• The poor patients of Aravind Eye Hospital never expected to regain their sight, as under normal circumstances an operation would be out of their geographical, economic, and psychological reach.
  
• Because other discounters lower customers' expectations by providing such poor service, Wal-Mart is perceived as providing great value despite its rather limited service. In Houston, an umbrella-wielding service rep walks customers to their cars when it is raining at both Wal-Mart's discount store and Sam's Club. This level of service is by a warehouse club that operates on slim 10 per cent gross margins! No wonder, a typical Wal-Mart customer visits Wal-Mart 32 times a year compared to a loyal Kmart customer who shops only 15 times per year at Kmart.
  
  
• FedEx constantly led its customers to ever higher expectations for quick delivery times, leaving competitors struggling to meet the
  spiraling demands.
  
  
• Twelve times between 1987 and 1993, low-priced Southwest won the unofficial 'triple crown' of the airline industry - fewest customer complaints, fewest delays, and fewest mishandled bags - a feat no other carrier had ever achieved. CEO Herb Kelleher observed that 'it's easy to offer great service at a high cost. It's easy to offer lousy service at low cost. What's tough is offering great service at low cost, and that is what our goal is.'
  

Obstacles to market driving in established firms
Most innovations in any industry are launched by the large, established incumbent firms within that industry, but these are predominantly incremental innovations rather than radical innovations. Since the success of market driving firms is based on radical innovation and turning existing industry rules on their head, market driving companies are usually new entrants to the industry. Often, the market driving ideas were available to, but rejected by, incumbents:

• Sam Walton, originally a Ben Franklin franchisee, had his idea for starting big stores in small towns turned down by the Ben Franklin franchise.
  
  
• Many major shoe manufacturers rejected the running shoe concept, which later was implemented by Nike.
  
• SAP was formed by ex-IBM employees after IBM Germany refused their request to develop enterprise software for ICI.
  

Why do successful incumbents find it so difficult to achieve the combination of radical innovation in both value proposition and business system? Primarily because four features of market driving ideas make their management problematic for firms with well-established new business development processes in place.

First, market driving ideas are maverick in nature. There is a degree of serendipity in the process. It is often not possible to predict where in the organisation such an idea will arise or who will generate such an idea.However, since most companies are organised for efficiency, surprises are seen as negative events. Furthermore, individuals often feel pressure to high market driving ideas as they rebel against the prevailing industry and incumbent wisdom. The vast industry experience of established firms therefore becomes a barrier to being market driving. It is difficult to unlearn received wisdom that has become irrelevant as the fundamentals of the industry shift (Hamel and Prahalad, 1994).

An obsession with history — or even the present — can prevent a firm from grasping and shaping the future. Current market leaders often tend to discard maverick ideas from inside or from outside the company that don't fit the prevailing industry wisdom. Borders, for example, has been slow to respond to the threat of 'E-tailing' booksellers like Amazon.com:

• Linotype-Hell, a German company, invented Linotype printing presses in 1886. The 'hot-type' Linotype system was widely used for printing books, magazines, and newspapers until the 1970s. Although the company had dominated every advance in publishing technology until that time, they were blind-sided by the digital age of software - and scanner-based printing. Linotype managers clung to the 'hot-type' mind-set that came of age when typesetting involved loud clattering mechanical machines rather than lasers. The company's stock had declined to a low of 56 DM in July 1996 from a record high of 970 DM in May 1990 and was ultimately acquired in 1997 by Heidelberger Druckmaschinen, AG.
  

Second, market driving ideas involve high risk. For every successful radical innovation in value proposition and business system, there are probably hundreds of failures that one never hears about. An entrepreneur chasing a market driving dream has bounded downside financial risk as he or she generally invests enormous effort but only limited capital. However, if the idea is successful, there is unlimited upside potential since a vast personal fortune can be made. In contrast, in most organisations, the originator of a successful market driving idea may, at best, receive a nice bonus or promotion (limited upside potential), but a public failure may be the end of one's career within the organisation or even beyond (substantial downside potential). When one combines the high failure rate of radical innovation with the risk/reward ratio in most large organisations, pursuing market driving ideas is not a rational strategy for individuals in such organisations.

Third, the new business development process in most firms tends to be biased against, and therefore squelches, the more innovative breakthrough ideas that could potentially create new markets. In most market-leading firms, the new product development and new business development processes favor projects that are triable, reversible, divisible, tangible, familiar, serve current customers, fit with the organisation's direction, and are consistent with sunk costs invested in R&D, corporate image management, sales training, and channels - all of which are rarely characteristic of radically innovative market offerings.

