Innovation Tools Markets: Resisting the Itch

For a Forrester-ite like me, market forecasting is often top-of mind. Sizings and forecasts represent perhaps the most powerful research tool at an analyst's disposal -- in some cases, forecasts are both our bread and our butter. Thus, when I launched coverage of the innovation management tools market this past spring, the question of how and when to forecast and size the market was a key part of my planning. Indeed, a market forecast can often "make or break" a coverage area for a Forrester analyst -- especially a nascent one ripe for analyst buzz.

Nonetheless, in recent months I've become convinced that -- for now -- I should firmly resist the forecasting "itch."

Already, this position has caused me considerable grief. For months, multiple parties have been clamoring for me to publish a market forecast -- parties including vendors, buyers, and even some of my own colleagues at Forrester. Case in point: Three separate vendor CEOs have privately asked me about my (apparently forthcoming) market forecast. One went so far as to send me his own company's forecasting framework, suggesting that I should follow suit. Another CEO proactively provided me with sales data and market projection numbers -- in another not-so-subtle nudge.

Nonetheless, I have no current plans for any upcoming (although much-desired) market forecast. This begs the question: WHY do I resist the forecasting itch???

* * * *

First, I will take a step back and address the itch itself. I contend that it stems from three needs: a) satisfying the market's short-twitch desire for clarity about the future; b) satisfying vendors' needs for a "rigorously quantitative" marketing prop; and c) furthering my own short-term ability to build a successful analyst career.

The crux of my current "itch resistance," however, rests on looking past these proximate, in-the-trenches motivations. Instead, taking a bird's-eye view of the marketplace, I see four clear reasons why an innovation tools market forecast doesn't make sense right now:

1. Sell-side immaturity. As I have argued in both reports and teleconferences, the provider landscape for innovation management tools is clearly still nascent and immature. The technologies are overlapping, vaguely marketed, and undifferentiated; i.e., the sell-side value chain has not yet congealed. Only several years ago, this market had been fragmented into other domains such as Idea Management and PPM, and so everyone is still getting used to the competitive landscape. Further, only one pure-play is a public company, and to my knowledge none of the vendors have yet cracked $5 million in annual revenues.** Thus, any forecast that uses supply-side data would rest on at most only a few years of historical data, and in a provider landscape that has shown considerable churn in recent months. Further, assuming that the market does "take off," the mere fact of its impending success will likely change the game signficantly -- rendering any pre-takeoff forecast extremely unreliable. Today, the provider environment is still far more of a jungle than a playing field.

2. Buy-side immaturity. After interviewing several dozen business executives at Global 2000 companies, I have noticed a consistent theme -- the best practices of innovation management are not yet established. In fact, even the most "innovative" companies in the world have divergent views on what "innovation management" actually means. And in comparison to these industry leaders, most companies have their heads deeply buried in the sand. Despite very strong determination to "embrace innovation," most companies have very little sense of how to do it well -- and even less ability to do so with skill and aplomb.

3. Marketplace immaturity. What happens when a marketplace brings together an immature sell-side and an immature buy-side? In a word, confusion. Innovation management vendors today often persist in claiming that their solution or offering will power all innovation needs for all time (or some other such ridiculous claim). This is a case where the vendors are not yet sure where to sniff for their core differentiation, because significant fragmentation and gaps persist in the marketplace, along at least two dimensions: a) the technology environment (isolated product silos that are not yet integrated into a functional ecosystem); and b) the product landscape (both competing and non-competing offerings that have only just begun to form into rational partnership dynamics and clear competitive structures).

