Google hopes the browser will lead more people to spend more time using its applications, browsing the Internet, and contributing to its advertising revenue. Further, it hopes to lessen the chances that Microsoft uses its browser dominance to subtly push people towards its own Web sites and applications.

Chrome presents an obvious threat to Microsoft's Internet Explorer software. But Chrome could do much more. If it works as advertised, Chrome could allow consumers to eschew Microsoft's operating system and applications. Instead, Chrome, Google applications, and other third-party open source add-ons could function as a viable--and again, free--replacement to the core building blocks of Microsoft's business.

Early reviews suggest that Chrome has some real benefits, but doesn't quite deliver on its promised speed and is missing some features that demanding browser customers take for granted. As Wall Street Journal reviewer Walter Mossberg noted, "Chrome is a smart, innovative browser that, in many common scenarios, will make using the Web faster, easier and less frustrating. But this first version--which is just a beta, or test, release--is rough around the edges and lacks some common browser features Google plans to add later."

The general approach sounds right out of the disruptive playbook. Sacrifice some features in the name of speed, flexibility, and price. Use a business model that looks unattractive to the market leader. Reap the rewards.

Of course, it is far too early to make definitive proclamations about Chrome. The most critical question from a disruptive perspective is the degree to which Google is able to obtain differentiated performance by integrating together its applications and its browser. If one plus one really equals something that is meaningfully more than two, Microsoft will struggle to match Google's performance, let alone deal with the ramifications of a disruptive business model.

However, if that integration does not confer any particular advantage, Microsoft is likely to do a "good enough" job of rolling Chrome's basic features into Internet Explorer, blunting the impact of Google's move.

Microsoft used the power of integration to famously crush Netscape in the browser wars in the mid 1990s. Today the company controls more than 70 percent of the browser market, and of course maintains a dominant position in the operating system and productivity applications market.

Early signs suggest that this story might play out in a different way, if Google can deliver the disruptive goods by turning the integration tables on Microsoft.

For another view of what Chrome means for Microsoft, see this post by Jeff Stibel.

Consider a recentWall Street Journal article describing how top fashion companies like Gucci and Burberry are working hard to better manage their supply chain. One critical problem: replacing dud collections before retailers grow antsy. Burberry has spent more than $100 million to improve its ability to ensure that the right products get to the right stores at the right time.

These challenges of course require a fair amount of blocking and tackling, but there's also ample room for fresh, innovative thinking. And think of the top- and bottom-line impact of finding better, cheaper, and faster ways to get products into stores more quickly.

Innovation should matter to you if your job doesn't involve strategy or product development.

Innovation is about solving old problems in new ways. Human resources or information technology workers can think of new ways to help internal customers solve the problems they face. Process-focused managers can develop ways to have their processes run better, faster, and cheaper. Customer-focused employees can find new ways to provide positive experiences to customers. And on and on.

The good news is that the principles that help growth-seeking innovators apply equally to internal innovation efforts. The following questions are a good starting point for any innovation effort:

• What is an important problem that the customer, or internal client, can't adequately solve?
• What stops the customer, or internal client, from adequately solving the problem?
• How can you make it easier and simpler for the customer, or internal client, to address the problem?
• What is a low-cost way to test your idea?

Innovation doesn't have to land in the headlines to have impact. Everyday innovation can be critical to long-term business success.

Instead, we suggest that companies begin innovation efforts by creating an innovation strategy that details clear targets and tactics.

Clear targets help internal innovators know what they're shooting for. A reasonable starting place is to imagine what success looks like five years in the future. Are you seeking to double your business? Hold it steady? Something else? Setting a target that is several years in the future can help to de-politicize a potentially charged discussion.

Then think about the sources of growth. How much can you reasonably expect your core business to contribute? In some industries your five-year contribution might be below today's contribution, and that's okay.

Next, look at what's already in your development pipeline. What can you reasonably expect that pipeline to contribute in the future? One tip here: make sure to risk adjust your pipeline. If you assume all of your projects will succeed, you are being wildly optimistic.

