The Innovator's Solution: Creating and Sustaining Successful Growth (Creating and Sustainability Successful Growth)

by Clayton

Demanding customers are those customers who are willing to pay for increases on some dimension of performance—faster speeds, smaller sizes, better reliability, and so on. Less-demanding or undemanding customers are those customers who would rather make a different trade-off, accepting less performance (slower speeds, larger sizes, less reliability, and so on) in exchange for commensurately lower prices. We depict these trajectories as straight lines because empirically, when charted on semi-long graph paper, they in fact are straight, suggesting that our ability to utilize improvement increases at an exponential pace—though a pace that is shallower than the trajectory of technological progress.

substituted the term disruptive innovation for the term disruptive technology

What products should we develop as we execute our disruptive strategy? Which market segments should we focus upon? How can we know for sure, in advance, what product features and functions the customers in those segments will and will not value? How should we communicate the benefits of our products to our customers, and what brand-building strategy can best create enduring value?

Over 60 percent of all new-product development efforts are scuttled before they ever reach the market. Of the 40 percent that do see the light of day, 40 percent fail to become profitable and are withdrawn from the market. By the time you add it all up, three-quarters of the money spent in product development investments results in products that do not succeed commercially.

failures are really not random at all: They are predictable—and avoidable—if managers get the categorization stage of theory right.

The process that marketers call market segmentation is, in our parlance, the categorization stage of theory building. Only if managers define market segments that correspond to the circumstances in which customers find themselves when making purchasing decisions can they accurately theorize which products will connect with their customers. When managers segment markets in ways that are mis-aligned with those circumstances, market segmentation can actually cause them to fail—essentially because it leads managers to aim their new products at phantom targets.

customers “hire” products to do specific “jobs,” can help managers segment their markets to mirror the way their customers experience life. In so doing, this approach can also uncover opportunities for disruptive innovation.

set of insights constitutes a theory of how to connect disruptive innovations with the right customers in order first to create a foothold in a market and then to grow profitably along the sustaining trajectory into market-dominating products and services.

Much of the art of marketing focuses on segmentation: identifying groups of customers that are similar enough that the same product or service will appeal to all of them.

Marketers often segment markets by product type, by price point, or by the demographics and psychographics of the individuals or companies who are their customers.

delineations are defined by the attributes of products and customers. As we see over and over in this book, theories based on attribute-based categorizations can reveal correlations between attributes and outcomes. But it is only when marketing theory offers a plausible statement of causality and is built upon circumstance-based categorization (segmentation) schemes that managers can confidently assert what features, functions, and positioning will cause customers to buy a product.

Predictable marketing requires an understanding of the circumstances in which customers buy or use things.

customers—people and companies—have “jobs” that arise regularly and need to get done. When customers become aware of a job that they need to get done in their lives, they look around for a product or service that they can “hire” to get the job done. This is how customers experience life. Their thought processes originate with an awareness of needing to get something done, and then they set out to hire something or someone to do the job as effectively, conveniently, and inexpensively as possible. The functional, emotional, and social dimensions of the jobs that customers need to get done constitute the circumstances in which they buy. In other words, the jobs that customers are trying to get done or the outcomes that they are trying to achieve constitute a circumstance-based categorization of markets.3 Companies that target their products at the circumstances i...

A new set of researchers then came in to understand what customers were trying to get done for themselves when they “hired” a milkshake, and this approach helped the chain’s managers see things that traditional market research had missed. To learn what customers sought when they hired a milkshake, the researchers spent an eighteen-hour day in a restaurant carefully chronicling who bought milkshakes. They recorded the time of each milkshake purchase, what other products the customer purchased, whether the customer was alone or with a group, whether he or she consumed it on the premises or drove off with it, and so on. The most surprising insight from this work was that nearly half of all milkshakes were bought in the early morning. Most often, the milkshake was the only item these customers purchased, and it was rarely consumed in the restaurant. The researchers returned to interview customers who purchased a morning milkshake to understand what they were trying to get done when they bought it, and they asked what other products they hired instead of a milkshake on other days when they had to get the same job done. Most of these morning milkshake customers had hired it to achieve a similar set of outcomes. They faced a long, boring commute and needed something to make the commute more interesting! They were “multitasking”—they weren’t yet hungry, but knew that if they did not eat something now, they would be hungry by 10:00. They also faced constraints. They were in a hurry...