4. Highly chaotic externalities. Furthermore, most would-be innovation tools buyers are tackling multiple decision factors at once -- many of which (e.g., the looming global recession) are inherently unpredictable, even for world leaders and top economists. As a result, no one on either the buy- or sell-side seems quite sure of what decisions they should make. Some buyer companies seem likely to "double down" on innovation spending; others seem ready to cut back drastically. A firm's choice on this will depend on myriad factors that cannot easily be aggregated into a neat-and-tidy forecast for the entire marketplace. Simply put, today's environment is chaotic. Unfortunately, sizings and forecasts assume predictable patterns upon which to build core assumptions. Forecasting broad market trends in a chaotic system is akin to mixing oil and vinegar. For a brief moment, it appears to work...but then it falls apart.

* * * *

For these reasons, I believe that a market forecast is still unwise. At today's level of early-stage development, we are still dealing with a market and a value chain made of molten lava. Until the magma cools and we can take it into the lab and more rigorously analyze its chemical composition, quantitative forecasting studies are more folly than courageous vision. And given this backdrop, creating the gold-rush mentality that a bold market forecast often triggers would be downright irresponsible of me. This is how vicious boom-and-bust cycles get started.

Many have intimated -- or directly informed me -- that my failure to publish a bold market forecast is a clear sign of weakness. Perhaps, they say, I don't have the necessary nerves; or perhaps I need more courage; or maybe I simply lack the requisite chutzpah. I couldn't disagree more with such preposterous suggestions.

My own goal as an analyst for this space is to *resist* such direct pressure -- a challenging task that requires both nerves AND chutzpah. In the broader view, I firmly believe that this "itch resistance" is by far the best way to serve the true needs of the innovation management tools marketplace -- especially for those vendors that depend on a healthy market for their continued existence.

In closing, I want to make sure that my general views are clear: market forecasts are often extremely useful and valuable. Indeed, it is quite likely that I will at some point publish a market forecast for the innovation tools marketplace -- perhaps as soon as 2009. But it will happen only when I am convinced that the real-world maturity of the market justifies a rigorous quantitative analysis of its growth potential. Currently, I remain thoroughly unconvinced.

For everyone's benefit, I plan to take it one step at a time. If we get too far ahead of ourselves, we become Icarus confidently flying into the sun, only to perish for our foolishness.

Cheers,
Chris

** (1/1/09) Two vendors have since come forward to correct this statement, which was false as originally stated. In FY 2008 ending March 31 2008, Imaginatik's revenues were somewhat higher than US$6m. Additionally, a privately-owned innovation vendor has disclosed to me in confidence that the firm's previous-year revenues were more than US$10m.

Comments

re: Innovation Tools Markets: Resisting the Itch

Chris,As you know I'm guilty. I think I see myself as one of those CEOs you mentioned...Although agreeing 100% with your view let me try to share my view why having such forecasts could be so important for an emerging vendor:1) When you growth you attract new shareholders - we used to be in the stage where they trusted our team and our project and that's enough. But now, we moved into a stage where venture capital makes mandatory having some kind of validation about our forecast. They want those numbers guaranteed! Because they know we can justify almost any forecast we do (you're right, no one knows how the market is going to evolve)!2) When you want to grow you need to get new partners. And they need to feel they are jumping in at the right moment, diversifying, not dispersing. And, again, they want numbers...3) When you want to make the right product portfolio decision you need to guess, before things happen, which product category is likely to reward most.Anyway, for us, your strong statement about forecasts was a very good forecast itself. Even that there are no numbers in it. That allowed us to show, and successfully validate, with third parties our view of this market (now we already have new shareholders on board.) Internally allowed us to invest even more on R&D.And as you are the one who has the best view on the buy side, knowing that you also think there is a "Buy-side immaturity" makes us feel that there is not our problem, rather it's everybody problem.I think that we, as vendors, are not yet competing with each other, but rather competing for market growth.Cheers,Paulo JaneiroPS: I really think your thoughts are very, very useful to us. Keep them sharp and honest!

