Business Best Practices
In his book The Innovator’s Dilemma, Harvard Business School professor Clayton Christensen popularized the term “disruptive innovation.” Products that fall into this category bring different value propositions to the market than what is currently provided by existing market participants. Although disruptive technologies underperform existing products in mainstream markets, they possess other features that new customers value. In the near term, because a disruptive technology results in worse product performance, their initial sales volume is low.
This definition of a disruptive innovation is an apt description of Apple’s first iPhone. When it was launched in 2007, the iPhone underperformed against benchmarks that were standard in the smartphone industry. As a result, just 1.5 million units were sold in its first two quarters. Here is how the original iPhone stacked up against existing smartphone competitors, using measurements that were considered important at the time:
However, Steve Job’s creation was not just a cell phone; rather, it was the world’s first, handheld computer. Its data processing capabilities—not voice—are what disrupted the cell phone market. Although other smartphone manufacturers offered web browsers, they were clumsy and difficult to use. In contrast, Apple’s web browser made surfing the Internet easy. Compared to its rivals, the iPhone’s user interface was simple, intuitive and uncomplicated. At the swipe of a finger on touch sensitive glass, one could get access to e-mail, text messaging, video, photography, maps, books, music, games and mobile shopping. The iPhone was a game-changer, the industry’s Swiss Army knife.
After having introduced a product that was revolutionary in some respects, but lacking in others, Apple began a structured process of enhancing features—and adding functionality—that satisfied customer needs. This is the essence of continuous improvement. For example, in 2008, iTunes was introduced, which solidified the iPhone’s role as a multi-function device that could seamlessly provide music and video on demand.
Unveiled on September 12, 2012, the iPhone 5 is the current iteration of the iPhone. In his Wall Street Journal column All Things Digital, Walt Mossberg describes the differences between the iPhone 5 and its predecessor model, the 4S, which was introduced a year ago:
The incremental improvements described in the previous table are not radically new. In fact, some commentators have described the iPhone 5 as a catch-up device, adding features that are already resident on the leading Android and Windows phones. For example, many of the Android phones already feature larger screens.
In conclusion, Apple’s product development strategy does not involve releasing breakthrough technologies, year after year. Rather, disruptive innovations—such as the iPod, iTunes, iPad, and the iPhone—are unleashed, upending entrenched market competitors. Then, the worlds’ most innovative company improves upon its breakthrough product by implementing stable releases, adding features and functionality that delight its customers.
I need to bring this blog post to an end, because I have to go down my local store, and place my order for an iPhone 5. The current backlog is 4 weeks, and I don’t want to wait any longer than that!
The winters in Rochester, NY can be long and harsh. I know. My son attends college there. Situated on the southern shores of Lake Ontario, the yearly snowfall averages 92 inches. But the harshness that I am referring to relates to the demise of Kodak, which was born in Rochester in 1889, and died there on January 19, 2012, falling into bankruptcy.
Given that its name was once synonymous with photography, a Kodak moment, the disintegration of this iconic corporation is particularly poignant. As recently as 1976, the company held a 90% market share of film sales and 85% of camera sales. It was the Google of its day, attracting the best technical talent from across the country. During lunch, the company played movies for its employees.
©Kodak used with permission
A disruptive technology—the digital camera—killed off the film business. Ironically, Steve Sasson, a 25 year-old Kodak electrical engineer, invented the first digital camera in 1975. This fact begs the question: how could a great company like Kodak, flush in the 1970’s with abundant resources and some of the most talented people on the planet, fail to take advantage of a product that was invented in its laboratories?
A failed business strategy and management myopia both contributed to Kodak’s downfall.
Kodak’s Failed Business Strategy
When there is a disruptive technology, firms are often unable to capitalize on the invention for fear of cannibalizing existing product sales. Kodak’s primary strategy was to sell high margin film. Known as the razor blade strategy, the company developed inexpensive cameras as a means to an end: their purpose was to facilitate lucrative film sales. In summary, its digital camera invention was held back because of management’s concerns about the negative impact on film sales.
When Sony launched a filmless digital camera in 1981, fear permeated Kodak’s executive suite. Specifically, over the next decade, Kodak invested approximately “$5 billion—or 45% of its R&D budget—in digital imaging,” according to a 2005 Harvard Business School case study. Unfortunately, with disruptive technologies such as digital cameras, the first-mover advantage is too great for late entrants to overcome. By the time Kodak realized that their razor-blade business model was dead, the horses were already out of the barn. The company was unable to catch-up to the competition.
Earlier this month, Kodak’s announced that it was exiting the film and digital camera business altogether. Sadly, all that remains of this once august corporation is the intellectual value of its patents, resulting from decades of belated investments in digital technologies.
