It’s tough to get consumers to adopt innovations—and it’s getting harder all the time.
As more markets take on the characteristics of networks, once-reliable tools for introducing new products and services don’t work as well as they used to. The efficacy of advertising, promotions, and the sales force has declined; it is more difficult for innovators to rise above the din of information from competing sources; and only hard-to-manage relationship skills seem to make a difference.
Innovators need to rethink the way they bring innovations to market. By using game theory, they can develop new strategies for playing in today’s networked world. By understanding how social, commercial, and physical networks behave, innovators can develop new tactics. And by working back from an endgame, they can change markets from foes to allies.
Markets, by their very nature, resist new ideas and products. Despite the risks involved with developing and launching new innovations, companies love them because they drive profits, growth, and shareholder value. Innovations reap such handsome rewards because they are risky. Markets, meanwhile, kill most new products and services and accept the rest only grudgingly. For instance, television took more than three decades to become a mass medium in the United States—from the first experimental broadcasts in the late 1920s to widespread acceptance in the 1960s. Likewise, the number of transistors on a semiconductor chip has doubled every 18 to 24 months, as Intel cofounder Gordon Moore predicted, but the productivity gains from the improvements in information technology have come at only half that speed—a rule one might call demi-Moore’s law.
Markets are inimical to innovation because they crave equilibrium. Equilibrium, as defined by the beautiful mind of Nobel Prize winner John Nash, is a situation where every player in a market believes that he or she is making the best possible choices and that every other player is doing the same. Equilibrium in a market lends stability to the players’ expectations, validates their choices, and reinforces their behaviors. When an innovation enters the market, it upsets the players’ expectations and choices and introduces uncertainty in decision making. Innovations try to change the status quo, which is why markets resist them.
A market’s hostility to innovations becomes stronger when players are interconnected. In a networked market, each participant will switch to a new product only when it believes others will do so, too. The players’ codependent behavior makes it tougher for companies to dislodge the status quo than if each participant were to act autonomously.
Mark Twain was the odd one out
Virtual connections between players can also affect the adoption of products. For instance, E. Remington and Sons introduced the first typewriter in 1874, a time when penmanship was still a highly respected skill. Most writers (with the exception of Mark Twain) initially shunned the typewriter. The growth of railroads, telephones, and telegraph lines led to the dispersal of companies and the depersonalization of communications. The typewritten document became the standard for written communications in business. Use of the typewriter spread. Thus, the railroads, the telephone, and the telegraph implicitly increased the speed with which consumers accepted the typewriter.
Network makes the market work
In recent times, more markets have taken on the characteristics of networks—partly because of improved communications technologies and the spread of the Internet and partly because of business’s increased reliance on the global market for products, capital, and labour. For instance, many companies design and assemble products at several locations, sell them in multiple countries via the Internet, and offer customer service from different sites in different countries. Networked markets allow for the rapid diffusion of news, ideas, and, in theory, innovations. But they also erect formidable barriers to the adoption of innovations—primarily because of the interdependencies between players. A hospital, for example, cannot shift to a faster transaction-processing system if the change will affect how it communicates with other banks.
Several hospitals have to change their systems around the same time for the innovation to gain acceptance. The mushrooming of virtual networks has made decision making more interconnected than ever before. And as markets become more like networks, it will be tougher than ever for innovations to catch on.
How do we drive change and patient improved outcomes in a world that becomes more and more reluctant to change?