What Customer Wants
Approaches to Identify Opportunity
for Innovations
Hamid Houshmand
May 2011
Formulating Innovation Strategy
• Innovation on what / where in the value chain?
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Product innovation
Service innovation
New market innovation
Operational innovation (production process, reducing
cost or materials, reducing energy, reducing
environmental damage, conformance to regulations)
– Marketing innovation
– Business model
– Financing
Formulating Innovation Strategy
• Source of innovations
– Research and development
– Close vs. open innovation ( internal and external
sources)
– User innovation
– Manufacturer innovation
– Supply-pushed innovation
– Demand-led innovation
Formulating Innovation Strategy
• What type of innovation is possible?
– Incremental /evolutionary innovation
– Breakthrough/radical/revolutionary/
discontinuous innovation
– Disruptive innovation
– Serendipity innovation (academic innovation)
Radical vs. Disruptive Innovation
• Disruptive innovation is a innovation that
disrupts an existing market (value chain)
• A disruptive innovation may or may not
represent a major technical breakthrough
• Breakthrough innovation, which is also called
radical, may or may not be disruptive, while
minor or incremental innovations can be
massively disruptive.
Innovation Strategy _ What Growth
Option Should be Considered
New jobs
Devise product or service
innovations that help
customers get more jobs
done. For success here, jobrelated information from
customers rather than
outcomes
Devise product or service
innovations that help new
customers do a job that
nobody is doing yet; no
product exists. The market
does not exist. Thus a market
analysis is necessary.
Current jobs
• Several options are available: customer-jobs
matrix:
Devise product or service
innovations that help
customers get a job done
better. To succeed here, the
customer’s underserved
outcomes must be uncovered
Devise product or service
innovations that help new
customers do a job that others
are already doing.
Existing customer
New customer
Innovation Strategy_ Where in the
Chain Value Should We Focus to
Maximize Value Creation
• Determine who in the value chain makes the
most important judgements about value and
go to that source directly rather than let their
immediate customers provide the
requirements
• The End user should also be considered
Formulating the Innovation Strategy
Stages of
innovation
Customer driven
approach
Outcome-driven
approach
Benefits of the
outcome-driven
approach
Formulate
an
innovation
strategy
Focus on the core
market , other growth
strategy is considered
too risky
Multiple avenues for
product, market,
operational, and
disruptive innovation
are considered
Attractive growth
strategy that has
high potential and a
high probability for
success
Causes for Failure in Innovation
• Common reason for failure in different organization
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Poor leadership
Poor organization
Poor communication
Poor empowerment
Poor knowledge management
• Common causes of failure within the innovation process in
most organisations:
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Poor goal definition
Poor alignment of actions to goals
Poor participation in teams
Poor monitoring of results
Poor communication and access to information
Capturing Customer Inputs
• Voice of customers that include solutions,
specifications, needs, and benefits statements are
often vague and hinder to successful execution of
innovations
• Gather data on:
– Jobs (what jobs to be done by customers)
– Outcomes (the outcomes they want to achieve)
– Constraints (that prevents customers from doing the job)
• The desired outcome can be transferred as the metric
statement into Six Sigma innovation process
Capturing Customer Inputs
• What method should be used to obtain
customer data?
– The method is not as important as the type of
data
– Personal interview
– Observational research
– Watching and quizzing customers helps to capture
jobs, outcomes, and constraints
Capturing Customer Inputs
Stages of
innovation
Customer driven
approach
Outcome-driven
approach
Benefits of the
outcome-driven
approach
Capture customer
inputs
Companies listen to
the voice of the
customer and
struggle to make
sense out of vague
inputs in order to
give customer the
solutions they
request
Companies
determine what
outcomes
customers want to
achieve and let
qualified experts,
not customers,
form the best
solutions
Marketing and
development
managers have the
customer inputs
they need to create
solutions of
significant value
Identifying Opportunities
• Don’t focus on what is easy to achieve
• Don’t focus on what can be done, but on what
should be done
• Don’t focus on what an engineer find interesting
• Prioritize your opportunities effectively
• Determine what jobs, outcomes, and constraints
represent the best opportunities for growth and
innovation
• Discover where the market is underserved
Identifying Opportunities
• How to prioritize opportunities
– Select a outcome that is both the most important and
unsatisfied.