Management Myopia
Not only was the first digital camera unwieldy—it weighed over 8 lbs.—but it didn’t even save images. Instead, they were projected onto a TV screen. It is difficult to imagine how Kodak’s mainstream customers—Mr. and Mrs. Jones from Kansas—would have bought that first, clunky digital camera.
Conventional wisdom suggests that good management involves staying close to your customers. And that is what management at Kodak did. Rather than allocating resources towards the internal development of a risky, digital camera that their mainstream customers had little interest in, the company funded projects that enhanced its position within the lucrative film market. Management at Kodak was constrained by the needs of their established customers. That is fine when making incremental improvements to existing products, but it is fatal when dealing with disruptive technologies.
In retrospect, management ought to have spun off its digital camera business to an independent subsidiary. The small business unit could have focused on meeting the needs of the customers who would have embraced it, such as hobbyists and leading-edge photographers. Apple followed this strategy with its first, Apple computer. I remember buying mine from a Chicago-based, electronics shop that catered to technical enthusiasts (techies) who were far removed from the mainstream, consumer marketplace. Over time, Apple developed its product offerings, introducing features and functionality—such as the mouse and Graphical User Interface (GUI)—that made it attractive to Mr. and Mrs. Jones from Kansas.
In his book The Innovator’s Dilemma, Clayton Christensen describes numerous instances where companies have failed at internally developing disruptive technologies. In contrast, firms that set up separate subsidiaries have been able to grow game-changing innovations into full-fledged businesses. HP did this with the invention of the ink jet printer in the 1980s. It set up an autonomous subsidiary in Vancouver, Washington, far removed from the influence of corporate headquarters in Palo Alto, California. Initially, the ink jet printer market was small and limited; over time, the company turned it into a significant business.
Small is Beautiful
I worked as a product manager at a small company that manufactured food-processing machinery for the beverage industry. New product development was the key to its success. In 1980, a large conglomerate acquired it. Within 7 years, innovation, the life-blood of the firm, dried up, and the conglomerate sold off the business.
When it comes to winning the new product development race, small entrepreneurial-driven firms will usually beat the behemoth corporation, especially when dealing with disruptive technologies.
Occasionally, a new technology is introduced that disrupts the natural order of things. Apple’s iPad represents just such an innovation. The touchscreen display and navigation options make this computer a radical departure from the PC. [In this context, I am broadly defining the PC as either a desktop or laptop computer.]
With the iPad, you don’t have to use a trackpad—or mouse—to move a cursor around a screen. Instead, you use your fingers to touch and swipe the screen. In addition, the iPad is very light, weighing only 1.5 lbs (680 grams), and has a battery life of 9-10 hours, which is far greater than the battery life of the typical laptop computer. Combined, all of these features provide the user with a more direct and immediate relationship to computing: all cables, mice and other devices are gone. The iPad facilitates a “magical” experience, according to Steve Jobs. Certainly, it makes life easier for the customer.
Ease-of-use is one of the many reasons that the iPad has caught on like wildfire, becoming the biggest selling device in Apple’s history. For the quarter ending Dec 31st2011, the Cupertino-based juggernaut sold 15.4 million tablets, accounting for $9.1 billion in revenues or about 20% of the company’s total revenue. Compared with last year’s holiday quarter, tablet sales doubled.
We are witnessing what Harvard Business School’s Clayton Christensen calls a disruptive innovation. Typically, inventions that fall into this category have characteristics that are radically different from existing products; however, initially, they offer lower performance in areas that are important to mainstream customers. For example, compared to a laptop or PC, the original iPad’s processor was slow; storage space was limited; and it wasn’t equipped with a keyboard. But over the past couple of years, Apple has significantly improved the performance of its tablet computer. Here are some of the features contained within the new IPad, which was released today:
- High resolution retina display–2048×1536 pixels more than on an HD TV
- A dual core CPU twice as powerful as the A5 found in the iPad 2
- A rear iSight camera with 5MP sensor and advanced optics, including IR filter, autofocus, face detection, and white balance
- HD video recording (1080p resolution)
- Voice dictation (there’s a new key on the keyboard for speaking into the iPad)
- 4G LTE support: HSPA+ for up to 21Mbps or dual-carrier HSDPA for up to 42Mbps or LTE for a max of 72Mbps connectivity
- Battery life is 10 hours (9 for the 4G models)
Regarding the future, Steve Jobs used the metaphor of the PC as a truck, and the iPad–or tablet–as a car. America was originally an agrarian economy. Then, the truck was used for all tasks done on the farm. But as we developed into an urban economy, the car replaced the truck for many jobs.
