Why Great Innovations Fail Its All In The Ecosystem

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Which is why this innovation succeeded, too.

There is a major, widely overlooked reason why many innovations that should succeed fail miserably.

Here’s an example, a big innovation failure that nobody foresaw. In the 1990s Michelin developed a revolutionary new kind of tire with sensors and an internal hard wheel that could run almost perfectly for 125 miles after a puncture. A light on the dashboard would notify the driver of the puncture, and the driver could then attend to the problem at his leisure. This would make customers’ lives much easier and much safer, and make lots of money for the company. The company built a powerful alliance with Goodyear to reach almost 40% of the world’s tire market with the product. It signed up Mercedes to put the tire on new cars, and other manufacturers followed, including Audi and Honda. Yet by 2007 the product was such a failure that Michelin had to abandon it.

Why? The company hadn’t confronted the entire ecosystem the tire would rely on. It had overlooked the garages that repair punctured tires and hadn’t gotten them on board. Those garages needed expensive new equipment they had neither money nor space for, and they had to have that equipment long before it would get heavy use. They saw no reason to acquire it. And Michelin didn’t see that one coming.

This story is told at the beginning of The Wide Lens: A New Strategy for Innovation, an important new book by Ron Adner, a professor of strategy at the Tuck Business School at Dartmouth. He writes:

> Greatness on your part is not enough. You are no longer an autonomous innovator. You are now an actor within a broader innovation ecosystem. Success in a connected world requires that you manage your dependence. But before you can manage your dependence, you need to see it and understand it. Even the greatest companies can be blindsided by this shift.

That may all sound self-evident, but Adner shows how difficult it is to see the whole ecosystem, and he tells many illuminating stories of failure to do so. He also offers advice for making sure it happens. “It is no longer enough to manage your innovation. Now you must manage your innovation ecosystem,” he writes.

In the late 1990s Hollywood decided to bring digital cinema to America’s movie theaters and rolled it out in 1999 with the blockbuster release of Star Wars Episode I—The Phantom Menace. Seven years later, a mere 5% of the nation’s screens were using digital projection. Why? The studios hadn’t confronted the conversion costs for theaters, upward of $70,000 per screen for all the necessary hardware and software. Finally Hollywood recognized its failing, found a way to subsidize the theaters’ adoption of the technology, and it took off.

Sony failed to grapple with the whole ecosystem when it brought out its Reader for e-books in 2006. It didn’t deal with the economic and legal challenges e-books would pose for authors and publishers; it didn’t offer a compelling enough digital rights management solution; and it didn’t know how to build a good online store. Publishers didn’t sign on, and neither did readers. The next year Amazon came along with Kindle and got it all right. As Adner writes, “As a device, the Kindle was regarded as inferior to Sony’s Reader. . . . It was larger than the Reader, weighed more, and had an inferior screen. Moreover, it was a very closed platform that was able to load content only from Amazon. . . . How could Amazon engineer a triumph with a weaker product?”

> The key difference was the way in which Amazon aligned the ecosystem to bring its value proposition to life. . . . Amazon did not simply bully publishers into supporting the Kindle. Amazon created conditions in the ecosystem that made joining the long-awaited e-book revolution a more attractive proposition for publishers than any previous attempt.

Among other things, the company devised a very strong digital rights management system (you might not like that you can’t copy or pass along books, but publishers love it), and at first it sold books for less than it paid publishers, sacrificing profits to build up its e-book store and sell $399 Kindle devices. “It took on far more responsibility for organizing the system than did Sony. While Sony assumed its red lights would somehow work themselves out, Amazon turned red to green by taking the lead and blazing a trail for the entire industry.”

Mastery of the ecosystem is the great strength that made Apple the supreme success story of our time, Adner convincingly argues. The iPod took off after earlier MP3 players hadn’t not only because of its simplicity and ease of use but also because Jobs waited until broadband technologies were ready to support the music data transfers it would rely on. That created a beginning ecosystem that Jobs enlarged by introducing the iTunes Music Store. Then he enlarged the ecosystem further by opening up the Mac-only device to PC users.

The key to the subsequent success of the iPhone was not just its beauty or its integration with iPod and iTunes; Jobs “carried over this entire constellation of iPod elements and one thing more: every iPod user’s entire library of music, playlists, album covers. . . it was not just the iPod elements that carried over, it was your entire iPod history. Steve Jobs could smile because he knew what this ecosystem carryover meant.”

In a world where mobile phone makers sold their devices to operators to sell to consumers, Jobs had such a powerful ecosystem that he could get operators to compete to partner with him: “And here was Apple, offering not just exclusive access to the most talked-about phone in history, but also exclusive access to Apple consumers—the most desirable customer segment imaginable (during the course of a two-year contract, the average iPhone user paid AT&T $2,000—$83 per month—double the amount paid by the average mobile phone user).” And then, “with the launch of the iPad in April 2010, Apple once again leveraged its success in one domain—phones—to drive success in another—tablets.”

How do you take the measure of the ecosystem that your innovation will need to be part of and rely on? How do you not miss the blind spots that can lurk almost anywhere? Adner concludes with what he calls “The Wide-Lens Toolbox,” with three main steps to take. Throughout the book he offers details on what to watch out for and what to think about as you try to blaze a new trail for a new product. Here’s one valuable nugget that could possibly have been a whole book in itself: There are terrible pitfalls in the usual progression from prototype to pilot to rollout. It relies perilously on getting everything right from the very start. Often a far wiser and safer approach can be what Adner calls a “minimum viable footprint (MVF) rollout followed by a staged expansion.” In other words, start with a complete ecosystem, but a limited one.

Case in point: that iPod, which started with the elegant simple design, superior software, and broadband capability, and only later moved on to the iTunes store, and then to the PC—by which point the ecosystem was rich enough to provide the environment for the launch of the iPhone, and then of the iPad. Apple has been about ecosystem more than anything else, Adner convinces you.