– Use a quantitative research method
– Prepare a survey instrument
– Administer the survey to a statistically valid representation
– Ask the team to rate the importance
– Let the team to rate the degree of satisfaction
– Determine the level of opportunity by putting the metrics
together
– The highest opportunity score represent the extreme area
of opportunity
Identifying Opportunities
• Overserved markets identified
– Efforts should be halted, as no additional value is
created
– Cost reduction efforts by taking out costly
functions
– If many overserved outcomes are discovered,
consider disruptive innovation
– E.g: by changeing the business model or by a lowend disruptive innovation
Identifying Opportunities
• Value migration: Opportunities migrate over
time in a dynamic fashion
• Determine exactly where the opportunity in a
market at any point of time and be first to
address it.
• Do competitive analysis on offerings based on
the criteria of customers to measure value
rather than by analyzing the competitors’
product specifications
Identifying Opportunities
• Identify competitors’ strengths and
weaknesses on the key opportubity
• Try to equal or excel on competitor’s best
feature by taking that as the base line
• Knowing when to let a competitor go it alone,
because the outcome is satisfied.
Identifying Opportunities
Stages of
innovation
Customer driven
approach
Outcome-driven
approach
Benefits of the
outcome-driven
approach
Identify
areas of
opportuniti
es
Companies define
opportunities as the
solution customers say
they want. They
prioritize innovation
initiatives based on
available resources and
existing core
competencies.
Companies define
opportunities as the
outcomes customers
say are important and
unsatisfied. They find
the resources and build
the competencies to
address them.
Managers know
where to focus
employee creativity
to create customer
value. Companies
don’t waste time
and effort on
outcomes that are
already overserved
Segmenting the Market
• The outcome-driven method is the best way to
segment market for innovation
• Customer’s desired outcome is used for the
segmentation
• Other methods can still be used for other purposes
• Other elder methods are: demographics,
psychographics, purchase behaviour, needs-based
• Needs-based come close to getting it right, but there
is no common agreement as to just what a need is.
Segmenting the Market
• How does outcome-based segmentation
address product development
– Identifying unique opportunities in mature markets
– Identifying demanding customer segments that may be
willing to pay more for more elaborate solutions
– Identifying customer segments that are unattractive
– Discovering overserved market segments that make
attractive entry points for disruptive innovation
– Determining the best way to enter an existing market as a
new entrant
– Discovering segment of high potential growth
Segmenting the Market
Stages of
innovation
Customer driven
approach
Outcome-driven
approach
Benefits of the
outcome-driven
approach
Segmenting the
market
Customers are
conveniently
classified by
product type, price
point, age, risk
aversion, and other
demographic and
psychographic
characteristics
Customers are
segmented based
on the outcomes
they are trying to
achieve. They are
not placed into
artificial, companyimposed
classifications
Managers are able
to discover
segments of
opportunity in
markets where few
if any opportunities
appear to exist,
revealing new
avenues of growth
Targeting Opportunities for Growth
• An effective targeting strategy requires that a company
select the opportunities that it will pursue
• An effective targeting enable to add function and
performance, but not necessarily cost
• An effective targeting enable a competitive positioning
• Targeting unrelated opportunities by a single
breakthrough innovation is possible
• Some underserved outcomes in the market will require
new technology, cost-reduced technology or reshaped
technology. These opportunities become good long-term
targets that can be explored by company’s R&D function.
