Hey, Paweł here. Welcome to the free special edition of The Product Compass.
Our guest is , the founder of customer-driven innovation and growth firm Methodry and the author of Innovator’s Playbook: How to create great products, services, and experiences that your customers will love!
P.S. Do not miss the Q&A section at the bottom of the post with free templates shared with us!
Product Innovation: Stop Inventing Cool Sh*t Your Customers Don’t Want!
Innovation is one of the most important endeavours of modern times. It creates growth for organisations and entire economies, improves customers’ lives, and creates meaning and fulfilment for individuals and teams, but it is hard, and our success rates are mediocre to poor.
According to consulting firm Booz Allen Hamilton, “For every 7 new product ideas only 1 succeeds.”
The Product Development and Management Association (PDMA) claims that “40% of innovations launched fail.”
Why do so many innovations fail?
We know from research and experience that more innovations and startups fail from a lack of customers than a failure of the product or technology. In other words, too many organisations still waste their time inventing solutions for non-existent customer needs!
In a study of 2000 product innovation projects, Robert G Copper identified the number one factor behind innovation failure was “a lack of thoroughness in identifying real needs in the marketplace”, with teams often “making assumptions in order to justify the project”.
Someone has an idea, and we jump to the solution and then start building a business case and proceeding into development.
Jumping to solutions
This jumping-to-the-solution mentality, so prevalent in the corporate and startup world, means teams are too often skipping or fast-tracking the all too important ‘front end’ of the innovation process.
The ‘front end’ of innovation being where customer needs are researched and insights are distilled, solutions are ideated, prototyped and tested and business models are shaped.
Speed in innovation is very important, but not at the expense of managing the innovation journey properly. In fact, it is often a false economy, with this rushing of stages resulting in more defects, more rework, and more costly failures in the middle and back end of the process. The further you progress along the innovation journey, the more time- and resource-intensive and expensive it becomes.
From their research, Cooper identified nine success factors of innovation:
A unique, superior, and differentiated product with good value for money for the customer;
A strong market orientation — the voice of customer built-in;
A sharp, early, fact-based product definition before development begins;
Solid up-front homework — doing the front-end activities well;
True cross-functional teams — empowered, resourced, accountable, dedicated leader;
Leverage — where the product builds on the business’s technology and marketing competencies;
Market attractiveness — size, growth, margins;
Quality of the launch effort — well planned, properly resourced; and
Technological competencies and quality of execution of technological activities.
As you can see, five of the nine success factors are related to the front end of the innovation process (pre-business case), with a further two being equally attributable to both the front and back end. Of the five directly attributable to the front end, according to Cooper’s research, the first four have the biggest effect on success overall.
So, why would anyone in their right mind skip or fast-track the most important phases of innovation?
Apart from a lack of awareness, the time pressures to launch and our greater comfort in problem-solving and the hands-on work of the development phase are the main drivers of skipping or doing these stages poorly.
Underinvesting in the front end of product innovation
In a different study by Cooper, that dissected spending and resource allocation of 203 new product innovation projects, he noted that of a typical organisation's innovation budget “only 7 percent of the dollars and 16 percent of effort (person days) are expended on the front end of the process.” Whereas “37 percent” is spent in the development stage of the back end. Now of course, spending in the back end is going to be higher, especially when there is capital expenditure, but this is a large imbalance between the investment of resources in the front end vs the back end.
But it gets worse. One in two innovation projects are failing in the development stage – meaning half of this heavy investment is on unsuccessful projects.
By the time you get to development, you’d hope that most poor ideas had been culled and you were achieving a higher than one-in-two success rate! But due to our haste and poor capabilities in the front end of innovation this isn’t happening.
But innovation doesn’t have to be this way!
Mastering the front end of product innovation
Designing, building, embedding, and executing a rigorous front end of the innovation process and capabilities is critical; it lays the foundation for everything that follows.
By increasing rigour upfront, not only do you increase your success rates, and decrease defects and rework, but you can then go faster later in the more expensive back end of innovation. As the old adages say, ‘a stitch in time saves nine’ and ‘more haste, less speed’.
In Cooper’s study of 2000 new product projects, he found that those teams who executed the front end of the project in a high-quality fashion achieved more than double the success rate, double the profitability, and double the market share of those projects that did these stages poorly.
Three methodologies can help your teams become better at the front end of innovation. These are:
Design Thinking;
Business Model Design; and
Experimentation.
The key to success in adopting these methods is to use them in the right way, at the right time, and in the right sequence.
Step 1: Design Thinking
Start with Design Thinking by conducting empathy research to identify who your customers are, what’s important to them, and what pains and delights them. Then distil what these findings mean and where the opportunities exist to improve their lives.
We then use creativity, incubation, and a diversity of minds to generate fresh new ideas for these customer-centric opportunities. The high-potential ideas are selected and then quickly and cheaply brought to life as prototypes and tested and refined with customers.
Step 2: Business Model Design
Following validation that we have a desirable solution(s); we flow into using the Business Model Design to map out other components of desirability and then the feasibility and viability elements of the solution using tools like the Business Model Canvas.
Step 3: Iterate between Business Model Design and Experimentation
We then iterate between Business Model Design and Experimentation. This involves running experiments (prototype, test, and learn) to de-risk and validate the solution and business model.
Only once we’ve validated that we have a desirable (does the customer want it), feasible (can we technically and organisationally build it), and viable (can we make money from it) solution, do we move into the more expensive and time-consuming back end of innovation.
Getting the front end of innovation right is the key to unlocking innovation and startup success. Just like you wouldn’t skip laying the foundations when building a house, you shouldn’t skip laying the foundations for successful innovation.
