There are a lot of good examples of product development and innovation. And there are a lot of bad and ugly examples as well.
For product development and innovation to work best, it is necessary to understand what the goals of good product development and innovation are. To understand what the goals looks like. And then to understand what it takes to best realize these goals.
The goals of successful product development and innovation, are to profitably influence the behaviors of customers, prospects and employees.
That is to get the customers to buy the products. Products that have a high enough margin to be profitable. And to direct employees to build the right products. The products that customers will buy and recommend to others.
The Bad & The Ugly
Oh, these goals sound simple enough. However many product development and innovation professionals face a challenge. A challenge before they even get out into the business world. The challenge is that product development and innovation is often not taught very well in business schools. As a result, many professionals go out into the world with an incomplete view regarding how to best drive products from potential to profitability. Without this knowledge, the points in between potential to profitability aren’t as clear as they should be.
An opportunity for improvement is in in the setting of the proper goals in the first place. And then in ensuring that these goals result in a “balanced goal”.
You can think of the balanced goal as being the shining star on the horizon that everyone in the company is to be aiming at.
History is littered with examples of companies that set short-term profitability as their primary goal for the company. Only to offer products that customers may buy once, but will not buy again. Will not recommend. These companies typically make more and more money off of proportionately fewer and fewer people. By continually increasing profitability, from proportionately fewer and fewer people, many of these companies wind up short-term optimizing their way into the ground.
History is also littered with companies that have lived by the motto that “the customer is our number one priority”. While a well meaning motto, many of these companies then go out of business. “Oh the customer was happy, but we bankrupted the company.”
Quality, is another focus that has destroyed some companies. Hey who doesn’t want quality to be the primary focus? Some of these companies then go on to produce products of the highest quality, that are also not profitable. Some have produced the highest quality products that a customer no longer wants or are irrelevant. Yes, it is possible to six-sigma your way into the ground as well.
Why is it so hard to get product development and innovation right? Why isn’t it taught better in business schools? Because in order to get it right, it is necessary to understand how: marketing, finance, operations, customers, employees, and shareholders all fit together. This isn’t taught in business schools. And thus it is not carried out well in the work place.
Getting back to those that are focused only on shareholder profitability (a business 101 concept), when marching down the profitability path, what often happens is that management thinks that if they optimize each piece of the business independently, the whole of the business will take care of itself. “If we focus on short-term earnings, on a division-by-division basis, that should take care of the long-term earnings.”
The result of this kind of misguided thinking, is a company that structurally has the same organizational goals as a box of puppies. Oh sure, one puppy will make it to the top, but you can bet that all of the puppies are going to be scratched up along the way. And if the process is unfocused enough, and with an “everybody-for-themselves” attitude, some of the puppies might not even make it at all. Is this any way to run a company?!?! The answer is no!!! Are a lot of companies run this way? Heck yes! Is this a tragedy? Again, heck yes! Is there a better way? Is this avoidable? Can it all be done much more functionally? Yes, yes, yes, . . .
Well then what is the answer? Here is the trick, there are actually two answers. The answers are integration and balance. Once again things that aren’t taught very well in a lot of business schools.
The answer to driving a superior product development and innovation process is to understand how value is generated. How value is generated from potential to profitability (and the points in between). Again actually seeing how: marketing, finance, operations, customers, employees and shareholders all fit together. In other words integration.
Value generated or profitability needs to be realized by both the customers and the company. It needs to be a win / win for both the customer and the company. Because if one doesn’t win, neither wins. One will walk away from the other. And then no one wins. Both need to win. In other words balance.
Quick note: some people get derailed at the idea of “profitability for the customer”.
Profitability for the customer is simply the difference between the price a customer pays for something and what it is they value the item at.
During almost all purchases, the customer values the item more than the price they are paying for it. This is important. Read the line above again and again, until it sticks. I say this because for some fellow executives, this concept doesn’t stick.
If an item is priced higher than a customer values it, then they will not buy the product. If an item is priced at exactly what a customer values it at, the customer is indifferent. For many senior executives that feel that they are leaving money on the table, they are leaving money on the table. That money they are leaving on the table is called the value proposition for the customer. If you want to take “as much money off the table as possible” then you are following the same destructive path as the firms that “optimize their companies into the ground”.
