Outcome Driven Innovation
Innovation Methodology (From www.strategyn.com)
The 8-step innovation methodology is focused on devising and positioning solutions that address unmet customer needs. Steps 1 through 5 are dedicated to identifying the hidden opportunities that exist in new or existing markets while steps 6 through 8 are focused on using those insights to leverage the advantages of current products, prioritize the development pipeline, and formulate new product and service concepts.
The methodology brings structure, discipline, and predictability to product, service, and operational innovation initiatives.
Formulate Innovation Strategy
Before embarking on any innovation initiative, companies must first decide whether to pursue a strategy of product, service, operational, or business model innovation. If they choose product or service innovation, they must then decide whether to pursue core market growth, related market growth, new market creation, or growth through disruption.
It is common for a company to pursue multiple growth paths, and each path requires careful study and a well-thought-out innovation strategy. For each initiative, a company must decide, for example, who in the value chain should be the target of value creation (e.g., end users, purchasers, distributors, OEMs, etc.), what internal company constraints exist, and which competitors to consider for analysis and benchmarking.
Many innovation initiatives fail because companies do not take the time to consider all the factors that impact the innovation process. Strategyn has developed the tools and templates that companies need to ensure their innovation strategies are sound and will yield the desired business results.
Capture Customer Inputs
Once the innovation strategy has been determined for an organization, an important next step is to capture the customer inputs, or needs. While most companies already understand the basics of innovation, when it comes to understanding customer needs, VOC programs are being undermined for two reasons: (1) no agreed-upon standard exists that defines just what a “need” is, i.e., what its purpose, structure, content, and format should be. So, although companies talk to customers and obtain inputs, they often obtain the wrong inputs, capture an incomplete set of inputs, or capture a mix of inputs that derails the innovation process, and (2) companies do not understand that different growth strategies require precise and very different types of customer inputs – in other words, they do not realize just how a “need” must be defined given the type of innovation initiative being pursued.
Before companies institutionalize modern, Six Sigma–based programs for innovation, they must question old assumptions and address these challenges. As with any process, success is predicated on obtaining the required inputs. Once companies learn what “needs” are and how to obtain them, they can consistently uncover hidden opportunities for growth and achieve the goals of lean and predictable innovation. (See “Turn Customer Input into Innovation,” Harvard Business Review, January 2002 and chapter 2 in What Customers Want.)
For 15 years, Strategyn has believed that customers buy products and services for a specific purpose – and that purpose is to get a job done. If a company wants to think like a customer, it too must focus on the jobs the customer is trying to get done. This thinking has three far-reaching ramifications for VOC practitioners and others responsible for capturing customer inputs.
First, when the job is accepted as the unit of analysis, it means that companies do not focus on the customer or capture requirements on a product or service; rather they must capture requirements on the job or jobs that the product or service is intended to perform. From the customer’s perspective, it is the job that is the stable, long-term focal point around which value creation should be centered.
Second, when capturing requirements on jobs, companies must work with customers to first understand all the steps considered part of the job and organize them into a Customer Value Model™. Next, they must uncover the metrics customers use to measure the successful execution of each step. We call these metrics the customers’ desired outcomes. Desired outcomes are the customer’s fundamental measures of performance associated with getting a job done – they are the true customer “needs.” When growing corn, for example, corn farmers base success on their ability to minimize the number of seeds that fail to germinate, to increase the percentage of plants that emerge at the same time, and to minimize the yield loss due to excess heat during pollination.
Third, when a company is focused on related market growth or new market creation, the customer input that is needed is not an outcome statement, but a job statement. As with outcome statements, job statements must adhere to a specific structure, content, and format.
Identify Broad Market Opportunities
Simply stated, innovation is a two-step process in which companies must (1) identify opportunities in a market and (2) devise solutions that address them. Once the customer inputs have been successfully captured, companies should attempt to identify broad market opportunities. In the outcome-driven paradigm, an opportunity is defined as a desired outcome or a job that is underserved – in other words, an outcome or job that is important, but not well satisfied given the products and services that are currently available.