re: Innovation Tools Markets: Resisting the Itch

Interesting piece Chris that sums up the confusion well!For my part i see the desire for 'where are we going' call it a sense of direction or strategy, is required to give confidence to distinctly tactical activities.In the current business climate its hard to blame anyone for adopting a 'just enough' or 'when driven to' activities, but there is a strong fear that this will lead into technology dead ends. I believe that is what is driving the pushing on you for a view.My clarification on Innovation is to remember to look for one of three prime areas and use it to reflect your business challenge.1) Innovate to get a new product into a new market2) Innovate to find a way to hold market share against strengthening competitors3) Innovate to cut the cost of operations in a manner that your competitors will not have thought ofgood luck with the blogregards andy

re: Innovation Tools Markets: Resisting the Itch

So let me jump in an reinforce Chris on the one hand and challenge him on another.First, the world has changed radically. Chris, let me suggest that your hesitations are not going to go away because of the new world order. Now let me suggest where some of the disconnects might lie so that you might be able to change your focus from waiting until the industry hits the current metrics to changing the metrics to better meet the new industry.Gartner recently put out their 2008 report on 2.0 stuff (blogs, wikis). The report is useless. Why? Because it's fruit salad and because the scores they've given out are meaningless. You mentioned one such criteria $5Mil annual revenues. What exactly will that criteria tell anyone? In the past it was used as a differentiator and it was a sign of staying power. What does staying power mean in today's economy?The measure isn't the company any more -- the measure are the people doing the work and the work being done. Both can be bought by someone else with more money tomorrow -- and once they're bundled into a larger pot of money, what does stating that dollar figure mean?The metrics have to change.Now let me take issue with a few other things: the artificial focus on the vendor side. Let me suggest that the vendors are too focused on looking for their next dollar, and doing so with 'shades on' that color their perspective to the way they've decided to address the market (which could be right or could be wrong) -- but it's only one side of the conversation. What they're doing right now is only relevant if it can address market needs. Indeed, from what I've seen, they're doing a great job of addressing 'current' needs, but doing so mostly in a 1.0 sort of way: linear paths, disjunct activities, page-based interfaces. I would say those (and a whole host of others) are more critical measures of their potential success.Keep up the resistance, but also do so with an eye to a different comparative analysis. Indeed, what you've put out so far is great -- it just needs to get deeper under the covers in comparative analysis. And, I wouldn't expect you to be able to do the same yourself -- that's the 1.0 way. You should be synthesizing the experiences and insights of others -- your challenge will be in finding installs that are something other than 'standing up the technology'.

re: Innovation Tools Markets: Resisting the Itch

Paulo:Thanks for your thoughts. I understand your predicament, which is one shared by many tech CEOs these days. It's a challenging environment, for sure...To respond to your thoughts, I can see why a forecast would be useful for many in the industry. And in some sense, yes, my blog post was a bit of a "forecast lite." I think it's possible for me to go further than just the inklings and hints dropped in this post, but it's still not to the level of a precise, "rigorous" quant forecast. But I think there's a middle ground that's possible, if we can all agree on where that middle ground would/should be.I have my ideas about how to proceed, but currently I'm still very worried that any "forecast" that I publish in Forrester's peer-reviewed research would be taken too literally and too seriously by the press and the tech marketplace. I know that the situation has changed with the economic crisis, but old habits die hard. In some ways, it is the reflexive culture of irrational behavior following a splashy forecast that has me most worried. Compared with this concern, the uncertainty of the market outlook is trivial as a reason for my forecasting hesitance.Perhaps this blog gives me the much-needed middle ground, as you suggest. I really hadn't concerned publishing a "forecast lite" through the blog, but at the least it does make intuitive sense to me. I could couch it in terms that show that it is clearly not as rigorous or reliable as my published research, but still give the appropriate degree of signaling to the market about where I think it might be headed.Let me give it some more thought. Of course, any further suggestions from you or others are welcome in helping me figure out the best channel for market prognostications that appropriately help, rather than hinder, this market's future potential.~Chris

