In 1991, management consultant and author Geoffrey A. Moore introduced the phrase “crossing the chasm” to the world of high-tech product marketing. His books “Crossing the Chasm” and “Inside the Tornado” subsequently became required reading in high-tech and not-so-high-tech companies alike.
The crossing-the-chasm buzz had its value: It provided a framework around which marketing action could coalesce. At the same time, it had the unfortunate consequence of emphasizing the product-adoption chasm —specifically, the gulf between early and mainstream markets — to the exclusion of five other, equally important chasms. All six chasms must be identified, understood and traversed if companies are to implement new technology successfully and achieve long-term success. (See “The Six Chasms.”)
The Chasm Within the Mind
In the fall of 1916, 25-year-old David Sarnoff, chief inspector of the Marconi Wireless Telegraph Co. of America, penned a memo to the company’s vice president and general manager. As quoted in T. Lewis’ “Empire of the Air,” it read: “I have in mind a plan of development which would make radio a ‘household utility’ in the same sense as the piano or phonograph. … [A] radio telephone transmitter having a range of, say, 25 to 50 miles can be installed at a fixed point where the instrumental or vocal music or both are produced. … The receiver can be designed in the form of a simple ‘Radio Music Box’ and arranged for several different wavelengths. … It is not possible to estimate the total amount of business obtainable with this plan until it has been developed and actually tried out; but there are about 15 million families in the United States alone, and if only one million, or 7% of the total amount of families, thought well of the idea it would, at the figure mentioned, mean a gross business of about $75 million which should yield considerable revenue.”
Management’s response to Sarnoff ’s memo? Silence. Marconi’s senior management might be excused for ignoring Sarnoff’s memo in the absence of a working product, broadcasting system or value network (content creators, broadcasters, advertisers, radio and equipment manufacturers, and listeners) demonstrating the benefits of radio music boxes. Even if all those elements were in place, viable business models for the various value-network members did not yet exist. Moreover, Sarnoff’s forecasts notwithstanding, demand for the new product was uncertain. Worse yet, the new business might cannibalize Marconi’s telegraph activities, in which the company had made significant investments that might not be recovered in broadcasting.
Those are rational, analytical considerations, but management’s failure to respond to its chief inspector’s proposal was likely also evidence of a “flatland” — the term Edwin A. Abbott used in the brilliant 19th-century novel of that name to describe the inability to think outside the box. If ever there was a really new paradigm, radio broadcasting was it. Sarnoff was suggesting that wireless radio technology that had been used to send messages from point to point be used to broadcast content (entertainment, news, commentary and so forth) from one point to many points. Although the new paradigm required that many pieces fall into place before it could give rise to the industry that today we take for granted, the most important piece was arguably the idea.
Management’s lack of response to Sarnoff ’s memo also is related to the fact that Sarnoff was neither old enough nor senior enough for his opinion to hold much sway. That a junior person in the organization could articulate a new vision probably seemed preposterous in those days. (To some people in some organizations and societies, it still might seem preposterous, although the recent developments in the Internet and the New Economy may have changed that perception.)
Of the six chasms identified in this article, the chasm within the mind may be the greatest challenge. If we mean to cross it, we must embrace something we have neither satisfactory vocabulary to describe nor mental constructs, metaphors or paradigms to illuminate. By way of help, I propose attention to the following:
- The organizational culture must encourage what Nicolas G. Hayek, CEO of the Swatch Group of Switzerland, characterized as the “fantasy and imagination of childhood and youth.” As he said in a March-April 1993 Harvard Business Review interview: “Everywhere children believe in dreams. And they ask the same question: Why? Why does something work a certain way? Why do we behave in certain ways? We ask ourselves those questions every day. … Too many of Europe’s large institutions — companies, governments, unions — are as rigid as prisons. They are all steel and cement and rules. We kill too many good ideas … without thinking about them, by laughing at them.”