Nathan Baird is the founder of customer-driven innovation and growth firm Methodry and the author of Innovator’s Playbook: How to create great products, services, and experiences that your customers will love!
He is one of the world’s most experienced Design Thinking practitioners, a former Partner of Design Thinking for KPMG, and helps teams build their innovation mastery and works alongside them to create innovations.
Q&A and free templates
We had a chat about the post. Below, you can find a list of questions I asked Nathan and his answers.
Q1, Paweł: What’s the difference between investing in the front end of product innovation and waterfall?
Nathan: I think regardless of whether you are using waterfall, agile or some other development methodology you need to do the upfront stages correctly first and have a really clear product proposition that solves an important and unmet customer need, and then at a concept level has also been stress-tested for feasibility and viability.
Waterfall and agile help you build products, but they don’t tell you what products to build and why.
Q2, Paweł: How can we structure our empathy research results? Jobs to be done? Opportunities? Value Proposition Canvas?
Nathan: I like to unpack our empathy research into an Empathy Map (with 4 quadrants - Say, Do, Think, Feel), then synthesise and prioritise the observations by ‘How important is the need (extreme is the pain) for the customer’ and ‘How satisfied are customers with their ability to fulfill the need (solve the pain) - given the solutions they use today’.
This is a similar prioritisation framework to JTBD. I then craft these prioritised important and unmet needs as customer insight statements.
The goal is to craft and frame a statement or narrative about the customer that unlocks opportunity and inspires action. A good construct that I’ve used since my early days as a product manager at Unilever, and tweaked slightly in more recent years based on inspiration from collaborators and working with Stanford d.school is:
Customer + Need + Insight
For example, the customer insight statement behind the creation of Magnum ice cream might have been something like:
An indulgent foodie needs guaranteed satisfaction, because if the delivered pleasure falls short of the expectation it doesn’t justify the guilt.
Q3, Paweł: Would you call empathy research the primary research method? What’s the role of market research in product innovation?
Nathan: I see empathy research as a form of market research, but maybe that is a definition thing? There is almost nothing as powerful and meaningful as getting your team to spend time observing and interviewing your customers and non-customers.
Kicking off a customer discovery stage, we would review all existing research (including trends, competitor reviews, category insights, and customer research) and the knowledge we have on the opportunity space first.
We’d filter this existing research into 4 boxes:
Confirms what we know, but it is important to remind ourselves of it.
New observations/facts or insights.
Things we don’t know and still need to understand.
Hypothesis and ideas we’d like to explore.
The contents of boxes 1 and 2 go straight to the Distil stage (unpacking into the Empathy Map) and the contents of boxes 3 and 4 form our fresh (empathy) research brief and research discussion/interview guide. Following the fresh research the findings would be unpacked together with the outputs from the existing research that we’d carried forward.
Q4, Paweł: Is desirability the same as value and usability risks? When should we think about validating the UX?
Nathan: We should start with desirability and then once that is validated usability is one of the next things to test. Something can be usable, but not desirable. With the growth of digital products and experiences, usability has been elevated, and as a result, there are many usability roles in design now.
These are important, but what I often see as an outcome of this elevation of usability is organisations and teams testing usability before they’ve even determined if the solution is desirable. Of course there is some overlap between desirability and usability (I see them like a venn diagram with an overlapping area).
Q5, Paweł: When discussing Business Model Design, do you prefer Business Model Canvas? Lean Model Canvas? When and why?
Nathan: They’re both great tools. Mostly, I like to use the Business Model Canvas because it looks at the business model. But, I have made a few changes to it that align with the changes Ash Maurya made in coming up with the Lean Canvas. So to be honest it is probably my own personal hybrid.
First off, I strongly believe that starting at the business model canvas before you know you have a desirable solution is a waste and encourages the jumping to the solution mentality, which is one of the big problems in our industry. So I’m using it after the ‘Design Thinking’ stages for only those ideas/solutions that we’ve prototyped and tested for customer desirability. And then I’m using it to de-risk and validate the solution for further desirability, feasibility and viability using Experimentation (Lean Startup).
Secondly, I always start with the customer. Starting with the value proposition is once again encouraging and role modeling the jumping to the solution mentality. You’ve also got to get specific about who your customer is. This is where the customer insight statements generated earlier come in handy.
Thirdly, I change the value proposition box to being: solution + benefits + value proposition + differentiator. I’ve been working in brand marketing and product innovation for 20+ years and your value proposition was only ever a part of your product and brand.
N.B. Earlier in the process, at the end of Ideation, I use something I created called an Idea Canvas for fleshing out and refining the top ideas selected. This canvas focuses on the desirability elements like customer, need and insight, solution, Customer experience, customer benefits, value proposition, and key differentiator. It then forms your brief for earlier prototyping.
Q6, Paweł: Does the back end of innovation also involve experimenting? What’s the role of getting early feedback from your customers?
Nathan: Customer-centricity, Creative thinking, and Experimentation all play a role throughout the innovation journey. Their sweet spot is definitely in the front-end, but they are all useful capabilities in the back-end too.
By the time a project reaches the back-end it should at least at a concept level be validated for desirability, feasibility and viability. But there will still be experiments and trials that need to be run to build (develop) and iterate the product. We can also use these methodologies to help us launch and scale our products and I’d highly recommend Ash Maurya’s work, as well as others, in this space including his book Scaling Lean.
If the product and its value proposition changes in any significant way in the development stage then customer validation definitely needs to be redone.
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Take care, Paweł
Thanks Paweł, I've been really looking forward to this collaboration with you and it didn't disappoint. Bravo!