re: Innovation Tools Markets: Resisting the Itch

Paula (Thornton),Thanks for the comments...as usual, you're thinking ahead of the curve (in a good way).If I am reading your thoughts correctly, I think you're suggesting that the way we do forecasts needs to be updated to suit the "new world order." As with Paulo (Janeiro)'s comments, this idea makes intuitive sense to me. I'd like to dive into it a little more, if I may.Over the past few months, one idea that I've had has been to publish multiple scenarios as part of my forecast. Instead of saying "this one path is definitely what will happen," I wonder if it makes more sense to hedge somewhat and say "the outlook is rather turbulent, so let's lay out the likely scenarios and then try and forecast them each, to the degree of specifity that's possible." This, I think, is closer to what each of us do cognitively ourselves when we think about the future of the markets that matter to us.But still, this may be an "incremental innovation" in the way that market forecasting is done, and perhaps not "new" enough to truly suit the "new world order." Thus, another idea I've had is that it might be best simply to dispense with the quantitative methods that are useful for more mature marketplaces with well-established playing fields. In fact, another analyst on our team has devised a great methodology for forecasting nascent markets (perhaps I can/should go into more depth about this in a subsequent post). Yet even with this methodology, I have my doubts in applying it to innovation tools markets. The reason? My belief is that innovation management purchase decisions are largely microeconomic ones, informed largely by relatively random variables that do not aggregate well across broader categories.This is not uniformly true -- for instance, large organizations have a much greater penchant for buying innovation management tools. After all, small startups are innovative almost by definition, and small businesses can innovate pretty well merely by talking to each other around the lunch table. Another example: biotech firms are likely to focus on scientific and i.e., "product" innovations, whereas CPG companies are more likely to focus on "marketing" and "business model" innovations. This should also make obvious sense if you think about it.Beneath these broad similarities, however, my observation has been that the buyer climate for innovation solutions is incredibly fragmented, in a way that strongly belies the superficial similarities across industries or company sizes. For instance, let's take finance and insurance. Some finance and insurance companies are likely to do anything they possibly can to innovate, just to stay alive through the current turmoil. Therefore, they will probably cut lots of spending, but then "double down" on innovation. Qualitatively and very informally, I've gotten some indication that this is likely to happen. Yet many finance/insurance firms are likely to swing the other way, feeling that if they reduce ALL spending to the bare-bones, they can "batten down the hatches" and emerge unscathed after the storm. In other words, they feel like they have enough operational foodstores to outlast the current siege of economic storms.There are many other examples where I think it's quite likely that the buyer behavior might be wildly divergent under-the-covers, and I'd be loathe to avoid considering this chaotic potential in any published forecast. But perhaps this is not an absolute hindrance. Perhaps it merely suggests that I should add new or different variables to my forecast -- e.g., those that try to take management cultures and/or internal org readiness into account.This, however, poses a severe methodological problem -- how can I quantify this? To my understanding, such forecasts are not conducted in Forrester's work simply because they are not feasible. There is no way to collect data that scales well. It would require vastly more time and work than is feasible.In that case, perhaps the answer is to give qualitative guidance without the quantitative rigor. In other words, a forecast that went something like this: "orgs with xx culture will tend to buy yy innovation tools, whereas orgs with zz culture will buy little or no tools until 5 years from now."Then, if we can manage to calculate the preponderance of certain org cultures among different industries and geographies (for which good quant data *is* available), then it might be possible to construct a really knockout market forecast. And if not, I suppose the qualitative guidance to the marketplace would still be very helpful.What do you think? Would love to hear your thoughts on these ideas. Without feedback, voicing my thoughts on new forecasting methods is little more than just talking to myself in an empty room -- self-gratifying, but not very useful.~Chris

