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| Home - Industry Article - Sep 03 Issue |
The Innovation Equation
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Step 4: Defining the Competitive Position
When formulating new product concepts, companies must ensure their offerings place them in a unique and valued competitive position. Given the strategic importance of achieving this objective, it is interesting to note that companies often perform the positioning activity after the product has already been designed – in hopes of finding the best way to position what already exists. This often requires the company to make claims about their products and services that may not be well supported, eventually leading to a decline in customer loyalty. This approach is again all backward.
When executing the innovation process, innovation leaders should define the desired competitive position before a concept is formulated - and then a solution should be devised to occupy that position. If a cell phone manufacturer, for example, knew that "minimizing the number of calls dialed incorrectly" and "minimizing the likelihood of inadvertently placing a call" were the two most important, least satisfied customer desired outcomes, then it would be advantageous to work hard to create a solution that would satisfy those outcomes, enabling them to successfully occupy the "precision calling" position – a competitive position that is unique from other companies and valued by customers. Customers will resonate with the message that communicates this position and the product will solidly connect with the target customers.
Step 5: Formulating Concepts
A critical activity in the innovation process is to devise solutions that will potentially satisfy the customer’s desired outcomes. This requires creativity, which is abundant in most firms. Many innovation leaders in fact, complain they have too many ideas to consider. Although creativity is abundant, successes are rare because it is almost impossible to inform employees where that creativity should be focused. As a result, employees spend much of their time and effort thinking about ideas that deliver little customer value.
If a cell phone manufacturer does not know that "minimizing the number calls that are dialed incorrectly" is an important and unsatisfied outcome, then how can employees focus their creative energy in a way that will ensure value creation? It is this lack of insight that derails the innovation process, as companies often apply a shotgun approach to brainstorming and ideation activities. Employees think about product, distribution, pricing, service and advertising issues and generate hundreds of ideas across all disciplines, bogging down and already complex process to the point where inaction is commonplace.
The alternative is to know first where the opportunities for improvement lie. Then employees will be able to focus their energy with precision on the creation of value - leading to the systematic formulation of inventive - if not breakthrough solutions.
Step 6: Evaluating Concepts
With hundreds of ideas to consider, innovation leaders must be able to determine which ideas to pursue and which to forego. In situations where the customer’s desired outcomes are known and prioritized, it is possible for marketing and development teams to determine the degree to which each idea satisfies the collective set of outcomes, thereby quantifying the amount of value delivered by each.
In most situations, however, this information is not available and as a result other methods are employed – most of which are riddled with error. For example, some teams simply choose to select ideas that have intuitive appeal, are easy to implement, fit the current business model or can be more easily justified from a financial perspective. This approach precludes the development of new competencies that may be the key to high-growth. In more extreme situations, politics and personal goals may be a driving force and an idea may be chosen not on its merits, but because it is backed by a powerful executive, an aggressive engineer or a convincing marketer who hopes to see his product go to market.
Companies cannot afford to pursue ideas that will ultimately fail, nor can they afford to miss the best opportunities for growth. By thinking differently about innovation, companies can systematically evaluate any proposed idea and accurately quantify the amount of value it will deliver - thus making it possible to predict its likely success or failure.
Closing
Solving the innovation equation is indeed a process – one that can be managed and controlled to produce predictable results. Over the coming years this view will become the norm as innovation leaders are forced to search for new ways in which to eliminate waste and ensure success. By identifying and eliminating the factors that contribute to process variability, they are able to act with conviction and confidence, knowing their resources are focused on the creation of customer value. Applying an outcome-driven approach to innovation gives the process structure and discipline – a foundation upon which to solve the innovation equation.
Outcome-Driven Innovation
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Conventional Wisdom |
Outcome-Driven Innovation |
Advantage |
| The Innovation Process |
Innovation is an art form whose output is random and unpredictable. |
Innovation is a process that can be managed and controlled to produce predictable results. |
High failure rates give way to high success rates – leading to increases in revenue and reductions in cost. |
| Step |
Conventional Wisdom |
Outcome-Driven Innovation |
Advantage |
| Obtaining customer inputs |
Companies gather product ideas from customers and give them what they request - listening closely to the "voice-of-the-customer". |
Companies determine what outcomes customers want to achieve – and let qualified experts, not customers, devise the best solutions. |
Marketing and development functions have the information they need to create solutions of significant value. |
| Segmenting the market |
Customers are conveniently segmented into demographic or psychographic classifications such as product type, price point, age and business size. |
Customers are segmented based on what outcomes they are trying to achieve. They are not placed into artificial, company-imposed segment classifications. |
Companies target real rather than phantom targets enabling them to create products and services that connect solidly with their customers. |
| Prioritizing opportunities |
Opportunities are defined as the solutions customers are requesting. They are prioritized based on what resources are available and what competencies are in place. |
Opportunities are defined as desired outcomes that are both important and unsatisfied. They represent the greatest opportunity for improvement. |
Innovation leaders are able to quantitatively prioritize the opportunities for improvement and avoid addressing outcomes that are already over-served. |
| Defining the competitive position |
Products and services are positioned after they are designed. A message is devised to help the company achieve the most favorable competitive position. |
Innovation leaders decide before a product is conceived what outcomes they want to satisfy and then create a product to occupy that desired position. |
Innovation leaders are able to define and occupy a competitive position that is both unique and valued – rather than accepting a position that is hard to defend. |
| Generating concepts |
Employees brainstorm without constraints, generating hundreds of ideas – with questionable value. Many ideas must be evaluated. |
Employees brainstorm with constraints – they are focused on specific outcomes and generate a few ideas of significant value. |
Employees do not waste their time generating ideas that do not add value, simplifying the process and increasing the chances of success. |
| Evaluating concepts |
Customers apply subjective measures when evaluating the proposed ideas. Internal filtering methods often prevent the best ideas from surviving. |
Company employees use the customer’s desired outcomes as the objective set of measures against which to evaluate the proposed ideas. |
Innovation leaders are able to accurately quantify the value of an idea. Only valued ideas are pursued and likely failures are avoided – eliminating wasted expense. |
Anthony W. Ulwick is the CEO of Strategyn. He regularly conducts seminars and workshops on managing innovation. Mr. Ulwick has authored Turn Customer Input Into Innovation, which was published in the January 2002 issue of the Harvard Business Review and recognized as one of the years best business ideas by HBR's editors in the March 2002 issue. Prior to Strategyn Anthony spent 11 years at IBM, started The Total Quality Group, and published a book - Business Strategy Formulation: Theory, Process and the Intellectual Revolution. To send Anthony article feedback, email: ulwick@strategyn.com.
 
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