Bringing Tech to Market: The Rules of Innovation

Everyone knows that best-quality plus first-to-market doesn't always equal success. A Harvard prof who specializes in this stuff has a great article in Technology Review that digs a lot deeper, called The Rules of Innovation. It's a look at why some technologies are marketplace success stories and some are forgotten failures -- and more, an attempt at rules which predict which will be which. There are lessons here for the entrenched companies (e.g. Sony) as well as for the disruptive upstarts (e.g. Sony 50 years ago). You have to understand the battlefield to win the war.

Comments

It's worse than that

[epepke]

Best quality + first to market almost never means success. Inferior but good enough, introduced when people are used to the idea almost always wins.

Re:It's worse than that

[scott1853]

The trick to selling an inferior product is repeatedly saying "it's the best, it's the best" until you believe it as do all the cattle. That way they don't think it's an inferior product, they think the other solutions are just way overpriced.

A couple real insights, a couple tired saws.

[Lemmy Caution]

The strongest insight in the article - and the best supported - is that well-managed companies that take care of their existing customers well are often not innovative, because processes and methods that are profitable are unlikely to be challenged, and because truly outre and novel ideas are too disruptive to be welcomed. The notion that innovation occurs in the context of and also creates disruption is a reasonable one. The rest of the article is questionable: his observations that lean projects are more adaptive than ones that have deep pockets which let them stick with a 'a bad strategy' begs the question of what a bad strategy is. It's the Right Thing To Say in a post-boom age (profits now! no vapor!) - but it omits the many successes that came of plodding along after initial disappointments. And, as soon as he used the word "leveraging" I know his article had run out of ideas.

A Lesson for Microsoft

[yoyoyo]

There's some interesting stuff in this paper. He says The first [misconception] is that deep corporate pockets are an advantage when growing new businesses. They are not. Too much cash allows those running a new venture to follow a flawed strategy for too long. Having barely enough money forces the venture's managers to adapt to the desires of actual customers, rather than those of the corporate treasury, when looking for ways to get money

Microsoft tends to solve problems by throwing money at them, but if this article is correct, that is a flawed strategy. The excess cash allows them to keep a flawed product on the shelves (e.g. XBox) long past the point where a poorer company would be focusing on improving the product to make it match the customers needs.

Food for thought, anyway.

Re:A Lesson for Microsoft

[abigor]

And furthermore, it can make them vulnerable when consumers start to associate a company with just that one product. MS has many, many software products, but none are market leaders except Windows, Office, and, on the back end, Exchange. That's it. Office alone accounts for 1/3 of their income. In the minds of consumers, the first two products ARE Microsoft, period.

So throwing money at inferior offerings can harm companies in more ways than just wasting cash: it can cement their image in the eyes of consumers.

Re:A Lesson for Microsoft

[binaryDigit]

Microsoft tends to solve problems by throwing money at them, but if this article is correct, that is a flawed strategy. The excess cash allows them to keep a flawed product on the shelves (e.g. XBox) long past the point where a poorer company would be focusing on improving the product to make it match the customers needs.

Well yes and no. Was the original version of IE vastly superior or "disruptive" technology, well NO. But they were able to use their deeeep financial resources (and desktop monopoly) to keep plugging away until they are now #1. So that tact can be made to work, given enough resources and the right set of circumstances.

Plus, I'm not sure if your example of the xbox is good, since many people do recognize that as a game machine, it has many strengths over it's competition. So in some ways it is the superiour product. Also, because of the lack of sales, they are in a position where they _have_ to innovate at a faster rate than Sony to make up the deficit (again, look at the browser wars, IE sucked at first but they were able to quickly, once they put their minds to it, start adding features to improve it, so much so that Netscape couldn't really effectively keep up).

Innovator's Dilemma

[geoffsmith]

This is the concept Christensen is famous for (and there is a book titled after it which you should all read) Here's my 10 second synopsis of Innovator's Dilemma:

Your old customers are demanding you spend all your resources on your old technology (eg. 5 1/4 inch disk drives) But there are new potential customers who want to buy new technology you haven't developed yet (eg. 3 1/2 inch disk drives) There are more potential new customers than old customers, and thus more profits in devoting your resources to new technology. But you already have your old customers, and you're supposed to *listen to your customers* So there's the dilemma.

Solution to the dilemma? Sometimes it doesn't pay to listen to your customers. And that's a tough pill for an established company to swallow, since that's how they made money in the first place.

Websurfing done right! StumbleUpon

Re:Innovator's Dilemma

[Restil]

You don't give up on your old customers, you just "encourage" them to upgrade, but not in a way that actually hurts them.

5 1/4 users have large quantities of 5 1/4 disks. They're not going to want to replace all of those with 3 1/2 even though they can store twice, 4x, or 8x (depending on the drive and media) the amount of data. They want you to continue supporting them, and they will continue to buy products, even though they're inferior to a better product at the same price.