The tablet will be increasingly used for consuming digital data—viewing videos and photos; reading news websites, feeds, and books; checking on e-mail & social media; and listening to music. In contrast, the PC will be used for heavy-duty tasks. One of you said it well: “typing a large document or programming a 1,000 lines of code is much easier with a full size, qwerty keyboard.” A PC with a blazingly fast processor, which is hooked up to a large display—including multi-monitor arrangements—can facilitate multitasking and productivity. Developers, professional photographers, graphic artists and hardcore gamers will probably continue to use the PC, at least in the near future. But to quote Jobs once again, “as we move away from the farm, the car started taking over.”
And the data appear to substantiate Job’s prediction. During 2010, when the iPad was introduced, sales of PC’s outnumbered sales of tablet computers by a ratio of 20 to one. In 2011, PC’s outsold iPads by a ratio of only six to one. Horace Dediu, an analyst with Asymco in Finland, predicts that tablet sales will surpass PC sales in 2013.
In conclusion, the iPad symbolizes much more than just simply an incremental improvement in technology. It is evolving to become a PC replacement for many applications. The PC will survive, but its market share will continue to decline vis-à-vis tablet computers. This is no different than what occurred 60 years ago when televisions were invented. As a result, the audience of people who listened to radio shows declined greatly. Although the radio has endured, its share of the overall listening audience is small in comparison to TV’s market share.
Here are other instances where new technologies displaced existing technologies:
How do you weigh in on this issue? Will Apple’s improvement of features and functionality enable the tablet computer to become a PC replacement?
Karen Hughes & Mark Penn discuss Social Media in politics (cc) Kenneth Yeung – www.snapfoc.us
This Tuesday, November 2, 2010, US voters will be going to the polls to vote in the midterm elections. Thus, it’s timely to consider how social media has transformed politics in America. By social media, I mean “the use of web-based technologies to turn communication into interactive dialogues.” (Wikepedia)
At Blogworld 2010, held in Las Vegas from October 14-16, two eminent political operatives conversed (see photo) about these topics: Karen Hughes, a close adviser to George Bush, and Mark Penn, a key adviser to Bill Clinton. Despite their ideological differences, both consultants agreed on one thing: web-based technologies have transformed the political landscape.
According to Penn, Bill Clinton was the first President to use email; however, he discontinued its use after having sent only one message. To demonstrate the changing technological environment, Hughes described how no one had a Blackberry when Bush first took office. But by the end of his administration in 2008, everyone had a blackberry—or the equivalent. Not only does Obama have a blackberry, but he also uses Twitter to communicate with his followers.
Hughes indicated that in 2001, she focused strictly on the traditional media in order to get the President’s message out. Thus, all that she had to do was pay attention to “the reporters and editors,” a circumscribed group of people. However, Hughes stated that the people in the “audience [bloggers like myself], have replaced the news desk.” For example, in the past, the President could deliver a speech that would be below the radar, because it was delivered in a remote location. Now, that same speech could be picked up by a blogger and spread throughout the world. Along these lines, it is telling to note that just this past week, President Obama invited 5 bloggers to the White House to interview him. Apparently, Obama felt that one of the best ways to reach his base was through the blogosphere.
Social media is reshaping the way we interact, whether it be used in the business or political realms. The new rules involve the use of web-based platforms—such as Twitter, the Blogosphere, and Facebook—that connect politicians and their constituencies as well as businesses and their customers. What we are witnessing is a communication revolution similar to what the Gutenberg press unleashed 600 years ago.
Do you agree that web-based, social media represents a revolution? How has social media transformed the way that you work? Are you using these technologies to connect with workers, clients and customers?
(cc) Kenneth Yeung – www.snapfoc.us
Last week, I attended a conference called “Blogworld & New Social Media Expo.” The photo on the left features the opening keynote speaker Scott Stratten, author of the book “UnMarketing.” Touted by its sponsors as ”the world’s largest Social Media business conference,” the event was held at the Mandalay hotel in Las Vegas from October 14-16th. Here are a few bullet points about the conference, which featured over 300 speakers:
• Social Media is a megatrend that is forever changing the way we do business. There were over 50 sponsors of the event, and three of the major ones were PepsiCo, Ford Motor Co., and the US Army. General Petraeus delivered an introductory keynote address to the attendees.
• The millennial generation (those born after 1980) get social media—the rest of us will learn about it from them. The social media phenomenon is the brainchild of Mark Zuckerberg (b. 1984), the co-founder of Facebook. This platform dwarfs all others in terms of social media use.
• Businesses that will grow, thrive and succeed must learn how to leverage this new technology. I spoke with several millennials who recounted the learning curve that they went through in order to establish their firm’s web presence.
Blogworld 2010 was an outstanding conference, and I learned a lot about the current state of the blogosphere as well as about various social media trends. I will be sharing some of my observations with you in upcoming posts.
Does your firm have a social media marketing strategy? If so, how well is it working for you in terms of connecting with your customer base?