- Regular exposure to “fantastic” literature is a way to expand the imagination. Children’s literature (for instance, J.K. Rowling’s Harry Potter series and Lewis Carroll’s “Alice’s Adventures in Wonderland”), science fiction and the fiction of authors such as Jorge Luis Borges, Italo Calvino and Umberto Eco can awaken the mind from the ennui of flat-land and open it to the possibility of new dimensions. The specific book or author does not matter, only that the literature be fantastic and the exposure regular.
- Unfortunately, for every memo such as Sarnoff ’s there are many that deserve to be left unanswered. Having encouraged the drafting of memos that spell ways out of flatland, managers must have a system or process to sift them.
Those elements are more easily described than practiced. As the chief marketing officer of a German high-technology company recently remarked, “In our industry, very few companies survive a paradigm shift.”
The New-Business-Model Chasm
Dell Computer introduced a new model for selling computers directly to customers; Compaq Computer, deeply vested in a traditional, indirect distribution system, has experienced great difficulty implementing Dell’s model. Microsoft pioneered a multimedia encyclopedia; Encyclopaedia Britannica struggled with its transformation from paper to CD-ROM and later to the Web. Merrill Lynch took some time to acknowledge and then implement the emerging business model of the Internet-based, discount-brokerage-services provider E*TRADE. Barnes & Noble cautiously followed Amazon.com’s launch of the first electronic bookstore. Why was it that, even after a “barbarian at the gate” had already instituted a new business model, it was so difficult for industry incumbents to “get it”? And when they got it, why didn’t they really get it?
A new business model offered, an old model threatened, a chasm to be crossed. The Renaissance writer Machiavelli offers one explanation in “The Prince”: “It must be remembered that there is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than the creation of a new system. For the initiator has the enmity of all who would profit by the preservation of the old institutions and merely lukewarm defenders in those who would gain by the new ones. The hesitation … arises … in part from the general skepticism of mankind, which does not really believe in an innovation until experience proves its value.”
Combining Machiavelli’s argument with some of the reasons offered for the lack of response to Sarnoff ’s memo, I identify two sets of reasons for the chasm caused by a change in business models: one based in reality, the other premised on perceptions.
The difficulty of establishing the necessary infrastructure and value network for the new business model is all too real. That it seems to have been easier for Dell, Microsoft (in the encyclopedia business), E*TRADE and Amazon.com to establish their infrastructures and value networks reflects their initially smaller scale relative to Compaq, Encyclopaedia Britannica, Merrill Lynch and Barnes & Noble.
But companies also can be stalled or immobilized by the possibility of confusing customers, the likelihood of cannibalization, and the rigidities of the investments and competencies in the old business model and old ways of doing things. What, for example, is Compaq to do about its established relationships with computer distributors, wholesalers and retailers; Encyclopaedia Britannica about its authoritative text, door-to-door sales force and the high profit margins on its 32-volume leather-bound books; Merrill Lynch about its commissioned brokers and the margins that result from its commission-based pricing structure; and Barnes & Noble about pricing in its bricks-and-mortar vs. online stores?
The overarching manifestation of the new-business-model chasm is the real, perceived or feared switching cost (in terms of investment and other expenses, implementation difficulty, and behavior adaptation) incurred. The wider the gulf between old and new business models, the greater the switching cost; the greater the switching cost, the more forbidding the chasm. I suggest that companies poised at the edge of this chasm take the following actions:
- Inform and educate the decision makers and those affected by the business-model change in order to minimize separation between perception and reality.
- Let decision making be driven by the articulation of reality rather than the exhortation of fear.
- Implement unbiased incentive systems that, through individual or collective action, do not favor old ways of doing things over new business models.
- Do not be swayed by sunk costs (pre-existing investments in assets and competencies dedicated to the existing business model) when evaluating a new business model.
- Ensure that proponents of the new business model get a fair hearing and beware of naysayers who argue out of narrow or short-term self-interest.
- Charge effective, respected leadership with the implementation of new business models.
