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from TradeBriefs FMCG Daily Newsletter
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Sree Vijaykumar |
From the Editor's Desk
For those of you who haven't read Clayton Christensen's book, The Innovator's Dilemma, here's a quick summary. "If you look across history, many companies that are seen as unassailable are at the bottom or the middle of the pack after a few years. It turns out good management causes companies to fail. Here's why. Begin by thinking about three concentric circles, representing your potential market. At the center of the inner circle are the customers with the greatest interest in your product and the most money. Almost always, companies begin there because customers with money are the only ones who can afford your new innovation. You introduce your product, your customers love it and they're happy to pay for it even at a high price. To keep these key customers happy, you begin making improvements to your product as soon as you can. At first, those improvements really help customers, as when personal computers gained faster processing speeds and you no longer had to wait 30 seconds to open a file. But technological progress almost always outstrips customers' ability to use it. For instance, today most of us only use a small percentage of the processing power in our desktop PCs. Still, in an effort to better serve that core of high-paying customers, innovative companies keep adding improvements to their products. We call this sustaining innovation. Incumbents dominate sustaining battles, but by definition, sustaining innovations do not drive growth. For instance, Toyota's innovation may lead you to buy a Prius, but then you won't also buy a Camry. What creates growth is disruptive innovation. What we find is that entrant companies, rather than make good products better, make a more affordable product and open it to a whole new customer base. A great example is Salesforce.com. By making cloud-based CRM available for as little as $25 a month, it badly disrupted Oracle's more expensive offering. More here
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