This article is part 6 of an 8 part series. Learn more about core versus context in part 5.
Geoffrey Moore is an expert at disruptive technology. Moore's books on business practices are required reading at top business schools. Moore holds a bachelor's degree from StanfordUniversity and a doctorate in literature from the University of Washington. Below, Geoffrey Moore describes the fractal model of innovation and maintaining niche innovation.
Curt-If a company is in a mature market, let's say a technology firm, how do they innovate at that sweet spot where customers are presented with different offerings at the fractal surface of innovation? For example, at my company, we could start offering resource scheduling for DCAA (Defense Contract Audit Agency) and then offer resource scheduling for DCAA specifically for minority businesses, etc. And then we could hone it even further but it could get to the point of being too specific.
Geoffrey-Yes, at some point the markets get too small and companies just can't make it work.
Curt-How does a company protect and sustain that differentiator that they have created at that fractal surface?
Geoffrey-We talk about the fractal model of innovation in Inside the Tornado and in Living on the Fault Line. The example I like to use is Lawson Software in healthcare. In 1992-93, Lawson was a 40 million dollar client server software company. They were trying to go up against SAP, Peoplesoft and Oracle. I helped them change their focus since what they were offering was already very common.
We shifted focus and went after materials management in healthcare. There were many material management packages in 1993. They weren't all client servers, but there were plenty of them. But in healthcare, particularly in delivery integrated networks (which is a big healthcare institution), inventory management was an issue. An inventory in a hospital is actually stored on what's called a par cart, which is on wheels and can be wheeled in and out of operating rooms. That's the standard unit where inventory is stored. There was no materials management system in the world that had par carts as a unit of staging inventory, or even the notion that inventory could be mobile and moved around on this par cart.
So Lawson invested in that idea, and started a thread of its development, creating a sub-release track. It was called Release 7.1 and it was just to get that feature in as fast as they could specifically for healthcare. They called it Lawson Release 7.1 for Healthcare. They demoed the par cart and explained how hospitals could never manage inventory in healthcare if they didn't have it on a par cart and the industry bought it. And Lawson literally swept that segment.
That's the essence of the idea about accentuating the offer. It doesn't have to be a massive resource and development product; it's just got to be very niche specific. The niche should have extraordinary growth opportunities. That's the Mehrdad Baghai idea, the granularity of growth.
Curt-In the 1990's, companies could debut a new feature like that and have at least a year before competitors started copying it. Today, companies have a couple of weeks until that happens. And that's not an exaggeration. When companies put out a new, cool feature, competitors are all over it immediately. Do you think that the cost of neutralization of other people's niche innovations is increasing?
Geoffrey-Yes, you've got to factor that into the equation. If a business finds that they can't keep their niche innovation their own and they constantly have to make updates to maintain an edge, that's a signal that the world wants that industry to consolidate. If a business is not skilled at being the consolidator, then they need to be one of the very first consolidates. To use a metaphor, you want to get picked early in the dance.
If a business finds that their new feature keeps getting copied by other companies and they can't create any barriers to entry with their new features, they should keep the possibility of consolidation in mind. If a business can create a barrier around their niche innovations in a specific industry, then that business can tackle high-cost markets. At that point, a smaller business that's invested in a specific industry can address issues that bigger companies don't want to tackle because it requires too much focus for a bigger company. That's how a small business can gain an advantage.
But if the world really wants to commoditize a business' category, then that's a consolidation and that business either has to move up the stack to something that's not commoditized or they have to capitulate and join the consolidation.
Stay tuned next week for the final two installments of this great interview. You won't want to miss it! Read part 7 here.