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Crappy Innovation

2010 May 30

Can you be crappy?  Do you dare?

When we think about innovation, we usually think about what impresses us.  Like Steve Jobs standing on a podium showing off his latest triumph: Incredible! Revolutionary!  Mind Blowing!

However, the kind of innovation that changes paradigms is usually crappy.  The stuff that doesn’t work all that well.  The carpetbaggers who come into your industry utterly unprepared to service your existing clients.  That’s where the danger often lies.

The Innovation Pyramid

Some years ago, I was subcontracting for a highly regarded consulting firm and was paired with a project manager who had just earned a prestigious MBA at one of the world’s top programs.  Being the generous sort, she was happy to share her wisdom with me.

“This is a pyramid,” she explained.  ”At the base is what you have to do just to stay in business.  But if you want to out-perform your competitors, you need to reach the top of the pyramid.  That’s where innovation is.”

“Oh,” I thought. “You mean like New Coke?”  No wonder it’s so lonely at the top.

As I’ve written about before, there’s a big difference between technology that creates efficiencies and technology that creates value.

Disruptive Crap

A few decades ago, Harvard Professor Clayton Christensen took a break from instructing impressive young scholars about the finer points of pyramid building and asked himself a question:  Why do good companies fail?

What he found was not what you’d expect.  The companies he studied were data driven, invested heavily into R&D, were responsive to investors and clients, etc.  What happened was they were blindsided by crap.

That is, while they were making their products better and better, other companies figured out how to build a business out of crap.  The problem was that if these crappy upstarts stayed around long enough, they became less crappy and eventually pretty darn good.

In other words, the companies he studied failed not because they got worse, but that they continued to get better and better at things people cared less and less about. (For more on this point, see Disruptive Innovation).

Crappy Innovators

Once Christensen started looking, he found that there were lots of crappy innovators and many of them became big successes by changing the basis of competition.

Here are some examples:

MP3 Players and Digital Cameras: When these technologies came out, they were expensive and performed poorly.  It took a special breed of people to drop $1000 on a camera that took lousy pictures or a player that held 10 songs and needed a software engineer to install.

Charles Schwab: Traditionally, stock brokers were trusted advisors that consulted the well heeled on their investments for a fixed percentage commission. Charles Schwab came along and offered less service for a low flat fee. Today it has a market cap of $20 billion.

Dell Computer: When PC’s first came out, they weren’t good enough.  So everybody wanted them to be faster and better.  At some point though, the benefits of the latest technology diminished.  At some point, processor speed and other performance metrics overtook basic needs.

Then Dell Computer entered the market and offered mediocre computers at low prices with great service.  Since Dell’s products were good enough to do the job, these attributes were valued over performance by many customers.

Nucor Steel: Nucor pioneered the minimill, which made low grade, low margin steel.  The integrated firms, such as US Steel, were happy to cede that business to the new upstart and concentrate on high margin, high profit lines of business.

Then Nucor started producing medium grade steel, which the big boys were happy to get rid of so they could concentrate on the more profitable stuff.  Their margins increased again, until…well they eventually went bankrupt.  They had upgraded themselves out of business.

Why Apple is not a Disruptive Innovator

Of course not all innovators are crappy.  Some continue to please customers and investors year after year, for decades.  Iconic companies like Proctor and Gamble, General Electric, Coca Cola and others have stayed at the top of their industries for generations.  Christensen calls these sustaining innovators.

Apple, contrary to popular belief, is not a disruptive innovator, but an incredibly successful sustaining one.  They seem to have a knack for finding categories that can be vastly improved.  They find an existing customer base who’s ready for more and then they dazzle them.

Apple is a particularly revealing case because they don’t disrupt industries, just the companies in them.  They didn’t kill MP3 players, or mobile phones and they won’t kill tablets.  Instead, they just get lots of people to buy Apple.

In other words, they don’t change the basis of competition, they outperform the competition.

Signs that the Basis of Competition is Changing in Your Industry

Disruptive competitors emerge from the most unexpected places, which is what makes them so disruptive.  Innovation is a messy business which rarely follows a certain trajectory.  Here are some things to look out for:

Your Customers Treat You Like a Commodity: You’re constantly improving to keep up with the competition, but all your customers care about is price.  Chances are, the basis of competition in your industry has changed.  That’s how Dell became a multi-billion dollar company.

The sign to watch for here is  what Christensen calls a change from integrated to modular organization.  Where before customers demanded the higher performance and hand holding that comes with a custom solution, now they are happy with something off the shelf.

