Missing Opportunities: Erich Joachimsthaler

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"The more successful companies often don't seem to see the biggest opportunities in plain sight," says Erich Joachimsthaler, founder of strategy and marketing innovation firm Vivaldi Partners. Strange as it may sound, it is true. And Joachimsthaler set out to examine the reasons why that happens and how companies can guard their flanks. The result is a book titled Hidden in Plain Sight (Harvard Business School Press, May 2007).

The research led Joachimsthaler to look at Sony, which was once the world leader in music players. "For all of the 1970s, the 1980s and the 1990s, Sony had all the things needed to follow the MP3 opportunity," says Joachimsthaler. But it still frittered away the opportunity. And then there was Apple, a computer company that had nothing to do with music. Cut to 2001, and Apple revolutionised the MP3 space with the iPod. Today, talk of MP3 players and everyone thinks of Apple. "But do you even know what is the No 2 MP3 music player? No one knows. Do you know what is the No 2 online music download retailer? No one knows," says Joachimsthaler. In MP3 players and music downloads, it is the Apple story all the way.

Why did Sony not notice an opportunity that was right under its nose? And how did Apple strike a goldmine in a terrain it was not even familiar?

The Correct Starting Point

The Apple and Sony story holds a few lessons on how companies can find opportunities, as Joachimsthaler would put it, hidden in plain sight. After the success of the Walkman, Sony, which was organised by silos, started looking at the world from inside-out. "So you look from the success of the Walkman and say where are other people who would like to have a Walkman or another variation of a Walkman?" says Joachimsthaler. So, all their energies were concentrated on one blockbuster and on how to squeeze more out of it.

Apple, on the other hand, had a completely different approach. For one, it did not look at the Walkman and say, "How do we create a music player better than that?" Instead, what Apple did was study how people live around and manage their music. "We needn't create another product and push it down consumers' throats by creating a different or better value proposition," says Joachimsthaler. "We look at how people manage music, manage video libraries, manage communications, and see the fundamental behaviours we have to change so that we can create value for consumers. That was the starting point for Apple."

The trick lies in reconstructing a day in the life of a consumer. This works particularly for new and breakthrough innovation. "We use marketing research to confirm our own pre-conceptions about what consumers want. We look at the world with the product tucked under our arms. The reason why Jobs saw the opportunity in the music business is precisely because he is not in the music business," says Joachimsthaler.

Missing the Big Picture

Let's cut back to the Sony example again. The other reason why Sony stumbled was because the company was strictly organised by silos - so there was a Walkman division, a consumer electronics division, etc. The problem with that is each of these divisions remains confined to their little worlds, rarely stepping out and exploring opportunities beyond their immediate responsibilities.

Or take Gillette, which had three divisions: Duracell for batteries, Oral B for toothbrushes and Braun for high-end devices. "Gillette had all of these three divisions but they failed to see the biggest opportunity in the oral care market," says Joachimsthaler. "It was P&G which entered the oral care category with Crest and increased its profit margins beyond its wildest imagination." And that's where the difference lies: "The exciting thing about this is P&G didn't even have the technology to do the spinbrush. They used Open Source to get the spinbrush technology."

Junking the Notion of Competitive Advantage

"The classic approach that companies use is, 'Let us create a product that is better, faster or cheaper than what a competitor's product offers'. All of that effort of competitive advantage is a suicidal game. It leads to product proliferation and commoditisation over time," says Joachimsthaler. So what you have is a proliferation of me-too products in the market. Competitive advantage, avers Joachimsthaler, needs to be replaced by customer advantage. Don't let the jargon bog you down. Customer advantage is something as simple as being able to identify innovations and products that will fit into customers' lives, make a difference to them and also be relevant.

That's what Apple did. "You can see customer advantage in the iPod where Apple introduced over 2,000 accessories," says Joachimsthaler. "They allowed customers to explore and assimilate the new innovations of the iPod in their everyday life - like the iConnector, or whether you can use your stereo system to connect your iPod to it." The idea is to create a fundamentally different consumer experience.

It's Not Just About Needs, Silly!

Most companies operate from a "need-fulfillment paradigm": find a need and fulfill it. "This is the basic paradigm of innovation and marketing. It creates a big problem because it causes marketers to desperately find a need. So they do surveys and focus groups with consumers and consumers say they will buy a product like that, but in the end that doesn't happen," says Joachimsthaler. Instead, Joachimsthaler puts forward something he likes to call the "ecosystem of demand", a more comprehensive understanding of demand and how it arises. So it is not about demand itself but also how context shapes it. Says Joachimsthaler, "When we create innovation, we try to fulfill a need as understood from the consumer perspective other than really understanding how a need changes across context." Think about it. You may drink a different beer when you are out with your friends in the evening, than when you are alone with your wife at home. "Many times you don't buy something just because there is a need, but just out of a passion or desire," says Joachimsthaler. "I don't think that anyone ever bought an iPod because they needed another music device. It was bought for many more reasons."

Bottomline: it is time to dig deep.

(Erich Joachimsthaler is founder of Vivaldi Partners, a strategy and marketing innovation firm headquartered in New York City. He has held faculty positions at the University of Southern California, Institutes Estudios Superiores de la Empresa (IESE) in Barcelona, Spain and The Darden School, University of Virginia. He is the author of Brand Leadership (with David Aaker) and the most recent Hidden in Plain Sight.)


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