If you recall, there are four levers in the Growth Equation Framework for Innovation Throughput:
The first three articles in this series introduced the levers of Frequency, Predictability and Time-to-Revenue, all of which focused on better execution. In this final article, we move to finding better opportunities and examine the fourth lever—Market Impact. The idea is simple really; once you are executing effectively, the best way to increase your returns is with higher impact opportunities.
You are looking for the complicated, difficult, costly, tedious, dirty, smelly, hazardous or otherwise undesirable jobs that have to be done or worked around.
Customer Value Lens
If you work in a stage-gate environment, you might feel that justifying new product programs is all about the return your company will see—so called inside-out thinking. But we all know that customers are driven by WIFM—what’s in it for me. So the customer value lens works from the outside-in. We start by getting commercial-technical teams out into the field conducting customer interviews to answer the following questions:
- What limitations, restrictions or problems are apparent in the customers’ world–be that a workplace or at home? Here there’s no substitute for getting into the customers’ world, observing them firsthand and continually asking them “why” to make the assumptions around their practices explicit. You are looking for the complicated, difficult, costly, tedious, dirty, smelly, hazardous or otherwise undesirable jobs that have to be done or worked around. Of course you are also looking for areas where your technology could be employed to simplify or improve the situation.
- How does removing the limitation make the customers’ lives better and create value for them? In the case of a business, how does it help them make more money by profitably increasing top line revenue, decreasing working capital, delaying capital investment or reducing operating expenses?
- For a customer to invest in switching to your product (and there are always switching costs), what kind of a return would they expect? Unless driven by regulation, we rarely find anyone that will switch for a payback period beyond two years.
- How does the customer’s required return translate to a price? If you set up a spreadsheet with a simple model of the customer’s value in use, you can iterate price until you reach the required payback period.
- Given that price, and your estimated cost, what kind of cash flow would that create for you and is it worth the investment? You’ve probably noticed that we’re back to what’s in it for us, but we got there based on an outside-in approach. That’s far better than the inside-out, cost plus margin approach that leaves so many companies underperforming on price and value.
- This may look like all you need to move forward with requirements drafting and then development, but there’s one more very important step. As previously suggested, this is also where you want to look for the norms, policies, regulations, even institutions, that have allowed the company to work around the limitation. Then brainstorm all the ways they might be threatened and what you can do to reduce the resistance.
Better Execution Frees up the Resources to Increase Market Impact
Improvements in new product innovation break down into two key categories:
- Better execution of new products opportunities
- Finding better new product opportunities to execute
While it’s a natural inclination to want to jump right to finding better opportunities, there are two reasons we’ve held this lever off until last and that we normally recommend beginning with a focus on better execution. First, people that have worked hard to uncover new opportunities can quickly become discouraged when too many execution issues arise. This prevents you from creating the kind of momentum needed to keep the improvement effort moving and to solidify the changes. And who needs another program of the month? Second, people in most organizations are so busy (not a good thing if you remember the multitasking example) that there is an inevitable concern with how we can free up part of the technical and marketing staff to do the type of field work required to find better opportunities.
But implement the execution advice we’ve offered first, and you’ll quickly start to free up the resources necessary to begin supercharging your growth with the Market Impact lever.
Mike Dalton, author of Simplifying Innovation:Doubling Speed to Market and New Product Profits with Your Existing Resources, helps companies increase innovation throughput and speed. Request a copy of the Growth Equation Diagnostic or contact him by e-mail at [email protected]