Innovating in the Interstices
A market here, a market there.... could there be a market in between?!
Looking at several new products that have emerged in recent years, a new innovation theme can be discerned. It is what I call innovating in the interstices. Let me explain this theme by means of a highly topical innovation that all of us have heard about recently: the unveiling of the Nano ultra-low-priced car from the house of Tata.What was the logic that drove the conception of this incredibly innovative product? In essence the logic was the following:
-the personal transportation needs of budget-conscious customers today are being met by 2-wheelers (scooters, motorcycles) and small cars.
- there is a large gap in between the 2-wheeler and the small-car markets, and in that gap a market may exist
-if we can create the right product, we may be able to serve that "in-between" market.
The above logic illustrates the general principle behind what I am calling innovating in the interstices. The principle is: pitch a new product in the interstice (gap) between two adjacent but distinct markets, on the premise that in that gap lies a market waiting to be served.
What distinguishes such "interstitial innovation" is the process of discovering a potential market segment that is unserved - looking at two adjacent markets and asking the question, could there be an untapped market in between?
A few illustrations and observations should help clarify what this innovation theme is about:
1. A company that "innovates in the interstices" is sometimes a company that is already serving one or both of these adjacent markets, but it does not have to be. Southwest Airlines* used precisely the above principle to discover a travel market "in between" driving and flying to one's destination. Southwest was not an existing airline but a completely new airline designed from the ground up to fit into this new market. Of course, most incumbent airlines entered this market segment as followers (much later, and in some cases too late).
3. The new product created to serve such an 'interstitial' market is usually not a simple hybrid of products currently serving the adjacent, existing markets. In general it will have some features of at least one of those products, but also a few features that are unique. McDonald's introduced its innovative chicken snack wrap in 2006, designing it to meet the needs of consumers who wanted something heavier than a snack, but lighter than a meal. Although it included several ingredients found in a variety of snacks, it was a unique new product. Consumers have kept lovin' it, and the snack wrap has become one of the most successful product launches in the company's history.
4. Other examples of such interstitial innovation in action include- the Sports Utility Vehicle (SUV), which was conceived to fit into the market between conventional passenger cars and rugged, off-road vehicles such as Jeeps.
- The Tatas have also used this principle before, in developing the hugely successful Ace, a sub-one tonne mini-truck. This innovative product was designed to fill the large gap that then existed between the smallest mini-truck (of about 2.5 tonne capacity), and three-wheeled vehicles that were of very low capacity. This gap turned out to constitute a huge market - the Ace sold over a 100,000 units well within two years of its launch.
The reason why interstices of the kind mentioned above offer a fertile ground for new product introduction is not far to seek - potential customers who lie in between two well-defined market segments are forced to choose between products serving those two markets. Thus, they are likely to be unhappy consumers, having to "stretch" their needs to fit into either of the existing products. Many may simply be unwilling to make the required stretch, and thus end up as non-consumers. In either case, this leads to pent-up demand being "bunched" in the interstices.It is thus that, in the never-ending quest for innovation, these interstices afford a high payoff for discovering new, untapped markets.
_______________________________________________________________________________________ * it may interest the reader to know that Southwest Airlines was not the first low cost airline. Southwest Airlines, launched in 1971, used the first sophisticated low-cost airline model, but the raw low-cost airline concept had been pioneered by Pacific Southwest Airlines (unrelated to Southwest airlines) as far back as 1949.
Comments
Interesting theory. How about the IT software business, the packaged app or the custom coded solution. Neither wholly satisfactory so is there an interstices opportunity?
Well maybe the build of the app direct from the model using declarative techniques not coding. Build in business language recognising People are the source of all information system only manipulate and represent. At the people level, there are less that 13 work task types, human and system, which address any business issue. Back to basics in understanding how business works and a new way emerges that challenges the complexity of current build and opens up new capability as the ultimately flexible “packaged app” but function independent. Now Microsoft thinking about it with their code D declarative language but as ever following the pioneers! Nevertheless fits the profile?
Posted by: David Chassels | February 21, 2008 02:57 PM
David, that's a great observation you've made. MIT-Sloan Professor Michael Cusumano has amply shown from his research that in the software space, the most apt strategy is neither to adopt a "pure products" model nor a "pure services" one. Companies need to innovate away from both extremes, towards the middle! Cusumano calls this middle space a "hybrid solutions" model.
