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Arindam Chaudhuri, Editor-in-Chief, 4Ps B&M Chief Consulting Editor's Desk
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STEVEN J. KAHL, FACULTY OF ORGANISATIONS AND STRATEGY, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS
How Customers Influence the Evolution of New Products
Innovation is happening all around. But companies that are careful in understanding how consumers use a particular product are the ones which succeed in the long run.
 
How customers use a technology generates important information about its performance, design, and operational characteristics. As customers began to use the automobile in hilly and wet terrains, for example, they learned about issues with waterproofing and engine power. What customers learn plays an important role in the technological development of the product.

However, customers may use the technology in different ways. Previous research observed that urban customers used the car primarily for transportation, but some farmers used it as a stationary source of power on the farm. Often, these various applications converge to a dominant use of the technology – transportation still is the primary use of automobiles. Nevertheless, variation and dominance in use influence what is learned and expected of the technology, influencing subsequent technological changes.

Prevailing theories on innovation and industry change explain technological development as an evolutionary process in which certain technological designs get selected and retained. Early on in the automobile industry there were several different engine designs, but the combustible engine emerged as the dominant design within the industry. The selection and retention of certain technological designs significantly impacts competition within the industry and influences which companies thrive or fail. However, these theories focus on the technological development within an industry without paying much attention to the learning processes associated with customers applying the technology.

In my research titled “Dominant Use, Technology, and Industry Evolution,” I consider the role customer learning plays in this evolutionary process, in particular, the effects of variation or dominance in use. Establishing a dominant use during the early introduction of a technology helps establish its agenda and stimulates industry growth. If the dominant use persists, it further reinforces the technological standard. However, extended use of a technology can facilitate customers learning new uses that change how they evaluate it, leading to new market opportunities. Finally, the competitive impact of a radical new technology depends in part on how customers actually use it. If customers use the new technology as they did the old, then established firms have an advantage even if they have difficulties developing the new technology.

 
To illustrate his point, I extensively analyse the history of how the manufacturing industry used manufacturing planning software – applications that help these firms plan and manage the production of their products. Records of meetings of industry professionals and contemporary surveys, as well as data from industry analysts, software firms, and consultants, makes a case for why competition within industries like software is best explained by looking more broadly at how customers actually use the products.

Dominant Use and Software Industry Growth

The manufacturing industry’s use of planning software can be divided into three evolutionary periods: 1954 to the 1970s, when software was first introduced and culminated with Material Requirements Planning (MRP) becoming the dominant use; the 1980s, when manufacturers expanded their use; and the early 1990s, when a radical technological change occurred and Enterprise Resource Planning (ERP) emerged as a dominant new use.

When the computer was commercially introduced, large manufacturers were some of its earliest adopters. To make these machines useful, they developed many different software applications, including manufacturing-oriented applications. These early adopters were concerned about managers thinking that these programmes would replace them, so they purposely focused on automating existing routine tasks. General Electric’s well-publicised implementation at its Major Appliance plant in Louisville, Kentucky, in 1954 exemplified this perspective – it focused on “eliminating the drudgery of office work” and avoided automating managerial decision processes in fear that the manager would “throw his hands up in despair.”

Surveys during this time indicate that manufacturers implemented a wide variety of software applications, ranging from inventory control to machine planning to production planning systems. By the early 1970s, however, this variation started converging toward the dominant use of MRP, largely because of the efforts of the “MRP Crusade” by the American Production and Inventory Control Society. MRP represented a new methodology to manage inventory requirements, and the software systems integrated managerial decision-making with the routine tasks. By 1975, it was estimated that 700 manufacturing firms had implemented an MRP solution.

          
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