And that's where you get them. Keep selling the old products, but market your new products at a lower price. Encorage your customers to see that in the long run, it would be cheaper if they upgraded, or at least started migrating. It only makes sense. If they want to stay behind the times, then you'll still be there to support them, but by the time you finally close the door on your own manufaturing process, if you've marketed your products well, that old company will either have converted, or gone belly up.

If they decide not to upgrade, even after you've long since quit supporting them, there IS always that market of old working, but useless junk that nobody wants anymore and will pay people to take away. This company will just have to seek out those sources.

-Restil

Point 4 is the only significant factor

[gelfling]

If the transition costs you impose on your customers is too high they'll run for the door screaming. It doesn't matter how wonderful your technology is. That's why DIVX and HDTV are dead or dyeing for example. You can't make it so hard to use or purchase or install that only primary adopters use it.

cough cough hack linux cough bsd

That's the lesson of desktop linux - it doesn't matter HOW BAD MS is - what matters is HOW HARD the transition to something else is.

Re:Point 4 is the only significant factor

[Beryllium Sphere(tm)]

There's also more than one transition that has to be made. You have to move a product from pioneers to early adopters, then to early majority, then to mass market, and so on.

A related book is "Crossing the Chasm", http://shop.barnesandnoble.com/booksearch/isbnInqu iry.asp?userid=18DNABCSR0&mscssid=UW03MK30SS548PM5 DG7XDX17J0AJD5X5&isbn=0066620023. It argues that there's a discontinuity between early adopters and early majorities which has to be addressed by focusing maximum effort on a narrow niche to get a beachhead, and by making the technology nondisruptive.

Amusingly, CtC starts with a gedankenexperiment asking whether the reader would buy an electric car if it worked like a normal car. Amusing, because I drive a Toyota Prius gas-electric hybrid, which was carefully engineered to fit into the put-in-gas-and-put-it-in-Drive market.

Early with great technology doen't always help

[eyegor]

A few years back, I worked for a small company that was developing a cell phone localization technology. We had a patent on one of the primary means of locating an unmodified phone (worked rather well too). The problem was that while we were developing the technology, we had to beat people over the head at the same time to make them see how valuable the idea was.

Nowdays, the FCC and all the carriers are still trudging towards the goal of fully implementing E911 and we ended up having to sell out to a competitor having spent too many resources building the market. sigh. :)

Re:Like what he has to say...

[markmoss]

But I must quibble with a few points. I suppose he knows more about it than I, but does all innovation in a given field necessarily take place on the low end? What about new products that may or may not be higher-end than existing products? (Example: The runaway popularity of SUVs, which are certainly NOT low-end impulse purchases, and newer models of SUVs seem to subscribe to the Micro$oft bloatware model: more, more, more [useless] features and a higher and higher price tag. But people sure buy 'em.)

SUV's were sold by existing companies to existing customers. This makes them a "sustaining innovation" in the language of the article -- listening to the existing customers and making improvements to the product. And that's if you call them an innovation at all; they are not much different from the GMC Carryall my father bought used in 1963, drove for 15 years, and replaced with a new Carryall.

Sustaining innovations often do tend towards the high-priced end. The customer demand an established company is least likely to respond to with major innovations is "lower price" - you know your existing customers have the money, so making things cheaper just reduces the part of it you get, while making the product better and more expensive might milk more money out of them.

It's not impossible for a new company to be successful selling high-priced products -- think fashion designers and fancy restaurants. But note that you don't get GMs, IBMs, or Microsofts out of such markets. I can remember two computer companies that tried to start at the top: CDC (tried to sell bigger mainframes than IBM in the 1960's, went bankrupt, "refinanced" via an antitrust suit against IBM, and lost the money in supercomputers, IIRC), and Cray (supercomputers). There's also Amdahl, which made imitation IBM mainframes (a little faster or a little cheaper) so I'd call that starting almost at the top. None of these ever did very well. By contrast, starting at the bottom produced the mini-computer companies, at least two of which (DEC & Data General) were apparently quite successful until the PC companies found a lower bottom. And many PC companies have been very successful, although not at all secure - PC's are a nasty bottom-end commodity market where any company that lets its cost control or marketing lapse for a moment is dog-meat for momentarily more efficient competitors. Or possibly to competitors that have managed to lower the quality even further without getting buried in bad units...

There are plenty of exceptions...

[aquarian]

...most notably Amazon. They're still the leader in user-friendliness among ecommerce sites, and always have been, right from the beginning. Not to mention other quality issues. And they were the first major ecommerce player.

Sound like ... Punctuated Equilibrium

[AsOldAsFortran]

One element of this article sounds just like Stephen Jay Gould's evolutionary theory of Punctuated Equilibrium.

IANAET (evolutionary theorist) so take these comments with care.

One element of the theory of punctuated evolution says that new species arise not by direct competition against their parent species, but by finding an isolated and protected niche where they can develop.