Who is the quick-service chain really competing against in the morning? Its statistics compare its sales with the milkshake sales of competing chains. But in the customers’ minds, the morning milkshake competes against boredom, bagels, bananas, doughnuts, instant breakfast drinks, and possibly coffee. In the evening, milkshakes compete against cookies, ice cream, and promised purchases in the future that parents hope their children won’t remember.

Knowing what job a product gets hired to do (and knowing what jobs are out there that aren’t getting done very well) can give innovators a much clearer road map for improving their products to beat the true competition from the customer’s perspective—in every dimension of the job.

the restaurant chain implemented innovations such as these that really helped get the jobs done and discarded improvements that were irrelevant to the jobs that the product is hired to do, it would succeed—but not by capturing milkshake sales from competing quick-service chains or by cannibalizing other products on its menu. Rather, the growth would come by taking share from products in other categories that customers sometimes employed, with limited satisfaction, to get their particular jobs done. And perhaps more important, the products would find new growth among “nonconsumers.” Competing against nonconsumption often offers the biggest source of growth in a world of one-size-fits-all products that do no jobs satisfactorily.

The first time that builders of a new-growth business need to assess what the target customers really are trying to get done is when they are searching for the disruptive foothold—the initial product or service that is the point of entry for a new-market disruption. When managers position a disruptive product squarely on a job that has been poorly addressed in the past that a lot of people are trying to get done, they create a launch pad for subsequent growth through sustaining innovations that build on the initial platform.

The way to get as close as possible to this target is to develop hypotheses by carefully observing what people seem to be trying to achieve for themselves, and then to ask them about it.

Between 1950 and 1982, Sony successfully built twelve different new-market disruptive growth businesses. These included the original battery-powered pocket transistor radio, launched in 1955, and the first portable solid-state black-and-white television, in 1959. They also included videocassette players; portable video recorders; the now-ubiquitous Walkman, introduced in 1979; and 3.5-inch floppy disk drives, launched in 1981.

Every new-product launch decision during this era was made personally by Morita and a trusted group of about five associates. They searched for disruptive footholds by observing and questioning what people really were trying to get done. They looked for ways that miniaturized, solid-state electronics technology might help a larger population of less-skilled and less-affluent people to accomplish, more conveniently and at less expense, the jobs they were already trying to get done through awkward, unsatisfactory means.

Interestingly, 1981 signaled the end of Sony’s disruptive odyssey, and for the next eighteen years the company did not launch a single new disruptive growth business. The company continued to be innovative, but its innovations were sustaining in character—they were better products targeted at existing markets. Sony’s PlayStation, for example, is a great product, but it was a late entrant into a well-established market. Likewise, its Vaio notebook computers are great products, but they too were late entrants into a well-established market. What caused this abrupt shift in Sony’s innovation strategy? In the early 1980s Morita began to withdraw from active management of the company in order to involve himself in Japanese politics.10 To take his place, Sony began to employ marketers with MBA’s to help identify new-growth opportunities. The MBA’s brought with them sophisticated, quantitative, attribute-based techniques for segmenting markets and assessing market potential. Although these methods uncovered some underserved opportunities on trajectories of sustaining improvement in established markets, they were weak at synthesizing insights from intuitive observation.

In searching for an initial product foothold in new-market disruption, observation and questioning to determine what customers are trying to do, coupled with strategies of rapid development and fast feedback, can greatly improve the probability that a company’s products will converge quickly upon a job that people are trying to get done.

Gaining a foothold is just the first battle in the war. The exciting growth happens when an innovation improves in ways that allow it to displace incumbent offerings. These are sustaining improvements, relative to the initial innovation: improvements that stretch to meet the needs of more and more profitable customers.

With low-end disruptions, it can be easy to determine the right sequence of product improvements in the up-market march.

For Target Stores, the goal was to replicate the product line, brands, and ambiance that previously were only available in expensive, full-service department stores. The low-end disruptor’s marketing task is to extend the lower-cost business model up toward products that do the jobs that more profitable customers are trying to get done.

With new-market disruptions, in contrast, the challenge is to invent the upward path, because nobody has been up that trajectory before. Choosing the right improvements is critical to the disruptive march up-market. Here again, job-based segmentation logic can help.

BlackBerry’s disruptive foothold at a new spot on the third axis in the disruption diagram, competing against nonconsumption by bringing the ability to receive and send e-mail to new contexts such as waiting lines, public transit, and conference rooms. So what’s next? How does RIM sustain the product improvement and growth trajectory for its BlackBerry?

