Insightful article by ADAM HARTUNG: Listen to competitors, not customers!  I have attached the link along with the full article…

http://www.forbes.com/2010/01/06/innovation-customers-competitors-leadership-managing-marketing.html?partner=artctrlinboxmain

Listen To Competitors–Not Customers
Adam Hartung, 01.06.10, 3:10 PM ET

It may be apocryphal, but Henry Ford supposedly said, “If I had asked my customers what they wanted, they would have told me a faster horse.”

It is not apocryphal that within a few short years of creating the modern personal computer market, International Business Machines abandoned the PC. Its customers, who were data center managers, told them there was no future in the PC. Of course, that verdict came a few decades early. It cost IBM a lot of revenue.

Both stories illustrate the grave risk that lies in listening to customers–especially in listening to them about innovation and market shifts, which we’ve been seeing plenty of and which will surely not let up in 2010.

All kinds of businesses turn to their customers for insight. “Voice of the customer” research projects are a hallmark of currently popular lean manufacturing setups. Companies that use customer resource management programs (Salesforce.com is one) typically turn to their biggest customers for input, because Pareto’s law tells them that 20% of their customers produce 80% of their revenue. But there’s no reason those biggest customers should be particularly perceptive.

In reality, customers rarely know what they want, beyond more, better, faster and cheaper. Customers, especially big ones who are locked in to your solution, don’t seek out anything really new, especially if it means they’ll have to invest in new tooling, systems or processes. They don’t look for change. Mostly they want only to tilt the adversarial customer-supplier relationship in their advantage, hoping they can persuade you to help them save money. And you mostly just want to sell them more stuff.

“Customer insight” is all about short-term tactics. It leads to things like deeper volume discounts, matching competitors’ prices, higher product quality, improved service, less carried inventory and more automation–all in exchange for bigger orders. It all reinforces the short-term business.

Most managers are happy to rely on such input. It sounds very good, and it appears to help defend and extend the existing business. But it doesn’t tell you how to prepare for or take advantage of market shifts–shifts that will take away customers in a heartbeat, wiping out your profits and your revenue.

When markets shift, those customers will abandon your solution overnight, and they’ll blame you for missing the shift. Just look at how fast information technology departments swung to servers connecting to PCs, shutting down mainframe and mini-computer data centers and wiping out thousands of green-screen terminals. That almost bankrupted IBM. It did kill Wang, Lanier and Digital Equipment, and it made Dell, an unknown, into a powerhouse.

To win higher returns over anything beyond the very short term, listen a lot less to your customers, especially your biggest ones. They’ll tell you mainly what you already know. Instead, pay attention to competitors. Especially those on the fringe.

Tribune Corp. was a powerhouse media company in 2000. It had a foothold in television, owning local stations and parts of cable channels, including Food Network. It was an early Internet leader, investing in America Online and co-founding CareerBuilder.com, Cars.com and other Web sites. But its heart was in the newspapers its success had been built on, led by the Chicago Tribune. Believing that newspapers were still, as they always had been, protectable products with moats around their geographic markets, Tribune paid handsomely to buy several papers, including the Los Angeles Times.

As the decade progressed, Tribune’s management kept asking their biggest customers, their newspaper advertisers, what to do. The advertisers asked for ads tied to content, better information on readership and tie-in promotional ads. They also asked for multi-placement deals, including insert discounts. Tribune complied with those big advertiser desires in hopes of further growing ad sales.

Tribune’s leadership never heard the bullets that hit them.

In the decade’s latter half, newspaper subscribers started getting more and more content from the Web. But Tribune laughed off the idea that people would substitute Web sites for newspapers or (horrors!) bloggers for reporters. Tribune’s leaders never imagined that their subscriber rates would actually decline.

They assumed they had a lock on local advertising to individuals with their papers’ classified ad departments, and on major advertisers like auto manufacturers, auto dealers and movie distributors and theaters with their display ads. “Craigslist is for hookers” was how one exec expressed his view of the online selling site that he didn’t realize was already destroying his business. And eBay was “a big online garage sale, not a place where you could sell things of value, like a car.” Google ad placement was no threat because it wasn’t “local.”

Then the classified ad buyers disappeared. In 2006 the auto companies shifted 25% of their newspaper ad budgets to online media. Movie studios slashed their newspaper spending in favor of online clip promotions and lists of local theaters.

When Sam Zell led a leveraged buyout of Tribune in 2007, he said on numerous occasions that he read four newspapers daily, he believed people would keep reading them and advertisers would keep buying space in them to reach their local customers. He was wrong. Within two years Tribune was bankrupt. Asking customers what they wanted had done nothing to help management anticipate the market shift. A close eye on competitors across media would have shown the inevitable change as it approached.

PricewaterhouseCoopers, Computer Sciences Corporation, Electronic Data Systems and other large information technology services suppliers listened to their customers tell them why they liked their proprietary implementation methods, and why they liked having local people with expertise service their accounts. They laughed at the offshore suppliers who could never understand their customers. Then Tata Consulting Services and Infosys implemented global delivery systems using highly trained labor at a 10th the cost, practically wiping out the domestic vendors’ traditional IT services business. Trying to save their companies, the old businesses’ leaders withdrew to handling large but unprofitable outsourcing contracts with which offshore companies wouldn’t compete. PwC was swallowed by IBM for a song, CSC survived on the back of government contracts and EDS almost failed before being acquired by Hewlett-Packard.

To succeed you have to obsess about competitors. And not just about traditional ones, but about fringe ones as well. What customers won’t tell you, the market will, through competitive activity. The signs were all there for Tribune and other media companies to see the user shift that was coming long before their newspaper ad revenues fell off a cliff. The emergence of strong offshore IT centers was obvious to anyone who looked. But by focusing on existing customers, especially large ones, these companies kept themselves blind to the changes that wiped out huge, profitable revenue chunks.

Cisco has a rule that it makes all its own products obsolete. It’s better to cannibalize yourself than to have your business devoured by someone else, so Cisco watches its competitors and either beats them or buys them. That’s one reason it has kept itself vibrant while Sun Microsystems and Silicon Graphics bit the dust in 2009.

Leaders can move beyond surviving and enter the world of thriving only if they obsess about their competition. Watch the competitors that grow, and watch the competitors that don’t grow, and understand why. Look at how customers behave, not at what they say, and see what tests they are undertaking with competitors–especially with fringe competitors with alternative solutions. See what revenues are shifting to other, often emerging, competitors, even if they’re very small. If you want to remain viable, your competition will give you more insight than all the strategic customer councils in the world.

Adam Hartung lives in Chicago and is a partner in Vector Growth Partners, a growth strategy consulting firm in suburban Washington, D.C. He is author of Create Marketplace Disruption: How to Stay Ahead of the Competition. Learn more at AdamHartung.com.