Back Pioneers almost always lose out to latecomers
For instance, P&G didn't create the market for disposable diaper; Chicopee Mills (a division of Johnson & Johnson) thought of the idea. Yet P&G harvested most of the value out of the product's pie, say the authors. Likewise, EMI was the innovator of CAT scanners; not GE that made most of the money out of them. What do these examples show? "When it comes to radical, new-to-the-world markets, the pioneers almost always lose out to latecomers."
There are four types of innovation, the authors explain. `Incremental' innovation is about minor effect on consumer habits while at the same time enhancing the competencies of existing firms (for instance, new features in a car). `Major' innovation makes "fundamental changes in consumer behaviour," as in the case of online banking and picturephones.`Strategic' innovation has a minor effect on consumer behaviour, but destroys competencies of existing firms; examples are small cars and low-cost point-to-point flying. `Radical' innovation is similarly destructive, but it creates major changes in consumer behaviour; TV, PCs, PDAs, mobile phones and VCRs are some of the many examples of radical innovation that the authors offer.
These innovations are disruptive, supply-pushed, and not demand-driven. "New radical innovations are likely to make their first appearance in the niches of a well-established market. Most innovations that have the potential to become radical never realise that potential ... Only a few supernovas expand beyond their initial niche."
Early colonisers rarely survive the consolidation phase. Why so? Because mindsets needed for discovery and invention are not only different from those needed for commercialisation, "they also conflict with each other." Which is why, Leica came up with the 35mm camera idea, but Canon created a mass market out of it.
On when to enter new markets, as you race to be the second, the authors advise that you time the entry to coincide with the emergence of the dominant design. That's how Microsoft brought in MS-DOS when CP/M was already the first in the operating system market. "Latecomers can improve the probability of successful entry in established markets by attacking the entrenched competitors through unorthodox strategies."
Cut this statement in stone that `strategies are not cast in concrete.' No quiet life, therefore, unless the big company wants to end as a dinosaur, that is, extinct and forgotten. How sad to find existing market leaders locking themselves into the existing market and developing `mindsets, processes, and ways of competing appropriate to that market.' Alas, the market changes right under their nose!
The book concludes with a chapter titled `Creating the Markets of the Twenty-First Century.' The authors prescribe that established firms should leave the task of creation to the `market' because "the zillions of small start-up firms around the world have the requisite skills and attitudes to succeed at this game." Established firms should, instead, concentrate on consolidating `young markets into mass markets' by `creating a network of feeder firms.' Start-up firms can in turn depend upon the big firm for `resources, power, marketing and distribution', suggests the book.
"It's one thing to subcontract creation and another thing to manage the organisation," remind the authors in a section on `managing dual strategies.' Should the new operation be kept inside? Or built separately? "Deciding when to separate and when to keep the new business inside is only part of the solution. The new business still has to be managed efficiently!"
A book that can motivate the big companies to get stirring and sprinting.
D. Murali
© Copyright 2000 - 2009 The Hindu Business Line