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Whether you make cars or mattresses, operate a hospital or a grocery store, or are in some other business, successful innovation depends on understanding what's driving the technological changes in your industry and anticipating what product and service features consumers will value in the future. In this article, the author describes her proven system for gaining those vital insights. The first step is to look back at the evolution of your business's technology and identify three to six dimensions where advances have significantly furthered its development--"big picture" dimensions such as cost, comfort, and safety. Next, plot the utility curve for each dimension (to see how progress on that dimension correlates with customer appreciation) and pinpoint the technology's current position on the curve. Third, decide where to focus your innovation efforts--a task made easier by using the author's matrix for scoring each dimension according to its importance to customers, its potential for improvement, and the ease with which improvements can be made. By following this three-step approach, a host of diverse companies are already creating promising new products.

In industries characterized by network externalities, the self-reinforcing effects of installed base and the availability of complementary goods can lead to a single (or few) firm(s) controlling nearly all of the market share in a product category. A new entrant may attempt to displace the incumbent standard by introducing a radically improved technology-- "leapfrogging" the current generation. However, a technological advantage alone is often not enough. To lure customers away from the existing standard, the new technology must somehow yield more value than the combination of value yielded by the incumbent technology's functionality, installed base, and complementary goods. This article develops a multidimensional framework of technology value components and applies it to data from case studies of three generations of competition in the U.S. video game industry. Presents strategies a potential entrant can use to leapfrog an incumbent successfully and strategies an incumbent can use to defend its position.