Established firms select new business development opportunities on the basis of technological feasibility and potential market size. However, in the early
stages of radical new business development, it is difficult to know which technology will succeed, with what capabilities, for which markets. The technological and operational problems seem insurmountable, often with no obvious market in sight. Expected applications dissolve and unforeseen opportunities emerge while the firm is still experimenting.

• Two initial applications for Nutrasweet — artificially sweetening breakfast cereals and replacing saccharin — fizzled while an unanticipated market sizzled. Nutrasweetened breakfast cereal ran into technical and regulatory obstacles and saccharin users rejected Nutrasweet because it did not have the aftertaste of saccharin! Instead Nutrasweet found a market with dissatisfied sugar users (Lynn et al., 1996).
  
  

Finally, established firms often perceived that they have too much invested in the status quo to risk destroying the existing industry and market. The greater the threat of cannibalisation, the more intense is the resistance to market driving ideas:

• IBM remained focused too long on mainframes at the expense of personal computers because PCs required a different distribution system, had lower margins, and was not as after-sales service intensive as the mainframe business.
  
• General Motors and Ford were slow in responding to the popularity of minivans because it put their conventional station wagons at risk.
  
  
• For fear of cannibalising their permanent soft lens and solution businesses, Bausch and Lomb ignored disposable soft lenses, which are more comfortable and provide better vision for the consumer.
  
  

From market driven to market driving
Although new entrepreneurial firms can single-mindedly pursue a make or break market driving perspective, most established firms have too many obligations and too much to lose to justify the obvious risks of chasing only radical market driving 'big hits'. In such firms, the search for radical business innovation should not be pursued to the detriment of improving the existing business. Incumbent firms should devote the overwhelming majority of their innovation efforts to market driven activities, such as incremental innovation and traditional market research. Nevertheless, some room must be found for radical business innovation or the market leader risks being leap-frogged and deposed by upstart market drivers. Projects need to be chosen in the context of other projects in the company's portfolio so that there is an adequate balance between incremental and radical innovation. Thus, as Tushman and O'Reilly observe, firms need to be ambidextrous, capable of simultaneously managing incremental as well as radical innovation.

Unfortunately, established firms find it difficult to generate and launch radical market driving innovations. An established firm that wishes to engage in market driving must meet two challenges — it must have the vision and environment to generate breakthrough ideas and it must have the capital, fortitude, and risk tolerance to persevere and allow the radical idea to have a fair chance to succeed. The first is the upstream creative challenge of developing the ability to
'see differently.' Since radical concepts often spring from the imagination of a single individual, the first must create an environment where creativity in individuals may flourish. The second is the downstream implementation challenge of successfully marketing the unique concept, which requires a team effort. Without the ability to see differently, the firm is unable to change the rules of the game and must battle to brand-switch buyers of competitors' products in existing markets. And, without the ability to implement a market driving concept, the firm will join the ranks of companies that failed to capitalise on their inventions such as Xerox with personal computers and EMI with scanner technology.

Allow space for serendipity
Serendipity has played a role in the development of many radical new ideas. To allow for serendipity, 3M researchers are encouraged to spend up to 15 per cent of their time on a research project of their choice. This ensures that problem driven research does not preclude all curiosity driven research. 3M's famous Post-It notes were invented when an associate was attempting to develop a better bookmark for his hymn book. Similarly, one of Searle's research scientists discovered the artificial sweetener Nutrasweet while looking for a possible treatment for ulcers. As Schumpeter observed, "History is a record of 'effects', the vast majority of which nobody intended to create." Unfortunately, re-engineering efforts in most firms have eliminated much of the slack within which serendipity thrives.

Select and match employees for creativity
To generate new ideas, Nissan Design International deliberately promotes 'creative abrasion' by hiring people in contrasting pairs (e.g. balancing nerds
with hippies). Employees are encouraged to display color charts of their 'personalysis' to help managers do the mixing. For implementation of creative ideas, Henry Ford looked towards inexperienced employees, "It is not easy to get away from tradition. That is why all our new operations are always directed by men who have no previous knowledge of the subject and therefore have not had the chance to get on really familiar terms with the impossible." (Ford, 1988). In many market leaders, however, rounds of testing and interviews do more to reinforce conformity than to assemble a collection of individuals with diverse capabilities and perspectives.