Potential Customers Go to Non-Competitors: The integrated steel makers didn’t see Nucor as a threat.  In fact, the scraps Nucor was feeding on let the incumbents focus on higher value-added products.  The integrated firms continued to migrate upwards into eventual insolvency.

This is a tough one to spot, because you’re so used to duking it out with your traditional competitors, some funky company (which in some cases is an existing customer or supplier) is taking business that you don’t really care about.

As Andy Grove said, “Only the Paranoid Survive.”

A New Crappy Customer Emerges: Charles Schwab didn’t start out by stealing clients from established brokers, they marketed to people who didn’t invest in stocks.  ”We offer a superior service that targets a more sophisticated customer,” the full service brokers thought.

Yet as Schwab grew, they added services.  It was just a matter of time before the high commissions of the full service brokers were toast.  The skills Schwab learned from servicing clients on the low end helped them migrate upwards into the full service firms core market.

The lesson here:  Don’t turn down your nose at potential business.  Everybody’s money spends the same way.

Stop Listening to Your Customers and Start Focusing on the Jobs They Want Done

Innovation would be easy if it really was at the top of a pyramid.  We wouldn’t have any problems figuring out where to do it.  This was probably Christensen’s greatest insight.

He found that companies often listen to their customers too much.  People often demand more of what they always have had, whether it serves any purpose or not. It doesn’t mean they’ll actually pay for it.

There was a time when we all cared about things like how many megapixels in our cameras or whether our computers would be fast enough to run software, because those were crappy areas.  When they got good, the basis of competition changed and we cared less about those things.

And that’s why the really exciting innovation lies in the crap.  That’s where the job isn’t getting done well enough, so people will pay more for improvement.  After all, it really doesn’t matter what customers ask for, but the crap they will actually pay for.

- Greg

17 Responses leave one →
  1. May 30, 2010

    Very interesting. I always tell clients and prospects they need to talk to their customers to find out what they think you are. So, maybe I should tell to to listen but remember what Henry Ford said, “If I had ask people what they wanted they would have said faster horses.”

    [Reply]

    Greg Reply:

    Ken,

    Thanks. I like the Henry Ford quote:-)

    - Greg

    [Reply]

  2. May 30, 2010

    Another example is the Flipcam, there was an article I read recently on “The Good Enough Quality” on Wired which I thóught was worthwhile http://www.wired.com/gadgets/miscellaneous/magazine/17-09/ff_goodenough?currentPage=all
    .-= Ralf Schremper´s last blog ..Great Video: "Social Media in Plain English" =-.

    [Reply]

    Greg Reply:

    Ralf,

    Thanks. It’s an excellent article that makes some great points.

    btw. Conde Nast (who publishes Wired) as a whole is doing a great job with their sites. I recently wrote about them here: http://www.digitaltonto.com/2010/4-unlikely-digital-heroes/

    - Greg

    [Reply]

  3. June 2, 2010

    Greg. Great post. Crap makes manure and stuff grows faster. Einstein is reliable for a great quote on this “If an idea does not at first seem absurd, then there is not much hope for it”. I’m reminded of a piece of research that compared inventors to middle managers in multinationals. It found inventors had 3 key differences. 1. They were brave (they didn’t care what others thought, or the risk involved). 2. They were real (they made stuff real (often really bad prototypes) vs talk about what it might look like) 3. They greenhoused (they let ideas grow vs killing them at source).
    All a great environment for creating crap, but also seeing what grows from it. I think the other thing about crappy invention is they don’t see the axis that everyone is working on – they therefore tend to change it….or someone else does later.

    [Reply]

    Greg Reply:

    Mark,

    Thanks. Einstein is a very interesting case, because he came along and pointed out the consequences of Plank’s and Maxwell’s theories that were a step farther than the older generation were willing to go and then he himself wasn’t able to accept the consequences of his own quantum theory.

    Feynman had the same attitude toward string theory. I think the difference is that these guys were 100% aware and engaged in the debate They debated and teased, but they didn’t dismiss.

    btw. If you remember where you saw that research, please let me know. I’d really like to see it.

    Thanks again for your comment.

    - Greg

    [Reply]

  4. June 7, 2010

    I like how you share your insights, a book i was told about Re-work by37 signals http://37signals.com/rework/ has a great quote that says….

    “your better off with a kick ass half, then a half ass whole”

    Cheers
    Spiro
    Spiro Spiliadis´s last blog post ..spirospiliadis: RT @VenessaMiemis: new post: A Pay It Forward Business Model [in transition to a new global society] http://bit.ly/dzejcL

    [Reply]

    Greg Reply:

    Spiro,

    I like it! Thx.