Now, calculate the gap (it will almost always be a gap) between where your projections suggest you will be and where you want to be. That gap is your target for new innovation efforts.

Then think of the tactics that are on and off the table. A lot of people think that creativity and chaos are friends. We disagree. Instead, we find it helpful to carefully consider what you want innovators to do, what you'll consider, and what you don't want innovators to do.

One way to make the tactical options tangible is to use this "Goals and Boundaries" visual (from Chapter 1 of The Innovator's Guide to Growth).

The figure (download it here) represents the "goals and boundaries" of innovation. Note how the figure includes a diverse set of elements, such as steady-state revenue, channel, business model, and brand. Customize the vectors for your context, and gain consensus about what's clearly in bounds, what's on the fringes, and what's clearly out of bounds.

Gaining consensus on this visual will help you to evaluate ideas and to guide innovators in their exploration efforts.

Formalizing targets and tactics is a great way to kick-start your innovation efforts. Start allocating resources to support your strategy, and you are on your way to innovation success!

Companies looking to boost their abilities to innovate routinely turn to companies that seem to have solved the innovation equation for inspiration. They observe elements of the company's environment (free food! no doors! online jam sessions!). They seek to mimic those environmental elements to get similar results.

The problem is that a "culture of innovation" involves much more than these superficial elements. In fact, my colleague Steve Wunker is fond of saying that culture is a lagging, not a leading indicator. Changing culture requires changing activities. Changing superficial stuff without changing the real stuff doesn't accomplish much.

If you have trouble remembering this, think back to the episode of The Simpsons when, after a random bear sighting, the town of Springfield invests heavily to guard against future "attacks." The town thinks the heavy investment pays off, because bear sightings drop by 100 percent.

One of Springfield's residents is notably unimpressed. With thanks from The Simpsons Archive, here's Lisa Simpson's conversation with her father Homer.

Homer: Not a bear in sight. The Bear Patrol must be working like a charm.

Lisa: That's specious reasoning, Dad.

Homer: Thank you, dear.

Lisa: By your logic I could claim that this rock keeps tigers away.

Homer: Oh, how does it work?

Lisa: It doesn't work.

Homer: Uh-huh.

Lisa: It's just a stupid rock.

Homer: Uh-huh.

Lisa: But I don't see any tigers around, do you?

[Homer thinks of this, then pulls out some money]

Homer: Lisa, I want to buy your rock.

It's a classic example of mixing up correlation and causation. The rock correlates with a lack of tigers--just like Google's free food correlates with a perception that Google is innovative--but it doesn't necessarily cause tigers to stay away.

Whenever someone tries to peddle you an innovation rock, ask, "Why exactly would that work?" and "What other things have to be in place for the rock to function?" If the rock peddler can't answer those questions, respectfully pass.

Out of curiosity, anyone else draw innovation insights from strange places?

You see, everything could be disrupted. The important question is will disruption play out in a way that favors or kills the incumbent market leader? The real interesting question is "Will Microsoft disrupt Windows?"

The forces of disruption are at work in every industry. It can happen more quickly in some industries than others, but the potential is omnipresent. And as Clayton Christensen pointed out in his seminal book The Innovators' Dilemma, market leadership isn't just an insufficient buffer against disruption, in some cases it is the root cause of failure.

Consider the management classic In Search of Excellence. While some of the companies featured in the book continued to excel after it was published, companies like Amdahl, Atari, Data General, Digital Equipment Corporation, Eastman Kodak, and Kmart all encountered serious difficulties. In fact, an analysis by IMD Professor Phil Rosenzweig in his worthwhile read The Halo Effect found that the average "excellent" company from In Search of Excellence generally under-performed the stock market in the years after the book's release.

What about Microsoft? Windows has been one of the greatest business success stories of the last century. Complain all you want about initially buggy software or how Apple is always a generation ahead. Microsoft has a dominant market share and runs a business that generates an obscene amount of cash.

