CEOs frequently find themselves between a rock and a hard place. On one hand, they need to innovate … and keep innovating! On the other hand, “missed opportunities” will never show up on the bottom line, while innovation that falls flat will.
As in: “We committed resources to this potential new product, and money to earnings that we expected we’d receive as a result of it but none of that has materialized because … you blew it!”
How can a CEO take on such risk? In order to successfully innovate and keep the innovation gears turning, CEOs must craft effective mitigation strategies.
Consider the following scenario: the CEO of a multinational company faces a decision about the development and launch of its next generation, complex, multifunctional engineered product. Based on input from its global field sales team, the innovation team generated a list of 80 new features to be incorporated into the next-gen model. The resources needed to produce this feature-rich new model: $50 million and two years’ development time. However, there are still significant uncertainties about the outcome of this program, e.g., how much revenue and market share gain would this next-gen model produce? Could only one “global” model really satisfy customers in disparate geographies?
In this scenario, the CEO sees two issues: the certainty of a large investment of resources along with uncertainty regarding the return on that investment. In fact, the program outcome could be a negative ROI, if the market and sales projections aren’t met. The negative effects on the organization financially and strategically are potentially so significant that failure is not allowed.
When failure is not allowed for your product or service development programs, here are three essential questions for you as CEO to ask your innovation team before committing development resources:
- What does your customer want and how do you know it?
- What is your customer willing to buy and how do you know it?
- What will your customer pay and how do you know it?
These questions are the core of a product development approach called Value-Based Decision Making (the VBDMsm method). The VBDM method advances classic product development approaches that seek to integrate the “voice of the customer” within a structured problem/solution methodology. Developed with support from academic research, these classic approaches have been field-tested across a range of products, services, and geographies.1,2,3 Importantly, the VBDM method “pushes the envelope” of past methods to yield results that are quantitative in statistically meaningful ways.
What does that mean for the CEO in our scenario? It means that the uncertainties associated with the ROI from this development program are effectively eliminated, supported by quantitative results and analyses. The above scenario is a real-world case study, in which VBDM produced the following results:
- Narrowed the original 80 product features down to 25 shown to benefit target customers
- Of these 25 features, only 6 were shown to be purchase triggers
Moreover, the current model trailed the leading competing model in only 2 of the 6 features shown to be key purchase criteria. With support from this analysis, the CEO approved a shift from development of the “next gen” model to acceleration of the commercial introduction of the 2 key purchase criteria features, already developed and on the-shelf.
The VBDM method reduces uncertainty and increases confidence for CEOs when making decisions about the innovations customers will value and for the investments required to realize the associated strategic and financial outcomes.
VBDM is a service mark of Prakteka LLC
- Yoji Akao, Glenn H. Mazur, (2003) “The leading edge in QFD: past, present and future”, International Journal of Quality & Reliability Management, Vol. 20 Issue: 1, pp.20-35, https://doi.org/10.1108/02656710310453791
- Griffin, Abbie and John R. Hauser (1993), “The Voice of the Customer,” Marketing Science, 12, 1, (Winter), 1-27. Available for download at http://web.mit.edu/hauser/www/Pages/books.html#publishedpapers
- Swanson, Derby A. and John R. Hauser (1995), “The Voice of the Customer: How Can You Be Sure You Know What Customers Really Want?,” Proceedings of the 1st Pacific Rim Symposium of Quality Function Deployment, MacQuarie University, NSW Australia, February 15-17. Available for download at: http://web.mit.edu/hauser/www/Pages/books.html#publishedpapers