what customer wants approaches to identify opportunity for innovations hamid houshmand may 2011

What Customer WantsApproaches to Identify Opportunity for

Innovations

Hamid HoushmandMay 2011

Formulating Innovation Strategy

• Innovation on what / where in the value chain?– Product innovation– Service innovation – New market innovation – Operational innovation (production process, reducing

cost or materials, reducing energy, reducing environmental damage, conformance to regulations)

– Marketing innovation– Business model– Financing


• Source of innovations– Research and development– Close vs. open innovation ( internal and external

sources)– User innovation– Manufacturer innovation– Supply-pushed innovation – Demand-led innovation


• What type of innovation is possible? – Incremental /evolutionary innovation– Breakthrough/radical/revolutionary/

discontinuous innovation– Disruptive innovation– Serendipity innovation (academic innovation)

Radical vs. Disruptive Innovation

• Disruptive innovation is a innovation that disrupts an existing market (value chain)

• A disruptive innovation may or may not represent a major technical breakthrough

• Breakthrough innovation, which is also called radical, may or may not be disruptive, while minor or incremental innovations can be massively disruptive.

Innovation Strategy _ What Growth Option Should be Considered

• Several options are available: customer-jobs matrix:

Devise product or service innovations that help customers get more jobs done. For success here, job-related information from customers rather than outcomes

Devise product or service innovations that help new customers do a job that nobody is doing yet; no product exists. The market does not exist. Thus a market analysis is necessary.

Devise product or service innovations that help customers get a job done better. To succeed here, the customer’s underserved outcomes must be uncovered

Devise product or service innovations that help new customers do a job that others are already doing.

Curr

ent j

obs

New

jobs

Existing customer New customer

Innovation Strategy_ Where in the Chain Value Should We Focus to Maximize Value Creation

• Determine who in the value chain makes the most important judgements about value and go to that source directly rather than let their immediate customers provide the requirements

• The End user should also be considered

Formulating the Innovation StrategyStages of innovation

Customer driven approach

Outcome-driven approach

Benefits of the outcome-driven approach

Formulate an innovation strategy

Focus on the core market , other growth strategy is considered too risky

Multiple avenues for product, market, operational, and disruptive innovation are considered

Attractive growth strategy that has high potential and a high probability for success

Causes for Failure in Innovation • Common reason for failure in different organization

– Poor leadership– Poor organization– Poor communication– Poor empowerment– Poor knowledge management

• Common causes of failure within the innovation process in most organisations:– Poor goal definition– Poor alignment of actions to goals– Poor participation in teams– Poor monitoring of results– Poor communication and access to information

Capturing Customer Inputs

• Voice of customers that include solutions, specifications, needs, and benefits statements are often vague and hinder to successful execution of innovations

• Gather data on:– Jobs (what jobs to be done by customers)– Outcomes (the outcomes they want to achieve)– Constraints (that prevents customers from doing the job)

• The desired outcome can be transferred as the metric statement into Six Sigma innovation process

Capturing Customer Inputs

• What method should be used to obtain customer data?– The method is not as important as the type of

data– Personal interview– Observational research– Watching and quizzing customers helps to capture

jobs, outcomes, and constraints

Capturing Customer InputsStages of innovation




Capture customer inputs

Companies listen to the voice of the customer and struggle to make sense out of vague inputs in order to give customer the solutions they request

Companies determine what outcomes customers want to achieve and let qualified experts, not customers, form the best solutions

Marketing and development managers have the customer inputs they need to create solutions of significant value

Identifying Opportunities

• Don’t focus on what is easy to achieve• Don’t focus on what can be done, but on what

should be done• Don’t focus on what an engineer find interesting• Prioritize your opportunities effectively • Determine what jobs, outcomes, and constraints

represent the best opportunities for growth and innovation

• Discover where the market is underserved


• How to prioritize opportunities– Select a outcome that is both the most important and

unsatisfied. – Use a quantitative research method– Prepare a survey instrument– Administer the survey to a statistically valid representation – Ask the team to rate the importance – Let the team to rate the degree of satisfaction – Determine the level of opportunity by putting the metrics

together– The highest opportunity score represent the extreme area of

opportunity


• Overserved markets identified– Efforts should be halted, as no additional value is

created– Cost reduction efforts by taking out costly

functions– If many overserved outcomes are discovered,

consider disruptive innovation– E.g: by changeing the business model or by a low-

end disruptive innovation


• Value migration: Opportunities migrate over time in a dynamic fashion

• Determine exactly where the opportunity in a market at any point of time and be first to address it.

• Do competitive analysis on offerings based on the criteria of customers to measure value rather than by analyzing the competitors’ product specifications


• Identify competitors’ strengths and weaknesses on the key opportubity

• Try to equal or excel on competitor’s best feature by taking that as the base line

• Knowing when to let a competitor go it alone, because the outcome is satisfied.

Identifying OpportunitiesStages of innovation




Identify areas of opportunities

Companies define opportunities as the solution customers say they want. They prioritize innovation initiatives based on available resources and existing core competencies.

Companies define opportunities as the outcomes customers say are important and unsatisfied. They find the resources and build the competencies to address them.