But this too shall pass. Windows is threatened because the computer itself is losing dominance to other devices and models of computing are shifting to minimize the importance of the operating system.

The change has begun. So-called cloud computing, a model where much of the functionality a user experiences exists beyond their own computer, minimizes the importance of software that resides on the computer. Increased mobility and inter-connectedness will hasten the rise of cloud computing.

Further, the proliferation of connected devices like Apple's iPhone, Amazon's Kindle, Sony's PlayStation 3 and Nintendo's Wii lessens the importance of the computer itself. Throw in virtualization--where a single physical machine functions as multiple "virtual" machines--and you have a recipe for a changing world.

Microsoft has no choice but to proactively plan for a world without Windows. The BBC article referenced an internal effort, code-named Midori, that's centered "on the internet and does away with the dependencies that tie Windows to a single PC."

A promising start. The fundamental question behind Midori and other efforts that are surely kicking around Redmond is to what degree will Microsoft truly let go of Windows? Can the company truly approach solving the problem of enabling computer applications and providing productivity enhancements from a somewhat blank piece of paper?

Microsoft's overwhelming tendency will be to look at the world through Windows-colored glasses. The urge will be to try to force fit its current business model--where most of its growth comes through the sale of a new computer--onto new growth markets. If Microsoft does this, the company will miss the real opportunities to prosper from disruptive growth.

Because the essence of disruption is simplicity and convenience, disruption almost always grows markets. While it's hard to imagine something that surprasses the personal computer market, there are billions of people who have no computing power whatsoever. And there are hundreds of problems people encounter regularly that lack good, elegant computing solutions.

If Microsoft can take its awesome reservoir of talent and free that talent from the constraints of its business model, perhaps it can be the next example of a company that turned the forces of disruption to its advantage.

Before the 1950s, lending depended on the wisdom and judgment of loan officers. Then, a company called Fair Isaac developed a way to use four simple variables to develop a credit score that reliably predicted the risk of lending to an individual. Using the approach could allow any individual to meet, if not exceed, the accuracy of a loan officer, whose judgment might be clouded by extraneous factors.

Further refinements to the credit scoring methodology fueled disintegration and disruption in the banking industry, spurring the rise of credit cards and specialist providers of auto loans, home mortgage loans, and small business loans.

Likewise, YouNoodle has developed a database that it claims can predict the valuation of early-stage startup companies. It developed the database by assessing 3,000 startup companies. The model relies on four basic areas: the team, financial factors, the concept, and advisors. A startup company fills in a survey with detailed questions focused on these four areas, and out pops the valuation.

Arrington found that TechCrunch would carry a valuation of about $85 million. Google would carry a valuation of $88 million three years after its founding. While that figure represents an obvious bargain to Google's ultimate valuation, the figure was a clear sign that Google was well positioned for success from the get-go.

If YouNoodle actually works--and that remains a big if--it could drive substantial change in the venture capital industry. Historically venture capitalists used their wisdom and judgment to inform investment decisions. Investors that demand lower stakes or less control in companies could more confidently invest in startups.

There's an important lesson in YouNoodle's algorithm for innovators inside a corporation as well. Most corporate innovators spend a great deal of time thinking about one of YouNoodle's four variables - the concept. But almost everyone knows that highly innovative concepts will necessarily require numerous iterations before succeeding. Having the right team, the right advisors--inside and outside the company--and the right approach to financing are under-appreciated factors that influence the ability to iterate to success.

You can reasonably predict that venture capitalists will be highly skeptical of the ability of algorithms to trump their judgment. That skepticism might be warranted. But YouNoodle is just one articulation of a general movement bringing greater predictability to the fuzzy world of innovation. People who understand how to use predictive patterns like YouNoodle's or the disruptive innovation model can position themselves to beat the so-called experts.

Click here to read Cuil's Dangerous Strategy Part I.

