Emerging technologies, such as the Internet, are having an even bigger impact on the lives of so many people. But the advantage only belongs to those companies willing to take advantage. It’s the incumbents versus the insurgents.

Seizing an open opportunity on the Internet, Dell introduced new means of convenience and customization to the personal computer by integrating the supply chain and the customer relationship through its direct ordering system. By providing convenience and customization, Dell showed us how innovations in operating performance can carry an even marginal competitor to market leadership. In 1994, Dell held about 3 percent of the market. Seven years later, it was the worldwide leader.

Of course, promising new products always show up on incumbent Microsoft’s screen at an early stage because Microsoft has developmental alliances with 3,000 software firms. This allows Microsoft to pursue acquisition or parallel development.

Yet, Japanese insurgents were able to take the low end of the photocopier market from incumbent Xerox and small cars from Detroit because neither understood that Japan’s aggressive activity in an emerging low-end of the market could undo decades of effort.

The incumbent’s natural reaction to insurgents should be to fight, not to flight, although, quite frequently, flight is exactly what incumbents often do.

• Rather, these companies would be far better served to be more like Microsoft, whose philosophy is to punish or purchase.
• The best incumbents are active in the changing areas that affect their industries, and you must be too.

The Japanese played the role of insurgents with Xerox, the American auto industry and many others. The reason for their success is that incumbents often allow an obsession with short-term financial results to overrule strategic priorities. Focus on short-term results can be penny-wise and pound-foolish.

New products and services, such as the wireless technologies, should help customers do more easily and effectively what they were already trying to get done rather than forcing them to change their behavior or adopt new priorities.

Dell, Microsoft, Cannon and Toyota all introduced a relatively simple, affordable product or service that increased access and ability by making it easier for customers, who historically lacked the money or skills, to buy or use their products.

Unlike Dell, Microsoft, Cannon and Toyota, the first mobile phones, personal computers and cameras were expensive. The expense of some new products limits consumption to people who desperately need to get a job done. However, subsequent improvements often create production efficiencies that enable price reductions, and the real winners are those who are best positioned to take advantage.

Every market consists of multiple customer tiers. At the high end of the market are demanding customers who have very tough problems to solve and money to solve them. At the low end are less demanding customers who have relatively fewer dollars and less demanding issues to satisfy.

The high-end consumers are consistently willing to pay premium prices to trade up to new, higher-performing products. The cell phone’s initial limited range and reliability underserved its early customers who eagerly welcomed, and willingly paid for, improvements in reliability and range.

According to Clayton M. Christensen, Scott D. Anthony, and Erik A. Roth in Seeing What’s Next, high-end customers always create opportunities by introducing up-market innovations and high profitably. These innovations make good products better. In the process, older product prices and profit margins fall, making them affordable to a much broader market.

Regardless if you are an incumbent or an insurgent, you must always be looking for the next opportunity. If you don’t, you will be neither…you’ll be gone.

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