RIM’s executives could believe that their market is structured by product categories characterized by some moniker such as “We compete in handheld wireless devices.” If so, they will see the BlackBerry as competing against products such as the Palm Pilot, Handspring’s Treo, Sony’s Clié, mobile telephone handsets made by Nokia, Motorola, and Samsung, and Microsoft Pocket-PC-based devices such as Compaq’s I-Paq and Hewlett-Packard’s Jordana. In order to get ahead of these competitors, RIM would need to develop better products faster than the competition. Sony’s Clié, for example, has a digital camera. Nokia’s phones offer not just live conversation and voice messages, but short text messaging as well. The Palm Pilot’s consummately convenient calendaring, rolodexing, and note-keeping features have almost become industry standards. And does the fact that Compaq and Hewlett-Packard offer stripped-down versions of Word and Excel software mean that RIM will be left behind if it does not follow suit? Defining the market by the characteristics of the product causes managers to think that in order to beat the competition, RIM would need to build some number of these features into its next-generation BlackBerry device. RIM’s competitors, of course, would be thinking the same thing—all trying to cram their competitors’ superior features into their products in a race to get ahead of the pack.

our worry is that defining market segments in a product-based way actually causes a headlong, arms race–like rush toward undifferentiable, one-size-fits-all products that perform poorly any specific jobs that customers might hire them to do.

Alternatively, RIM’s executives might segment their market in demographic terms—targeting the business traveler, for example—and then add to the BlackBerry those product improvements that would meet those customers’ needs. This framing would lead RIM to consider a very different set of innovations. Stripped-down customer relationship management (CRM) software might be considered essential, because it would allow salespeople to review account histories and order status quickly before contacting customers. Downloadable electronic books and magazines would obviate customers’ having to carry bulky reading material in their briefcases. Wireless Internet access, with the attendant capabilities to alter travel reservations, trade stocks, and f...

How You View the Market for Handheld Devices Will Determine What Product Features You Consider to Be Relevant Product View Demographic View Job-to-Be-Done View Market Definition The handheld wireless device market Market Definition The traveling salesperson Market Definition Use small snippets of time productively Competitors Palm Pilot, Handspring Treo, Sony Clié, HP Jordana, Compaq I-Paq, wireless phones Competitors Notebook computers, wireline Internet access, wireless and wireline telephones Competitors Wireless telephones, Wall Street Journal, CNN Airport News, listening to boring presentations, doing nothing Features to consider Digital camera Features to consider Wireless Internet access; bandwidth for data Features to consider E-mail Word Voice mail

But what if RIM structured the segments of this market according to the jobs that people are trying to get done? We’ve not conducted serious research on this, but just from watching people who pull out their BlackBerries, it seems to us that most of them are hiring it to help them be productive in small snippets of time that otherwise would be wasted. You see BlackBerry owners reading e-mails while waiting in line at airports. When an executive puts an always-on BlackBerry on the table in a meeting, what is she trying to do? Just in case the meeting gets a little slow or boring, she wants to be able to glance through a few messages unobtrusively, just to be a bit more productive. When the pace of the meeting picks up, she can slide the BlackBerry aside and pay attention again.

Should European and North American service and handset providers attempt to emulate this success by incorporating this functionality in their phones? At this writing, we expect camera-equipped phones to take off much more slowly in these markets, because many mobile phone users in these markets are adults who seem to have hired mobile phones to get work done or exchange important information in small snippets of time. Cameras and viewers rarely help get these jobs done better. If these companies were to market phones and these services to teenagers and children as a new way to have fun by taking and transmitting images, this product feature could create substantial growth. But if they follow their demonstrated propensity to deploy the functionality as a high-priced feature on phones that serious multitasking adults have hired to get down to business rather than play, our bet is that little growth will result.

In the face of such desires and beliefs, why do so many managers instead seem to rush headlong in the other direction, basing product improvement trajectories on attribute-based segmentation schemes that lead to undifferentiated, one-size-fits-all products? There are at least four reasons or countervailing forces in established companies that cause managers to target innovations at attribute-based market segments that are not aligned with the way that customers live their lives. The first two reasons—the fear of focus and the demand for crisp quantification—reside in companies’ resource allocation processes. The third reason is that the structure of many retail channels is attribute focused, and the fourth is that advertising economics influence companies to target products at customers rather than circumstances.

the more clearly a product is focused on getting a specific job done perfectly, the less appealing it might become when hired for other jobs. Clarifying what job a product should be hired to do, unfortunately, often clarifies what it should not be hired to do. Focus helps and it hurts—and it is easier to quantify the hurt than the help.