New-search-kid-on-the-block Cuil Inc. has its work cut out for itself. First, it has to fix embarrassing bugs that plagued its hotly hyped launch this week. Then, it has to figure out how to break from the pattern showing that companies that try to leap over market leaders with a better-performing product typically fail.

Cuil could look to Apple for signs of hope. Apple was far from the first mover in the digital music space when it introduced its first-generation iPod in 2001. That player was superior, and more expensive, than devices offered by Rio, Cabo, Archos, and others. Apple’s iPhone was a late entrant to the smartphone industry. Research in Motion, Motorola, Nokia, and Samsung are still struggling to match Apple’s intuitive interface and powerful computing platform.

In both cases Apple entered an established market with products that were functionally superior to established products.

Harvard Business School Professor and Innosight founder Clayton Christensen’s research found this approach—which he termed a sustaining strategy—tends to not work because it entices devastating response from motivated incumbents who have the right skills to fight back.

In fact, in 2007 Christensen publicly predicted the iPhone’s failure, telling BusinessWeek: “The iPhone is a sustaining technology relative to Nokia ... History speaks pretty loudly on that, that the probability of success is going to be limited.”

Yet, Apple’s digital music strategy has been an unqualified success and its mobile phone strategy appears on its way to similarly rarefied heights. Why has Apple been able to buck the trend? In both cases it recognized that it had to create a completely different value system to disrupt an entrenched incumbent value system.

From the beginning, the MP3 movement had the potential to disrupt the music label/record store/portable music player value system. But there was one key problem. The existing value system controlled a scarce asset—physical distribution of songs on CDs and tapes.

Realizing the disruptive potential of MP3 technologies therefore required more than a device. It required agreements with the record industry to distribute individual songs in digital form in Apple's DRM format, a mechanism for the safe and simple distribution of those songs (iTunes store), and tools to help consumers manage their new digital music collections (iTunes software).

Similarly, the smartphone disruption isn’t really about mobile phones. It is about creating a new mobile computing ecosystem that has the potential of disrupting the Intel/Windows computing value chain. Again, success requires integrated hardware and software and the ability to get a wide variety of software. The final piece of that puzzle could very well be the App Store Apple launched earlier this month.

In both cases, a disruptive movement had begun, but no one had yet “perfected” the disruption. The Perfecting Disruptions required new forms of integration, and a company with the resources to drive the integration, to succeed.

Unfortunately, this analysis doesn’t provide much hope for Cuil as a standalone entity—unless it completely re-frames its approach.

First of all, Perfecting Disruption doesn’t appear to be a game for pure startups. It's hard to imagine a startup freeing music from the existing distribution model with 99-cent song deals with multiple music labels. Similarly, no startup could have spit in the face of phone industry convention that operators (like AT&T) had to be deeply involved in the user experience and have tight control over software downloaded onto mobile devices.

Worse, Google does such a good job of search, it is difficult to see what precisely Cuil (or another player) could perfect. Google also has one of the most beautifully integrated businesses known to mankind. As more people use its search, it becomes a more attractive advertising location, which furthers the utility of its search, and provides ample cash to invest in bolstering its core offering. The virtuous cycle makes Google’s search-based business seemingly impervious to a Perfecting Disruption.

Of course, that doesn’t make Google impervious to all disruptions. After all, Google isn’t really a search company. It is a company that sells advertising, with search as an effective, but still imperfect, way to drive advertising revenue.

Search-based advertising still doesn’t really get the advertising job done for companies who remain frustrated by their inability to precisely target and track their advertisements, or predictably run campaigns that achieve their business objectives.

Through this lens, Microsoft’s basic strategy of investing heavily in new advertising technologies and acquiring means to capture eyeballs (through its failed attempt to purchase Yahoo!) may make sense. After all, Microsoft has the right resources and technological moxie to develop an integrated offering that perfects the still imperfect world of Internet advertising. Perhaps Cuil could develop technology that plays a part in this story.

Apple shows that it is possible for companies to come late to a disruptive party and still emerge triumphant. Perfecting Disruption requires integrating in new ways to fulfill the promise of a disruptive trend that would otherwise not achieve its potential.

