Thirty years ago, I was a product manager for a startup company that created high-performance, multiprocessing minicomputers. Powerful, scalable, and based on open standards, they offered exceptional price/performance. In 1988, Electronics magazine gave its Computer of The Year award to the flagship model
As we introduced the system, we described the “ideal” customer: a medium to large organization that used Unix-based systems, and ran large database applications, especially Oracle applications. We trained the sales force, produced some modest direct mail campaigns, and launched.
Then reality set in. In the first three months, we sold about 45 machines to some 30 different organizations. We gathered data about our new customers and looked for correlations that would help us target prospective customers more precisely. We found nothing — no patterns in terms of size, SIC code, geography, application, and so on. The data were almost random.
We were stumped. So, we decided to interview the key decision maker in each account. We created an interview guide and fanned out to visit customers
After our visits, we dug into our findings. Again, we found no useful patterns in the demographic data. Then we started describing the key decision makers. Who were they? Why did they decide on us?
Most of the decision makers were men in their early thirties who had recently been promoted to a position typically described as VP, Data Processing. They replaced an older person who had held the same position for more than ten years. One of our marketers had a flash of insight: “It’s almost like the decision maker is saying, ‘I’m the new sheriff in town. We’re going to do things my way. This is one of my first big decisions … and we’re going to buy a hot new machine from a startup company. I’m going to make my mark.’”
It turned out to be a very accurate description. Nominally, our customers were buying our machines to run large applications. But psychology was perhaps more important. We estimated that roughly 60% of our customers fit the “new sheriff” profile.
We decided to market specifically to new sheriffs. We trawled through organization profiles and identified those that had a new VP of Data Processing. We sent each new sheriff a fairly intense mail campaign coupled with calls by our local sales rep. The campaign succeeded rather well. From the time of the launch, we grew to $300 million in revenue in about two years.
I didn’t know it at the time, but we were practicing an art that today is called, the “jobs to be done theory of innovation.” (Click here for a good introduction). Developed by Clayton Christensen and his colleagues, the basic idea is that demographic information doesn’t reveal why a person chooses to purchase a new product or service. If we misunderstand the job to be done, our innovations will miss the mark.
Our startup company, for instance, positioned around big machines for big databases. We wanted to offer ever bigger, pricier machines. The new sheriff profile, however, changed our thinking. To get in the door, we needed to make it easy for the new sheriff to buy something on his own authority. So, we introduced an entry-level machine priced just below a typical VP signature limit.
Similarly, think about why men buy pajamas. We might think they simply want to stay warm. But men in America typically don’t buy pajamas until they have a daughter who is three years old. Their motivation is not to stay warm but to preserve their modesty. If we misunderstand that, we’ll produce far too many cozy, warm, flannel pajamas that men will never buy.
In my experience, good marketers and salespeople use the jobs-to-be-done method naturally and intuitively. They’re good observers and naturally ask a basic question: why do people buy these products? They dig into the data but, more importantly, they observe how people behave and ask insightful questions. The management guru, Ted Levitt,was a natural at this. He noted that people don’t buy gasoline for their cars. Rather, they buy the right to continue driving.
The jobs-to-be-done theory suggests that the key to innovation is sociology, not technology. Do you want your company to be more innovative? It’s time to add more marketers and salespeople – and maybe a sociologist and anthropologist – to your development team.
For the ninth year in a row, Boston Consulting Group (BCG) has published its ranking of the 50 most innovative companies in the world. In 2012, the big news was that companies were recovering from the recession and starting to invest in innovation again.
Last year, the big news was that automotive companies were moving onto and up the list. Nine of the top 20 were automotive companies as were three of the top ten – Toyota, Ford, and BMW. Alas, the automotive innovation trend seems to have been short lived. The number of automakers on the list dropped from 14 in 2013 to nine in 2014. Of these nine, only two had moved up from the previous year: Tesla and Fiat. We learned from Rita Gunther McGrath that you can’t just turn on the innovation engine when you need it and turn it off when you don’t – but that seems to be exactly what the automakers are doing.
Software, computer, and social media companies continue to dominate the top end of the list. The top three remain Apple, Google, and Samsung though the order has changed slightly. Apple remains number one but Google has leapfrogged Samsung into the second slot.
What can we learn from this year’s list? First, the importance of culture. Second, an appreciation for three specific behaviors that promote innovation and coincide nicely with academic research on innovation.
Creating a culture of innovation requires consistency, discipline, investment, and leadership. As we learned last year, Samsung’s cultural mantra seems to be, “Change everything but your spouse and your children.” That’s a commitment that few companies are willing to make. As BCG points out, even the “breakthrough” companies that lead the innovation wave assess themselves as being little better than average.
Creating an innovation culture also requires some tolerance for failure. Not every good idea is going to pan out. Strong innovative cultures typically have the willpower to pull the plug quickly and learn from their mistakes. When failures happen, most companies will investigate the immediate problem. Innovative companies will also investigate the process that led to the problem.
