Executive Thought Leadership

Innovating in Established Markets

According to the big bang theory, the universe came into existence in a tremendous explosion about 14 billion years ago. While that's a great approach when starting from scratch, we wouldn't want to experience another big bang today with the universe up and running.

Similarly, a big-bang approach can be a powerful way to create innovative products in new markets. With no existing investments to amortize or customer bases to protect, creating entirely new systems has the potential to propel industries into new ways of conducting business and to transform the way societies function. But attempting to force entirely new creations into an established market can be very disruptive. To be sure, innovation can still take place in established markets, but it should be evolutionary, not revolutionary.

A growing or emerging market attracts new competitors eager to claim their share. Maintaining a competitive advantage means that you need to innovate. But unlike new entrants starting from scratch, you have the added responsibility of protecting your customers' investments. The approach you take to innovation will determine your continued success, so it is worth considering several options.

Ways to Proceed

You might dare to take the big-bang approach and launch new products without regard for your installed base. This has the obvious benefit of removing the limitations on innovation. But it places a tremendous burden on your customers, who must make hard decisions about their capital investments and, as a result, might begin to eye your competitors' offerings.

Another option is to expand existing products with new features indefinitely. This approach protects your customers' investments, but it can place insurmountable obstacles in your innovation path. Technology moves at a rapid pace, and it isn't unusual to discover that expanding what was once state-of-the-art technology becomes untenable.

A better option in many instances is to take a balanced approach that maximizes value for the customer. The guiding principles in this case are the integration of investment protection, interoperability, and innovation as it relates to new markets and technologies.

Using this approach, you innovate within the existing product line to the extent possible. How much is possible depends on the flexibility of the system's original design. But once you begin to reach the design's limitations, it's best to resist the temptation to discard the old and completely start over. Instead, first seek to revise and enhance only what is necessary to allow innovation to flourish. Doing so mitigates the customer's issues with migration and facilitates interoperability with the installed base.

Steps to a Balanced Approach

Deciding how to proceed in a balanced innovation program can be daunting. However, the following steps help in the decision-making process:

• Clearly understand how a new feature is to be used, and understand any implications it has on the system. Taking a broad view of the problem being addressed can sometimes lead to innovative ways to implement a new feature.
• Survey the installed base to quantify the usage of existing features. Which features are still in high demand, and which are used by a select few? You may find that maintaining feature parity with older systems is not always required.
• Identify whether refinements to the foundational systems would enable implementation of new requirements.
• Design next-generation products to remove the limitations of the current platform.
• Remain mindful that new systems will be hybrids of old and new for a long time. Interoperability between new products and existing systems is vital.

The integrated approach to product innovation balances backward compatibility with innovation. It optimizes the use of engineering resources; you can assign some to older features still required in new products and others to developing innovations. Freeing engineering resources and applying them to new development fuels a prolific innovation cycle.

To protect the customers' investments, it is important to ensure that the migration path to a new product is clear and that there is sufficient value to justify any necessary hardware upgrades. That said, the next time you need to take your product line to the next level, consider using the balanced, evolutionary approach to innovation. You might find it works best for protecting existing customers from the disruptive side of the big bang.