Indeed, the leading service companies are already moving towards such a hybrid solutions model ( although they may call it by different names!). From the other end too, many leaders in the product space have for years been beefing up their services revenues - notably IBM, Cisco and Sun. All of this can certainly be seen as "interstitial innovation" in action!
I can see why you post that declarative programming languages (such as Microsoft's Code D) can be seen in the interstitial vein - they presumably target users who are "in-between" pure business users, who may not be conversant with conventional procedural programming, and regular developers, who may be expected to be conversant with programming.
Posted by: V P Kochikar | February 22, 2008 11:14 AM
If we connect the existing designs with pattern physics, one can derive an intermediate design.
Take for instance, the mobile phone. On this 2008 Women's Day - say women want on a press of a button on the cell phone would they get lipstick out and on pressing a button whether the LCD turn into a mirror-like surface. This may look like mechanical electronics. Don't we see a need here?
Posted by: Jayakumar Sundaram | March 8, 2008 06:07 PM
Actually, as I see it, this is already happening in the Software space with SaaS application providing a way apart from the custom built and packaged on premise apps. There might still be room for more innovation, but the "gap" has certainly become smaller. Think we'll see more innovation from this space in the next couple of years, than we have seen from in packaged applications for a long long time. SAPs BBD is a case in point.
In this case though, starting from scratch probably works better than a watered down existing product. Would be interesting to know your thoughts on this, Mr Kochikar.
Posted by: Anurag | March 11, 2008 06:13 AM
Jayakumar and Anurag, thanks.
BBD is SAP's SaaS solution for mid-size (typically, 100 to 500 employees) companies. Since this solution targets the "mid-market" segment (i.e., the market that lies "in between" the large enterprise market and the small business market), it represents a fine example of 'interstitial thinking' in action. SAP has said that it estimated that there are 60,000 companies in this mid-market segment in Germany and the US alone who have not invested in this type of solution, and that is how it arrived at the market for this solution.
Anurag, you are also probably right that in this case the best approach to building this solution may have been to understand the needs of this market segment and then build a solution from the ground up. However, it is also likely that SAP would have reused several building blocks from its existing offerings.
Jayakumar, that seems to be good idea for an innovative product -a mobile phone that doubles as a mobile cosmetic device! Creating it would certainly involve ingenious synthesis of two disciplines - mechanical engineering and electronics. I am not sure however that such a product could be conceived by using the principle behind 'innovating in the interstices', which involves looking at two adjacent markets, and trying to detect a market in between.
Posted by: V P Kochikar | March 12, 2008 10:50 AM
Good observation. But would like to add one more illustration which is equally, if not more, important. The launch of GAP clothing is also about innovating and meeting an unfulfilled productline.
Posted by: Umashanker | March 17, 2008 10:41 AM
The next challenge about 'Inovation in gap' would be the price mid market consumers can afford for the services. Cost to meet the needs of the mid market segment sometimes could be high. In the software space, the maintenance and support becomes another challenge as it is highly inclined to global changes. So my thought is that this approach works very differently for different businesses.
Posted by: Asha | March 29, 2008 04:50 PM
Asha, Business innovation is by it's very nature a highly unstructured process, and 'recipes' that apply across industries are rare. So it is true that each industry has to apply a good deal of creativity in finding the best way to make the 'innovating in the interstices' approach work for them. The approach is like a broad pattern, and using it to advantage in the context of any given business will involve some ingenuity.
Umashanker, the launch of GAP clothing in 1969 certainly marks an important and innovative milestone in the evolution of the American clothing retailing industry. The aim, in the words of founder Don Fisher, was simply "to make it easier to find a pair of jeans". Thus, it was filling an important gap that the department stores of the day had left wide open.
However, this is perhaps not truly representative of the 'innovating in the interstices' theme in action, as that theme requires the gap to be between two adjacent, existing markets.
(It is interesting to know how the name, 'The Gap', was chosen. It came from the 'Generation Gap', a term common at the time to refer to the enormous gulf in mindset and outlook that existed between the 'younger' generation and their parents. )
Posted by: V P Kochikar | April 9, 2008 05:35 AM