The moral of the story is that customers have profit margins too! So you need to take this into account as you are designing, building and selling new or existing products.
The Value of Integration – A quick exercise
Take three groups of people. Have them each assemble the exact same jigsaw puzzle.
The first group with the puzzle pieces face down.
The second group with the puzzle pieces face up.
And the third group with the puzzle pieces face up, and with a copy of the puzzle box lid.
Which group is going to be happier, faster, the most productive?
The group with the puzzle box lid!
Why does the puzzle box lid help make people happier, faster, and more productive?
Because the puzzle box lid allows everyone to share the same picture. The same picture regarding what it is they are all working on. How what they are working on, all fits together. When people all share the same image of what it is they are working on, and how it all fits together, it is much, much easier for them to work in unison toward a shared goal. This is incredibly important and valuable in a product development and innovation role.
The Value of Balance – An example
Companies pay motivational speakers to come into their companies. These speakers then shout loud and proud that “For this company, the customer is our number one priority.” Later on that same week, the CEO will say that “the shareholders are our number one priority”, or “profitability”. Great! Now when an employee has to make hundreds of product development and innovation decisions, they individually have to determine what this mixed direction means.
Profitability typically resonates with the finance teams. The customer typically resonates with the marketing teams. And since no balanced point / balanced strategy / balanced goal was articulated, turf wars often crop up that wind up reducing the overall value generated for every one.
This is also why so many mission and vision statements are close to useless. They will go on and on regarding how “we are going to exceed the expectations of our customers while generating superior profitability, while gumdrops fall out of the sky and while we are all riding unicorns . . . “. Yep, many mission / vision statements feel like some sort of fantasy-land exercise without any real credible bright shiny star to shoot for.
Here is an example or metaphor for a company that first has a useless vision statement and then a balanced one that is actually useful.
Let’s say a company is in San Diego, California and they say their their mission, their vision is to head East. Well for some this means they will head to Texas. For others this means they will need to head to Maine.
When with just a small bit of additional thinking it could have been articulated that the real mission / vision for the company is to be in Chicago, at the corner of State and Madison Streets at 12:30pm on a Thursday. People on their way to Texas can now course correct. People on their way to Maine can now make the correction. And to your overseas suppliers to whom “East” meant something totally different, they now know how to make the proper adjustments.
What this means is that product development and innovation people can now be much more profitably productive if the guidance is focused, versus direction that sounds much more like some sort of high-level creative writing exercise. The location “Chicago” gives much better direction and guidance than just saying “East”.
With fuzzy input you get fuzzy output and then are left to try to understand if you hit your goal or not. With a laser like focus, people can now move much more quickly and easily. And it is much easier to evaluate what success looks like. However, once again, a laser like focus is made much easier, when you know how all of the puzzle pieces fit together.
Executing Product Development & Innovation – A How-To Summary
The following is a quick summary of the things you need to take into account for cutting edge, value generating, integrated, and balanced product development and innovation. By answering these questions, you can quickly build your: business case, action plans and criteria for measuring and evaluating success. There is also a separate article that shows how to use this information to integrate all of your data. If you are interested, let me know and I can direct you to it.
Section 1 – What do you have to work with? What are you given? What is the situational analysis?
Subject – Define the product development / design challenge you are facing, and what your goal is. (While the end goal is to drive profitable behaviors, is your initial goal to design a new product or to work with an existing product?)
Playing Field – What does your environment look like? The customers, the competition, the company? Are there any other environmental factors you need to take into account?
Objectives for the Business – What are the objectives for the business? Is the product supposed to be part of a start-up? Be a part of the growth plan for a mature company?
Objectives for the Customers – Is this product to make the lives of customers easier? To provide the customer with the most cutting edge, cool design? Providing them a product that is the lowest cost in a field of commodity products? Or something else?
Customer Perceived Value – Given everything above, what does the customer value: product features, delivery, pricing, overall perceptions of the brand, etc.? What do they perceive as valuable?
Market Potential – What is the potential, given everything above? What does the demand and supply look like? What are the sizes, shapes and locations of the profit pools you are looking to tap into?
