[Book Notes] 10 insights: The Wide Lens

The Wide lens is a book that focuses on the blind spots that companies have when launching new innovations. The book is full of case studies and I have included some of the most interesting ones below.


#1:

Traditionally, innovation failures have been attributed to either: (1) failure of customer insight or (2) failure of execution

However, there are 2 other type of risks that are in the blind spot of most executives:

  1. Co-innovation risk: extent to which the success of your innovation depends on the successful commercialization of other innovations

  2. Adoption risk: extent to which partners would need to adopt your innovation before end consumers have a chance to assess the full value proposition

 

#2:

Michelin PAX system: Micheline introduced a new kind of tire system, which would continue to run/operate even when the tire became flat (i.e. was punctured). This innovation had a lot of customer benefits. For example it would have prevented the need to have extra space inside a car to keep a step-in. It would have also reduced accidents. However, when Michelin rolled this out it was not a big success. This was because for this to be successful car service companies had to be involved and they were not involved. The PAX system would also have not reduced the number of punctures — hence, service shops would not have been against this system as it would not have reduced the market for tire repair. However, these new tires had different alignment and the service stations and garages needed special equipment, which was costly, to service the PAX tires. Since initially the market for tires was not very large, many garages did not incorporate the new machines.

Tires are sold into 2 main markets: OEM market and replacement market. Tire companies focus on OEM market as then they can lock in a big replacement market in the future. Therefore, traditionally tire innovations happen in replacement market first and then get taken up in the OEM market. However, PAX had to be introduced in OEM market first as it involved some change in tire alignment and changes in the vehicle design. Hence, the initial support of service stations and garages was not gathered.


Therefore, PAX was not a commercial success. However, it was able to find niche application in military industry. This is because military is responsible for its own repair or service stations. Hence, when Michelin sold the PAX system to military, the risk of repair was taken up by military as well.

 

#3:

Nokia was one of the first company to build a 3G powered phone. However, Nokia did not realize that the success of their phone would also depend on the successful launch of a number of other innovations — like infrastructure to provide 3G service, video streaming technology etc. These other innovations were not in place when Nokia developed the phone in 2002 and hence, the phone failed. On the other hand, when Apple launched the iPhone in 2007, all these services and innovations were in place. Therefore, in a connected ecosystem, simply executing on only your innovation is not enough — you have to ensure that the ecosystem’s innovations also comes up on time.


If the probability of one of your partner successfully developing the innovation is 85% and you have 4 independent partners or innovations then the chance of all of them stacking and being successful is only 52% (0.85 x 0.85 x 0.85 x 0.85)


Similar challenge was faced by Phillips in the development of HDTV. Phillips developed it before any other competitor — however, the ecosystem was not ready.


Strategies to address the above: (1) Add more resources to the weakest link; (2) In some cases take away resources from a strong partner and invest it in a weak partner — because the weakest partner will have a greater impact on your overall probability; (3) Re-evaluate the vision so that you set expectations for a longer period i.e. more realistic expectations.

 

#4:

Innovators tend to think of costs as the price that they will charge to the customers while customers think of costs as the price that they pay + the cost of making changes

Innovators and customers think of costs and benefits in different ways. Innovators think about benefits in terms of what their product actually provides — the absolute benefit provided to the customers. But customers think about benefits in terms of added value — the relative benefit delivered by the product compared to available alternatives.


Therefore, for adoption of a product, the relative benefits to customers must exceed the total costs to the customers (price they pay + cost of changing or adjusting).


Case study: Office 2007 was slightly better than Office 2003. The price at which Microsoft was offering Office 2007 to customers was almost zero. However, adoption still took very long because the total cost for the customers was very high (although price = zero; changes to their adoption/ routine was very high)

Case study: GE super abrasive wheels. GE introduced super abrasive grinding wheels that were able to grind substances to a very fine tolerance. However, they struggled in getting these wheels adopted in the market as the grinder had to invest in other things to use these wheels (like faster wheels etc.). Hence, the adoption chain of the grinding wheels did not allow this to become a big success.

 

#5:

Logic of co-innovation is one of multiplication (not averages)

Adoption chain follow a logic of minimum (if any link in the chain is not working then the innovation will not get adopted). Risk can be managed proactively but only if it is recognized in advance. In one part of the chain is weak then the risk should be reallocated across the chain and the excess surplus in one element of the chain can be reallocated to some other element in the chain


Case study: Digital cinema was good for the industry. However, it was expensive for theaters to implement and change from the industry standard of the analog cinema. Hence, since it did not make sense for the theater owners, the technology was not getting implemented. Therefore, the movie studios introduced a new element in the entire chain. This was a financial player, who provided the subsidized finance to theaters to introduce the digital projection technology in theaters. The theaters could lease the projector from this new entity. The movie theater owners would then pay for the use of the projector for 10 years and after that period they would become owner of the projector, which could last for 30 years. This arrangement was called VPF (Virtual print fee).


In some way, ecosystem challenges can be viewed simply as project management challenges. The major difference is the way in which you draw the boundaries around the project. A narrow lens will let you focus on only execution risk while a broad lens will let you focus on co-innovators and adoption chain partners.