There are three reasons why traditional market research methods make it nearly impossible to surface these unmet needs. First, they go after the wrong inputs, an incomplete set of inputs, or a mix of inputs because they are unaware of what a good input is to begin with; second, because of the way questionnaires are typically structured and administered, companies often limit the number of attributes they test in a survey to about 30, although 50 to 150 statements ought to be evaluated; and third, companies often use scaling methods such as paired comparison and forced choice to get customers to make trade-offs between attributes – a practice that is totally inappropriate when asking customers to prioritize true customer needs. Although scaling methods may be useful when asking customers to choose between solutions, they hinder the discovery of hidden opportunities.
Strategyn’s approach is unique. Once customers' inputs are uncovered, Strategyn uses uniquely structured surveys that quantify—with statistical validity—the degree to which each outcome is important and unsatisfied. Our unique research methods ensure the right inputs are used to begin with, enable the prioritization of up to 150 customer inputs, employ optimal scaling methods, and use the opportunity algorithm to determine where the greatest opportunities for value creation exist. (See “Turn Customer Input into Innovation,” Harvard Business Review, January 2002.)
When underserved outcomes exist in a market, they are found using Strategyn’s research methods. Overserved outcomes – if they exist – are also discovered using these methods, revealing the degree to which a market is ripe for disruption.
Identify Segments of Opportunity
While identifying broad market opportunities is essential to the process of outcome-driven innovation, it is equally vital for companies to segment their markets to uncover groups of customers that have unique sets of underserved outcomes.
For decades, it has been common practice for companies to group their customers by such attributes as product type, price point, age, risk aversion, role, or other demographic or psychographic classifications. Unfortunately, although these groupings may be useful for certain marketing or sales tracking purposes, they thwart the process of innovation by focusing resources on phantom targets: people who are demographically similar do not necessarily agree on which outcomes are important and unsatisfied.
If firms are to transform innovation from an unreliable process to a disciplined one that can guarantee successful new product introductions, they must stop relying on convenient demographic or psychographic methods of segmentation or even traditional needs-based or roles-based methods and move to segmentation based on what customers want to achieve when using a product or service.
The only way to find a group of customers with a unique and shared set of underserved outcomes is to use that variable (outcomes or jobs) as the basis for segmentation. This thinking is at the heart of Strategyn's approach. Companies using our outcome-based or job-based segmentation methodology discover unique segments of opportunity, and that discovery enables them to find new targets for innovation (even in mature markets), identify emerging markets, and locate market entry points for disruptive technologies. These concepts are referenced by Harvard Business School professor Clayton M. Christensen in The Innovator's Solution (2003).
Target Specific Opportunities
Once a company knows where the market is over - and underserved and what unique opportunities exist in each outcome-based segment, it must decide which opportunities it will focus its resources and creativity on. To make this critical decision, a company must know what types of broad-market opportunities are likely to be attractive, what segment-specific targeting strategies are effective, and how to ensure that its chosen targeting strategy will place it in a unique and valued competitive position.
An effective targeting strategy directs a company to add function in areas that are underserved and reduce cost and function in areas that are overserved. Companies that do not have this market insight are more likely to focus on the opportunities they can easily address, rather than those they should address, or to focus on what they do best - even when the underlying outcomes are already well satisfied. They may also hesitate to move outside their core competency because they are uncertain that such a move will result in success. These mistakes can be avoided by adopting the correct approach to targeting.
Strategyn has developed targeting tools that maximize the creation of value. By uncovering themes comprising several related underserved outcomes, for example, companies can leverage their development and marketing efforts and devise a positioning strategy that connects solidly with customers. Other targeting strategies may be designed to address both broad-market and segment-specific opportunities, maximizing the potential for value creation across the market.
Reposition Current Offerings
Once a company has targeted the best opportunities, it has three key options for growth. The sixth step in Strategyn’s eight-step methodology covers the first of these options.