Cuil’s search engine launched today. It claims to cover three times the number of Web pages that Google covers (in trial runs this morning it ran very slowly and found nothing under my name!), and displays its results like a magazine. President and co-founder Anna Patterson, an engineer who helped build Google’s search index, told the Journal, "You can't be an alternative search engine and smaller. You have to be an alternative and bigger."

To top Google, Cuil built a top-flight team of engineers with search experience at eBay, IBM, AltaVista, and, of course, Google. It is backed with more than $30 million of venture capital.

Cuil is playing a dangerous game. Clayton Christensen’s research found that entrants almost always fail when they try to leapfrog over current competition by playing today’s game better. Incumbents have the skills, resources, and motivation to defend against these “sustaining” attacks.

If Cuil’s search technology does indeed work better than Google’s, you can be sure that Google will be fiercely motivated to fight back. With all the engineering talent at its disposal, it is hard to believe Google won’t win that battle.

Perhaps Cuil’s goal is to be acquired by Google, in which case it might not care about its long-term success. If it really does hope to ultimately best Google, it better have a disruptive card up its sleeves. My next post will see if lessons from “anomalies” to the pattern of entrants losing sustaining battles could help Cuil plot a path to success.

Click here to read Cuil's Dangerous Strategy Part II: Is There Hope?

The article in question described Roche Holding AG’s $44 billion bid for full ownership of Genentech. For close to 20 years, Roche has masterfully managed a controlling economic interest in the biotech pioneer. One key to success has been allowing Genentech to follow its own course and reaping the benefits of products that would never have come out of Roche’s labs.

Today, Roche hopes that tighter integration will help to spur its own development process. And, of course, it hopes to achieve substantial cost savings “by combining the two companies ‘ clinical research teams and sales, manufacturing, and administrative departments in the U.S.”

So-called cost synergies make perfect sense—on paper. Through an accountant’s eyes it appears wasteful to duplicate functions that perform the same basic task.

What’s hidden however is how combining functions can destroy what’s unique about a company.

You see, a company’s capabilities go beyond the human beings it employs. A company’s capabilities rest in its process (how it goes about doing its work), its priorities (the mechanisms by which it allocates resources), and the underlying, often unstated assumptions on which the business rests. It’s hard to quantify these things, but they are real, and can be unintentionally destroyed in the name of cost savings.

Everyone agrees that one reason Genentech is special is its culture. Perhaps Genentech and Roche have been working together long enough that Roche can wield the synergy scalpel surgically enough to maintain Genentech’s unique culture as it combines processes. If not, Roche’s move is going to end up being a dud.

If you find yourself in a situation where a strategic decision rests on quantified cost savings, at least ask whether you are destroying anything to achieve the savings. Just because you can’t quantify something doesn’t mean that it isn’t important.

It is a provocative question. After all, markets often punish companies that diversify into non-related industries, because individual investors can get the benefits of diversification by investing in different industries themselves. Are companies similarly wasting their time—and their investors’ money—when they try to invest in innovation?

Maybe established corporations should solely focus on exploiting what already exists, leaving the creation of what doesn’t to startups. Of course, not investing in innovation ultimately will consign a company to failure, but hey, that’s what creative destruction is all about.

There is no doubt that the innovation struggles of incumbents lead to significant waste. Companies spend billions of dollars developing fatally flawed products and services. They give advertising agencies billions more to convince people to want things that they really don’t.

An inefficient incumbent innovation market has spurred the ascendancy of the venture capital industry. Venture capitalists earn substantial fees attempting to fix this market inefficiency by providing capital to startups. Similarly, growth-seeking incumbents pay investment bankers handsome fees to advise them on acquisitions to plug the growth holes created by their innovation struggles.

However, we strongly reject the view that incumbents should eject from the innovation game. Incumbents have tremendous assets at their disposal. They have whip-smart developers with ample resources to invent cool, new things. They have economies of scale that can help them operate efficiently. They have partnerships that can help accelerate the development and deployment of new growth initiatives.

