The Customer Generates Nothing

Innovation Requires New Theory

Does the customer invent new product or service? The customer generates nothing. No customer asked for electric lights. There was gas and gas mantles, which gave good light. The first electric lights had carbon filaments. They were fragile and inefficient. No customer asked for photography. No customer asked for the telegraph, nor for a telephone. No customer asked for an automobile…

An educated customer may have a firm idea about his needs, what he would wish to purchase. He may be able to specify these needs so that a supplier may understand them. A wise customer will nevertheless listen and learn from suggestions from a supplier. They should work together as a system, not as one trying to outdo the other.

- Dr. W.E. Deming. The New Economics, 3rd ed. (p. 5 )

He cannot be a producer unless he has customers. Customers keep him alive. They give him purpose in life. The producer must think, “What will help the customer? What would he be willing to buy?” The customer again has only what you and your competitors have led him to expect. Those are his expectations. What you have taught him.

- Dr. W.E. Deming as quoted by Orsini, Joyce. The Essential Deming. (p. 48)

The moral is that it is necessary to innovate to predict the needs of the customer, give him more. He that innovates and is lucky will take the market.

- Dr. W.E. Deming. The New Economics, 3rd ed. (p. 6)

IF there is one thing I’ve learned over the past twenty years of my varied career as a software developer, consultant, and coach it is that the most effective strategies for solving problems are often the most counterintuitive, and commensurately they are the most likely to escape our attention when we do not possess the right theory to see them. And so it is with our topic today: Innovation.

It might seem counterintuitive for Deming to declare that the customer generates nothing, but the point he is making is that breakthroughs in products and services aren’t the result of catering endless incremental refinements of what we already have but by predicting what we can’t live without in the future. Deming argues this innovation won’t come from doubling-down on our prevailing style of management, but transformation toward a whole new system based on profound knowledge. Without new theory to guide their thinking about how organizations are managed, leaders are merely digging a deeper pit for themselves - help from outside is required.

Enter Clay Christensen, who in 1997 published a counterintuitive book about how great innovators can become victims of their past success called The Innovator’s Dilemma. Christensen’s central thesis is almost a corollary to The New Economics and Out of The Crisis:

What often causes this lagging behind [of once-successful, innovative businesses] are two principles of good management taught in business schools: that you should always listen to and respond to the needs of your best customers, and that you should focus on those innovations that promise the highest returns. But these two principles, in practice, actually sow the seeds of every successful company's demise. That's why we call it the innovator's dilemma: doing the right thing is the wrong thing. This dilemma rears its head when a type of innovation that we've termed disruptive technology arises at the low end of the market, in the simplest, most unassuming applications.

- Clay Christensen. The Innovator’s Dilemma. (pp. ix-x)

If good management practice drives the failure of successful firms faced with disruptive technical change, then the usual answers to companies’ problems— planning better, working harder, becoming more customer-driven, and taking a longer-term perspective—all exacerbate the problem. Sound execution, speed-to-market, total quality management, and process re-engineering are similarly ineffective. Needless to say, this is disquieting news to people who teach future managers!.

- Ibid. (p. xiii)

Thus, the answer to continually-improving the capacity for innovation in an organization lies with the governing style of management. In the first chapter of The New Economics, Deming asks us to imagine a national referendum on the question of whether we favour the improvement of quality, noting that while everyone surveyed would likely agree, the suggestions on how to achieve it would be, as Christensen notes, a recital of management’s greatest “hits”, all of which miss the point about their role, ie. to improve.

Shortly before his death in 1993, Dr. Deming gave what would be his last interview to Tim Stevens of Industry Week magazine. Stevens asks:

TS: What then is the source of innovation?

Deming: The source of innovation is freedom. All we have—new knowledge, invention—comes from freedom. Somebody responsible only to himself has the heaviest responsibility. “You cannot plan to make a discovery," Irving Langmuir said. Discoveries and new knowledge come from freedom. When somebody is responsible only to himself, [has] only himself to satisfy, then you'll have invention, new thought, now product, new design, new ideas.

TS: How does a company, a research manager, a manager of people create an environment where there is freedom?

Deming: Give people a chance to make use of their diverse abilities, capabilities, family life, education, hopes. Help them to accomplish their aim.

- Tim Stevens. Dr. Deming: ‘Management Today Does Not Know What Its Job Is’ (Part 1)

For both Deming and Christensen, innovation isn’t, despite common sense or prevailing wisdom, sustained by going back to the well of past success. When you think on it, this isn’t as counterintuitive as it sounds. What it does suggest is that the problems we have with guiding and managing innovation in our organizations will repeat as long as our systems of management remain relatively intact. Who knows what we could achieve with innovative, new ideas?

Reflection Questions

Consider Deming’s quotes above on innovation and Clay Christensen’s thinking on disruptive innovation and the innovator’s dilemma. How are innovations managed in your organization? Is your business facing the dilemma of becoming disrupted by new market entrants? Why? Where are the competitive pressures coming from? Are you predicting future customer needs with new ideas for products and services or reacting to customer requests for small-step refinements? What examples can you think of in your own or others’ businesses of sustained innovation? What style of management made this possible? Is it replicable? Why or why not?

Extra Credit

• If you’re interested in how to leverage a Deming view on innovation for your organization, check out Eureka! Ranch, the brainchild of relentless serial inventor and innovation engineer, Doug Hall. Doug has a direct link to Deming through his dad who was an engineer at Nashua Corp, one of Deming’s customers in the late 70s and early 80s.