re: Innovation Tools Markets: Resisting the Itch

If I might share here, an artifact I stumbled onto today that is relevant as to the potential for 'gap' in approaches of the vendors. While the term seems subtile, its distinction is relevant and it adds a flavor that is critical to haute couture: Open Innovation.I first noted the distinction in this BT white paper on collaboration and innovation: http://twurl.nl/x1pckhWhile there is a book of the same title, it was written long before the clear economic impacts of 'social' were understood (the deepest perspective here is offered by Clay Shirkey in his book "Here Comes Everybody"). Given that I've just stumbled onto this distinction, it will be the focus of my research in the near term.But

re: Innovation Tools Markets: Resisting the Itch

Chris: Lest you think I ignored your post, I had my last one open for most of the morning before I finished it so I missed the refresh with your response. Apologies if I seemed insensitive -- it was not a response to yours.I believe that in decades past Gartner had the multi-thread possibilities stuff (only they aligned a 'likelihood' score to each). I can see the value in a spin on this.And you've also identified a clear divergence/differentiator that I'm sure some of the vendor-companies struggle with: the distinction between the 'social' aspects of this space transitioning to the 'business' side of the equation. I believe part of the challenge comes to bear in that the distinction is blurring and no one knows where to optimize for one vs. the other. From my own perspective staying on the social side is preferred (indeed I'm of the opinion that we can only optimize our solutions when we embrace the concept "There is No Enterprise").Complexity theory also dictates that we cannot 'control' anything at the macro level (and we often fail at the micro level to design meaningful controls). So trying to solve for aligning to particularly innovation contexts may not be reasonable. Indeed, the 'best' tool thus far that I've used isn't an Innovation Management tool at all -- and that's the point. In rolling all the way back to the failure of Knowledge Management (and my "I told you so" saying), we're really trying to facilitate thinking. Thinking itself is devoid of specific topics/focus. The titles/topics of focus change.Indeed, in the stuff I'm working on right now, the issues I'm finding are around the vendors (again, focused on what the clients are 'saying') focusing on 'ideas' in isolation from all other artifacts of thinking.So while your idea about the likelihood of companies to invest in such technologies might be great, the question then becomes -- invest in which 'flavor' and to accomplish what goals?Let's just say that I'm convinced that we're not yet focused on solving the right problem. That this space has not been adequately defined by sound philosophical roots. Some may think this is not relevant. That's fine to think so -- but as I've discovered with other things, the minute someone figures out what the full set of relevant axioms and corresponding thought components are, they will find that there is one no one is addressing and that will be the one that will unravel the marketplace.

re: Innovation Tools Markets: Resisting the Itch

Paula,Thanks, your second round of comments provides a nice segue to bring some closure to this thread. Namely, I see your point that "innovation" is an inherently amorphous term, and therefore any attempts to quantify markets for "innovation tools" would be fundamentally misguided.In some ways, this is the line I've taken thus far -- preferring instead to continue publishing qualitatively on the philosophical "idealized world" of what should really be happening. But as you can see, much of the marketplace buzz is around the term called "innovation" -- rightly or wrongly. And if the term is being used in the world-at-large, it's hard for me as an analyst to ignore that, despite any purist misgivings I might have.Further, I can tell you that many of today's innov mgmt vendors share your views privately, and wish that they didn't have to focus on what they also consider to be an overly generalized concept of "innovation." For one high-profile example, Mark Turrell (CEO of Imaginatik) has gone on-the-record saying that he thinks "innovation" will soon disappear as a value proposition (http://markturrell.wordpress.com/2008/11/17/innovating-in-a-recession-ti...). Perhaps he is right...time will tell.In my mind, this is another reason why it does'nt make sense to issue a bold "innovation management tools" market forecast right now -- at least not in the conventional sense. It is too much of a moving target to try any kind of freeze-frame analysis.But the larger question, I think, is still valid -- what do we do instead? In other words, what kind of research and analysis do you (as an audience) really want from me (as an analyst)? Whatever buzzword you choose to employ, I don't think anyone in the space would suggest that we should just throw up our hands and stop trying to move the market forward toward a more rational vision and/or nomenclature. And in that, perhaps -- PERHAPS -- a forecast (of some kind, in some way) has its role to play. But as yet, I don't see a clear blueprint for doing so in a way that's meaningful and valuable when broadcast widely to the marketplace-at-large.And, so it seems, neither do you. :)Cheers,Chris

