Sustained profitability in today’s fast-changing high-tech industrial markets can be elusive. Confident that a new technological breakthrough will have customers clamoring at the door, managers often make major investments only to discover there is no real demand for their product. And even if the new product is a market hit, earnings can be short-lived. Competitors will soon pile in, prices will drop, and eventually the entire market will be wiped out by the next technological breakthrough. Only the earliest movers—both into new markets and out of fading ones—are likely to reap profits.

To increase their sales growth and profitability, some companies are beginning to reassess their priorities. They have discovered that the solution to profitable growth is not solely technological prowess, but the ability to develop customers before products. Adept at identifying and meeting unmet as well as latent demand, these companies can almost guarantee a profitable market prior to making substantial investments in a new product.

The challenge of competing in high-tech industrial markets

Markets for high-tech industrial products such as electronic materials, battery components, and semiconductor manufacturing equipment are growing rapidly. Worldwide, the market for semiconductors grew by more than 15 percent, compared with a fall of...