Friday, March 07, 2008

Every Customer, a King...

Verily. But what of the Innovator's Dilemma?

It has widely come to be accepted that the 'closed', go-it-alone approach to innovation is no longer as potent as it used to be. The best way to unleash innovation is to unplug it, by dissolving conventional boundaries.

In particular, unplugged approaches that emphasize blurring barriers with customers, such as Co-creation and User-centric innovation, hold that innovating in close interaction with customers results in enhanced value for all participants.

At a cursory look, there appears to be something of a contradiction between the above and what Professor Clayton Christensen, arguably one of the greatest living thinkers on innovation, says. In his seminal 1997 book, The Innovator's Dilemma, Christensen has shown that leading companies routinely pass up the opportunity to bring radical, disruptive innovations to market, as these innovations often don't appeal to their current customers. At the time such disruptive products are introduced, their appeal is usually confined to downmarket customers - those whose needs, and pocket books, are too humble to merit the attentions of mighty corporations.

Analyzing the behavior of a phalanx of great companies including Xerox, Digital and Western Union when confronted by radical innovations, Christensen writes,

"Precisely because these firms listened to their customers, .. they lost their positions of leadership."
(The Innovator's Dilemma, Introduction, p. xv) * .

Digital Equipment Corporation (DEC), for example, strode the minicomputer industry like a colossus, but faltered when faced with the opportunity to make Personal Computers(PCs), which were a disruptive technology at the time. The reason was that the large corporations that DEC served had little use for the puny PC. Xerox was a behemoth in the market for large, sophisticated photocopiers, but failed to see the market for small tabletop copiers. Again the pattern was the same - tabletop copiers were not a product that held appeal for the enterprise market that Xerox had striven all its life to serve.

Indeed, recent Harvard Business School research findings say (with a bit of hyperbole, perhaps!) , "companies that do radical innovation do not listen to users" !

A Co-creator's Dilemma?

So, are we to conclude that truly disruptive innovations must be conceived and developed safely out of sight, where customers cannot see them? That co-creating with customers and users confines companies to improvements that are merely incremental, and keeps them from making innovations that are path-breaking, radical or disruptive?

In other words, is there a Co-creator's Dilemma which goes, "To create successful new products, you must get close to customers. However, if the product is truly path-breaking or disruptive, getting too close to customers may be a sure-fire way of overlooking the market for the product." ?

To find an answer, let's look at two of Christensen's prescriptions for how established companies should respond when presented with an opportunity to bring a disruptive innovation to market:

1. If the disruptive innovation is not going to be attractive to large customers, don't ditch the innovation. Instead, place the responsibility for its development with an entity whose customers will want to use it - a spinoff division, whose customers will (at least initially) be precisely those downmarket customers.

Of course, this essentially amounts to developing the product "safely out of sight" of some customers - those large customers who would not find the new product attractive.

2. Don't listen passively to customers, engage them in a process of mutual discovery. Recounting the example of how, in the 1960s, Honda discovered the market for smaller, off-the-road motorcycles in North America, Christensen says,

"Such discoveries often come from watching how people use products, not by listening to what they say" (p. 182)

Further, he says,

"neither manufacturers nor customers know how or why (new or disruptive) products will be used, and hence do not know what specific features of the product will or will not ultimately be valued. Building such markets entails a process of mutual discovery by customers and manufacturers" (p. 150/151)

So as long as the above two prescriptions are kept in mind, the Co-creator's Dilemma should be no hindrance for creating innovative products, whether incremental or radically disruptive !

Thus, the Co-Creator's Dilemma stands substantially diminished. However, while it has been shown to be not as intimidating or forbidding as it first appeared, it has perhaps not been entirely vanquished. But more about that later.

And so, in the annals of innovation, the customer (at least for the time being) firmly remains King. _________________________________________________________________________________________________________ * All page numbers refer to the paperback edition published by Harper Business Essentials, New York, 2003.