable.
Development of Eco-Systems – that provide a complete customer solution (i.e.,
hardware, software, applications, and support) thereby simplifying the task for the
buyer
Figure 1: Accelerating Adoption of Discontinuous Innovations
A variety of other factors weigh in to support faster adoptions in the marketplace. Some
companies may use a licensing strategy to lower perceived entry barriers to competitors.The larger number of end products using the same/similar technology in the market allay buyer’s perceived risk. The initial targeting of B2B customers for cellular phones at the front end of the life cycle reaches buyers who are higher on the affordability list. Introduction of new technology by trusted vendors (e.g., branded vendors such as Apple or Microsoft) tends to reduce perceived risk related to newer technology – as does distribution with right-to-return warranties with no questions asked. These are the fodder of a discontinuous technology strategy.
Backcasting: Managing Truly Discontinuous Innovations
This article shows: How do rms manage discontinuous innovations with uncertain outcomes?
Based on research, practice and education on strategies and transformation, we offer a
framework that helps companies realize the bene ts of the innovation process.
Managing truly Discontinuous Innovations requires higher levels of risk as these
innovations require the simultaneous development of technology and the market.
Zuckerberg pitched Metaverse as the next logical step for social networking in 2021. The
marketing experts critiqued the problem from the marketing perspective that Facebook
rebranded as Meta, raised concerns to both marketing experts and investors of the change with no real substance and no clear delineation of applications and markets for Metaverse. For example, Metaverse could be useful in providing education and skill training. However, to both users and investors, the size, and bene ts in targeted market segments and hence the opportunities created by Meta were not obvious. By adopting a brand name based on the future potential capabilities, the company set itself up to confuse people at best. Incontrast, Google rebranded well as Alphabet in 2015, after its business had expanded well beyond its search engine. The brand change helped minimize the associations between Google and its experimental sister companies.
There remain questions whether the vendor or the users knew the directionality of Meta. After 36 billion dollars were spent, big investors say Meta lost the investors’ confidence. Zuckerberg himself acknowledged the dif ficulties. “Although our direction is clear, it seems that our path ahead is not quite perfectly de fined”. Was it due to technological uncertainty (will it work?), or also its market uncertainty (will people buy it)? Meta assumed that the Metaverse would be an incremental innovation to social media users, however the logic may not be consistent with the perception of consumers and developers. On top of that, It is hard to develop products when designers are not conversant with user needs. And users do not want to buy if they are not sure where the product/technology is headed. We posit that the core issue of Meta goes beyond a marketing problem, and touches upon the underlying challenge common to discontinuous innovation projects high with both technological and market uncertainties, lacking clear outcomes and ability to illustrate clear value in and use cases in the social networking solutions market. To summarize, if the technological and market outcomes are not known the successful adoption of discontinuous innovation becomes very challenging. In response to these challenges, this article proposes a strategic framework for rms embarking on future oriented discontinuous innovation journeys.
In contrast, Tesla developed and implemented a clear “Backcasting” strategy since its
inception in 2004. A Backcasting Strategy requires a visualization of the expectations of
the future. This includes anticipation of challenges and opportunities by developing
solutions by “imagining” the future and working backwards to take care of anticipated
barriers and opportunities in the present (Figure 2)
Figure 2: Backcasting and Forecasting for Discontinuous Innovation
For discontinuous innovation, the Backcasting exercise requires two clear roadmaps, and one common focus on de-risking:
1. How is product development likely to evolve over time in terms of product features,
services available and costs?
2. Which would be the most appropriate market segment given the product roadmap?
For example, when cellular phones were rst introduced, affordability was largely
con ned to the B2B market. Hence, marketing channels and communications were
best targeted to this group.