Empower latent entrepreneurs and offer multiple chennels for new idea approval
Even firms with a history of prior market driving activity find it difficult to keep the fires of iconoclastic creativity stoked. Today's successful market driver must beware ossifying into the cautious, market driven behemoth of tomorrow. In any large firm can be found many frustrated potential entrepreneurs who have ideas as yet unveiled. In most organisations, approval of a new business idea requires several 'yes' votes as it moves up the hierarchy while a single 'no' can kill it; the nature of radical market driving innovation is such that it is almost certain to gather a 'no' somewhere in the process. To help promising new ideas surface, an idea generator at 3M has numerous channels that can be used for securing approval and support for a project if one's immediate superior rejects it. Providing alternative routes for approval changes this dynamic to one where a project garnering a single 'yes' vote in the face of several 'no' votes still proceeds.

Japanese firms like NEC have launched competitions to find maverick ideas, harness individual initiatives, and develop entrepreneurs among its employees. Similarly, Toyota's Dream 1995 campaign encouraged 'entrepreneurs with
new business ideas to serve as presidents of new businesses' to submit proposals to their Business Development Department. Toyota realised that the traditional strength of guaranteed lifetime employment reciprocated by deep commitment on the part of employees had unintentionally created a passive culture 'which reacts to events rather than drives change' (emphasis in original). The poster of the program screamed, 'The president's chair is waiting for you.'

Establish competitive teams and 'skunk works'
In the early stages of the development of a radical new concept, it is not readily apparent which technology or format will succeed and which market will materialise. Therefore, Motorola encourages its wireless divisions to compete against each other on the assumption that the marketplace will select the winner. IBM had about half a dozen parallel development teams for the PC. Often when selecting a particular new technology as its main focus, Sharp maintains small R&D projects on the alternative technologies.

In an established firm, a radical new concept will typically either fall outside the current business definition or target markets of the firm (e.g. Nutrasweet for Searle) or pose a serious threat to destroy much of the firm's existing business (e.g. IBM's personal computer launch). In addition, market driving projects, by definition, require a unique business system, which means limited synergy with the firm's existing business system. When market driving ideas are pursued within the existing business structure, other priorities often hinder their successful, speedy fruition.

To help overcome organisational resistance and inertia, firms can set up 'skunk works', physically and organisationally independent, self-contained entities with dedicated members. Skunk works bring a sense of urgency to the project, harness the entrepreneurial zeal of members, and concentrate the effort of those involved; importantly, they also protect the fledgling business from entrenched interests who have motives to kill the project. 3M, IBM, Apple, Raychem, DuPont, Ericsson, General Electric, Xerox, and AT&T, all use skunk works to capture the soul of a small, entrepreneurial outfit within the body of their large firms. Although some companies have recently become disillusioned with skunk works, we believe in many cases this results from using skunk works inappropriately, specifically, for incremental innovation and related businesses. Skunk works are most effective when used to develop and unleash market driving ideas.

Cannibalise your own
The natural tendency of established market leaders to protect their core business makes it difficult for them to voluntarily pursue avenues that threaten to undermine that core. For example, Kodak's desire to ensure that its new digital business does not encroach on its traditional film business has slowed their progress in digital imaging. Pablo Picasso once observed, "Every act of creation is first of all an act of destruction." Market driving explicitly encourages cannibalisation, based in the belief that some firm will cannibalise that core business, so we had better do it ourselves. When Sony introduces a major new product, three teams are created — the first team tinkers with minor improvements, the second seeks major improvements, while the third explores ways to make that new product obsolete.

At Hewlett-Packard, which fosters competition among its divisions, products less than two years old account for 60 per cent of orders. Market driving retailers such as Starbucks and Sam's Clubs of the United States, Sweden's Hennes and Mauritz, and Italy's Benetton strategically cannibalise their own stores to some extent by building new outlets close to existing, successful locations, thereby leaving few vacant spaces for competitors to exploit. They believe in keeping the cannibals in the family.

Conclusion
Over time, even successful market driving firms change, as they should, into market driven firms. The history of innovation is a pattern in which bursts of breakthrough innovation, which reshape an industry are interspersed by flows of less dramatic incremental improvements and refinements. Once the radical innovation phase is over, incremental innovation to improve the existing offering and business system becomes the primary, immediate challenge. Furthermore, competitors ultimately emerge with competitive, or even superior, value propositions and business systems modeled after the 'new' market leader. It is at this stage that market driving firms, like Tetra Pak today, must search for their next market driving innovation. However, as the successful market driver transforms into an established market leader, it faces all the same obstacles to motivating market driving strategies that the former market leaders faced. With age and size, firms tend to become increasingly bureaucratised, routinised, and risk averse. To date, very few firms have been able to consistently launch a series of successful market driving ideas. Sony has been one such exception. We therefore end with an example from Sony and their development of computer diskettes, which demonstrates how they utilise almost every practice recommended above to create a market driving culture.

