The Disruptive Innovator

Discussions concerning Innovation Strategy, how to design and market innovative new high technology products and services, the difference between technologies and products, Disruptive Innovations,the Technology Adoption LifeCycle, the SWIFT New Product Innovation method, Silicon Valley startups and more.

Saturday, September 16, 2006

Early Pragmatists, Head Pins, and the Bowling Alley

To avoid the Chasm, it is critical to quickly make some sales to a few Early Pragmatists that can act as references to others.

A typical Early Pragmatist in the high technology world might be a Chief Information Officer. Early Pragmatists are more concerned with risk avoidance than the Visionaries and Technology Enthusiasts. They want to build a solution for the long run, and so they want to find technologies that adhere to an enacted or de facto standard.

Entering a market at the beginning of the Bowling Alley phase takes a set of skills very different from those which will allow a company to continue to grow after it is established. It is these special skills that distinguishSWIFT from most Product Development and Marketing strategy taught at business schools. Because the majority of business school graduates will spend most of their careers growing products at established companies with existing successful product lines and brand awareness, SWIFTs special focus may not be relevant to them.

However, for the venture capital funded Entrepreneur these differences are critical to success.

D-Day and the importance of Niches


Moore has drawn an apt analogy between entering the market in the Bowling Alley phase and the D-Day invasion of continental Europe.

Military strategy (and military history) demonstrates that the winner of any battle is almost always determined by whether the attacker has an overwhelming numerical force at the location where the battle takes place. This poses a special problem for the military planner who has only a smaller force and must engage a far superior force that is already well entrenched.

Such a situation existed in Northern Europe prior to D-Day in World War II. Germany's huge armed forces had command of all of Continental Europe, while US and British Allied Forces were stuck across the channel.

The Allies did not have sufficient forces to outnumber German continental forces, a seemingly impossible feat. However, because those forces had to defend all of the Western front they were necessarily spread thin. And that is the key to the Allies strategy. Rather than attack all of Europe at once, the Allies could do is is put an overwhelming number of forces in a single location, a beach head called Normandy.

Having successfully invaded Normandy, the Allies could land yet more forces, and then focus these additional on yet other nearby locations where they could outnumber the German forces. Battle by battle the Allies expanded their sphere of control, until they successfully defeated Germany.

The parallel to business is striking. A small start-up can not take on a much larger established and entrenched incumbent in it's main market. But it can win by concentrating all its forces on a small niche where the larger company is spread thin. And having established its dominance in that first niche it attacks other niches nearby.

Moore likens this growth into nearby areas to a set of bowling pins. First you have to knock off the head pin, and that helps you knock over pins 2 and 3, and then those pins in turn knock over pins 4, 5, and 6 and so on. For this reason, Moore calls this Early Pragmatist market, the Bowling Alley.

As you can see, in this model the head pin is critical to successfully crossing the Chasm and building a set of references among the Early Pragmatists that in turn can be used to grow the market.

As a new entrant we will have to do that with out the power of an established brand, an established sales channel, and tried and true operational methods tuned to our specific customers. We may not know who their customers are, or even what our market niche should be, until we achieve "sales traction".

But we can identify which kinds of markets and customers could be won, and having been won, would enable us to win others in the same niche.

The key strategy here is that the target niche must be composed of people who talk with each other. The one thing that would make it easier to sell to an Early Pragmatist is a success story about some other Early Pragamatist just like them. The prospects awareness of the reference customer makes up for their lack of awareness of the new entrant. Credibility is established not through what the new entrant claims the product will do, but what the reference customers have demonstrated it will do.

If the stakeholders in the target niche regularly communicate with each other, word of mouth praise will become the new entrant's strongest weapon. So these are the kinds of market segments we wish to target. Customer 1 tells Customer 2 who tells Customer 3, etc.

Of course, there is one problem with this model, why does Customer 1 buy? They have no pre-existing success story to influence them.

Moore's answer is that Customer 1 must have no other reasonable alternative. Unless they buy, they know for sure that they will not achieve their business objectives. But if they can see a demonstration that proves to them that they have a good chance of achieving their goal by using the new product, they may give it a shot. It is thus critically important that all the company's forces be dedicated to ensuring that first customer success.

Next, by focussing all their energy on other nearby customers in the same niche, they can use that word of mouth advertising to become the gorilla in that small niche.

