This past year saw Microsoft post it’s first ever quarterly loss. This was to do with a $6 billion write down of an investment, and wasn’t really a trading loss. But nevertheless it rang some alarm bells. In the digital world, huge companies can come crashing down quite quickly. Enron is exhibit 1 – a non digital company that spectacularly crashed and burned when it tried to play in the digital space. But other exhibits include Kodak, struggling Nokia and RIM and many others.

Microsoft won’t collapse anytime soon. But neither can afford to just continue to try and improve on its past successes. Three years ago, I spoke at the annual conference of the whizz-kid technical department of Microsoft – the team who support the enterprise systems that Microsoft have rolled out. Keeping the world’s critical computers functioning perfectly is a key job. And yet, I was hugely surprised that one of the topics of conversation that day was “What on earth is the cloud?”. Sure, cloud computing was fairly new. But the question and the way it was being asked and answered in the room that day seemed to indicate that this team was battling even with conceptualising it. I am sure there is a lot of technical, back room stuff that I don’t know I don’t even know about, but that day left a question mark in my mind that might have been answered in 2012.

Maybe it is time for Microsoft to not just aim at improving their current service offerings (because they must continue to do that – it’s their core business); but they also need to be actively seeking out the radical reinventions that could trigger a new growth surge for them. Right now, they’re pretty much playing catch up in every department. For example, where Google and Apple have understood that handheld devices required control of both hardware and software, Microsoft are constrained by partnerships in this space (just do it, already, MS and buy Nokia. And RIM while you’re about it!). This is the moment most famously identified by Clayton Christensen in “The Innovator’s Dilemma” – it’s the peak of the business value of your current company, and the time when companies plough resources into perpetuating the markets, products and services that have made them successful. But actually, they should be using their vast resources to identify the new markets, new products and new services that could kick start a new growth curve.

With these thoughts in mind, then, it was with great interest that I spotted an article on Business Insider. Prone to overstatement and hyperbolic headlines, BI is nevertheless a great source of news and insight. And they also take the time to follow through on stories.

This time last year, they laid out a “scenario” for Microsoft in 2012 that would be a nightmare for Steve Ballmer. They concluded that with Windows 8 and a tablet being launched in 2012, that this was unlikely to happen. They were wrong. And good on them for going back to their one year old story and relooking at it. Almost everything they predicted as a worst case scenario has happened to Microsoft in 2012. It’s insightful stuff – read their analysis of their analysis here.

So, how would a company like Microsoft go about reinventing itself?

Well, Clayton Christensen hasn’t been shy in building on the success of his first book in 1997. He’s also written, “The Innovator’s Solution” (2003), “The Innovator’s Prescription” (2009) and “The Innovator’s DNA” (2011). A quick overview of some key points in these books might trigger some thoughts for you and your team in 2013, because Microsoft is not the only company that is facing this problem:

  • Only selling to your profitable customers will keep you stuck in your current reality. If that reality is working, then do lots of this. But if you need a new market, the best starting point is often your unprofitable customers – especially those who love you. What can you do for them that would start making a profit? In other words, what do they really need and what are they prepared to pay for? What must you do to get them to pay you to do it?
  • Move in the opposite direction to your market. Most markets eventually begin to compete on price. The best place – always – to compete is on quality. But do you know what your customers consider ‘quality’ to be? Is it speed? Or durability? Or reliability? Or response time? Or brand? Or aesthetics? What is it that you can compete on that would connect with most of your customers (not just your most profitable ones)?
  • What is your budget for failure? How many experiments can you afford to take in 2013? This should be quantified and known in the business.
  • What are your time lines for return on investment in innovation? Most established companies are looking for short term, large returns. The only place to find this is in progressive innovation of existing products in existing markets. Disruptive innovation first starts small with unprofitable clients. Do you have a longer term view? Is this considered a luxury in your company?
  • To see the world through your customer’s eyes, don’t ask: “what product did they buy from us?”, rather ask, “what did they do with the product they bought from us?”
  • Specific advice for finding places where you can attempt innovation: (1) look for markets where there is no competition (sell the stuff the big players would rather not have to sell); (2) offer simple solutions and look for nonconsumption: find customers who will be delighted to have something because their alternative is to have nothing at all; (3) Be a bottom feeder – often less features at a lower price – it’s easier to innovate up a value chain than down; (4) don’t try to get customers to change their ways; (5) segment markets by how products are used; (6) beware of industry standards, don’t partner and don’t outsource; (7) beware of core competencies; (8) aim to start making a profit as soon as possible; but (9) be patient about growth.
  • Successful innovators use the five “discovery skills that compose the innovator’s DNA”: (1) practice “associative thinking” by making connections among various ideas from disparate areas; (2) ask questions (be willing to look foolish; (3) observe what people do, how they do it and why; (4) network with people from a range of backgrounds; and (5) “experiment” – take something apart, build models and try simulations. Innovative organizations hire, reward, retain and encourage innovative people who demonstrate these skills.

My team and I work with companies across all industries and sectors, helping them to understand the forces that are shaping the world right now, and how they can proactively build tomorrow’s success today. Contact us for more information.

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