Managers know where to focus employee creativity to create customer value. Companies don’t waste time and effort on outcomes that are already overserved

Segmenting the Market

• The outcome-driven method is the best way to segment market for innovation

• Customer’s desired outcome is used for the segmentation

• Other methods can still be used for other purposes• Other elder methods are: demographics,

psychographics, purchase behaviour, needs-based• Needs-based come close to getting it right, but there

is no common agreement as to just what a need is.

Segmenting the Market

• How does outcome-based segmentation address product development – Identifying unique opportunities in mature markets– Identifying demanding customer segments that may be

willing to pay more for more elaborate solutions– Identifying customer segments that are unattractive– Discovering overserved market segments that make

attractive entry points for disruptive innovation – Determining the best way to enter an existing market as a

new entrant – Discovering segment of high potential growth

Segmenting the MarketStages of innovation




Segmenting the market

Customers are conveniently classified by product type, price point, age, risk aversion, and other demographic and psychographic characteristics

Customers are segmented based on the outcomes they are trying to achieve. They are not placed into artificial, company-imposed classifications

Managers are able to discover segments of opportunity in markets where few if any opportunities appear to exist, revealing new avenues of growth

Targeting Opportunities for Growth

• An effective targeting strategy requires that a company select the opportunities that it will pursue

• An effective targeting enable to add function and performance, but not necessarily cost

• An effective targeting enable a competitive positioning • Targeting unrelated opportunities by a single breakthrough

innovation is possible• Some underserved outcomes in the market will require new

technology, cost-reduced technology or reshaped technology. These opportunities become good long-term targets that can be explored by company’s R&D function.

Targeting Opportunities for Growth

• First tackle broad-market opportunities • Second, identify opportunities that span

multiple outcome-based segments • Build a single platform for multiple segment-

specific solutions • Pursue the least-challenging segments of

opportunity first• Target segment that represent attractive price

points

Targeting Opportunities for GrowthStages of innovation




Target opportunities for growth

Companies pursue ideas that are intuitively attractive, easy to develop, or that fit within the firm’s core competencies

Companies pursue underserved and overserved outcomes for improvement and cost reduction, respectively

Companies proactively define a competitive position that is unique and valued and then arrange solutions to occupy that position

Positioning Current Products

• Prerequisites for an effective positioning– Be aware of the opportunities that exist-know which

outcomes are underserved – Have a product that truly address the underserved

outcomes – Recognize what product features specifically address the

underserved outcomes– Determine if and where the current message is off– Create a message around a specific outcome– Out come-driven thinking provide a solid foundation for

unique and powerful type of branding

Positioning Current ProductsStages of innovation




Assess messaging and branding

Companies are uncertain if their positioning and messaging is tied to the customers underserved outcomes

Products and brands are tied directly to the emotional jobs or functional outcomes customers are trying to achieve

Messaging connects solidly with customers and enhances the sales of existing and new products

Prioritizing Projects in the development Pipeline

• Issues when prioritizing projects– Difficulty determining which concepts will address

market opportunities– Feel compelled to cover all bases so they do not

get caught off guard – Find it hard to kill a project once it has been

funded– Fail to assign the resources needed to get the

projects to market quickly


• Evaluation of projects to identify winners and losers– Determine what projects to evaluate – Selecting a team to complete the evaluation – Evaluating the initiatives– Assessing the results


• What projects should get top priority– Projects that do the best job to address the

targeted outcomes?– What projects fail to address to the targeted

outcomes?– What projects address unimportant or overserved

outcomes?


Stages of innovation




Prioritizing projects in the development pipeline

Managers are compelled to cover all bases. They initiate hundreds of development efforts, spread resources to thin, and are reluctant to kill projects already under way

Companies evaluate products in the pipeline for their ability to address the customers’ underserved outcomes

Companies know which initiatives will create the most value. They are able to create more winning products in less cost

Forming Breakthrough Concepts

• Traditional brainstorming often fail to produce products breakthrough idea

• Most brainstorming efforts yield poor and unactionable results for three key reasons: – Manager rarely know where to direct employees

creativity– They are not focused on specific customer’s

outcomes– Hundreds of useless ideas, but a few truly worthy to

pursuit

Forming Breakthrough Concepts

• The mechanics behind focused brainstorming – Stay focused on the targets – Aim for breakthrough improvement – Constrain thinking to enhance creativity – Eliminate bad ideas quickly – Optimize the best idea for cost, effect, risk, and

sustainability :• Not add any product cost• Require little effort to develop• Present little technical risk • Be difficult for a competitor to copy

Forming Breakthrough ConceptsStages of innovation




Make breakthrough ideas

Employees brainstorm without focus, generating hundreds of ideas with questionable value. Many ideas must be evaluated

Employees use focused brainstorming to direct their energies toward specific underdeserved outcomes and generate a few ideas of significant value

Employees don’t waste their time generating ideas that do not add value. They generate only ideas that are worthy of pursuit

what customer wants approaches to identify opportunity for innovations hamid houshmand may 2011

Documents

innovation process

innovation demand

type of innovation

innovation strategy

open innovation internal

innovation common reason

new customers

chain value