Apple, Sony, and the Signal-to-Noise Ratio

For innovative offers to create competitive advantage in mature markets, they must clearly and cleanly separate themselves from the crowd.  Otherwise customers and consumers are unmotivated to seek out a specific vendor, and commoditization wins out.

Engineers call this type of problem managing the signal-to-noise ratio.  To optimize that ratio one must simultaneously filter out noise and amplify the signal.  When it comes to innovation strategies, most corporations focus on the latter solely and fail to attend to the former.  The end result is a marketplace that gets noisier and noisier, drowning out everybody's signals. Innovations suck up huge marketing (read: noise-making) budgets but fail to get traction. 

Winning innovation programs take a different path.  Like their failed counterparts, they too create a strong signal to start with.  But unlike them they focus the remainder of their efforts on amplifying that signal and filtering out distracting noise.

Compare Apple to Sony in this regard.  Both companies create innovative electronic products for consumers, and both have created branded retail outlets as a “noise filter” to eliminate competing distractions.  Why, then, is Apple so much more successful than Sony?

When you go into an Apple store, there are relatively few products on display, and each display station has a strong theme.  The goal is to attract, orient, and educate consumers about an activity elegantly performed.  The staff is also application oriented in the way it interacts with people making queries.

By contrast, in a Sony store there are many, many more products on display—everything from TVs and sound systems to laptops to PlayStations and robotic dogs, and, yes, even “noise cancellation” headphones!  Displays are grouped by product category, not application, and the staff are all product oriented.  The net effect is that Sony has reintroduced noise and failed to amplify signal, and their market performance shows it.

If even an iconic brand like Sony can fall prey to this problem, what hope can the rest of us have?  Actually, quite a lot.  The key is to modify every step in the value chain to amplify signal and reduce noise.  This begins with an unambiguous declaration of innovation strategy—identifying the vector of innovation to be accentuated.  It then is executed via a series of management reviews which reward programs for amplifying that vector and filtering out competing innovation vectors and which discipline programs that introduce competing noise. 

No Cokes at Starbucks. 
No coupons at WalMart. 
No refills for BIC pens. 

Pick a theme and get every department in your enterprise to stick to it.

Comments

[Wouter Kersten]

Dear Mr. Moore,

Currently I am reading your book with great interest.
With even greater interest I will see how it applies to my particular field: linking NGOs to innovation. This seems a bit of an unexplored corner of the innovation-landscape.
You may possibly find it interesting to read about my explorations (see url). Answers cannot be guaranteed but it seems worthwhile to ask the questions nevertheless.

[Christian Plante]

Mr. Moore,

Could you substantiate how you come to the conclusion that Apple's retail outlets are more successful than Sony's?

Apparently Sony is using retail outlets to demo products and build their brand, not for pure revenue generation. Then, what would the right metric be to measure who's most successful, Sony or Apple?

[Geoff Moore]

Christian,
I was thinking both Sony and Apple were spending to create a premium customer experience to enhance the popularity of their brand. So the metric would be brand perception.

[Neil Blecherman]

Mr. Moore,

I appreciate your comments here as well as your recent presentation at the Intel Software Symposium. I agree that amplifying signal is not enough without also reducing noise. The part of the equation I find most interesting is in chapter 9 of your book where you stress the need for established businesses to improve their productivity annually, allowing resource re-allocation to new and innovative parts of the company. This also satisfies the need in competitive employment markets like high-tech for managers and employess to chart satifying careers with options to either dive deeper into "optimizing the succesful" or "develop the next big thing". In the pursuit of innovation, do the people and resource management challenges vary in different industries?

[Geoff Moore]

Neil,
Not as much as you might think. The key roles in all industries are inventor, deployer, optimizer, and orchestrator (this last helps with the transitions among the other three). Great inventors are the most sector-specific. Deployers are next because their rolodexes are often a key to their success. Optimizers, and orchestrators can all cross industries fairly easily as in both cases it is their process skills that matter the most.

[Vish Shastry]

Hello Mr. Moore (or do you prefer Geoff?) -

Fascinating insight. I wonder if you would consider Google an anomaly (they get tons of press on every product/deal they do) or the rule (few of their products are ‘home runs’). Thank you!

[Geoff Moore]

Vish,
Google's signal is still so strong that to date it can overcome the noise it is creating. This will not last forever, so the company must adopt a focusing discipline at some point.

[Kevin Hillstrom]

I'm not sure if this is relevant or not. I have studied businesses in the Internet Retailer Top 500. When you look at the homepage of each of these businesses, you find that businesses with a moderate amount of links, products and content tend to have the highest conversion rates. Businesses that have many links, and have a homepage that continues below-the-fold tend to have lower conversion rates. Sites that feature very little product (i.e. Patagonia) tend to have lower conversion rates. A link to the feed is listed below, if you are interested.

Thanks,
Kevin

http://minethatdata.blogspot.com/2006/10/does-homepage-design-influence-net.html