- Creatively and aggressively work with suppliers of complementary products (if any) to establish the necessary infrastructure for the new business model.
- Actively manage network externalities (when product benefits increase with the size of the network of product adopters), making the necessary investments and linking with the appropriate complementary-product providers to help the network grow to critical mass and beyond. Network externalities can be direct (for example, a telephone network) or indirect (as in the case of digital video disk players, in which the benefits of ownership depend on the availability of programming, which, in turn, depends on the size of the installed base of DVD players).
The simplicity and logic of such actions belie the difficulty of executing them. Experience in a variety of settings in the financial-services and information (or “content”) industries suggests that the real-world obstacles implicit in the list are sufficient, even without any deliberate Machiavellian mischief, to paralyze chasm-crossing efforts.
The Break-With-the-Past Chasm
In 1933, as president of the Radio Corporation of America (RCA, successor to Marconi Wireless in the United States), David Sarnoff witnessed a demonstration of frequency modulation (FM), a new technology that promised to free radio reception of crackling and static from atmospheric changes. Tests ordered by Sarnoff unambiguously proved FM’s superiority over amplitude modulation (AM), the current broadcast method of choice. Were superiority the only determinant of technology adoption, Sarnoff, reflecting on his unanswered memo of 17 years earlier, might have eagerly switched from AM to FM. But his sights were set on the more profound technological innovation of television. Moreover, FM, being incompatible with AM, required a new system of reception and broadcasting and imposed high switching costs on both AM-radio listeners and the various players in the associated value network.
Although its relative advantage was evident from the outset (a true instance of a new-and-improved product), FM made a break with the past — and Sarnoff failed to embrace it. The break proved to be a chasm too wide. My formula for crossing this chasm has four elements:
- Ensure that possible advantages (“switching benefits”) are easily, unambiguously and costlessly observable and clearly communicated to the customer.
- If possible, make the transition from the old to the new and improved-but-incompatible product divisible so that switching costs are not borne all at once.
- Implement the change in the product line selectively, letting both old and incompatible new versions coexist for a time.
- If possible, provide modular upgrades or some other bridge for owners of the older version of the product.
Complicating this crossing is the consideration that bringing customers along isn’t always desirable. Only if most new-product sales are expected to come from the installed base for the old version of the product does the marketer have an incentive to help that community cross the chasm. (For more on crossing the break-with-the-past chasm, see my March 1995 article in the Journal of Product Innovation Management, “Complementarity, Compatibility, and Product Change: Breaking With the Past?”)
The Disruptive-Technology Chasm
How one balances the interests of existing vs. new customers also plays a central role in Clayton Christensen’s case of disruptive technology. The central issue here is not incompatibility, however, but at least in the new technology’s initial days an inferior value proposition for current customers.
Christensen explained the underlying concepts in his 1997 book “The Innovator’s Dilemma: When New Technologies Cause Great Firms To Fail.” Earlier in a January-February 1995 Harvard Business Review article, he and co-author Joseph L. Bower introduced the terms sustaining and disruptive technologies: “Different types of technological innovations affect performance trajectories [the rate of improvement, real and expected, in a product’s performance] in different ways. … Sustaining technologies tend to maintain a rate of improvement; that is, they give customers something more or better in the attributes they already value. … Disruptive technologies introduce a very different package of attributes from the one mainstream customers historically value, and they often perform far worse along one or two dimensions that are particularly important to those customers. As a rule, mainstream customers are unwilling to use a disruptive product in applications they know and can understand. At first, then, disruptive technologies tend to be used and valued only in new markets or new applications.”
The disruptive-technology chasm results because product suppliers’ resource-allocation and incentive systems tend to be biased to respond to current customers’ preferences. To survive, a disruptive technology must find new markets and applications while buying time to mature (when its performance level and value proposition might surpass those offered by the incumbent technology).
My formula for crossing the disruptive-technology chasm draws on Bower and Christensen:
- Determine whether the technology is disruptive or sustaining; if disruptive, define the technology’s strategic significance.
