HARVARD BUSINESS REVIEW
The more networked a market is, the harder it is for an innovation to take hold. Smart innovators learn to orchestrate marketwide change by starting from the endgame they desire.
by Bhaskar Chakravorti
T'S TOUCH to get consumers to adopt innovations-and it's getting harder all tbe time. As more markets take on tbe 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 tbe sales force bas declined; it is more difficult for innovators to rise above tbe din of information from competing sources; and only bard-to-manage relationship skills seem to make a difference. Executives 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. 59
T h e New Rules f o r B r i n g i n g I n n o v a t i o n s t o M a r k e t
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 sucb 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 tbe first experimental broadcasts in the late 1920s to widespread acceptance in tbe 1960s. Likewise, tbe 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 tbe improvements in information technology bave come at only half that speed-a rule one migbt call demi-Moore's law. Markets are inimical to innovation because they crave equilibrium. Equilibrium, as defined by tbe beautiful mind of Nobel Prize winner John Nash, is a situation wbere every player in a market believes that he or she is making the best possible choices and tbat every otber player is doing tbe same. Equilibrium in a market lends stability to the players' expectations, validates tbeir choices, and reinforces tbeir bebaviors. When an innovation enters tbe market, it upsets the players' expectations and choices and introduces uncertainty in decision making. For example, the U.S. wireless communications industry had found equilibrium by 2002 witb several big players, relatively stable technologies, and steady consumerswitcbing rates. But tbe government's decision in November 2003 to let consumers take tbeir telephone numbers with them when they cbanged carriers seemed likely to disrupt tbe status quo. Innovations try to change the status quo, whicb is wby markets resist them. A market's hostility to innovations becomes stronger wben players are interconnected. In a networked market, each participant will switcb to a new product only when it believes others will do so, too. Tbe players' codependent behavior makes it tougher for companies to dislodge tbe status quo than if each participant were to act autonomously. When America's first transcontinental railroads were built in the i86os, for example, factories and businesses that were close to waterways did not immediately Bhaskar Chakravorti is a partner at Monitor Group, a global strategy firm headquartered in Cambridge, Massachusetts. He ieads Monitor's practice on strategies for growth and managing uncertainty through the application of game theory. He is the author of The Slow Pace of Fast Change: Bringing Innovations to Market in a Connected World (Harvard Business School Press, 2003) and www....
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