The Innovator’s Dilemma

Jan 27, 2017

BY KATIE LAHTI – INSIGHT STRATEGIST

Remember the MiniDisc? It was sort of an evolutionary link between cassette tapes and burnable CDs. As we start on a new year, let’s join the chorus of reflections with a blast from the past—back to the 90’s. Before we bid farewell to this technology, we should take a closer look at what this example can teach us about modern innovation.

Why now? Innovation is more important than ever. Not only is it one of the most commonly overused business buzzwords, research shows that 65% of senior executives are feeling the pressure to innovate. The need for innovation is real and top of mind. Even in 2014, businesses invested around $1.6 trillion dollars in research and development globally. The pressure to innovate is encroaching on business leaders from competitors and the culture at large. Hurry up and innovate, right? Not so fast.

Back to the MiniDisc. In 1992, Sony launched what they thought would be an innovation to transform the music industry. It was more convenient than cassette tapes and offered more advanced functionality than the listen-only discs that were on the market at that time. Simply put, the MiniDisc was a superior product.

However, Sony sold only 50,000 MiniDiscs in its breakthrough year, and still in 1998, three out of four Americans said they had never even heard of the device. After a $30 million dollar investment in a marketing campaign to raise awareness, it still took 4 years to realize an upward trajectory. In 2001, just as things were looking slightly up, Apple introduced the iPod. The MiniDisc never recovered.

What was missing? Hindsight biases aside, I believe there was one fatal flaw in the MiniDisc innovation: a misunderstanding of the customer. If business flourished on product features and functions, the MiniDisc would have risen above. But it didn’t. The innovation of the MiniDisc failed because of a misinterpretation of the market, customer needs, and the right target audience.

In contrast, successful innovation is built around the customer:

1. UNDERSTAND THE MARKET

Competitors are those that are meeting the same customer need, not just those making the same product. As a hopeful disruptive innovation, the market for MiniDiscs did not yet exist. Looking at the market of personal music players broadened the view of potential challengers to cassette player producers and compact disc player producers (Both of which Sony was already leading the pack). However, that view proved too narrow when Apple, a technology company, entered the scene and expanded the sandbox. Apple was not a company making the same product, but they did cater to the same need.

2. GET TO AN INSIGHT

Innovations meet an existing and underlying need. The solution gets at the root. In a world where mix tapes were all the rage, why wouldn’t recording features on a slick mini disk dominate the industry? Was there a deeper need that explained the craze? Could it be that mix tapes were more about the ability to personalize, and in actuality the iPod would meet that need more effectively and efficiently? There are many reasons for doing things. In building innovation from insight, the reasons are a solid and underlying human truth.

3. SPECIFY A TARGET AUDIENCE

Innovations serve specific customers. If they can’t access or use the solution you provide, what purpose can it serve? In the case of the Sony MiniDisc, the target audience could not remotely afford the initial $750 product or even the cheaper $250 version released 6 years later. The device catered to the attitudes and preferences of young people, but failed to align with their behavior. For successful innovation, product design and messaging should be tailored to the current attitudes and behavior of the target audience.

The Sony MiniDisc was an example of an over-invention for customers at the time. For both low-end and high-end customers, the technology was beyond what they needed or could afford. It is an example of a disruptive technology that ended on the upper side of Innovator’s Dilemma (where offering surpasses current customer needs).


 
Business leaders are faced with this dilemma today, and likely even more than when Harvard Professor Clayton Christenson proposed the theory in 1997. How far can we innovate? How far should we innovate? How much do we invest in research and development and at what point might it cannibalize our existing business? That’s the ongoing dilemma. We’ll continue to wrestle with this tension as long as this is true: Investing in innovation is risky, but ignoring innovation is fatal.