Innovation in New Markets

In yesterday's post I described how innovation must be managed to get the right balance between customer satisfaction and the cost of operating complexity based on a recent HBR article by Mark Gottfredson and Keith Aspinall. One off the most difficult places to control the rate of innovation is in new markets where customer satisfaction is often a continuously changing variable.

How have cell phones evolved to meet changing customer needs over the last 5 years? From early analog technology that carried only voice transmissions to today’s digital cell phones that provide instant digital messaging and e-mail services along with digital camera features. Could Motorola have limited innovation and survived in the changing cell phone market?

How have liquid crystal display (LCD) televisions evolved to meet changing customer needs over the last 5 years. From small screens with limited resolution and viewing angle to today’s 50 inch high resolution HDTV units. Could Sony not offer the wide range of features available in today’s LCDTV market and still survive?

You could say that these are unique situations where changing technology has driven changes to customer expectations, but not expanding product lines to include new industry wide innovation could leave any competitor on the side lines in these new and evolving markets. Not innovating in markets with evolving technology can lead to higher profits in the short run; we call this “harvesting” the business. Not an option for the market leaders.

However, now that these markets have matured a little, you could claim there is real opportunity to reduce product line complexity and improve margins. I for one don’t think you need a camera in most cell phones. In a recent study of Philips LCDTV’s, I found more product models than the average viewer could ever discriminate between in satisfying their purchase objectives. After a new market has matured there is real opportunity to improve margins and sales by limiting product offerings to a targeted set of customer needs, but in new markets it is a perilous strategy.