Say a new species of horse is to develop. A subpopulation becomes isolated and has a chance to develop new characteristics and to become reproductively distinct (no longer interbreeds with the parent species).

Then, when the geographical isolation ends, the new and parent species come into contact and competition. The new species spreads rapidly, having had a chance to strengthen in isolation.

This theory is designed in part to explain gaps in the fossil record. The small, original populaiton of the new species leaves few fossils - we only see them after explosive growth - so some intermediate forms are lost.

That sounds like the article's model of innovation succeeding by finding a niche market before improving the product to compete head on head in the general marketplace.

Wonder what other analogies exist with evolutionary theory and this article.

Art v. Science

[mallo]

After reading the article, the one thing I want to do is hear from Akio Morita about why his intuitions were so often correct at Sony. Doesn't that put a lot of MBAs out of jobs?

I Don't Believe Him

[CaptainCarrot]

It's not uncommon that I encounter articles such as this one where I know very little about the subject being discussed, but I do know a bit about some of his examples, and they are sometimes faulty.

Take his criteria for a successful disruptive technology. I can't help but observe that the light bulb, a successful innovation if ever there was one, satisfies neither. The answer to 1 is negative because neither the poor nor the wealthy were capable of lighting their homes with electricity at the time. Likewise the answer to 2 because there was no existing market. Yet this technology was undeniably disruptive; just ask the manufacturers of candles, oil lamps and gaslights.

Later on in discussing (as far as I could tell) allocation of resources, he says, "Processes, however--the central element in our second question--are typically inflexible. Their purpose is not to adapt quickly but to get the same job done reliably, again and again." He must be completely unfamiliar with the Software CMM (and now the CMMI for other disciplines) where to attain the highest rating and organization's processes must be flexible. Continuous improvement of processes is one of the more important lessons from the quality movement Prof. Christensen discusses in the opening of his article, so I'm a little surprised he chooses to ignore it here.

This leads me to suspect that some of his other examples are flawed too, but I don't know enough about all of them to detect it. I don't trust his conclusions, in any event.

Re:I Don't Believe Him

[happyclam]

Take his criteria for a successful disruptive technology. I can't help but observe that the light bulb, a successful innovation if ever there was one, satisfies neither.

It is instructive to note that he indicates there is a success rate, albeit very small (6%), for innovations that do not meet his criteria. Thus, simply finding an example of a success that does not follow his rules does not, by itself, invalidate the rules.

Plus, if I recall correctly, Edison had hundreds of innovations that were commercial flops. So perhaps the 6% rule is right along the proper lines for your example...

Re:I Don't Believe Him

[Darby]

The market, my good Captain, is for sources of light.

The competition to provide such sources has been going on for a long time.
The earliest recorded providers were Sol, commonly referred to as "the Sun" and Luna AKA "the moon".

Now during the day, Sol does an amazing job. Always on time, generally plenty of light for most needs.
At night, Luna takes over. Technically Luna just retransmits the power,
(This would be a great place for an Enron/ California electricity comparison, but I can't even understand that whole fiasco well enough to do it right ;-)

but the effect is the same.

Anyhow, due to the reduced usefullness of the moon during the night, and the increasing numbers of people inside: caves, office buildings, whatever, a demand was created for more reliable sources of light (and heat). This was met by fire initially. This was good, but had distinct disadvantages. You could burn down your house, or office. Caves were generally immune to burning down, but the disadvantages vs houses is best left for another thread lest I go offtopic.
Now, there is room for safety improvement in the artificial light market. Also, candles were rather expensive, so there was room for a cheaper alternative as well. Sure the initial investment in electricity is high, but the advantages are many.

I believe the light bulb was the "killer app" for electricity. So by introducing a new product into an *existing* market and partnering it with an emerging technology (which incidently the lightbulb company was heavily involved in), Edison had a sure-fire winner here.

C's rule #4

[wytcld]

He says to disrupt your competitors, not your customers. If we consider this gem against the wisdom of Douglas Adams, we can guess that Christensen believes your customers are over 35:

I've come up with a set of rules that describe our reactions to technologies:

1. Anything that is in the world when you're born is normal and ordinary and is just a natural part of the way the world works.
2. Anything that's invented between when you're fifteen and thirty-five is new and exciting and revolutionary and you can probably get a career in it.
3. Anything invented after you're thirty-five is against the natural order of things. (The Salmon of Doubt)

Isn't it safe to say, and to bet your business, that some people (ever over 35) want to be disrupted? And does Christensen actually know any of the students at MIT?
___

Relation to open source - in particular Ant.

[ajm]

Previously I've attempted a description of the success of an Open Source product, Ant, in terms of the Innovator's Dilemma. I think the fit is very good, provided you recognize how the rewards and costs should be measured in the OSS environment. If you are interested it can be found at Ant as an Example of the Innovator's Dilemma. Now I'll have to go back and see how Ant matches against the guidelines in the article, so far it's looking pretty good.