When you launch a “product or service” innovation project, you are immediately exposed to uncertainties regarding technical and/or market risks. Several studies show that the failure rate of delivery innovations is unfortunately very high. For example, Gosh’s work reported by Gage in a 2012 article in “The Wall Street Journal” “The venture Capital Secret ” shows that 95% of innovation projects fail to meet the return on investment targets set at the outset.
Moreover, several studies, including one published in 2016 on the Chubby Brain website, show that the technical dimension is rarely the main cause of an innovation’s failure. The most significant causes of failure are first and foremost inadequate analysis of the market and customer needs, and to a lesser extent, poor cash flow management and planning of the product development process.
In other words, a good technical team often succeeds in developing powerful products, but they do not always find takers. At least, up to the expectations planned at the beginning of the project!
Therefore, we can make certain assumptions: (i) innovation projects are initiated by inventors or R&D teams who think their ideas are great, but did not previously validate the market, or (ii) projects are initiated on the basis of “classic” market studies that do not take into account the uncertain nature of the innovation, or (iii) a combination of the two previous scenarios, i.e. the project is initiated by inventors and supported by a “classic” market study.
In all three cases, one cannot help but question the innovation process.
When it comes to developing a new product, many companies use the process commonly known as phase-Gate (or Stage-Gate). This process is based on distinct phases separated by control points (Gate). The checkpoints oblige the project monitoring committee to validate or invalidate the phase that has just been completed by referring to project-specific parameters (GO/KILL). This process is shown in the following diagram.
Phase 0 is a very important step and represents the ideation phase. The objective at this stage is to generate as many ideas as possible and then apply an adequate process to filter the best ideas. Once the idea is selected, it passes the first G1 checkpoint. The next phase is the project scope. At this stage, the potential impact of the product on the market is assessed. The strengths and weaknesses of the product, the competitive landscape and the target customers are analyzed. Next, we move on to the business plan writing phase which includes sections on market size, competition and finance. And very often, there is an appendix containing Excel sheets showing financial projections for the next few years that promise a significant return on investment to justify the injection of funds into the project. In phase 3, we proceed with the development of the product, and in phase 4, we begin the testing and validation of the product with customers.
Companies that apply this process believe that the key to successful innovation lies in their ability to generate a large number of ideas and to be able to quickly and inexpensively select the best ideas to develop the new product. The motto of this process is “test fast – fail fast – adjust fast”.
Unfortunately, studies show that this process is poorly adapted to innovation projects.
This could be explained in 4 different ways:
Firstly, the stage-gate process is linear and focuses on the execution of a large project with low business risk. Companies that successfully apply this process are generally mature and already master the parameters of their markets. It’s important to mention that in an innovation project, we only vaguely know the market parameters and even less, the real needs of the customers.
Secondly, idea evaluation and selection processes are interesting, but remain imperfect, as they can easily miss great ideas.
Thirdly, Antony Ulwick’s work over a very long period of time shows that the Stage-Gate process is a direct cause of the high failure rate of startups. Indeed, in his latest book “Jobs To Be Done (2016)”, Antony Ulwick tells us that a typical company’s needs range from 50 to 150 and 5 to 80% of those needs go unmet. If the Stage-Gate process is used without first knowing the precise needs of the targeted customers, the mathematical probability that an idea generated from a brainstorming session can correspond to even 15 unmet needs is very low, if not zero.
And, fourth, according to the 2016 HBR article, Clayton Christensen and colleagues argue that traditional marketing analytics are inadequate to provide accurate and useful information for a successful innovation project. Indeed, classical marketing analyses are structured to show correlations: Such and such a category of customers prefers such and such a product, or 70% of customers prefer version A over version B of such and such a product, and so on. This type of analysis is useful for identifying trends, but does not represent cause and effect logic.
How then can the innovation process be improved to increase the chances of success of innovation projects?
Each company is unique and faces challenges specific to its environment. However, the chances of success can be substantially increased by adopting a customer-centric approach. With this in mind, Anthony Ulwick suggests starting by identifying customer needs, especially those that are not met in phase 0, and then replacing phase 2, which is devoted to writing the business plan, with the ideation phase to define the innovation, product and market strategies. Anthony Ulwick’s work shows that the success rate reaches nearly 85% when the innovation process starts with customer needs!
But beware, the expression “customer need” is so overused that it doesn’t mean anything if it doesn’t clearly and precisely respond to real customer needs. I invite you to do a little exercise in your workplace. Ask for a list of customer needs from the sales team, the R&D team, the marketing team and the company executive. Then have fun comparing answers. If you get the same responses, you have a good process in place. My fear is that your answers will be very different or so unclear as to suggest different interpretations. Unfortunately, this is what happens in most companies.
Tge Job-To-Be-Done methodology provides a 2-part framework for categorizing, defining, capturing and organizing all customer needs, as well as associating customer-defined performance metrics (in the form of desired outcome statements) with each need.
Theodore Levitt, professor of marketing at Harvard Business school in the 1960s, told his students: People don’t need drills. They need holes in the walls! Job To Be Done is the hole in the wall. Clayton Christensen and Michael Raynor brought the Job To Be Done concept to international attention with their book “The Innovator’s Solution, 2003”. The authors suggest that people are less interested in the products they buy than in the services these products provide.
Many companies have adopted a business model based on this concept. Probably the most popular example is Hilti. Faced with fierce competition in the small tools market, Hilti decided to change its business model in the late 1990s based on the Job-To-Be-Done methodology. Hilti then developed a subscription offer that allowed customers to access a pool of tools in real time. Public works companies have adopted this offer because it allows them to remain at the cutting edge of technology while freeing them from the burden of maintaining a fleet of tools. For its part, Hilti has made a significant capital investment in real-time tracking of tool fleets deployed at customer sites. This new business model has enabled the Swiss company to achieve international success.
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