The economic crisis has sent shock waves through companies around the world. In order to survive, businesses are laying off employees by the thousands, adjusting their forecasts downward, and scaling back plans for expansion. While such drastic measures may help companies ride out the turmoil, they are short-term fixes—at best. Smart leaders of all kinds are simultaneously grappling with the most important question facing business today: Once things stop getting worse, how will we grow?
It's become fashionable in the last decade to prescribe innovation as the cure for every ill facing business. If companies could only start creating compelling products and services on a regular basis, they would never need to worry about next year's growth figures. While that might be true, such talk tends to focus on design or even flashy marketing. In the process, a critical factor gets left out of the conversation: empathy, the ability to see the world through the eyes of another person. Unless new products or services connect with the lives of real people, design or marketing can't do much to make them succeed.
When organizations develop a shared and intuitive vibe for what's going on in the world, they're able to see new opportunities faster than their competitors, and long before the rest of us read about them on the Internet. They have the courage of their convictions to take a risk on something new. And they have the passion to stick with it even if it doesn't turn out right the first time. Despite years of hype, the problem with business today isn't a lack of innovation; it's a lack of empathy.
Microsoft Scores with Xbox
The benefits of empathy in business—and what happens if you don't have it—can best be seen in the tales of two major product launches from the same company: the Xbox and Zune from Microsoft (MSFT).
By early 1999, the video game console business had become far too big for Microsoft to keep ignoring. Company executives had watched as pioneers like Atari and then Nintendo developed the fledgling industry, built a fan base, and made it financially viable for both console manufacturers and game developers alike. But then, in the mid-1990s, Sony (SNE) took the business to a whole new level. Sony had leveraged its vast technical capabilities to make PlayStation a worldwide success.
Now, Sony was readying the launch of PlayStation 2. The PS2 was much more than the toys that had come before it. The console was a high-powered entertainment engine capable of playing DVD movies, importing digital video, and connecting to the Internet. And it did it all without using a single line of Microsoft programming code. Having successfully fought off rivals like IBM (IBM), Apple (AAPL), and Netscape, Microsoft now faced the prospect of irrelevance as younger people came to spend more time on their video game consoles and less time on their PCs. Microsoft had no choice but to act and formed an internal hardware team to develop a console of its own.
A little more than two years later, Microsoft launched Xbox, a brawny game system that featured Halo, an adrenaline-fueled shooting game that was beloved by hard-core players. Xbox was an overnight sensation in the U.S. Halo alone sold more than 5 million copies, making it the top-selling title of its generation. More important, Halo helped define the Xbox as the must-have console for hard-core gamers, which helped it surpass Sony as the market leader with the follow-up Xbox 360.
Lack of Empathy Leads to Zune Swoon
Xbox was so successful that Microsoft tried a similar approach when Apple's iPod became the best-selling portable music player since the Sony Walkman. Microsoft even brought over some of the same leaders and developers, hoping they could do to Apple what they had done to Sony. On an incredibly tight deadline, the team threw its collective might behind an iPod-killer. What emerged in late 2006, however, barely dented Apple's armor. The Zune was a boxy gadget that looked like a thicker iPod, albeit in a not-so-stylish brown case. As one acid-tongued reviewer described it, the overall experience of using a Zune was about as pleasant as having an airbag deploy in your face. Not surprisingly, the Zune managed to sell about 2 million units in its first 18 months on the market. Apple sold more than 84 million iPods during that same period.
Why was Microsoft able to create such a compelling video game system only to churn out a mediocre portable music player? The competitive context was the same. The research was similar. The design and engineering resources brought to the challenge were significant in both cases. What makes a company deliver a bravura performance one day and fall flat the next? Empathy. As one member of the team confided: "The biggest challenge with Zune was trying to figure out who we were building it for. With Xbox, we knew those guys. Hell, we were those guys."
Unfortunately, that empathy wasn't transferable. A brilliant connection with hard-core gamers didn't prepare Microsoft for the challenges of understanding Zune's market space. Being a reflection of one type of customer is certainly a quick and easy way to connect with a particular group of people. But to thrive over the long term, organizations need to move beyond their own views and discover what's happening in the rest of the world. They don't need to just hire their customers. They need to develop a genuine interest in people outside their walls.
Especially in a recession, empathy is one competency that companies can't afford not to develop. It can help them to move quickly, make better decisions, and create businesses that can fuel their growth. It can secure the future of their organization. And it can all start with a walk in someone else's shoes. People are wired to care. Isn't it time that companies were, too?
Dev Patnaik is founder and chief executive of Jump Associates, a growth strategy firm in San Mateo, Calif., whose clients include Nike, Target, and Hewlett-Packard. He is also the author of Wired to Care: How Companies Prosper When They Create Widespread Empathy.