In my previous post, I wrote about the innovation of CT scanner. The CT scanner industry shows another forms of innovation that I call neutered innovations. Such innovations do not destroy profits of firms but neither do they enhance firm performance. Although rogue innovation would appear only rarely in an industry, neutered innovations regularly appear across all industries.
In early history of the CT scanner industry, as EMI began to succeed in the market, large medical device firms such as GE and Picker entered the industry quickly as fast second movers. A fast second mover strategy helps established firms balance the innovation risks and rewards well; by letting others test the prototype and the market, fast second movers build on the early success of the first movers. The incumbents innovated on scanner speed and resolution rapidly and thus moved ahead of the innovators in product performance. As a result, they drove out all the new comers from the industry. In effect, innovation allowed firms such as GE and Picker to gain market share and drive out the pioneers who could not innovate fast enough. This is the traditional story of innovation – innovation is difficult but once the incumbents innovate, they reap the rewards of innovation.
The interesting part appeared in the next stage of the story. These firms continued to innovate on scanner speed and scanner resolution – two most important criteria for customers. As I studied the impact of this innovation on firms at later stage, it emerged that after a point these innovations stopped making an impact to the performance of innovators. It was as if the firms continued to innovate just to stay in the same place and to maintain market share. It was as if the innovation became powerless to change performance of firms. It was as it the innovations were neutered.
You have probably been in this situation when your innovation stopped rewarding you. This happens at some point in time in any industry. At that stage firms get into the rut of neutered innovations that do not help performance. They are compelled to innovate just to stay in the same place. What should firms do when they get into this trap?
Take a look at Apple and Nintendo to learn the solution. When Microsoft came out with Zune that was supposedly an ipod killer, Apple didn’t start competing on price or added hard drive capacity to get back at Microsoft. It launched Ipod touch that became a game changer. Similarly, when Sony and Microsoft were battling in video game consoles, Nintendo was losing out. It came up with a new dimension of innovation – kinesthetic capabilities in gaming consoles. The answer to neutered innovations is either a new dimension of innovation or a game changer.