In today's technology-rich environment, new opportunities are surfacing at an unprecedented pace. The Internet, wireless communications, fiber optics, genetic coding and the genome, nanotechnology and micromachines are just some of the technologies responsible for creating hundreds of new and exciting opportunities. Firms that capitalize on these opportunities will become the stars of the future. Those who fail to recognize how these and other technologies will impact their markets may face an early demise.
In order to avoid the destructive fate of a new or disruptive technology, market leaders must be able to figure out how customers will ultimately use a new technology - and be the first to provide a product designed for that application - even if it means creating a new market. They must know which target markets will initially find a technology attractive and use those markets as a point for market entry. They must know how to systematically evolve a technology over time to address the needs of the broad market - systematically controlling segment expansion. Many firms struggle to achieve these fundamental objectives as the process for doing so is riddled with dozens of seemingly insurmountable obstacles.
When presented with a new technology, companies commonly flail around with it for years until customers figure out how they want to use it - only then does the firm begin to understand the customer's requirements and start the traditional development activities. Organizations must be able to shortcut this lengthy and unpredictable process, as it often goes on randomly for years. They must be able to crawl inside the minds of their customers and see how a new technology could ultimately be used to create value for that customer - then deliver that value, embodied in a breakthrough product that is right on target. Fortunately, the obstacles standing in the way of achieving these objectives can be overcome, paving the way for new insights into the future of managing innovation - but, not surprisingly, to do so, a firm must view its markets in a different light.
Companies commonly think about markets in one of two ways, both of which inhibit them from achieving their innovation management objectives. First, many firms define their markets in terms of the products they deliver to their customers. For example, a firm may say it sells into the "computer market", the "cell phone market" or the "Internet services market". When a company defines a market in terms of its offerings, the identification of new markets becomes dependent on the creation of new offerings. This perspective often hinders a firm from uncovering new markets for a new or disruptive technology and does not shed any insight into what new markets might exist for a current offering.
Second, many companies define their markets as, "groups of potential customers with similar needs - and sellers offering various products to satisfy those needs". When thinking about markets in this light, many firms begin to segment customers into demographic or other artificial classifications. In many firms it is common for employees to talk about their markets in terms of business size, price point, geographic location, industry or some other classification. For example, a firm may define its products and services for a specific business size - small, medium or large - or for a price point such as $50, $200, $500 or $1,000 - or for a specific industry such as construction, biotechnology or communications. Although this is common practice, firms often complain that such a view does not organize customers into groups that have similar needs. In fact, their needs are often dissimilar within a classification and overlapping across classifications, making it more difficult to understand what customers value. So, although this view may offer a firm some comfort in organizing markets into a convenient statistical classification, the advantages often stop right there. With this perspective, as well, it is difficult to identify new markets and effectively manage innovation.
When attempting to identify markets for new or disruptive technologies, it is more effective to approach the subject from the customer's perspective, rather than the company's perspective. Customers believe value is delivered when a technology - embodied in a product or service - helps them execute an important process in less time, more efficiently and for less cost. For example, a lawnmower is acquired to simplify the process of lawn maintenance. Services like E- Trade simplify the process of buying and selling stocks. Microprocessors simplify the process of data processing. All successful products and services can be linked to simplifying the execution of a specific process. From the customer's perspective, these underlying processes are - in essence - markets. Processes such as maintaining lawns, buying and selling stocks and processing data all define well-bounded markets. This process perspective offers two great advantages. First, individuals executing a specific process have similar needs and form a truly homogeneous set of customers. This is rarely true of markets defined around some convenient statistical classification. Second, with this perspective, it is possible for companies to uncover markets for new and disruptive technologies.
Given that a market can be effectively defined in terms of a process, a firm can identify markets for a new or disruptive technology by determining what processes a specified technology is capable of executing or evolving. For example, the Internet can be used to evolve processes such as placing orders, advertising company offerings, transporting mail, educating students and to execute many other processes - that is why the Internet is so exciting. Many of today's technologies are strong in their breath and depth - meaning they can be applied to dozens of markets - or to evolve dozens of unique processes. Other technologies, such as baking soda, are somewhat limited in the number of processes they can evolve - although baking soda has moved its way from helping people with the process of cleaning their teeth and into the process of absorbing refrigerator odors.
Once a firm is capable of identifying the processes that could potentially be evolved through the application of a technology, it is in a position to prioritize each market opportunity. With this capability, a firm can determine which markets should be pursued first and which should not be pursued at all. Most firms will agree that a great market opportunity exists when three conditions are met.
The process - or market - under consideration is important to a large portion of the population and existing customers are unsatisfied with their ability to execute the process.
The technology under consideration has the potential of dramatically evolving the stated process.
The market effectively meets the strategic and financial criteria the firm uses to evaluate the potential of a new market.
A company's ability to discover markets that meet these conditions will often separate the great firms from all the rest. New and disruptive technologies are all around us, waiting for companies to figure out which markets they would best serve. Customers are constantly looking for new technologies and solutions to help them execute processes that are important to them. Firms that have the capability of figuring out how customers will ultimately use a new technology to evolve a specific process - even if it means creating a new market - will come closest to hitting the target.