In contrast, a theory of growth that is grounded on circumstance-based categories—jobs to be done—would lead RIM not to copy most features in other handheld devices. This is because the real competition comes from newspapers, mobile phones, CNN Airport Network, and plain old boredom. There is exciting growth potential within this job, if RIM can improve its product so that it does the job better than the real competition. It would grow the size of the product category by stealing share from competitors that are outside the category. Furthermore, pursuing this trajectory of improvement would enhance, rather than destroy, RIM’s product differentiation and its consequent ability to sustain profit margins.

The job that line executives often hire market research to do in the resource allocation process is to define the size of the opportunity, not to understand how customers and markets work.

The odds of developing successful new products begin to tumble when managers collectively begin to assume that the customer’s world is structured in the same way that the data are aggregated.

The size and nature of job-based or circumstance-based market categories actually can be quantified, but this entails a different research process and statistical methodology than is typically employed in most market quantification efforts.

Many retail and distribution channels are organized by product categories rather than according to the jobs that customers need to get done.

This phenomenon leads many new-market disruptors to seek new channels to the customer—a topic we address in chapter 4. If the product is disruptive to the established retail or wholesale channels because it doesn’t help those institutions make more money in the way they are structured to make money, they won’t sell it. Consequently, successful disruptive innovators often find that their product must enable a new class of retailers, distributors, or value-added resellers to move up-market and disrupt established channels.

Doesn’t a big established channel promise a much faster ramp to volume? Ironically, it often does not. Finding or building new channels often means turning your back on profits that probably would not have materialized in existing channels anyway.

The answer is that just as it needs to develop products for the circumstance and not the customer, the chain needs to communicate to the circumstance, and not necessarily to the consumer. It can communicate to the circumstance with a brand, if it employs the right branding strategy. If it does this, then when customers find themselves in the circumstance, they will think instinctively of the brand and know what product to buy in order to get that job done.

Brands are, at the beginning, hollow words into which marketers stuff meaning. If a brand’s meaning is positioned on a job to be done, then when the job arises in a customer’s life, he or she will remember the brand and hire the product. Customers pay significant premiums for brands that do a job well.

Some executives worry that a low-end disruptive product might harm their established brand. They can escape this problem by appending a second word to their corporate brand. We call this word a purpose brand because it communicates to a circumstance—to a job that the disruptive product should be hired to do. If customers hire a disruptive product to do the wrong job, it will disappoint and thereby tarnish the corporation’s brand.21 If the disruptive product is hired for the job that it was designed to do, it will delight the customer and thereby strengthen the corporate brand—even though the disruptive ...

Let’s examine Kodak’s experience when it launched single-use cameras, which were a classic new-market disruption. Because of their inexpensive plastic lenses, the quality of photographs taken with single-use cameras was not as good as the photos taken by good 35mm cameras. As a result, the proposition to launch a single-use camera business encountered vigorous opposition within Kodak’s film division. The corporation finally gave responsibility for the opportunity to a completely different organizational unit, which launched single-use cameras with a purpose brand—the Kodak Fun-saver. This was a product to be hired when customers needed to save memories of fun occasions but had forgotten to bring a camera. The Funsaver camera competed against nonconsumption. Customers whose basis of comparison was to have no photos at all were delighted with ...

Marriott Corporation has done the same thing by developing a brand architecture that is consistent with several different jobs its customers experience in life. This architecture has facilitated the creation of new disruptive businesses, while strengthening the Marriott brand at the same time. Under the endorsement of the Marriott brand, we have been taught to hire a Marriott Hotel when the job is to convene a major business meeting, and to choose a Courtyard by Marriott (“The hotel designed by business travelers for business travelers”) when the job is to get a clean, quiet place to work into the evening. We learned to hire Fairfield Inn by Marriott when the job is finding an inexpensive place to stay as a family, and Residence Inn by Marriott to find a home away from home. The Marriott brand remains unsullied by all of this, because the purpose brands make the job clear. In contrast, if Marriott marketers had positioned Courtyard hotels in a segment defined by a lower price point—a cheaper, lower-quality solution to the same job that the top-tier Marriott-brand hotels are hired to do—then the disruption could indeed have damaged the Marriott brand. But if a ...