Choose the Right Innovation Method at the Right Time14 April, 2015 / Articles
In the industries plagued by the most uncertainty, how do companies hold on to their ability to innovate? And how do they achieve, and keep, an innovation premium in the market?
We found that managers who help their firms create and maintain an innovation premium use a different set of tools than their more traditional counterparts — tools honed in start-ups and specifically designed to manage uncertainty.
Although these tools come by many different names (e.g., lean startup, design thinking, discovery-driven planning, agile software, and so forth) they actually have a remarkable commonality. Where they differ is primarily with regard to the steps of the innovation process they emphasize. For example, design thinking emphasizes understanding customer problems, whereas lean emphasizes solution experiments. One other important difference: They tend to be tools that start-ups easily adopt, but that managers wrestling with day-to-day execution have struggled to incorporate.
In our research, summarized in The Innovator’s Method, we synthesize these perspectives into an end-to-end innovation process and show how successful corporate innovators have adapted these principles to increase their innovation premium:
Although the process may appear simple, even obvious on the surface, the billions of dollars wasted on failed innovation projects annually suggest that it is not so easy to implement. Naturally, innovation is a messy process and you may find that you start somewhere else on the figure (e.g., you already have a solution or business model innovation in mind), but the figure helps us remember that even in these cases, each element has to be addressed before you try to scale the business—or you are in grave danger of failure.
In the figure below, we summarize the key activities of each step.
Innovations always begin with an insight about a potential need, solution, or business model. These are the flashes of inspiration, the clues there is a problem, and the surprises that are lurking in the world around you. For example, as a sales representative at Baxter, Gary Crocker had a busy schedule, but he still spent as much time as possible observing the professionals he served, to understand them better, looking for surprises. As he watched cardiac surgeons work in the operating room, he noticed something obvious and yet completely overlooked: there was a lot of blood. Why? Of course, because it was a cardiac operation. But the blood was causing huge problems for the surgeons trying to work quickly and precisely. Crocker went on to found his first of several multi-million dollar companies, this one to create the “plumbing” that cardiac surgeons now use around the world to manage blood flow during cardiac operations. In our book, we discuss the observation behavior and several other behaviors that we saw innovators use to increase the chances of encountering a valuable surprise.
Once you have an insight, most innovators make the mistake of leaping to straight to solutions without first understanding the real problem, the job-to-be-done. For example, when managing the technology support function first became a major problem for software makers, most entrants into this market assumed the solution was to create a knowledge database for technicians. But Mike Maples Jr. and his team eschewed this approach, first spending weeks watching technicians, timing their calls, listening to the conversations, and mapping out the process. They discovered that only 25% of the call was spent actually addressing the problem with a knowledge database. The other 75% of the call was spent on simple administrative details, such as determining the operating system and the level of support needed. Maples and his team went on to build a multi-million dollar product based on a deep understanding of the problem that all their competitors missed.
After you know what problem you are solving, you need to find the fastest path to the solution. Everyone understands the value of prototypes and many have heard of the idea of a minimum viable product. What we found was that innovators used four types of prototypes: theoretical prototypes, virtual prototypes (or pretend-o-types), minimum viable products, and finally the minimum awesome product, in that order, to reduce their risks and quickly validate the solution. One of our favorite examples? Coin. The founders felt that most individuals hate carrying around multiple credit cards and had the idea to create a single digital credit card that contained the information to be used as multiple credit cards. They created a simple video describing the features of a product that didn’t exist yet and asked for pre-orders to validate demand. The video sold tens of thousands of units well over a year before they actually delivered the product to the market. Using little more than a video (a virtual prototype), they validated that customers wanted to purchase and were able to get details about what features they most valued.
Finally, although incremental innovations can leverage your existing business model, most new innovations require a new business model. You have to experiment to discover the right business model, particularly your go-to-market strategy, or the unique way that your customers find out about, evaluate, purchase, use, and connect to your product. This is a familiar concept. What’s different is the depth of customer engagement you need to discover the right go-to-market strategy unique to your innovation. Sometimes the changes are simple. Several years ago Merck launched a serotonin reuptake inhibitor that, despite having the same mechanism of action as Prozac, experienced dramatically low sales. Only after interviewing physicians and patients did they discover that customers associated these products with a label. Prozac owned the “depression” label, but the “anxiety” label was relatively uncontested. Merck re-launched around the new label and achieved billions in sales. After you have nailed these elements of your innovation, then you are ready to scale. Before that, scaling will kill your innovation because it obfuscates the real source of value and burns your precious resources.
Although the innovation process is messy and non-linear, every innovation we studied went through similar steps. If you are starting with a problem, work through the steps. If you already have a technology or product, go back to understand the problem you are solving. Avoid using surveys and market studies — really go deep and understand the hearts and minds of your customers during the process. Although you won’t eliminate the risk of innovation, you can dramatically reduce it and dramatically reduce the cost of failure, giving you multiple chances to launch a home run.