I’ve written before about how these assets can be liabilities if not managed properly. But they also can be powerful advantages if used in the right way.

We believe we are on the cusp of an era where companies develop the ability to innovate much more reliably and repeatedly. Patterns of success and failure, highlighted by excellent research by Robert Burgleman, Clayton Christensen, Richard Foster, VG Govindarajan, Rita Gunther McGrath, and many more are coming into clearer focus by the day.

As noted in the closing sentence of our new book, The Innovator’s Guide to Growth, using the right patterns “will allow you to see what others cannot, to find order where others find chaos, and to create new growth businesses again and again.”

This isn’t just academic mumbo-jumbo. Companies like Procter & Gamble, Johnson & Johnson, General Electric, Cisco Systems and Amazon.com are showing how to make innovation more routine and repeatable.

There is no doubt that innovation remains difficult work, but companies that learn to think, and act, in the right way, can begin to reduce the waste that results from flawed innovation efforts. Who knows, maybe someday a manager will ask whether entrepreneurs should bother creating new companies given the overwhelming advantages of incumbency.

What’s your vote? Should incumbents just give up and leave innovation to entrepreneurs and venture capitalists? Or the other way around? And why?

One of the latest companies to file for Chapter 11 bankruptcy protection is Steve & Barry’s, a retailer whose low prices had driven substantial growth over recent years.

The company’s leaders pinned the blame squarely on the economy. “The generally poor environment for apparel retailers has reduced funding to our suppliers, landlords, and to our company,” said founders and co-Chief Executives Steve Shore and Barry Prevor. “It has become increasingly difficult for us to continue operating normally under these circumstances.”

Did the current economic climate hurt the company? Of course. Is it the reason the company needed to seek bankruptcy protection? In my opinion, no. The company’s struggles indicate a failure to develop a fundamentally solid economic model.

Sure, the company charged rock-bottom prices (its clothes were priced below $10), but it clearly lacked a way to translate those low prices into attractive profits. The tougher economic climate simply exposed an underlying weakness.

Consider it corporate Darwinism. When the economic climate gets tougher, the strong survive, the weak don’t.

If your brand, product line, division, or company is struggling and you start to blame the economy, watch yourself. Take a good look in the mirror before determining where the blame really lies.

The article described how several years ago, the head of Sacramento’s regional planning agency started to push developers to concentrate growth in defined areas rather than furthering suburban sprawl. The argument hinged on lowering pollution and fostering economic development.

Of course, with the price of oil shooting up, today the idea looks remarkably prescient.

I wonder, however, how many planners rejected similar ideas because they couldn’t imagine people making living decisions based on the cost of commuting, and how many now wish they started dusting off those rejected plans when signals emerged suggesting that circumstances had changed.

On the other hand, sometimes circumstances change in ways that undermine ideas that once seemed credible. Consider Motorola’s daring, and ultimately doomed, venture to provide satellite-driven mobile telephony.

When Motorola started investing in the multi-billion dollar “Iridium” project, competing standards made using mobile telephony in different counties a major headache. I remember when I joined McKinsey & Co. in the mid 1990s how world travelers would carry several mobile phones. Under these conditions, a truly global technology had appeal.

As many markets converged on a standard (Global System for Mobile communications, or GSM) and created roaming agreements, the basic premise behind Iridium crumbled. Motorola continued plowing money into the venture until it was crystal clear that it was a flop.

It’s rare that you come across a universally good or bad idea. Whenever you make a decision about an idea, ask about the three developments that would make you reject the project you just approved or approve the project you just rejected. Periodically revisiting that shortlist will help to properly manage your innovation portfolio.

Can readers think of examples of good "before their time" ideas that might have been killed too soon? I wonder sometimes what would have happened if Apple kept at the Apple Newton for example. Maybe the iPod would have come even sooner.

