Escalation of Expectations over Past Performance

Abstract

The principle of escalation of expectations describes the idea that customers value innovation to the extent that it surpasses their performance benchmarks, which were in turn created by the accumulation of past innovations. However, this is not a simple linear relationship in which the outcome is proportionate to the input effort. Instead, the result of innovation firm’s efforts is quite nonlinear, often behaving much like the proverbial single straw that breaks the camel’s back. The escalation of expectations is the mechanism that allows small changes, for instance, a small request made by a random customer demographic, the passage of a new law, or perhaps the wishes of a CEO, to become astronomically amplified in its impact throughout the innovation system. The escalation of expectations sets entire firms along a particular path of innovation, in which targets get set, ideas emerge, alternatives are searched for, and chances are taken. Out of this process, firms build up deeper reserves of know-how, and customer expectations ratchet forever upward (and sometimes, as we will see, even sideways).