In the early spring 2005, senior Sony executives were shocked to see Sir Howard Stringer, then chief of Sony's US operations, listening to an Apple iPod while riding an elevator in the company's US headquarters.

The New York Times summarized Sir Howard's cheekiness as a "visible if unstated rebuke to the technologies [at Sony] for falling behind the curve in downloadbale music by concentrating on various proprietary formats for storing and playing music."

Other media outlets, academics and analysts agreed. When the board gave the chairman's post to Sir Howard instead of Ken Kutaragi, Sony's senior technologist, whose managerial responsibilities diminished, those views seemed justified.
They were not. As we see it, that was not Sir Howard's message. By myopically seeking to place blame, most analysts and other observers missed a greater point: Sony -- for all its sophisticated customer research tools, marketing methods, and analytic capabilities -- had failed to identify and exploit a huge opportunity to provide a product that people not only welcomed and purchased but thoroughly enjoyed, reveled in, had fun with. The technologists' skill and focus were side issues.

In other words, Sony did nothing wrong but rather there was something vitally important that the company didn't do. To our minds, Sir Howard's wearing his iPod at work made an example of what people were doing every day then, and that's what matters most. They were changing the way they were buying, listening, storing, and discarding music. They were changing their behaviors and the products and services they used during their daily routines around music.

Sony -- at least that time around -- failed to see and act on the opportunities these changes presented for the company.

Blinded by success, then blind to innovation

Sony is a great example of a highly successful company whose successes have necessitated making its operations efficient and effective through adopting structures, processes, systems and policies that eventually come between the company and the people who might be its biggest opportunities for growth.

Marketplace winners still emerge, though inconsistently, and the company can still grow and reap a profit. But the barrier becomes painfully apparent when the company increasingly finds itself watching a competitor hit the sweet spot with a new product, service or business model just waiting to happen. 'Why didn't we see it? It was right there in front of us, hidden in plain sight!"

We have been studying company's connections and disconnections with consumers for more than 25 years and have worked inside a huge number of them. We have researched innovation practices with organizations ranging from the Allianz Group to Zara, from GE to Unilever, and from BMW to Frito-Lay.

Across all of this research, a common theme has emerged and intensified: if a company is to truly hit the spot with innovation time and again with any consistency and wishes to achieve profitable growth and create an advantage, it must do three things.

First, it must understand the people it is trying to serve as the individuals they are -- apart from any connection or interaction with the company.

That is, it must be able to temporarily forget and let go of its current business, strategies, products and brands as it observes how people (not just customers and potential customers) go about their daily routines. It must understand their behaviors in context, and develop a deep, inner conviction of the changing outer world -- an objective view of how changes in people's ecosystem of life affect that behavior.

Second, it must know how to go beyond its own perimeters of products, markets, and competencies; let go and challenge the assumptions, common practices and golden rules of doing business still held today: and go beyond what it has learned from consumers.

Only then can it conceive of entirely new opportunities by innovating across those people's behaviors -- as Apple has done across the changing ways of how consumers buy and listen to music. It must know how to define the spaces of greatest opportunity that nobody has yet even imagined.

Third, it must see itself  "from the outside in" and formulate strategies around people's behaviors, not just seek to satisfy consumer needs and wants or customer requirements. It must execute activation plans that engage consumers and seamlessly fit all kinds of innovations into peoples' and consumers' behaviors -- or a customer company's work processes -- so that the people absorb and assimilate them.

It must create transformational life experiences, not just communicate features and benefits. Only then can companies spot and consistently and successfully bring to market winning innovations, achieve profitable new growth, and reinvent their business for the future.

This is not easy. But it need not be terribly difficult. The right instinct already exists in most companies. We are, after all, customers and consumers -- people -- ourselves. As our examples will show, managers must learn to protect and direct that instinct to lead, and embed it in the organization, despite, and along with, the nature and ever-growing complexities of business.

Excerpted from:

Hidden In Plain Sight

By Erich Joachimsthaler

Reprinted by permission of Harvard Business School Press. Copyright 2007 Erich A Joachimsthaler. All rights reserved.

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Erich Joachimsthaler is the founder and CEO of Vivaldi Partners, a strategy, innovation and marketing consulting company. He can be reached at ej@vivaldipartners.com