If something helps people to do what they are already trying to do, there's good reason to believe the innovation will succeed. When a customer would perceive an innovation to be worse and more difficult than what exists, or that innovation doesn't address a perceptible problem, the innovation is likely to struggle.

Take, for example, a new milk jug that is appearing on shelves in Sam's Club and Costco. The milk jug is more energy efficient, easier to produce, and cheaper. Unfortunately, it requires customers to change the way they pour milk, or suffer the consequences. As one person told the New York Times, using the jug involves a "rock-and-pour instead of a lift-and-tip.”

Not surprisingly, customers aren't flocking to something that appears strange and difficult.

Disrupting competitors—following approaches that competitors consider unattractive or uninteresting—is a great thing. Disrupting customers—asking them to put up with solutions that seem worse to them or require behavior changes—is not.

Customers might still adopt the new milk jug because it does offer lower prices. But perhaps product designers could have found a middle ground that sacrificed some cost savings to make the product easier to use. By sacrificing the customer experience to optimize around dimensions that matter to retailers and suppliers, the designers might have botched a great opportunity.

As part of a broader effort to reinvigorate the company, Starbucks recently rolled out a mild-tasting coffee called “Pike Place Roast.” It has quietly moved away from offering bolder-tasting coffees, such as its Sumatra brand, particularly in the afternoon.

Starbucks brought Pike Place Roast to market in response to complaints from Consumer Reports and others that its coffee tasted bitter or burnt. A small group commercialized the brew in six months—an astonishingly short period of time in the food industry.

While Consumer Reports and the mass-market has cheered, a vocal group of core Starbucks loyalists panned the coffee—one reviewer on a Starbucks Web site designed to solicit customer feedback called it a “fundamental, grievous error”—as watered down and away from what makes Starbucks distinct.

Incumbents seeking to create new growth often face a version of this dilemma. Should we listen to our best, most loyal customers, or should we turn our ears towards customers we’re not serving well, or even to customers we are not serving at all?

Like many things in innovation, our belief is that wise companies turn this “or” question into an “and” statement. Companies have to have the ability to listen to and serve their best customers while simultaneously finding out how to listen to and serve dissatisfied customers and customers who don’t consume anything at all.

Think about how Apple has broadened its iPod line since introduction. It didn’t just increase capacity of its core player to appeal to technically sophisticated consumers who wanted to jam every song onto their players. It also made more aesthetically pleasing players (the nano line) to target less-technical consumers and smaller, cheaper players (the shuffle line) to target consumers more concerned with price or portability.

Just listening to your best customers can be dangerous. After all, your most satisfied customers have little incentive to tell you to do things fundamentally differently in the face of disruptive trends in your market. Alienating those customers is the wrong move too, because loyal customers are the profit engines of most companies.

It’s a tough trick, for sure, particularly when your company, like Starbucks, essentially follows a single business model.

One thing Starbucks could consider doing is allowing individual store formats to organize in different ways depending on the local customer mix, or even creating sub-brands. The Gap, for example, has its Old Navy, Banana Republic, and Piperlime brands to connect with different customers.

While bean counters might argue that this approach would involve duplicative overhead, it could also allow Starbucks to better connect with different groups of customers, helping to power the growth it so sorely needs.

Ten years ago, a bevy of companies shocked the communications industry when they announced the formation of Symbian—a for-profit consortium that would transform the PDA software of Britain’s Psion PLC into a platform powering high-end smartphones.

Back then, these smartphones were gleams in engineers’ eyes (the first—Ericsson’s Project Pamela—was the size of a small book and never commercially produced). But, almost unanimously, industry analysts foresaw them taking over the premium tiers of the mobile market and requiring a common software platform for the third party developers who would create the applications that users would demand. At its peak in August 2000, equity markets valued Symbian at nearly $10 billion.

This week, Nokia bought out the remaining shareholders of Symbian for about $410 million, and immediately declared it would give away the software code to a non-profit Symbian Foundation.

Was this tumble because Symbian produced a bad product? Not at all. By most measures—system reliability, power consumption, etc.—Symbian’s mobile operating system is the best on the market.

