Companies in either sunrise or sunset industries are clearly aware that they need to approach innovation, but their question is: “When? What are the signals for a change?” Start-ups and small-sized companies with limited resource and outreach are calling: “Are there opportunities for us to adopt innovation and share some market?”
By reading the first part of Christensen’s Seeing What’s Next, what I relate most to real business practices like the above are his theories of evaluating three customer groups and how disruptive innovation develops chances for start-ups.
Christensen defines three customer groups as nonconsumers, undershot customers, and overshot customers. Evaluating these groups, as he states, is the core of the signals of change analysis.
This is a very brilliant classification, which I believe is currently blurred by lots of companies that should have been more successful with their products if they are capable of suiting the right decision for right customers.
As I see it, the first two categories are easier to be identified and targeted by companies because these groups are potentially “asking for more” which caters the company’s responsibility to serve the expanding demand of their customers. But for “overshot customers”, their needs are probably ignored by companies eager to innovate to take the lead in the industry. So it happens as Christensen writes: “Companies innovate faster than customers’ lives change…thus, products eventually become too good.” And this often results in barely satisfactory market share as anticipated, which in economic parlance as Christensen explains: “they derive diminishing marginal benefits from product enhancements.”
Two examples occur to me are Windows Vista and Word 2010. Vista was created to improve the security of PC operating system and it was quite innovative with its fancy interface. But let alone the fact that Vista was not compatible with a number of older PCs, most of the users’ computers are so technically and habitually entrenched by earlier version of Windows like XP, they are not likely to pay more for further improvements. According to a rating from Time Magazine, Vista was one of ten biggest tech failures of the last decade. The same is true with Word 2010. It is proved by many surveys that most users opt to stick to Word 2003-2007 since they can get almost most of the things done conveniently. I once heard that a friend uninstalled Word 2010 and installed her 2003 back because she thought “Word 2010 windows occupied half of her screen and she could not all the buttons she needed in this new version. So for those customers, Word 2010 is not necessarily better than its predecessors, both practically and psychologically.
At this point, I am not saying that companies should not launch innovations for overshot customers. Christenson tells us that each customer group creates unique opportunities, and companies can launch low-end disruptive innovations or modular displacement to reach overshot customers. How? The answer is simply put by Christensen: convenience, customization, and price.
His theory can be strongly backed up by the growing up of China’s “Shanzhai” mobile phone industry. The word “Shanzhai” refers to Chinese imitation products of big brands, almost with the same appearance and functionality, but completely user-friendly and much lower in price. Some of the products even improve all the shortcomings in the original brand. According to data provided by the Chinese government, 150 million “Shanzhai” mobile phones were sold in the 2007 and this number is increasing dramatically every year. Set aside the legality of “Shanzhai” products, they are definitely disruptive innovation and meet every single criterion (convenience, customization, price) set by Christensen. Since “Shanzhai” products have grabbed so many overshot customers, a large number of start-ups have seized the opportunity and dug their first gold. Meanwhile, they’ve given the big companies a heavy strike.
But as we all admit, for some of the big brands, especially digital product companies, even they have the resource and technology, it is not as flexible as start-ups to adopt large amount customized features, which they consider could degrade the originality of their product. And they might also be restrained to do that by hierarchical corporative structure and government interference.
How to find the balance of efficiency and innovation always gives rise to fierce discussion both in industry and academy. And I believe Windows 7 delivered a best example. All the customers are well taken care of by seven product models (starter, home basic, home premium, professional, enterprise, ultimate, and thin PC). All seven models are well organized under lean method to share most of the technique and minimize the processing time. All in all, give the right customer the right product. Sometimes the perfect may not be the best.