One of the most consistent patterns in business is the failure of leading companies to stay at the top of their industries when technologies or markets change.
Why is it that established companies invest aggressively–and successfully–in the technologies necessary to retain their current customers but then fail to make the technological investments that customers of the future will demand?
The fundamental reason is that leading companies succumb to one of the most popular, and valuable, management dogmas; they stay close to their customers. Customers wield extraordinary power in directing a company’s investments.
But what happens when a new technology emerges that customers reject because it doesn’t address their needs as effectively as a company’s current approach?
In an ongoing study of technological change, the authors found that most established companies are consistently ahead of their industries in developing and commercializing new technologies as long as those technologies address the next-generation-performance needs of their customers. However, an industry’s leaders are rarely in the forefront of commercializing new technologies that don’t initially meet the functional demands of mainstream customers and appeal only to small or emerging markets.
To remain at the top of their industries, managers must first be able to spot the technologies that fall into this category. To pursue these technologies, managers must protect them from the processes and incentives that are geared to serving mainstream customers. And the only way to do that is to create organizations that are completely independent of the mainstream business.