What’s Your Best Innovation Bet?17 July, 2017 / Articles
When companies develop new technologies, they can never be certain how the market will respond. That said, the future of a given technology is not as unforeseeable as it might seem. When I work with tech companies on crafting or refining their innovation strategy, I start with an exercise that helps them anticipate where the next big breakthroughs will—or should—be. Central to the exercise is an examination of the key dimensions on which a technology has evolved—say, processing speed in computing—and the degree to which users’ needs have been satisfied. This can give companies insight into where to focus their effort and money while helping them anticipate both the moves of competitors and threats from outsiders.
One of my favorite examples comes from the consumer electronics and recording industries, which competed on the basis of audio fidelity for decades. By the mid-1990s, both industries were eager to introduce a next-generation audio format. In 1996 Toshiba, Hitachi, Time Warner, and others formed a consortium to back a new technology, called DVD-Audio, that offered superior fidelity and surround sound. They hoped to do an end run around Sony and Philips, which owned the compact disc standard and extracted a licensing fee for every CD and player sold.
Sony and Philips, however, were not going to go down without a fight. They counterattacked with a new format they had jointly developed, Super Audio CD. Those in the music industry gave a collective groan; manufacturers, distributors, and consumers all stood to lose big if they bet on the wrong format. Nonetheless, Sony launched the first Super Audio players in late 1999; DVD-Audio players hit the market in mid-2000. A costly format war seemed inevitable.
You may be scratching your head at this point, wondering why you’ve never heard about this format war. What happened? MP3 happened. While the consumer electronics giants were pursuing new heights in audio fidelity, an algorithm that slightly depressed fidelity in exchange for reduced audio file size was taking off. Soon after the file-sharing platform Napster launched in 1999, consumers were downloading free music files by the millions, and Napster-like services were sprouting up like weeds.
You might be inclined to think that Sony, Philips, and the DVD-Audio consortium were just unlucky. After all, who could have predicted the disruptive arrival of MP3? How could the consumer electronics giants have known that a format on a trajectory of ever-increasing fidelity would be overtaken by a technology with less fidelity? Actually, with the methodology outlined below, they could have foreseen that the next breakthrough would probably not be about better fidelity.
Understanding what’s driving technological developments isn’t just for high-tech firms. Technology—the way inputs are transformed into outputs, or the way products and services are delivered to customers—evolves in every market. I have used the three-step exercise described here with managers from a wide range of organizations, including companies developing blood-sugar monitors, grocery store chains, hospitals, a paint-thinner manufacturer, and financial services firms. It often yields an “Aha!” moment that helps managers refine or even redirect their innovation strategy.
Step One: Identify Key Dimensions
It’s common to talk about a “technology trajectory,” as if innovation advances along a single path. But technologies typically progress along several dimensions at once. For example, computers became faster and smaller in tandem; speed was one dimension, size another. Developments in any dimension come with specific costs and benefits and have measurable and changing utility for customers. Identifying the key dimensions of a technology’s progression is the first step in predicting its future.
To determine these dimensions, trace the technology’s evolution to date, starting as far back as possible. Consider what need the technology originally fulfilled, and then for each major change in its form and function, think about what fundamental elements were affected.
To illustrate, let’s return to music-recording technology. Tracing its history reveals six dimensions that have been central to its development: desynchronization, cost, fidelity, music selection, portability, and customizability. Before the invention of the phonograph, people could hear music or a speech only when and where it was performed. When Thomas Edison and Alexander Graham Bell began working on their phonographs in the late 1800s, their primary objective was to desynchronize the time and place of a performance so that it could be heard anytime, anywhere. Edison’s device—a rotating cylinder covered in foil—was a remarkable achievement, but it was cumbersome, and making copies was difficult. Bell’s wax-covered cardboard cylinders, followed by Emile Berliner’s flat, disc-shaped records and, later, the development of magnetic tape, made it significantly easier to mass-produce recordings, lowering their cost while increasing the fidelity and selection of music available.
For decades, however, players were bulky and not particularly portable. It was not until the 1960s that eight-track tape cartridges dramatically increased the portability of recorded music, as players became common in automobiles. Cassette tapes rose to dominance in the 1970s, further enhancing portability but also offering, for the first time, customizability—the ability to create personalized playlists. Then, in 1982, Sony and Philips introduced the compact disc standard, which offered greater fidelity than cassette tapes and rapidly became the dominant format.
When I guide executive teams through step one of the exercise, I emphasize the need to zero in on the high-level dimensions along which a technology has evolved—those that are broad enough to encompass other, narrower dimensions. This helps teams see the big picture and avoid getting sidetracked by its details. In audio technology, for example, recordability is a specific form of customizability; identifying customizability, rather than the narrower recordability, as a high-level dimension invites exploration of other ways people might want to customize their music experience. For example, they might value a technology that automatically generates a playlist of songs with common characteristics—and indeed, services like Pandora and Spotify emerged to do just that.
It’s important to identify dimensions at the optimal “altitude”—neither so low or narrow that they miss the big picture, nor so high or broad that they won’t offer adequately detailed insight about a specific technology. In the case of automobiles, for example, climate control may be a technology dimension, but it’s so narrow that it’s not the most useful one to study; examining the higher-level “comfort” dimension under which it falls will be more illuminating. By the same token, the sweeping “performance” dimension in automobiles is probably too broad a choice, because it includes speed, safety, fuel efficiency, and other dimensions where meaningful advances could be made. Even a product as simple as a mattress involves technology with multiple performance dimensions—such as comfort and durability—that are useful to consider separately.