It is not uncommon for a company to discover that its products address one or more underserved outcomes but that it has failed to properly communicate that value to the customer. When possible, a company should adjust its communications and messaging to emphasize how its current products and services address these underserved outcomes. Changing its messaging to focus on this value is often enough to boost revenue and market share.
To ensure that the optimal messaging is created, Strategyn applies its outcome-driven methodology to the positioning of existing products, new products, and company brands. Knowledge of customers' outcomes—so critical for other aspects of innovation—is equally critical when it comes to positioning and messaging effectively.
As part of the positioning activity, we help companies evaluate whether or not focusing on customers' emotional jobs (as opposed to their functional jobs) should be part of the strategy. Strategyn’s research indicates that companies should stay focused on functional messaging when their product is functionally complex and has low emotional appeal (as is the case with medical devices and financial services, for example) and that companies should focus on both function and emotion when they are in an industry that makes products that define the customer's persona (as is the case with clothing and automobiles, for example).
Strategyn has also created a tool that finds the correlation between a particular emotional job and the functional components that support it. This makes it possible to select an emotional message and support it with the function that reinforces the message. Conversely, it makes it possible to determine what emotional jobs correlate with big opportunities in the marketplace, thereby making it possible to add value and support it with emotional appeal.
Prioritize Development Pipeline
As noted in step six of Strategyn's methodology process, a company has three options for growth once it has targeted the best opportunities. After properly positioning current offerings, a company’s second option for growth is to analyze the projects it has under development to see whether or not current efforts are in sync with market opportunities.
Most companies don't know which product and service concepts under development will be winners and which will be failures because managers lack the market data required to make such an analysis. As a result, managers often feel compelled to cover all the bases; they initiate hundreds of development efforts, spread resources too thin, and are reluctant to kill projects already under way—resulting in massive inefficiencies in innovation.
Using outcome-based research data as a foundation for product or service evaluation, managers are able to quantify the amount of value any proposed idea will likely deliver and in which market segment a product's success is most likely. This capability enables companies to:
- Identify which ideas have the greatest chance for success
- Identify and halt projects that will likely fail
- Identify potential gaps in current development efforts
- Prioritize the order in which products or services should be developed to deliver the most value for the least effort
- Effectively allocate development resources
This analysis often results in increases in revenue, reductions in development cost, and dramatic improvements in the win-loss ratio—with profound positive effects on the bottom line.
Define Breakthrough Concepts
After properly repositioning current offerings and prioritizing projects in the development pipeline, a company’s third option for growth is to develop wholly new offerings. Here again, old inefficiencies must be overcome.
While the scattershot brainstorming methods used by most firms today do generate hundreds of ideas, the very quantity of ideas ends up hindering the innovation process. Generating hundreds of ideas does not guarantee success. In reality, companies need just a handful of ideas—but they must be ideas that do a great job addressing important areas of opportunity.
Strategyn's approach to idea generation is unique in that it focuses a company's creative energy on a targeted set of underserved desired outcomes. With this direction—and with the use of our proprietary focused brainstorming tools—companies are able to formulate product and service ideas that are certain to deliver significant customer value.
To evaluate these ideas, we have created the customer scorecard, a tool that enables managers to quantify an idea's value based on its ability to satisfy the collective set of customer desired outcomes. Using the customer scorecard, companies can:
- Compare the quantitative value a product idea delivers with the value that the company's current offerings deliver.
- Compare the quantitative value a product idea delivers with the value that competitive offerings deliver.
- Identify the strengths and weakness of each idea.
- Improve ideas along key dimensions until they provide significantly more value than competing solutions.
- Systematically devise breakthrough ideas and solutions.
Here again, adopting the outcome-driven methodology results in increases in revenue, reductions in development cost, and dramatic improvements in the win/loss ratio—all because companies are able to systematically create products and services that specifically address opportunities in the market.