    - Greg

    [Reply]

  5. June 18, 2010

    Thanks Greg, for the interesting post.
    Crappy musings follow .. scuse the length . .

    …think about what impresses us. Like Steve Jobs standing on a podium showing off his latest triumph: Incredible! Revolutionary! Mind Blowing!

    …much more blown away when he demonstrated OS/X on a PC clone well before his Intel Macs appeared.

    and amazed
    ( tho i’m still slow on the uptake of this and FreeBSD )
    by OS/X86 appearing freely via Apple’s own engineers.

    And now Apple’s over-taken MS in capitalisation. Viva!
    and Viva! OpenSourceLibre Software.

    This is a pyramid,- at the base is what you have to do just to stay in business. to out-perform your competitors, you need to reach the top … That’s where innovation is.”

    that was a well-crappy metaphor she employed …

    an English one uses the notion of Hygiene and says that to wash-its-hands -to make enough to break-even – one’s business must pay attention to all the implicit aspects & expectations that may be invisible or assumed by one’s customers, before one can approach being able to innovate in practice.
    Once past that one must face down the ” So what – that’s what it does ” factor before being able to deploy innovation.

    …crappy innovators and many of them became big successes by changing the basis of competition.

    Here are some examples:

    MP3 Players and Digital Cameras: When these technologies came out, they were expensive and performed poorly. It took a special breed of people to drop $1000 on a camera that took lousy pictures…

    They were early jpegs – some of the compression artifacts were beaut –
    and they did time-lapse and video- albeit in a never again heard-of MS Codec!

    It was briefly worth the bucks to get a crappy device to kick-start innovation in acquiring n manipulating digital imagery..
    As it had been to acquire early synths samplers and sequencers . .n then there was Hi-8 !

    Dell Computer: :

    Viva! for providing OS-free and/or Linux( Ubuntu) systems

    Apple is a particularly revealing case because they don’t disrupt … they just get lots of people to buy Apple.

    Yup.. even when completely free versions of equivalent systems and softwares exist, and while Apple make no secret of the OpenBSD background of their systems
    & free OpenOS/X86 is available. ..
    Genius !
    VIVA ! indeed.

    But then again both Apple n MS got up on borrowed( crappy ? ) innovations. .
    Respectively . .the original Xerox-Parc WIMP stuff

    and the original PC O/S for x86 that Gates licensed n then wrote QBasic on top of . .

    hopefully someone’ll soon dream up another ( less crappy ? ) metaphor for our digital interactions…and that”ll be FreeSoftware.. and the proper substrate for using technology and innovation to create ( and conserve ) value..

    @Ken -yup nice Ford quote..

    @Maverickmark- yes ever-playful Einstein.. ( lucky he didn’t need to care about PR !)
    changing axes… of user digital interfaces and interaction .. would be fun.
    QMech and Strings’ll turn out to be ( more or less ) crappy/ inadequate approximations in the light of whatever shift comes next…. meanwhile chuck it all in the compost pot

    @Spiro- they’re the Ruby on Rails lot ..?

    Best Regards..

    Screenshots of my Gnome desktop work in progress

    [Reply]

    Greg Reply:

    Pete,

    The graphical user interface developed at PARC (which was the basis for the Mac and Windows) is an interesting case, because it shows what happens when you take a crappy innovation a and put it in a product with an existing customer base…usually nothing.

    The GUI was of little utility to those who were using computers at the time. These were technical people who were already comfortable with the interface they had.

    However, it was a huge innovation for people who weren’t comfortable using computers and helped spur on the revolution in personal computing.

    Thanks for your comment.

    - Greg

    [Reply]

  6. June 25, 2010

    that is a great article man! thank you

    [Reply]

    Greg Reply:

    Thanks, Mark.

    [Reply]

  7. August 3, 2010

    May I link to this post in my blog?

    regards,
    Lisa
    Lisa Pohmajevich´s last blog post ..Blessings to my Healthcare Social Media Gurus

    [Reply]

    Greg Reply:

    Sure, Lisa. Feel free.

    - Greg

    [Reply]

  8. November 2, 2011

    I believe this is the first time I read something like this:

    “And that’s why the really exciting innovation lies in the crap”.

    And I’m amazed in how much sense it actually makes.

    Great article!
    Henrique´s last blog post ..hventura: #Motivation I always look at it half full http://t.co/kS9tJyji

    [Reply]

    Greg Reply:

    Thx Herique!

    Greg

    [Reply]

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