Targeting Opportunities for Growth
• First tackle broad-market opportunities
• Second, identify opportunities that span
multiple outcome-based segments
• Build a single platform for multiple segmentspecific solutions
• Pursue the least-challenging segments of
opportunity first
• Target segment that represent attractive price
points
Targeting Opportunities for Growth
Stages of
innovation
Customer driven
approach
Outcome-driven
approach
Benefits of the
outcome-driven
approach
Target
opportunities for
growth
Companies pursue
ideas that are
intuitively
attractive, easy to
develop, or that fit
within the firm’s
core competencies
Companies pursue
underserved and
overserved
outcomes for
improvement and
cost reduction,
respectively
Companies
proactively define a
competitive
position that is
unique and valued
and then arrange
solutions to occupy
that position
Positioning Current Products
• Prerequisites for an effective positioning
– Be aware of the opportunities that exist-know which
outcomes are underserved
– Have a product that truly address the underserved
outcomes
– Recognize what product features specifically address the
underserved outcomes
– Determine if and where the current message is off
– Create a message around a specific outcome
– Out come-driven thinking provide a solid foundation for
unique and powerful type of branding
Positioning Current Products
Stages of
innovation
Customer driven
approach
Outcome-driven
approach
Benefits of the
outcome-driven
approach
Assess messaging
and branding
Companies are
uncertain if their
positioning and
messaging is tied to
the customers
underserved
outcomes
Products and
brands are tied
directly to the
emotional jobs or
functional
outcomes
customers are
trying to achieve
Messaging connects
solidly with
customers and
enhances the sales
of existing and new
products
Prioritizing Projects in the
development Pipeline
• Issues when prioritizing projects
– Difficulty determining which concepts will address
market opportunities
– Feel compelled to cover all bases so they do not
get caught off guard
– Find it hard to kill a project once it has been
funded
– Fail to assign the resources needed to get the
projects to market quickly
Prioritizing Projects in the
development Pipeline
• Evaluation of projects to identify winners and
losers
– Determine what projects to evaluate
– Selecting a team to complete the evaluation
– Evaluating the initiatives
– Assessing the results
Prioritizing Projects in the
development Pipeline
• What projects should get top priority
– Projects that do the best job to address the
targeted outcomes?
– What projects fail to address to the targeted
outcomes?
– What projects address unimportant or overserved
outcomes?
Prioritizing Projects in the
development Pipeline
Stages of
innovation
Customer driven
approach
Prioritizing projects Managers are
in the development compelled to cover
pipeline
all bases. They
initiate hundreds of
development
efforts, spread
resources to thin,
and are reluctant to
kill projects already
under way
Outcome-driven
approach
Benefits of the
outcome-driven
approach
Companies
evaluate products
in the pipeline for
their ability to
address the
customers’
underserved
outcomes
Companies know
which initiatives
will create the most
value. They are able
to create more
winning products in
less cost
Forming Breakthrough Concepts
• Traditional brainstorming often fail to produce
products breakthrough idea
• Most brainstorming efforts yield poor and
unactionable results for three key reasons:
– Manager rarely know where to direct employees
creativity
– They are not focused on specific customer’s
outcomes
– Hundreds of useless ideas, but a few truly worthy
to pursuit
Forming Breakthrough Concepts
• The mechanics behind focused brainstorming
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Stay focused on the targets
Aim for breakthrough improvement
Constrain thinking to enhance creativity
Eliminate bad ideas quickly
Optimize the best idea for cost, effect, risk, and
sustainability :
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Not add any product cost
Require little effort to develop
Present little technical risk
Be difficult for a competitor to copy
Forming Breakthrough Concepts
Stages of
innovation
Customer driven
approach
Make breakthrough Employees
ideas
brainstorm without
focus, generating
hundreds of ideas
with questionable
value. Many ideas
must be evaluated
Outcome-driven
approach
Benefits of the
outcome-driven
approach
Employees use
focused
brainstorming to
direct their
energies toward
specific
underdeserved
outcomes and
generate a few
ideas of significant
value
Employees don’t
waste their time
generating ideas
that do not add
value. They
generate only ideas
that are worthy of
pursuit