Thoughts on Excellence Free E-Newsletter Series
Volume 11, Issue No. 6
September, 2012
By Dan Coughlin
(Author’s note: In addition to my own client work over the past fifteen years that has helped me develop my ideas on innovation, I want to acknowledge two exceptionally useful books on innovation: The Innovator’s Solution by Clayton Christensen and The Art of Innovation by Tom Kelley. Clayton Christensen is a renowned professor at Harvard Business School and Tom Kelley is the general manager of IDEO, a leading practitioner in innovative designs.)
Defining Innovation
I define innovation as creating appropriate value for other people and delivering it through a better experience for them.
That’s not always the way I have defined innovation. I used to say that innovation was about creating greater value for other people that they would be willing to pay more for. However, as I will explain, that is a very limiting way of looking at innovation.
Suggesting a Process
Coming up with innovative ideas is often looked at as unbridled, chaotic brainstorming that is totally fun. It might be fun to sit around and throw ideas out on the table, but it can be an incredibly inefficient use of time, energy, and dollars unless it is purposeful and channeled. I suggest you follow these three steps:
- Clarify a customer objective.
- Search for hotspots of too much value or too little value.
- Iterate or eliminate.
Step One: Clarify a customer objective.
What does the customer want to achieve? To paraphrase an old saying, customers may not know what resource they want or need to achieve their desired objective, but they do have a pretty good idea of what they want to accomplish.
Step one is to answer this question: What does my customer, or my desired customer, want to accomplish? This is not complicated to answer, but it does take a few minutes to clarify the answer and write it down. You may have to debate with other people to hone the answer.
For the sake of an example, let’s say the person wants to travel from point A to point B, which is fifty miles away.
Step Two: Search for hotspots of too much value or too little value.
Value is anything that helps a person achieve what he or she wants to achieve. If the current solution is providing more value than the person needs to achieve what he or she wants, you have a great opportunity for innovation. If the current solution is not providing enough value for the person to achieve what he or she wants, you also have a great opportunity for innovation.
So step two is to answer these questions: Does the current solution provide the person with too much value? Does the current solution provide the person with too little value?
Go back through history, and reconsider the situation of wanting to travel fifty miles.
Walking was a solution, but it was of too little value. It took several days and was exhausting and you couldn’t carry much. Riding a horse cost more money, but it provided a lot more appropriate value for going fifty miles. However, it was painful to ride on a horse all day, so that provided another opportunity to innovate. A buggy was created and then a covered wagon. Yet, no matter how hard people tried, they could only get their horses to move at a certain pace. Trains provided more value because they moved a lot of people at much greater speeds than horse-drawn carriages. The problem was trains only went to specific places. If you wanted to go somewhere else, you were out of luck. Bicycles were an option for shorter distances, but they didn’t provide enough value for a fifty-mile trip. Then fancy automobiles were created and they allowed the driver to go in a variety of directions for much longer distances, but they were way too expensive for everyone except the absolute wealthiest people. So they provided too much value, which left an opportunity to innovate by creating an automobile that provided more appropriate value. Henry Ford provided this innovation. Helicopters and small airplanes were invented, but they provided too much value for average consumers and therefore were not effective in replacing automobiles, except in very rare situations.
Two Case Studies of Finding Inappropriate Value
Here are some famous examples of companies who found situations where customers were receiving inappropriate value. The first is about where people were receiving too much value and the second is where people were receiving too little value.
McDonald’s McCafe was a solution for people who wanted a great coffee product at a lower price than Starbuck’s was offering. McDonald’s recognized a situation where people wanted a certain level of coffee, but weren’t willing to pay the prices at Starbuck’s. The Starbuck’s prices were not appropriate for the level of value that certain customers were willing to pay for. Consequently, there was a huge opening for someone to step into, and McDonald’s has done it beautifully.
Customers wanted to have their phone and music and internet access with them at all times so they were willing to carry their phone and an iPod and a portable computer with them. I used to be one of those people. Then the iPhone came along and provided much more appropriate value than carrying all three devices around.
A Skill of Innovation
A key skill for an innovator to develop is to search for opportunities where too much value or too little value is currently being offered. Train yourself to put on your “value lenses” and then leverage observations, conversations, and hands-on experiences to identify situations where your current customers, or desired customers, are receiving inappropriate value.
