Innovating Management - Reinvent How You Invent
by Peter Skarzynski and Amy Muller
It was a breakthrough of 20th century management theory -- the discipline and rigor applied to new product development (NPD) during the ’80s, ‘90s and beyond. Thousands of organizations around the globe transformed their ad hoc, new-product processes into finely tuned, explicitly managed exemplars of management efficiency. Companies deployed tools, metrics and structures that made even the most skeptical management engineers smile with pleasure. Endless product concepts flowed through gate after gate with predictable precision. This is so last millennium.
As customer choice and power predictably and prolifically strengthened - enabled by massive technological change, globalization and hyper competitive forces – one can safely say:
“It ain’t workin’ no more.”
Welcome to the new reality: Development pipelines are producing too many incremental improvements and too few game-changing new products, categories or service innovations. Promising but uncertain ideas are being discarded prematurely while safe, me-too, did-it-before-so-let’s-do-it-again ideas flow through stages with marvelous velocity. Executives lament: “Our processes are good so why can’t we see what’s coming? Why are we being blindsided by market and competitor disruptions?”
Gary Hamel, our colleague and one of the world’s leading business authors and strategists, puts it this way: Companies are just producing more of “the same old grist from the same old mill.”
The truth hurts – or it will set you free. Most NPD processes today work as they were designed to: they produce a consistent stream of incremental innovations within an existing served market. However, in an increasingly turbulent environment, successful companies are beginning to break away from the tried-and-true approach; they are designing and managing new NPD processes that are producing more ambitious products more nimbly than their competition.
Based on our work with several companies, we have identified three key ways that successful global competitors have adapted their NPD processes to “disrupt and win.”
1. Look Beyond Products
Companies can innovate their existing business model by not focusing solely on developing new products, but by also focusing on developing new markets, new customers, new customer benefits, new delivery models, and new sources of revenue. For instance, CEMEX, the Mexico-based ready-mixed concrete supplier, innovated to deliver its traditional product, but with different delivery and customer benefit models. While other concrete suppliers demanded 24-hours notice to deliver ready-mix cement, they also charged a hefty penalty to customers who changed their orders. CEMEX believed that there could be real customer value in guaranteeing delivery of cement in a much shorter timeframe. After plant managers and salesmen visited a 911 Dispatch Center in Houston and saw how a team of paramedics could be assembled within 10 minutes, they returned to Mexico determined to reduce the cement delivery time. By using a GPS dispatch system and GPS-equipped trucks, CEMEX can now guarantee delivery of cement within a 20-minute window. Not only do customers get a substantially more responsive service for which they are willing to pay a premium, but their delivery costs have also dropped by 35%.
2. Break Down Existing Barriers.
To create breakthrough products and services, firms must first break out of their traditional way of viewing their industry, their customers, their strengths, and their products. For example, Whirlpool took a fresh look at its industry’s orthodoxy of focusing on the traditional buyers of home refrigerators - married women. Instead, Whirlpool realized that men in the household might have unique needs that it could fulfill. It followed men into their dens, garages, and workshops, and saw messes that needed organizing and appliances that broke down in the harsher environments.
Whirlpool looked deeply into its unique strengths and assessed what it was good at making beyond fridges and freezers. The result of these new perspectives was Gladiator Garage Works, a complete line of appliances, workbenches, cabinets, and other garage equipment aimed at men. Whirlpool’s innovation didn’t stop with new products, but also focused on non-traditional retail channels (e.g., Lowe’s Home Improvement stores) and advertising channels (e.g., Sports Illustrated). By generating new perspectives and new product ideas, then synthesizing those product ideas into broader platforms, Whirlpool developed not just a breakthrough product, but also a breakthrough business model.
3. De-Risk New Products and Concepts.
Often, an innovative product idea or concept faces a high burden of proof of its viability. How can a firm evaluate the future success of a new business concept that “changes everything,” if implementing the new concept requires making large risky investments? The key lies in testing that will not simply evaluate success, but will also increase learning.
A firm can de-risk a new product by learning the answers to three successive questions: 1) Do customers want the new product? 2) Can we make the product? 3) Can we make money offering the product? Trying to answer the last question before the first question can cause the new product concept to die a premature death. The product must also be allowed to evolve based on the insights derived from each decision criteria. The key is to learn, test, and evolve the idea, not to judge and kill the idea.
For example, Google has launched many new products, several of which were groundbreaking, in a relatively low-risk manner. With Gmail, its highly popular web mail application, it first evaluated customer demand by testing it with users inside the firm. Once employees found it useful, Google slowly invited the public to try out Gmail, limiting invitees to a select few.
As word spread about the advantages of Gmail over other web mail applications, demand swelled, and invitees auctioned off their Gmail invitations on eBay for hundreds of dollars. Google gradually tested its ability to deliver the product to a mass audience by slowly raising the number of invitations and steadily increasing the amount of storage space provided to each user. Gmail’s interface and security evolved, as developers worked their way through the learning and development process.
Along the way, Google also tested its ability to make money out of Gmail by selling targeted advertisements space in a manner acceptable to users. Finally, years after the initial internal launch, with little remaining question as to Google’s ability to satisfy customers, to supply the product, or to make a profit, Gmail was officially opened to the public.
To be sure, incremental product improvements are helpful. But, it’s important not to mistake “incremental” for “new”, nor “mediocrity” for “leadership.”
Here are some guidelines:
- Challenge your dogma.
- Burst out of the gates – and out of the boxes, stages and lines of your current definitions of product, market and industry.
- Make your product development processes more flexible, more adaptive and more welcoming to bigger, more radical ideas.
- Get radical – but, like Whirlpool, don’t stray too far from home.
- Look in your “garage” to find new perspectives and new platform concepts.
- Search for ways, like Google, to de-risk.
At the end of the day, you’ll have winning new products.
Peter Skarzynski is a founder and CEO and Amy Muller is a Director of Strategos, a strategy and innovation firm. Peter's latest book "Innovation to the Core" (Harvard Business School Press) will hit bookstores near you in March 2008. You can reach Peter at email@example.com and Amy at firstname.lastname@example.org, and you can find additional content by the authors, including information about Peter's upcoming book, at www.strategos.com.
Many more articles in Creativity & Innovation in The CEO Refresher Archives