When competitors force their backs against the wall, companies innovate to survive. They innovate to meet the needs and demands of their customers. Every management book clearly states that success is dependent on understanding the trends and directions of landscape – the market, the customers and the competitors. You will fail if you don’ know what the market wants, right? No necessarily so. Some of the biggest commercial successes in history have come about by ignoring both the customers and the market.
Take a popular office automation device that was commonplace ten years ago and is virtually unheard-of today (except in the back-office) – the dot matrix printer. Practically all forms of printing from a computer was done using dot matrix printers. When the laser printer was introduced as an alternative, dot matrix manufacturers immediately dismissed it as a high-end printer that few companies could afford. It would not get into the mass-market, they argued. History has proven them wrong, the laser printer has shrunk in price, footprint and is a common fixture in corporate companies and SMEs alike.
Then the inkjet printer was launched to the market. Dot matrix manufacturers had a field day rubbishing it – pointing to the low print quality, smudging and costly ink cartridges. The point they missed was that, as with all technologies, it would only be a matter of time before all the inkjet printer problems were rectified. Today, inkjet printers offer photographic print quality and are the de facto printer in the home and personal printer market.
Two of the largest dot matrix manufacturers, who controlled more than 70% of the market, have closed down their dot matrix business. Where did they go wrong? A key mistake was they went back to their existing customers for feedback on laser and inkjet printers. These customers did not understand the potential of these new technologies or the revolution they would cause, once they were out of the infancy stage and teething problems were overcome. The existing customer base was clear about what it wanted from the dot matrix manufacturers – higher printing speed, better quality and lower costs. Both laser and inkjet printers quickly met all these requirements.
Customers know what the want. What they frequently don’t know is the best way their needs can be delivered. They neither have the domain expertise nor the vision to understand that a completely different technology or innovation may exceed their requirements. It is not their business to understand this, it is yours. So while the dot matrix manufacturers were competing among themselves, a new breed of competitors were quietly gaining strength.
We have seen a similar scenario repeatedly. Digital photography has replaced conventional photography for most of us. What’s happened to the manufacturers of the chemicals used to process films? Their customers, the photography processing laboratories, certainly did not ask for digital photography. While the chemical manufacturers were busy competing among themselves and servicing their customers, the whole industry and landscape changed right under their noses.
Email is another example. It has disrupted the postal service as nothing before. Did customers of the postal service say that they wanted an electronic replacement for snail mail? Hardly. VCDs just about killed off the videocassette business, before being replaced by DVDs. Mobile phones are making a huge dent on fixed-line revenues. The list goes on and on.
In all these cases, the innovations were not incremental ones. It was not a case of additional features being added on to a product to meet customer demands or to surpass competitors. It was not a case of more for less. It was not about listening to customers.
The innovations were of a completely different nature from the status quo, they were disruptive to the existing market. Although they showed the potential of exceeding customer needs, this would only be possible after several evolutions. They were, you could say, unpolished diamonds that needed vision and insight from trained eyes to be converted to profitable propositions.
Most of the time, SMEs undertake innovation of an incremental nature. Occasionally however, an SME stumbles on a disruptive innovation that has the potential to change the market. Exploiting disruptive innovation is very different from the conventional incremental innovation.
You cannot go to your existing customer base, your customers are unlikely to see potential of your unpolished diamond. You cannot go to the mass-market, the resources required for such an exercise are understandably beyond your reach. Thetime span required to break a new product into a market not familiar with the disruptive technology could kill your company. Disruptive innovation will be rejected by the market initially, until enough momentum is gained from first adopters and new customers brave enough to experiment with unproven technology. A different approach has to be adopted.
One approach is licensing the innovation to a company that is able to bring to the end-product to the market. This is invariably a large company or MultiNational Corporation (MNC) that has a firm grip on the target market and is an active industry player. Often licensing is more successful with the MNC that is struggling to achieve market domination, rather than the incumbent. If licensing is the preferred method, the SME has to ensure the intellectual property of the innovation is suitable protected. Many organisations specialise in brokering intellectual property licensing deals between SMEs and MNCs and they are the easiest way an SME can reach a potential licensor.
Another method is to collaborate with the large company or MNC by providing them exclusive rights to the innovation for a specific period, ensuring that fewer competitors arrive on the doorstep.
The third method of course, is an outright sale of the intellectual property and a pledge to stay from the industry for a certain duration.
The most suitable method depends on the nature of the innovation, the maturity of the industry and the market landscape. One thing is certain however, disruptive innovation is rarely handled profitably by an SME using the conventional buyer-seller relationship.
The next article will explore the four building blocks of innovation – creativity, strategy and insight, implementation and profitability.
Source: Dr. Kamal Jit Singh is the regional director of British Telecom’s Asian Research Centre and specialises in using innovation as a strategy for increasing competitiveness. He also teaches strategic management to an MBA class in Singapore. Comments: email@example.com