Innovative cultures also tend to have a strong customer focus. They understand how customers behave and why. As BCG points out, they release “…products that customers will embrace rather than pushing new technologies simply because they are novel.”
On three points, breakthrough innovators differ significantly from strong (but not breakthrough) innovators:
So what can we learn? Innovation requires tenacity and consistent commitment. Professional athletes used to go fishing during the offseason. Now they work out relentlessly to stay in shape. So do innovative companies.
Last week, I wrote about which countries are the most innovative. (Hint: Switzerland and Sweden topped the list). This week, let’s discuss which companies are the most innovative.
Boston Consulting Group (BCG) just published their eighth annual compilation of the most innovative companies in the world. BCG collected data from 1,500 executives and rated and ranked the 50 companies that are deemed the most innovative.
Innovation continues to be a very high profile objective. Over three-fourths (77%) of the respondents noted that innovation was among the top three strategic imperatives for their respective companies. This is a steady upward trend since a low point of 64% in 2009, when companies presumably had other things on their mind. This trend seems to match a similar “return to innovation” trend at the national level.
So which companies are the most innovative? Apple continues to claim the top spot but Samsung has leapfrogged over Google to stake a strong number two position. Samsung has built an innovation culture around the slogan, “Change everything but your spouse and your children.” As BCG reports, building a culture that emphasizes and accepts change is one of the keys to success.
High tech companies take six of the top ten positions. In addition to Apple, Samsung, and Google in the top three slots, Microsoft is fourth, IBM is sixth, and Amazon is seventh.
The presence of top tech companies is not a big surprise. The bigger surprise for me was that three car companies vaulted into the top 10: Toyota is fifth, Ford is eighth, and BMW is ninth. Perhaps even more impressive is that car companies accounted for nine of the top 20 slots. GM is 13th, VW is 14th, and Hyundai, Honda, Audi, and Daimler take positions 17 through 20.
BCG suggests that three major factors are pushing the car companies towards greater innovation. First, “…manufacturers are racing to meet higher fuel-efficiency standards”. Second, many companies are investigating and experimenting with electric vehicles. Third, “…safety standards continue to rise”.
What causes companies to be innovative? Based on this year’s crop of leaders, BCG notes that there are five critical factors. I’ll write more about these in the future but here’s a first take:
We know a lot about what innovation looked like in the past. What does it look like in the future?
That’s the question that Arthur D. Little (ADL) researchers asked of more than 100 Chief Technical Officers and Chief Innovation Officers in a recently published white paper. (Click here). The ADL researchers identified five key trends that should drive innovation management over the next decade. Today, I’ll summarize the trends. In the future, I’ll to delve into each one in more detail.
The most important trend — as rated by the CIOs and CTOs –is customer-based innovation — “finding new and more profound ways to engage with customers and develop deeper relationships with them.” B2B companies have traditionally emphasized customer-based innovation. After all, B2B companies have relatively few but relatively deep customers relationships. According to ADL, however, even B2C companies are now focusing less on the product itself and more on the “ownership experience”.
The second trend is proactive business process innovation. I read widely on innovation and almost everything I see has to do with product innovation. ADL says this is changing but that “there is still much to be done to develop a convincing innovation management approach that is sufficiently systematic and repeatable to generate new, innovative business models.” The first objective is to deliver “thick value” — long-term relationships with multiple touch points as opposed to “thin value” transactions.
Third is frugal innovation which may be better known as reverse innovation. Rather than innovating in high-value (and high-cost) knowledge economies, frugal innovation uses low-cost emerging economies to create products with “less” rather than “more”. Developing a new idea in India, say, will often result in a lower cost product than developing the same idea in Europe. Frugal innovation often changes entire supply chains rather than individual products.
Fourth is high speed/low risk innovation. The CIOs and CTOs say they expect even more time-to-market pressure in the next decade. Additionally, they think that product life cycles will continue to accelerate. At the same time,the customer’s ability to identify and publicize flawed products has expanded dramatically. So, even as the pressure to accelerate continues, the pressure to deliver flawless products also increases. How do you deliver high quality products in ever faster cycles? You change your business process. ADL expects to see more gradual product rollouts coupled with more pervasive and proactive post-sales service.
Integrated innovation is the last major trend ADL identifies. The idea here is to take innovation processes out of the New Product Development (NPD) domain and integrate them into all business processes and strategies. Among other things, this requires collaboration across traditional functional divisions. Organizational development experts will focus on building horizontal layers to replace vertical silos. Creating an Enterprise Architecture (EA) to manage knowledge and information could drive this trend.
So, five trends in innovation management – each is interesting in and of itself. Over the next few weeks, I’ll delve into each one in more detail and identify the prerequisites for success in each one. Stay tuned.