- Discover and develop for the disruptive technology an initial market that values its performance level and value proposition.
- Assign responsibility for disruptive technologies (which otherwise might be shut out by existing resource-allocation and incentive systems that cater to the demands of the mainstream market) to internal organizations with customers that need those technologies.
- Match the size of the disruptive-technology organization to the size of the market and keep it independent.
The Expedient-Fix/Strategic-Solution Chasm
In the fall of 1990, IBM formed a special fast-track organization to devise a product that could serve as an expedient, short-term fix. The goal was to meet the critical local-area-network (LAN) management needs of a handful of large, cutting-edge customers that could not reasonably be expected to wait for the various groups within IBM to define, develop and market a long-term strategic product offering. Breaking many norms, the fast-track organization developed a satisfactory solution in less than 12 months and began to market it as a product in September 1991. IBM announced plans for a strategic, long-term offering in April 1992 and marketed it as a product in October 1992 — but already the tactical fix had developed a life of its own. A second release of that fix had been offered in September 1992, and there were plans for subsequent releases of the short-term solution. How was IBM to wean customers from that tactical fix to the strategic offering and transition the fast-track organization to other tasks?
The fast-track group had worked hard to develop something that met customers’ needs, never mind that it was tactical. Having done so, it marketed the new offering not as a special, customized service but as a regular product. Substituting the long-term strategic offering for the tactical fix involved three difficult tasks: transitioning the product from the short-term fix to a long-term solution, inducing customers of the short-term fix to abandon it in favor of the long-term strategic solution, and redeploying the members of the fast-track organization to a longer-term assignment. Such tasks presented a special challenge given the likelihood that product transitioning and the organizational redeployment might not please customers who were content with the short-term fix. Moreover, the change did not please the employees who enjoyed the entrepreneurial experience of the fast track — and the freedom from the larger organization’s normal rules.
My suggestions for crossing this chasm relate to IBM’s experience:
- Detour around this chasm; arguably, a tactical fix should never be made into a product with updates, new releases and the extended life implicit in that definition.
- As the tactical product is being developed and plans are being drawn up for the long-term strategic offering, the respective internal organizations should work together as closely as possible to minimize the chasm.
- As the offering is being brought to market, clear migration plans should be devised and communicated to the tactical product’s customers.
- From the outset, there should be clear plans for absorbing the fast-track organization into the strategic-offering group and/or for seeding the rest of the company with its members in order to transfer what they have learned about responding to a market.
The Chasm Between Early and Mainstream Markets
Managing the adoption or diffusion process for a new product brings us to the chasm that started it all, the gulf between the early and mainstream markets for new technologies and products. Writing on the product-adoption process, the presence of a chasm and the best way to cross it, Moore observed in “Inside the Tornado”: “The fundamental strategy for making a successful ‘crossing’ is based on a single observation: the main difference between the visionaries of the early market and the pragmatists in the mainstream is that the former are willing to bet ‘on the outcome’ whereas the latter want to see solutions ‘in production’ before they buy. … Specifically, what pragmatists want, more than anything else, is a 100 percent solution to their problem — what we came to call the whole product. …
“The only safe way to cross the chasm is in fact to put all your eggs in one basket. That is, the key to a winning strategy is to identify a single beachhead of pragmatist customers in a mainstream market segment and to accelerate the formation of 100 percent of their whole product. The goal is to win a niche foothold in the mainstream as quickly as possible — that is what is meant by crossing the chasm.”
Having coined the phrase “crossing the chasm,” Geoffrey Moore applied it to a specific context (bridging the gulf between the early and mainstream markets). But that is not the only chasm — in the sense of a gulf between the present and the desired or the possible future — that managers in technology-product companies and technology-wrought enterprises face. There are five other chasms that confront those managers. But beware: There are probably other chasms you may come across that I haven’t spotted. So be alert, and be discerning. Don’t focus on any one chasm to the exclusion of others.