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Suman Sarkar

Innovation

It’s a Mistake to Assume Technology Drives Disruption

Harness the power of customer-centricity

Published: Wednesday, October 9, 2019 - 12:03

Most people attribute business disruption to technology, thinking of the iPhone, 3D printing, robotics, and artificial intelligence. However, technology alone does not cause disruption. The iPhone didn’t succeed because of its technology; it succeeded because it met customer needs better than any other product at the time did.

If we’re all driving electric cars in five years, we will point to Tesla’s technology as disruptive—yet the electric car was invented in 1837. Electric car technology was not disruptive in 1839 or even in 1939 because customers didn’t want it then. But even if they are subconscious at times, customer needs and demands change, and those changes are the real source of disruption.

Today, giants like GE are failing because of their lack of focus on customers. Jack Welch grew GE, acquiring 1,000 companies during the 1990s. But many GE units behaved like monopolies and twisted customers’ arms to increase revenue and profit—naturally, customer discontent brewed. Customers in the railroad industry complained that GE Rail (now GE Transportation) forced them to buy rail cars and hardware they didn’t need—GE Rail even discouraged sharing customer-demand data with other railroads for smoother operations. As soon as they found viable alternatives, railroads moved away from GE. Jeff Immelt, GE’s next CEO, had to shed a dozen or more businesses that Welch had cobbled together. But he continued to acquire other companies to please investors, and never focused on customers’ needs. While utilities were moving from carbon-based fuel to renewable energy, Immelt kept betting on coal and crude oil. After two more CEO changes, the company has not shared plans to gain customer confidence. GE’s future does not look bright. Customers, not technology, disrupted it.

You may think that GE is an exception, but entire industries and even countries are becoming disrupted because of changing customer needs. For example, the packaged food industry is getting disrupted because customers are demanding healthy food. Food giants such as Kraft, Kellogg, and Campbell Soup are facing declining sales, and are responding with mergers and acquisitions and changes to their leadership teams. The demand for clean energy is impacting oil-producing nations. Venezuela’s economy is already reeling due to a drop in oil prices. Even Saudi Arabia is looking to diversify its economy. No one is immune from changing customer needs.

Some have figured out how to respond to changing needs effectively and are enjoying success. Consider the rise of discount retailers. Two grocers from Germany, Aldi and Lidl, concentrated on offering fewer products at lower prices. They began offering higher-quality products at lower costs than the competition. Their products beat branded products in both head-to-head tests and independent quality reviews. In customer surveys, shoppers indicated that Aldi’s products were better than national brands in categories such as milk, eggs, and canned and frozen foods—even though their prices were significantly lower. They do it by keeping their selection smaller, carrying private label brands, and working directly with a select few manufacturers. Soon people from all income levels, attracted by the higher quality, began patronizing the stores. Now, food discounters have taken over the grocery market in Europe. (See figure below.)


Image 1: European discount grocers market share. Source: Planet Retail—Embedded figure—Rune Jacobsen et al., “How Discounters Are Remaking the Grocery Industry,” BCG, https://goo.gl/7b9jvn

Aldi is also upending the U.S. grocery market. A CNN article describes how a cheap and brutally efficient grocery chain is upending America’s supermarket. While Walmart, Kroger, and Target are trying to home-deliver groceries through self-driving cars and robots, Aldi is growing its store base from 1,800 to 2,200 by 2022 by focusing on customer needs for higher-quality food at an affordable price. It’s customers, not technology, driving its growth.

This is true across industries and countries: Customers, not technology, drive disruption. When companies respond to disruption, customers’ needs must be considered before technology. Technology can help meet those needs when it’s used appropriately, but it will only distract attention from customers’ needs when it’s not. Customers’ needs have driven every past marketplace disruption, and will drive future disruptions, too. The technology and innovation that deliver on customer needs will be adopted; technologies that don’t, no matter how innovative they are, will be discarded. Yet all too many leaders blindly invest in technology, thinking it will save them and their organizations.

Much of the false reliance on technology and innovation comes from business research such as Stanford Business School’s 2017 report on technological innovation and total wealth. They analyzed 85 years’ worth of patents and concluded that companies with the most patents experienced the most growth. If this is true, how did IBM, which has more patents than any company in the world, lose its market share and decline so much in revenue? IBM filed 8,023 patents in 2016—an increase of 7.8 percent compared to 2015. Yet its revenue declined in both 2016 and 2017. The other companies on Stanford’s top 10 list—including Canon and GE—are also struggling. The report—like most corporate leaders—doesn’t make the connection that innovation is just a means to an end. Filing patents doesn’t guarantee success. You can grow only by focusing on customer needs and then investing in technologies that deliver on those needs.

Whole Foods (owned by Amazon) is unlikely to disrupt Walmart’s and Kroger’s grocery business; that’s likely to be Aldi because of its customer focus. Very soon Aldi will become the country’s third-largest grocery chain behind Walmart and Kroger. The same sort of thing could occur in all industries—from pharmaceuticals to financial services to cable. Companies that invest in technologies and innovations that address customer needs will be successful; those that invest in technology for its own sake will fail, despite the billions of dollars they’ve spent.

Conclusion

It’s a mistake to see technology as the driver of disruption. Leaders can avoid disruption by focusing their attention on their customers, figuring out what they need, and investing in technologies or innovations that serve those needs. Companies that do this can succeed and outstrip competitors, as Aldi does now, and Apple did in its day. Only by accepting such realities can leaders cheat death and keep their companies alive.

Discuss

About The Author

Suman Sarkar’s picture

Suman Sarkar

Suman Sarkar is a partner with Three S Consulting and an international consultant who has advised more than forty Fortune 500 companies in strategy and operations. His new book, Customer-Driven Disruption (Berrett-Koehler, 2019), is a blueprint for showing how companies must adapt to ever-changing global demographics and markets. It draws on the author’s extensive experience and features case studies from companies around the world that have thrived in volatile, highly competitive marketplaces. He has published numerous articles in business journals and his first book, The Supply Chain Revolution, is an Amazon top-seller in its genre.

Comments

It is about the customer!

Thank you very much, Suman, for your excellent reseach and summary. I agree, The Customer is always "the strategy" and source of success.

Thank you!

Taking  care of needs, really? 

Disruption

Thank you for the nice article. This is very much in line with the presentations I have given on Quality 4.0. The customer experience ultimately is analog and it is the analog content that will determine success, not the digital delivery. In the music industry everything has been digitized but no person buys a song because it is digital, they buy it because they like the song. There is all too often a mixup of means and goals!