What Product Managers Can Learn From Clayton Christensen: Part 2 of X — Listening to Your Customers
*Note: This is part 2 of X because the work of Clayton Christensen is full of sheer gold that I don’t know how much material it’s going to inspire*
Are there cases where listening to your customers can lead you astray? Yes.
Now Paul, you have some explaining to do here! We should ALWAYS listen to the customer. They’re the ones that pay the bills, after all!
Bear with me for a bit. There are plenty of cases where yes, listening to your customers is key. However, let’s look at what Clayton Christensen has to say on the topic.
Back to the wisdom of Clayton
Let’s take a look at a quote from Clayton’s book The Innovator’s Dilemma:
Managers played the game the way it was supposed to be played. The very decision-making and resource-allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening carefully to customers; tracking competitors’ actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technological change.”
Before continuing on, let’s distinguish the difference between sustaining technologies and disruptive technologies. Here’s a good breakdown of the difference between the two:
The main differentiation that I make is that sustaining innovation comes from listening to the needs of customers in the existing market and creating products that satisfy their predicted needs for the future. Disruptive innovation creates new markets separate to the mainstream; markets that are unknowable at the time of the technologies conception.
And, for more clarification, here’s more on the subject right from Clayton’s website:
Companies pursue these “sustaining innovations” at the higher tiers of their markets because this is what has historically helped them succeed: by charging the highest prices to their most demanding and sophisticated customers at the top of the market, companies will achieve the greatest profitability.
However, by doing so, companies unwittingly open the door to “disruptive innovations” at the bottom of the market. An innovation that is disruptive allows a whole new population of consumers at the bottom of a market access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.
Characteristics of disruptive businesses, at least in their initial stages, can include: lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics. Because these lower tiers of the market offer lower gross margins, they are unattractive to other firms moving upward in the market, creating space at the bottom of the market for new disruptive competitors to emerge.
Source: Disruptive Innovation — Clayton Christensen
We have distinguished situations where it makes sense to listen to your current customers when it comes to sustaining innovation, but not for disruptive innovation.
This important difference has been the reason that so many companies, many who became dominant figures in their industry due to disruptive innovation, stumble when they themselves miss the boat on disruptive innovation after falling into the sustaining innovation pattern of growth. A perfect recent example would be Blackberry, who became a big-time player by first creating a disruptive innovation (the blackberry device), fell into sustaining innovation, and were overtaken by giants in the tech industry, Apple and Google, who produced better quality phones, and introduced disruptive innovation through their apps stores, among other things. In fact, the fall of Blackberry is likely going to be a future post. More on that later.
One of the best examples that Clayton Christensen discusses in regards to disruptive innovation is the Sony pocket transistor radio.
This example comes from his excellent followup to the Innovator’s Dilemma, The Innovator’s Solution.
Sony saw an opportunity for something different. In 1955, the company took the technology in a lateral direction, releasing the first battery-powered, pocket transistor radio. The tiny radio produced a horribly static sound and batteries were quick to die. What was important, however, was the discovery of a brand new market. Sony’s new device caught on quickly with teenagers who couldn’t afford table-top radios and didn’t mind the crackling sound of their pocket radio as long as they could take it with them to the beach.
Let’s investigate the example of the pocket transistor radio further. Sony’s customers for a non-portable transistor radio would have little interest in the pocket transistor radio. Why would they buy a product that has a short battery life and poor quality? It would make zero sense to produce these radios for these individuals, who follow the sustaining innovation and are simply looking for better quality in a radio over time, or perhaps a lower price point.
From a business standpoint, taking a sustaining innovation perspective, it makes sense to disregard the pocket transistor radio. The margins were far lower compared to what they were currently offering, their current customers would have zero interest in the product, and they were unsure of who would even bother with a pocket transistor radio.
Well, as it turned out, teens bought them in droves. With lower amounts of disposable income, teens were happy to buy a radio with lower quality than not having a radio at all. The portable transistor radio was competing with non-consumption, a concept that Clayton discusses in which the customer either buys the product, or nothing at all. They were able to listen to their own music away from their parents and with their friends.
Sony was able to do this time and time again, from the early 50s until the early 1980s, due to co-founder Akio’s Morita astute acumen to recognize these type of trends. When he stepped away in the early 1980s to focus more on politics, Sony began to drop the ball in regards to identifying disruptive innovation, which it has struggled with to this day.
Akio Morita, disruptive innovation champion
So, as a product manager, why does all of this matter? Why should I heed the advice of Clayton Christensen?
If you’re asking these questions, go read his books, or reread this post, and it should become clear. Let’s go through a few scenarios a product manager may deal with on these fronts:
You’re a product manager at a company that has become a market leader due to disruptive innovation, and is now in the sustaining innovation phase.
- Pay attention to your current customers. Listen to their feedback and continue to build a better product to serve their needs.
- Pay attention in the industry to disruptive innovators. Are their competitors who are targeting a different customer base that will grow at a rapid rate in the foreseeable future? Are they creating a product solution that competes with non-consumption?
- Identify ways of disruptive innovation that you can do for your product line. This is tricky, because you need to go beyond your current customers. You need to get out there and find a whole new customer base that doesn’t exist, but has great chance for growth over a period of time. You’ll have people saying you’re wasting your time when you have higher margins and customers as it is, but as Clayton has pointed out, we have seen time and time again that companies get caught with their pants down when they missed the boat on disruptive innovation.
You’re a product manager at company that is emerging and focusing on disruptive innovation.
- While you don’t have the resources that an established company has available, you have the advantage of targeting customers that established competitors are avoiding. As they’re an unknown base with smaller margins to begin with, established companies are likely not giving their focus on these companies and instead focusing on their current customer base.
In Conclusion:
We’re always told to listen to your customers, and in many situations, it makes perfect sense. However, in order for disruptive innovation to happen, you must go beyond your current customers and seek out a different unknown base that, while currently a small base and offers lower returns, can very well lead to building a new customer base for a product.
You may be in a situation where a company can coast for months, years, or decades with simply producing improvements through sustaining innovation. However, we have seen time and time again that companies who were complacent (such as Blockbuster) missed the boat on disruptive innovation and fell from grace. We’ve also seen time and time again that companies that were able to create a breakthrough with disruptive innovation and were able to do it over and over again (Apple and Sony up until the early 80s), while others were never able to repeat a disruptive innovation or watched it pass them by (Blackberry).
Ah, once the darling of the Canadian tech space is now a punchline to many jokes.
Originally published at www.pmpaul.com on October 11, 2016.