The market driving culture at Sony
Sony has been a powerhouse in developing and launching innovative products which have created new markets and businesses, such as the transistor, radio, Walkman, 3.5 inch diskette, and audio compact attest. 'New products create new markets' is a guiding credo at Sony. Sony claims that their strongest assets are employees who combine dreams of creating new products or markets, with the passion and enthusiasm to execute them.

Sony practices several principles that large, established companies should adopt to become more market driving. Sony leaves room for experimentation, tolerates mistakes, cannibalises its own, encourages competitive teams, and offers multiple channels for approval of new ideas. They also nurture and reward individual creativity as illustrated by the following story.

In 1980, three teams in two departments were working in parallel to develop a
10 x improvement to the conventional 5.25 inch 'floppy' diskette. Initially, each team was essentially a single individual with a distinct vision of the product concept. The first individual envisioned it as a more compact floppy, the second individual visualised it as a 3.5 inch plastic encased disk, and the third individual, who was in a different department, was working on a 2 inch diskette
with high rotation speed. At this stage, it was unclear whether any of these would deliver a product that could be marketed successfully.

After three months, the first team had encountered several technical problems while the second team, led by 28-year-old Mr. Kamoto, had developed a promising prototype (an early version of the 3.5 inch plastic-encased diskette that is the world standard today). Since they belonged to the same department, the first team was disbanded with the former members redirected to other projects, including a few who were assigned to the second team. The former leader of the first team was asked by the head of the department to author and present a paper on the 3.5 inch diskette at an upcoming Japanese technical conference. It was explained to Mr. Kamoto that while all the internal recognition at Sony for the invention of the 3.5 inch diskette would go to Mr. Kamoto, it was important to keep the former leader of the first team motivated.

The 3.5 inch diskette, unveiled at the Chicago industry show in 1981, piqued Apple's interest. In 1983, Steve Jobs, the founder of Apple Computer, adopted the new diskette for the Macintosh, demanding assurances that the product would be substantially improved within one year. The enhanced system would be double-sided rather than single-sided, incorporate an automatic inject and eject system, and still reduce by 50 per cent power consumption, height of the disk drive, and price. Despite these improvements, the product was still ignored by most of the larger IBM compatible world, adopted by only two major customers, Apple and Hewlett-Packard. In 1987, Mr. Kamoto was transferred to sales and marketing despite having no experience in these functions. It was thought that only he, having invented the 3.5 inch diskette, had the passion to make it a worldwide standard. Today, it has replaced the 5.25 inch floppy diskette as the standard format for storing data by personal computer users.

In 1991, Sony put Mr. Kamoto in charge of improving its languishing personal computer internal hard drive business, hoping that he would do for hard drives what he had done for the 3.5 inch diskette. Unfortunately, despite his best efforts the venture was an expensive failure and Mr. Kamoto was asked to close down the operations. Given this highly visible failure, Mr. Kamoto thought his career at Sony was effectively over. Sony, however, recognised that he was motivated by his enthusiasm to contribute to the company and accepted the failure as a learning experience. Following the hard drive fiasco, Sony gave Mr. Kamoto the responsibility for managing another data storage device, the magnetic tape drive. Under his charge, Sony's worldwide market share for magnetic tape drives increased from 3 to 25 per cent over three years.

While Mr. Kamoto and the 3.5 inch diskette were moving from strength to strength, the leader of the third team, Mr. Kutaragi, was struggling. His design for the 2 inch diskette was completed in 1982, the year after the 3.5 inch diskette. Mr. Kutaragi's diskette delivered excellent performance, but its architecture required significant changes in the associated hardware. As a result, no company other than Sony adopted it. Unfortunately, Sony's laptop, 'Produce' launched in 1983-84, did not succeed and Mr. Kutaragi had to search for other applications for the 2 inch diskette.

The diskette found its next home in Sony's new still camera called 'Mavica' which, despite high expectations, failed. Mr. Kutaragi, doggedly persisting in the face of continuing failure, then approached Nintendo in the hope of persuading them to use the 2 inch diskette with their video game software. When Nintendo signed a contract with Sony for the 2 inch diskette, Mr. Kutaragi thought he had finally found the killer application for his invention. Three years later, Nintendo canceled the contract without ever using the product.

A disappointed Mr. Kutaragi approached Sony's leadership with a proposal to develop their own line of video games using CD-ROMs. Mr. Kutaragi convinced Sony that his three years of discussion with Nintendo had given him a deep understanding of the video game business and insights into Nintendo's strengths and weaknesses. With assistance from Sony's business strategy group, PlayStation video games were developed and launched in 1994 as a competitor to Nintendo. Since its launch, more than 50 million PlayStations have been sold and Sony presently controls 60 per cent of the 15 billion dollar video-game market.

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