Don’t do this all by yourself. Get together with other people from your business and discuss what they see in the marketplace in terms of where people receive more value than they need or less value than they need to achieve their objectives. It’s not a good use of time to just come up with ideas for new products and services. You need a focused starting point. Identify a customer objective. Then for every product or service that these customers are currently purchasing to help them achieve this objective, ask yourself, “Is this product or service providing more value than the customer needs?” and “Is this product or service not providing enough value for this customer to achieve what he or she wants to achieve?”
If the current solution is providing too much value, is there a product or service that you can create that will provide more appropriate value at a lower price to the customer? In this case, price is the key differentiator. This is a remarkably effective way to break into a new market and compete with the established players in the industry. However, make sure that you are not just delivering the same value as before and dropping the price. If you keep the value the same and lower your price, you are fighting a price war, and that is a sure-fire way to eventually ruin your business. The innovative approach is to create a product or service that delivers just the right amount of value for the customer to achieve his or her objective and that lowers your cost in providing that product or service. Then you can legitimately offer it at a lower price to your customers.
If the current solution is providing too little value for customers, then it’s a waste of their money because the product or service doesn’t help them achieve what they want. No matter how cheap it is, it’s still a waste of money. In this case, a more valuable product or service is the key differentiator. Is there a product or service you can create to help the customer achieve the desired outcome? Don’t worry if your product or service is priced higher than the competition. The key is for it to actually help the customer achieve what he or she wants.
Remember when the first iPod came out. It was October 2001, and the iPod costs $495 and held 1,000 songs. Critics said no one would spend that much money. They said iPod stood for “idiots price our devices.” As my thirteen-year-old daughter, Sarah, would say, “Ah, wrooooong.” People were very willing to pay for greater value, just as they were in 2007 when the iPhone came out and in 2010 when the iPad came out. As you might recall the economy was very, very bad in October 2001 and in January 2010. However, people stepped up and paid for the greater value because it helped them to a much greater degree to achieve what they wanted.
Step Three: Iterate or Eliminate.
Now you are ready to develop products and services that will create and deliver appropriate value for your desired customers. There are two approaches you can choose from. You can use either of them or both of them.
The first approach is to iterate. According to dictionary.com, iteration means a problem-solving method in which a succession of approximations, each building on the one preceding, is used to achieve a desired degree of accuracy. To iterate in your business, take one of your existing products or services, or one of your competitor’s existing products or services, and adjust it a little bit to provide more appropriate value for your customers. (Of course, do not infringe on anybody’s copyrights.) When McDonald’s got rid of their Salad Shakers and introduced their Premium Salads, that was an iteration. When Apple created the iPod Touch, that was an iteration.
The second approach is to eliminate. According to dictionary.com, eliminate means to remove from further consideration or competition. CDs (Compact Discs) eliminated the need for vinyl records, eReaders could eliminate the need for hard copy books, and cars eventually eliminated the need for horse-drawn carriages. Is there a product or a service that you can create that will eliminate the need for the current solution to help a customer achieve his or her desired outcome?
The reason why Apple has become the most valuable company in the history of the world, and why McDonald’s has revitalized its brand and been named the best-managed company in the world according to Fortune magazine in 2011, is because they combined iterations and eliminations for more than ten years.
The iPod eliminated the need for the stereo system, iTunes eliminated the need to buy a cd, the iPhone eliminated the need for a phone and an iPod, the iPad eliminated the need for a textbook, and iCloud eliminated the need for a computer. The Redbox at McDonald’s eliminated the need to go to Blockbuster. Notice that one company is high-tech and the other is low-tech, and yet they both leveraged innovation to drive better sustainable, profitable growth.
Conclusion
Focus intensely on these three steps to effectively innovate a new product or service: clarify a customer’s objective, find hotspots of too much value or too little value, and iterate and/or eliminate. The opportunities are there for the taking. As you begin to move your ideas into action, remember this mantra: Test small, improve, test again, improve…roll out. It might take you awhile to come out with an innovative new product or service, but if you follow these few steps you can do so in a more efficient and effective manner.
Republishing Articles
My newsletters, Thoughts on Excellence, have been republished in approximately 40 trade magazines, on-line publications, and internal publications for businesses, universities, and not-for-profit organizations over the past 20+ years. If you would like to republish all or part of my monthly articles, please send me an e-mail at dan@thecoughlincompany.com with the name of the article you want in the subject heading. I will send you the article in a word document.