Rather, the world changed in ways very few industry analysts expected. A decade ago, intelligent people reasoned that the processing power of the mobile would start catching up to PCs, and so people would start to demand PC-like functionality on their phones. Moreover, the mobility of the phone would lead to many unique applications being developed for this platform.

Looking at Microsoft, they saw a quasi-monopoly forcing PC manufacturers into low profitability, with little control over what people did with their products. They also observed Microsoft creating early versions of its own mobile operating system.

Nokia, Ericsson, Motorola, and others were determined that they, not an upstart software company, would guide the development of the mobile industry.

Yet the analogy was flawed.

It turned out that users cared more about the style of their handsets than the elegance of its software—witness the success of Motorola’s RAZR with notably un-elegant software in its guts. Mobile phone manufacturers came to realize that development cycle time was critical to matching handsets with fashion trends, and they could speed cycle times by relying on their own proprietary software platforms.

Concurrently, mobile carriers such as AT&T showed little enthusiasm for third party software to be used on their networks—it would mean forsaking too much control. Plus, users found that they actually didn’t want a lot of specialized applications on their handsets. Hence the key reasons why stakeholders—manufacturers, carriers or users—would demand a common operating system were predicated on faulty assumptions.

To be sure, Symbian still had a market, but it was at the very high end where most manufacturers found it cost-ineffective to develop propriety systems.

In the past year, Symbian’s outlook became murky. Google announced that it would release a free software platform, called Android, to power smartphones. Rather than make money through charging license fees like Symbian, it would make money through advertising and other new business models.

The software would be good-enough on performance criteria like stability and power consumption, and would eventually be an easier platform than Symbian for third party developers. In the past month, Apple announced a new version of its iPhone software designed to be even simpler for these developers to use.

Enter Nokia. As Symbian’s largest shareholder, it had based many of its devices on this platform. It was making its money on sales of Nokia hardware, not on Symbian’s license fees, but those hardware sales would be threatened if third party applications finally took off without Nokia handsets being able to run them.

So Nokia changed the rules.

By buying out Symbian’s other shareholders and giving away the sourcecode, it aims to make this platform the leading choice for developers. Moreover, it has enlisted new allies such as the giant carriers Vodafone and AT&T to support the Symbian Foundation, helping to ensure a lasting market for these devices.

The move seems to make sense, given that Symbian shares have proven to be cheap. Nokia is buying an insurance policy—it isn’t certain that the availability of third party applications will drive handset sales, but the possibility of this scenario is scary enough to make the investment worthwhile. Nokia has optimized its systems, from chipsets to user interface, to work with Symbian’s operating system, and it would be difficult to switch to a competing platform.

It is a tangled tale. Yet we can draw some powerfully simple lessons:

1. Thoughtful analogies are no substitute for real-world experience. Symbian took years to produce its first mobile phone software. Brilliant people dreamed up potential applications. Yet actual usage showed that high-end buyers were still looking for basic features. A simpler operating system, with fewer bells-and-whistles, could have come to market more quickly and provided essential guidance.

2. New business models can up-end industries. Symbian found that it is difficult to compete against free. Google envisaged a totally different way to profit from owning the operating system. Now, Nokia has changed the game again, leaving Google in a difficult spot with no installed base and few strong partners.

3. Beware attacking powerful incumbents. Manufacturers and carriers worried about Google’s ascendancy. Perhaps, predictions from long-ago would hold true, and a phone’s operating system would significantly sway market shares. There were powerful motives to avoid sacrificing control.

4. Hedge your bets. Nokia may have thrown away $410 million. Proprietary systems may still rule, and Android may have had little impact on how manufacturers and carriers make money. Yet the contrary scenario was too frightening. Recognizing that it is no more omniscient now than 10 years ago, Nokia wisely invested to forestall that scenario from happening.

It may be another decade before we see whether Nokia’s move has paid off. But we can judge today that its decision was prudent.