3. How can we reduce risks for both customers and vendors in the ecosystem?
Tesla articulated the global warming story in its favor. The company argued that Electrical Vehicles (EVs) could be a globally impactful solution in the automotive sector even if it was an audacious claim considering Roadster which came years later did not compete squarely well with gas-fueled cars on dimensions such as range. By initially targeting this sustainability-focused segment, with clear bene ts (price subsidies and the privilege to drive in high-occupancy lanes, and conveniently located and reserved parking-super charging stations). While Tesla initially developed a high value, low volume sports car that was targeted at celebrities who could afford higher prices, the company bought time to focus on the next market segment through product improvements – longer battery life, reduced cost structure. Tesla has been able to convert a discontinuous innovation into a mainstream product where the market impact of incremental innovations and price reductions on existing segments are more predictable, thereby supporting activities from Backcasting to eventually Forecasting. Use of Backcasting strategies involves three distinct
1. A growth orientation which requires companies to be audacious with a larger risk
appetite
2. A commitment to rapid product development in response to (or in concurrence with)
evolving market needs and preferences
3. “De-Risking” strategies such as managing platforms and ecosystems that require a
move away linear thinking and hierarchical structures towards platforms and management of ecosystems to deliver customer solutions
Table 1: Backcasting Strategies for Discontinuous Innovations
Tesla’s success and its future is subject to many factors that include:
1. Audacity: In Pursuing Growth and Acceleration Strategies based on Backcasting,
Tesla clearly placed bets (took risks) to take purposeful actions to enable evolution of
its version of the future and to take advantage of anticipated barriers (cash ow
challenges) and opportunities (government subsidies)
2. Parallel Development: Rather than sequentially targeting Product Development and
then Market Development, Tesla targeted both simultaneously, using potential
customer inputs in product development (i.e., employed design thinking). The initial
product from Tesla was a high-performance roadster, targeted at a high price to the
rich and famous - more for its speed than the range. This initial luxury segment was
essential for the affordability dimension. For low volume you need high margins –
therefore high prices.
3. Product Market Defi nition: both tangible and intangible assets and capabilities can
provide competitive advantages, Tesla clearly identified electric vehicles as its path
for growth where its capabilities (e.g., sustainability, acceleration) were ahead of
Detroit.
4. Backcasting Logic: The plan was to move from a mine and burn hydrocarbon
economy to a solar energy green electric vehicle. Tesla’s long-term plan was to build a
wide range of cars, including affordable family cars.
5. De-risking Strategy: While many automobile manufacturers such as Toyota, Nissan
and Hyundai have gone up the value (horsepower and cost) ladder, Tesla’s product
strategy has been to continuously provide a better vehicle at a lower price. That is, the
strategy has been to build an expensive sports car (premium electric sportster at
$109K in 2008) . Use the money and technology developed to build an affordable
luxury sedan ($57K in 2012), and use that money to design, scale and build an even
more affordable SUV ($43K in 2015).
6. Investors bet on Pro tability and Scale: Tesla has steadily worked its way into the
Existing Market-Existing Technology Space by rapidly going up in volume from 12
years for the rst million cars, to 7 months for the 4th million.
7. Market vs. Marketing Management in Driving Growth: By sharing patents on
technologies like Superchargers and IP (open systems), Tesla is inviting competitors
and strategic partners to build their IP on top of its own. This will result in a “Tesla-
compatible” Ecosystem and Tesla will make money no matter who manufactures cars based on Tesla’s patents. Tech Licensing is a great advantage to early movers. This is
a central part of Platforms and Ecosystem strategies (See Table 1)
8. Emphasis on EV Ecosystem: The company is building an EV eco-system globally and
is emphasizing high reliability (a natural for electric motors). Additionally,
government subsidies for innovation in car batteries and rapid growth of
conveniently located electrical charging stations are contributing to its future.
To summarize, Tesla has successfully leveraged Backcasting strategies to develop a strong differentiated brand with significant pricing power. Investors value growth in both revenue and profi ts (more than Earnings Per Share). Its exponential growth and
government-subsidized grants have contributed to pro fitable expansion. Valuation
research clearly underscores this growth in scale and pro ts which has resulted in
amazingly high price to book and price/earnings ratios (15.5 and 70.9 respectively on
September 29, 2023). Importantly, the company has anticipated challenges, developed
solutions in advance – in effect learned from the future to work backwards to manage the present. Helping investors and customers understand and articulate the future clarifies the roadmap of where and why a company might go as the competitive dust clears.
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Francis D Kim
Dr. Francis D Kim is the Assistant Professor for Finance & Economics at the School of Integrated Innovation, Chulalongkorn University in Thailand. His research focuses on how contractual incentives affect governance and policy arrangements in the Innovation, Corporate Governance, and Political Economy issue areas.
Rajendra Srivastava
Rajendra Srivastava is the former Dean and Novartis Professor of Marketing Strategy and Innovation at Indian School of Business (ISB). He has also held distinguished research chairs at Singapore Management University, Emory and University of Texas - Austin. He was inducted as Fellow of the American Marketing Association in 2020.