re: Innovation Tools Markets: Resisting the Itch

Dear Chris,Could you inform me about the list of innovation consulting firms that you are compiling?We are a specialised innovation consulting firm, member of the international Highland Group and partner of BrightIdea. We would appreciate being incorporated in your listingKind regards,Frans Pigeaud

re: Innovation Tools Markets: Resisting the Itch

Hi Frans,Thanks, I've added The Bridge to the "innovation consulting" list. You can view the entire list here: http://blogs.forrester.com/vendor_strategy/2008/12/innovation-vend.htmlC...

re: Innovation Tools Markets: Resisting the Itch

Chris,Firs I would like to comend you highly for your stance in this matter. Whilst I am pretty sure I was not one of those vendor CEOs asking for a market forecast [early disclosure: I am the CEO of Imaginatik, as you know], I can see why people want one, and how easy it would be to make something up.You have picked out the major points right on the head. This is an immature, tiny market place with buy and sell side immaturity. In addition we are going into an aggressive downturn in the economy which will turn the taps off a lot of private equity and VC investment, which in turn is likely to disrupt if not kill outright a bunch of attractive looking start-ups. Incidentally, even in a good economy, there is an 85% kill-rate for start-ups within 18 months, so in this 'new' industry, I would not give newecommers much hope of surviving (note to buyers).Just one comment on one statement you made on the sell-side immaturity section: "...Further, only one pure-play is a public company, and to my knowledge none of the vendors have yet cracked $5 million in annual revenues."-> Imaginatik plc [LSE: imtk.L] is the public company, listed on the London Stock Exchange AIM market (with an ADR in the US OTC market)-> as a public company we disclose our revenues, and last year we made over $6m in revenues - with a market expectation of significant growth this yearAlso an historic note. Back in 2002 I was interviewed by Information Week who did a very early piece on the area (stored here on our web site: http://www.imaginatik.com/webdoc_comp_news_1008). The market analysts prediction of a $3m market at the time was over-blown then, although the numbers are creeping up. What the numbers DID do is hurt people looking for money. Any VC worth their salt will do a modicum of due diligence research, and yes, they found this article. This market prediction STOPPED a lot of firms from getting capital (fine for Imaginatik, not so great for them). Of course what start-ups in this area would desperately love would be for you to stick your neck out and predict a $200m market in two years time, plenty to convince some VC to drop a few million a start-ups way. Will it help? No.Many thanks, and let's all have a great 2009.Mark TurrellCEO, Imaginatik

re: Innovation Tools Markets: Resisting the Itch

Hi Mark,Thanks for setting the record straight. Truth be told, Imaginatik is not the only vendor that has corrected me on this figure (i.e., "actually our annual revenues are now higher than $5m") -- although you're the first vendor to do so publicly.Looking back on the revenue data used for this post, I remember checking Imaginatik's 2008 fiscal report (http://www.imaginatik.com/site/pdfs/annual_report_2008.pdf) in advance. However, I neglected to convert from GBP to USD using the correct historical exchange rates. When I authored this post in early December, 3.159m GBP converted to approximately US$4.5m. But on March 31, 2008 the conversion would have been over US$6m -- and this of course is the calculation that matters. I apologize for the lapse in diligence, and I promise to be more fastidious in the future (even on blog posts).As a result, I've amended this post to best reflect reality. I appreciate your help in checking the accuracy of my posts! And of course, I also appreciate your thoughts on my commentary around the "forecasting itch." Let's hope that all of us together can drive this market forward -- but only as much as truly makes sense given the world's actual needs for innovation management solutions.Cheers,Chris