Gothelf Jeff - Sense & respond: how successful organizations listen to customers and create new products continuously

I n 1975, a researcher named Steven Sasson, working in a lab at Eastman Kodak, built the first digital camera. It was a clunky machine, but Sassons vision was clear. He saw the potential: in fifteen to twenty years, he told executives, the technology would be ready to compete against film. You could hardly blame executives for their skepticism,

Its easy to see this story as a failure to innovate, and, of course, thats true in part. The lessons of The Innovators Dilemma are obvious in this story: business leaders often miss the threat posed by disruptive technology until its too late.

It would be a mistake, though, to think this story is only about innovation. Its about much more than that. We all now recognize that digital technology in its many forms is disrupting traditional businesses. Now we have to ask, What are we, as leaders, going to do about that problem? In other words, we sense the threat. Now we face a new question: How should we respond?

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Borders, the bookstore chain, certainly sensed the threat. By 2006, Amazon.com had overtaken giant stores. If in-store selection was formerly its competitive advantage, that was no longer working. Borders would have to find something else. Perhaps it could compensate by building a robust online business? Yet its response to the threat of internet retailing seems, in retrospect, an obviously doomed strategy. From 2001 to 2008, Borders outsourced its internet business to Amazon.

Increasing the pressure, Amazon released its first Kindle e-reader in November 2007. The device, which was a hit from the day it was launched, opened a new front in the war on physical bookstores. Now it wasnt simply a battle between physical retail and e-commerce. Now consumers could download ebooks directly to their handheld devices. Two years later, Apple launched the iPad along with its own digital bookstore. In 2010, Barnes & Noble followed with NOOK, a product it had developed. Later that year, Borders announced a partnership with Kobo, a Canadian startup that had recently entered the e-reader space. But it was too little, too late. In 2011, Borders announced it was closing up shop for good.

Borders, it seems, didnt deny it had to respond to the digital threat. Unlike Kodak, it did respond. But Borders was never able to embrace and integrate digital capabilities and the operating methods that go with them. In other words, it just picked the wrong response.

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Only the most stubborn leader would dismiss the threat posed by digital technology. Indeed, we take it as a truism that digital technology is here to stay. It has (for better and for worse) reshaped our world, and the world in which we do business. It has put mighty incumbents out of business and has created a generation of newly mighty companies.

But the economy has changed, too. Its not just the presence of technology. Instead, what has changed is the new things that people are doing as a result of technology. People now have remarkable new capabilities to communicate with one anotherboth directly and indirectlyand with the organizations that serve their interests. People can share personal messages with friends, groups, and strangers around the world. People can share their opinions of a merchants products by posting online reviews. And the organizations serving these peoples needs also can take advantage of these rich communication channels. They can see almost immediately how their products are performing online. Whats selling? What are people saying about them? What features are working? Whats not working?

In a more purely digital realm, Google has become the dominant search engine in part because it has leveraged the power of running continuous small experiments to optimize its service. Some experts estimate that Google may run more than thirty thousand experiments a year to improve its search product. If youve used Google (and who hasnt?),

You can think of both the Zara story and the Google story as being about the same thing: companies engaging in what we call a two-way conversation with the market . Companies that formerly moved at an annual pace can try new things, learn from their customer interactions, and adjust their plans quickly. In response, customers see new offerings from companies, vote with their wallets, and express their feelings with their reviews, their tweets, their Facebook posts, and their YouTube videos. All this happens incredibly quickly. And the speed and richness of this conversation are putting fundamental pressure on businesses, governments, and other institutions: they must change the way they respond to the market, or go the way of Kodak, Borders, and a long list of others.