Section 2 – Given what you have to work with (Section 1) . . . What do you do about it? What is the action plan?
Offer – What do you offer customers, given everything above? What does the product look like? Is the pricing competitive? How are you distributing your product?
Hook Customers – How do you hook customer? From head to heart. How do you get into the customer’s head (for them to learn about what you offer)? How do you get to their smile (to get them to like what you offer)? How do you get the customers to move their hands and feet (to get them to buy what it is you offer)? And finally, how do you get to the customer’s heart (to get them to be loyal to what you offer)?
From head to heart, how do you intend to win over the whole customer?
Key Learnings – What are the Key Learnings up to this point? While it is beneficial to use SWOT analysis in the “Playing Field” section, it is also useful to revisit the analysis here as well.
Section 3 – Given what you have to work with and your action plan (Sections 1 and 2) . . . What are the results? (anticipated vs. actuals)? How are you going to measure results?
Revenues – What are the Revenues? What are the revenues given what you can collect?
Costs – What are the Costs? What are the variable costs? What are the fixed costs? What are the total costs?
Profitability – What is the profitability? What is driving the difference between the revenues and the costs?
Section 4 – Given what you have to work with, and what you have done about it, and the results (Sections 1, 2 and 3) . . . How successful were you? How are the results to be evaluated? What does success look like?
Perceived Future Trends – What are the perceived future trends? This also isn’t taught very well in business schools. And it tends to mystify the “short-term earnings crowd”.
For example, early on Amazon had negative earnings, but huge perceived future trends, so the share price of the stock soared. Tobacco companies at one point had huge gains in short-term earnings and negative perceived future trends, and their stock prices sank.
With the “short-term earnings crowd”, strong short-term earnings should mean share prices go up. With negative earnings, quarter after quarter, stock share prices should go down. But exactly the opposite happened with both Amazon and tobacco companies. Why? Because business is about a lot more than just short-term earnings. Yes, this is another one of those ideas that needs to be read and re-read many times by some executives, because they cannot contemplate a world where the goal is about more than just short-term earnings.
Value to the Shareholders – With what you were given, what you did about it and the results, what is the Total Value to Shareholders?
Value to the Customers – With what you were given, what you did about it and the results, what is the Total Value to Customers?
Balancing Point – With the value generated for both the Customer and the Shareholders, the question now is what do you want to set the balancing point at? Walmart grew their business by trying to keep prices, and many times margins, as low as possible. To instead make the bulk of their profits on volume. They pushed their balancing point as far as they could toward the customers.
Other companies with more monopoly power keep their prices high to generate some value for the customers, while trying to keep as much of the value for themselves as is possible. Their goal is to push the balancing point as far as they can toward the company.
This isn’t a question of right or wrong. It is a question of being explicit about where you set your balancing point. So that everyone has a clear idea as to the bright shiny star they should be shooting for.
Where do you want to set your balancing point? It is easiest to determining your balancing point when you can see how all of the pieces fit together. And then once you set your balancing point, again it is important to let your employees know what the balanced point looks like. This will give your employees a greater sense as to what the company’s real mission is. It will give them a much clearer picture of the shining star off on the horizon, that they are to follow, aim at, shoot for.
A separate article will outline the difference between what good mission / vision statements look like, versus much of the other mission / vision statements that are out there.
To really leverage the power of all of the elements, it is useful to see how they all fit together (integration). And the necessary trade-offs that need to be made to optimize the whole (balance). To make it more intuitive, here is a visual as to what the summary above looks like as a picture. As a business strategy map.
There is more to share. In a separate article I will outline the difference between what product features, a customer values, and the costs associated with providing each feature. And how to best then bundle the features to ensure that profitability is realized for both the customer and the company.
Please share this with others. We all need to get to a much more functional place, more quickly. And let me know if you have any questions. As a business geek, I love this stuff.
Additional detail can be found in the book “Business Strategy Mapping – The power of knowing how it all fits together” http://goo.gl/rPpI9
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Also, we need to make things better more quickly. Here are 6 conversations that can help: http://goo.gl/ykbAWv
Additional articles at Link: https://goo.gl/JInBfi
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