Innovation at the Core
Peter Skarzynski and Amy Hemeter | November 9, 2009
The key to innovation is to invest in a consistent stream of incremental change that serves the existing market and current customers, while adapting to new clients and demands. One way to do this is to abandon the regimented approach and to stop prematurely discarding new ideas and relying on safe.
Here are four general methods on how to develop new product development (NPD) processes that can jumpstart the out-of-box thinking required for corporate innovation:
1. Using Technology to Develop the Innovative Business Model
Great innovators go beyond developing new products and processes; they concurrently work on developing new markets, new customers, new customer benefits, new delivery models, and new sources of revenue—they they innovate at the level of the business model.
For example, Apple’s iPod and iPhone. While these products are marvelous gadgets by themselves, Apple’s genius was around assimilating small gems into a breakthrough business model, integrating existing technologies together for the physical product, networking an ecosystem of suppliers and partners (including enlisting hordes of application developers to enrich the usefulness of these devices), and linking incremental generational improvements into a dominate platform.
Another example is CEMEX, the Mexico-based ready-mixed concrete supplier. CEMEX decided that the delivery of a traditional product had to change, by changing the delivery method and customer benefit models. This is because the traditional method of doing business was to give concrete suppliers 24-hours notice to deliver ready-mix cement; anyone that deviated from this industry standard was charged a hefty penalty. CEMEX believed that there could be real customer value in guaranteeing delivery of cement in a much shorter time window. But in order to innovate, the company knew that they would need more than simply a plan to deliver a traditional product in a faster time-frame. They would need to innovate. CEMEX plant managers and salesmen visited a 911-emergency dispatch centre in Houston, Texas to learn how a team of paramedics could be assembled within 10 minutes. Upon their return to Mexico, the CEMEX team started using a GPS dispatch system and GPS equipped trucks in order to reduce the cement delivery time. CEMEX can now guarantee delivery of cement within a 20-minute window. Not only do customers get a substantially more responsive service—that they pay a premium for—but delivery costs have also dropped by 35%.
2. Using the Innovative Business Model Rather than Technology
Conversely, the Boeing Sonic Cruiser is an example of a great technological innovation that lost to competitors with a better business model. Boeing unveiled this innovative, new aircraft in 2001. Designed to cut transatlantic flight time by 90 minutes (from seven hours to five-and-a-half hours), the airplane was considered a technological breakthrough for air travel. However, Boeing’s business model estimated that customers who wanted to save the hour and a half of flying time would have had to pay an estimated twice as much (for example, a $5,000 first class ticket would now cost $10,000).Around this time, a surprise competitor entered the market. Rather than focus on technology to reduce flying time, this semi-private time-share jet company opted to reduce on-the-ground time by flying into secondary airports, thus avoiding the many delays associated with commercial flights using big airports. This new business model enabled them to cut total travel time to nine hours, at a per passenger cost of just $7,500. Not surprisingly, Boeing ended up shelving its technological marvel, while the time-share jets--the business model innovators--took off.
3. See Your Business Differently: Customer Segmentization
To envision breakthrough ideas, firms must first break away from the way they see their industry, their customers, their strengths, and their products. For example, Whirlpool decided that focusing on their traditional customer—married women—maybe alienating a potential market segment. By taking a fresh look at the unique needs husbands might require from their appliances. While Whirlpool did not give up their unique needs. By examining this potential new customer segment, Whirlpool released the Gladiator Garage Works--a complete line of appliances, work benches, cabinets, and other garage equipment aimed at men. To market these new appliances, Whirlpool also adapted their marketing and distribution channel. Rather than focusing on traditional distribution channels, Whirlpool approached non-traditional retail channels (e.g., Lowe’s Home Improvement stores) and advertising channels (e.g., Sports Illustrated). By generating new perspectives and new product ideas, then synthesizing those product ideas into broader platforms, Whirlpool developed not just a breakthrough product, but a breakthrough business model with new revenue streams and new customer segmentization.
4. Ask Questions and Test Ideas to Hone the Concept and Delivery
Truly innovative, non-incremental ideas or concepts often face a high burden of proof. Firms, are often faced with the task of determining how to evaluate the future success of a new business concept and determining what type of investment needs to be made into this innovation.
Often, the key lies in experimentation - not as a process to validate the concept - but as an approach to building new knowledge about the new space. This experimentation offers answers to three successive and important questions:
- Do customers want the new product or process?
- Can we make the product/develop the process?
- Can we make money offering the product/using the process?
The essence of these questions enables a product or process to grow and evolve, through framing and testing that are used to adapt, not kill the idea.
For example, McDonald’s envisioned setting up self-service vending machines in the parking lots of its restaurants, offering a variety of goods similar to the ones found in a typical convenience store. Its initial test uncovered multiple operational issues, such as securing the permit for connecting power to a free-standing device in the parking lot. But more importantly, it learned that among the 150 or so products offered, ranging from batteries to razor blades and milk, it was DVDs that really drove sales. Instead of being tied to the original concept, McDonald’s answered the essential questions and then morphed the concept from a general-purpose convenience store to a DVD rental kiosk. By conducting additional experiments—to test pricing, assortment, and various operational issues—they launched their DVD kiosk idea. Now, there are over 15,000 RedBox DVD rental kiosks across the country, many of them in supermarkets and other non-McDonald’s properties, making RedBox the largest operator of DVD rental kiosks in the U.S.
Another example is Google’s Gmail, a highly popular web mail application. Google first evaluated customer demand by testing it with users inside the firm. Once employees found it useful, Google slowly invited the public to try out Gmail, limiting invitees to a select few.
As word spread about the advantages of Gmail over other web mail applications, demand swelled, and invitees auctioned off their Gmail invitations on eBay for hundreds of dollars. Google gradually tested its ability to deliver the product to a mass audience by slowly raising the number of invitations and steadily increasing the amount of storage space provided to each user. At the same time Gmail’s interface and security evolved, as developers worked their way through the learning and development process.
Along the way, Google also tested its ability to make money out of Gmail by selling targeted advertisements space in a manner acceptable to users. Finally, years after the initial internal launch, with little remaining question as to Google’s ability to satisfy customers, to supply the product, or to make a profit, Gmail officially opened to the public.
There is no doubt that incremental product improvements are helpful, but, if you want breakthrough ideas, you need to make your new product and process development more flexible, more adaptive and more welcoming to bigger, more novel ideas. Get radical--but, like Whirlpool, don’t stray too far from home. Look in your “garage” to find new perspectives and new platform concepts. Search for ways, like Google and McDonalds, to de-risk, while expanding the market. And watch your shareholder smile at your results.
Peter Skarzynski is a founder and managing director and Amy Hemeter is a principal of Strategos, a strategy and innovation consulting firm. Skarzynski is the author of Innovation to the Core (HarvardBusinessSchool Press, 2008). Go online: www.strategos.com |