 

#6:

Value blueprint approach: Lay down the entire blueprint of the ecosystem and then ask where the main bottlenecks and challenges are. Against each of the element have a traffic light signal which says red, yellow or green. When you have done this then try to think of ways in which you can change the red and yellow traffic light to green.

Case study #1: Sony had also developed an ebook reader. However, it did not focus on the ecosystem and on different partners like publishers’ concern about the IP rights of the books.

Amazon then entered the ecosystem and changed all this. Amazon realized that the publishers were the weakest link in the ecosystem and were gatekeepers. Hence, Amazon tried to move around the surplus value in the chain to the publishers. Later on, Amazon started trying to remove the monopoly of the publishers by opening up the kindle platform so that anyone can publish their books without the involvement of the publisher. Amazon’s and Sony’s efforts to conquer e-books were the inverse of one another: Sony enjoyed competence in its hardware but was a stranger to the ecosystem; Amazon was well positioned in the ecosystem.

Case study #2: Inhalable Insulin had a lot of promise. However, it did not succeed that much. This is because when the FDA approved it, it added a caveat that a lung function test had to be performed before administering it. This test was performed on an expensive instrument called spirometer. Most of the doctors did not have a good enough reason to purchase such an expensive machine for only one test and, hence, the product was almost dead on arrival. Spirometers are general equipments in a general doctor’s clinic but the specialized doctor experts (on whom Pfizer was relying on) did not keep these machines in their clinic.

 

#7:

Value proposition framework: For every player in the ecosystem, identify the surplus that will come due to some innovation. If a particular player has negative surplus then this means that the entire ecosystem will not work. Therefore, try moving some of the excess surplus from one of the player to this player.


Based on the surplus of different players, the roles of who will lead and who will follow should be decided. For e.g. a player that has a lot of surplus is in a good position to lead as this player can either take its own surplus and give it to other players or force other players in the ecosystem to move their surplus to weaker players in the ecosystem.


Every innovation effort will involve some uncertainty for leaders and followers — for the latter this uncertainty is compounded by the fact that they do not have any control over it. The absolute worst case is being a leader and still losing. As a leader if you want to throw good money behind bad then no one is going to stop you. As a leader you have to decide how to shape the ecosystem.

 

#8:

The usual focus of getting products to market creates a dangerous blind spot when it comes to timing of entry: the early bird may get the worm but the 2nd mouse gets the cheese. You may be the driver that races ahead of everyone but then may be forced to wait at the red light for everyone else.

Case study: Sony walkman and Apple iPod. Sony was the first to introduce a playback device for cassettes — walkman and therefore, enjoyed first mover advantage. SaeHan was the first to introduce the first MP3 player — however, they did not enjoy any first mover advantage and iPod became the biggest MP3 player. This was because when Walkman was launched the ecosystem was already present — for e.g. cassettes were needed and that was already a very popular medium and was easily available. On the other hand when MP3 players were being launched, MP3 files were not widely available. SaeHan did not solve for this problem while iPod was able to solve it.


It is fundamentally wrong to think of first mover advantage as a fixed characteristic of any industry. The extent of first mover advantage depends on the nature of challenges in the ecosystem. The ecosystem is a puzzle that needs to be assembled piece by piece. The prize does not normally goes to the person who puts down the first piece — but it goes to the person who puts down the last piece

 

#9:

Challenges facing electric cars: (1) Electric cars are more expensive than gasoline cars; (2) Distance that can be driven in an electric car is less than the distance for gasoline cars; (3) Infrastructure for charging battery is weak (and it takes more time); (4) Battery technology is progressing at a rapid rate. Battery is the most expensive part in an electric car and the resale value of an electric car would be very less as the battery will very soon become obsolete; (5) Electric grid capacity — people will try to charge their cars at the same time (in the evening after their commute). This will put a lot of peak load on the electric grid.


The ecosystem can be reconfigured to make it more practical for electric cars (or other such innovations to come into effect).


A startup called Better place tried using these principles to champion adoption of electric cars [However, Better Place went bankrupt in 2013/14]. Better place separated the car and battery ownership. In their charge stations, the batteries were taken out of the car and replaced by a new battery. Hence, wait time for customers was very less. Also customers did not have to worry about resale value anymore as they did not own the battery anymore. Since Better Place owned the batteries it could schedule the charging of them and, thus, prevent any peak load on the grid.

 

#10:

Successful ecosystems can be constructed via proper sequencing mechanisms: (1) Minimum viable ecosystem: In which you create only a minimum ecosystem with the bare minimum needed participants; (2) Staged expansion: Slowly adding more features and complexity to the ecosystem; (3) Ecosystem carryover: Leverage elements that were developed in the construction of one ecosystem for creating another ecosystem

For example the movie → toy link had been well established. Earlier movie studios would make the movie and then license the rights for merchandise to toy companies. However, this started changing with the release of GI Joe movie as this was the first time that the move was toy → movie rather than the other way round.


Ecosystem carryover was used by Apple when it leveraged one ecosystem in the development of other ecosystems. For e.g. Apple had established the iTunes ecosystem for iPods. It carried over the iTunes element to iPhones.