This niche becomes what Moore calls the "Head Pin" in his bowling alley analogy. The company's reputation in the head pin market is then leveraged to hit other nearby niches as well. Moore shows that there is the possibility to expand from our beach head or head pin in two ways, other products that solve other problems for the same customers (industry focussed expansion) as well as by applying the technology to the same sort of problem as before, but in nearby industries:



Having successfully won our chosen beach head, we can now attack nearby niche's. To be successful at this, we need to take that reputation we have with their first custome(s) and make the new customers aware of this leadership. Our message will be some variant of "the acknowledged leader in the ABC market, now has a solution for the DEF market. We need strategies for generating this marketing awareness and establishing our leadership position. To this end, we will talk about how to use Zoom Marketing Corporation's The Point That Matters model to achieve these goals, and that will be a topic of a future post. For now, let us just identify that the new entrant grows not with a horizontal product, but by winning individual "nearby" niches and then assembling them together into a larger market..


Late Pragmatists and the Tornado


Because Pragmatists are herd animals, once a sizable set in a market begins to settle on one particular vendor or product, others rapidly follow. The leaders product becomes the de facto standard. Late pragmatists, who hung back waiting to see which standard would emerge suddenly, commit themselves. At this point, it is critical to become the market leader, and sales spiral upward at a furious rate. Moore calls this the Tornado market.

Conservatives and the Main Street market


After a product has achieved market success and starts to mature, Conservatives are willing to buy the product. Conservatives can be anywhere in the organization, but are typically managers in end user departments.

While the Pragmatists were buying to solve a problem or take advantage of a new capability, Conservatives are motivated by the need to stay competitive. It is the fact that most of the other competitors already have these products and are getting benefits from them that drives the Conservative to purchase. This is the Main Streetmarket. Price becomes more important, as does added services and extensions that customize the product for a particular customer. But these customizations are radically different from what the Visionary was interested in. The visionary knew what technology they wanted and specified this to the seller. The Conservative on the other hand has no interest in figuring out what technologies are needed and how they should be arrayed.Rather the Conservative wants an off the shelf complete solution, including installation and maintenance services.

Skeptics and the End of Life market


As the market matures further it becomes saturated most everyone who will want the product has one already or the technology starts to be supplanted by new technologies. The remaining purchasers are the Skeptics in this End of Life market phase. These can be end users, or user department managers, or sometimes information technology staff assigned to maintaining legacy systems.

The Skeptics are normally reluctant to make a purchase except to prolong the life of purchases they have already made. For this reason, Skeptics are likely to buy maintenance on existing products they have, converters and interfaces that allow their existing products to work with newer technologies, rather than replacing those products.

Something of every type in all of us


Readers who are not already familiar with this methodology might conclude that any given person is a specificbuyer type: either a technology enthusiast, or a visionary, or a pragmatist, etc. This is not really the case, we all adopt different buyer preferences for different kinds of products. For instance, David might be a technology enthusiast when it comes to home audio-video equipment, and a visionary with respect to telecommunications such as cellular phones or pagers. But when it comes to buying kitchen appliances he may be a pragmatist buying only to meet specific problems and focusing on brands that have name recognition. When it comes to his clothing he is conservative, only discarding unfashionable suits and ties when they have become so old fashioned or worn as to call negative attention to him. And his 12-year-old car is babied along in skeptic fashion, with regular oil changes, car washes, and engine maintenance.

As we saw before, there are typically multiple people involved in any major purchase, and in all likelihood they will be distributed across the buyer types. In our car purchase example, Anita's boy friend, Axel, might have be a Technology Enthusiast, her father, Denton, might be a Pragmatist, her grandmother, Shirley, a Conservative, and her mother, Iona might be a Skeptic, with Jane playing a Visionary.

No one product can be all things to all people, and the car ultimately chosen was not the top preference of every person. But what was critical was that the product

  • acceptably met the goals of many of the Influencers,

  • was not rejected outright by any of the major decision makers (Mom, Dad and Jane), and

  • was a 100% solution to the main buyers problems (Jane).



So now we have the means to further annotate our Stakeholder chart:


No single right market



It is worth stressing again that ultimately there is no single right market for an established company to focus on in the Technology Adoption Life Cycle. While the size of the Conservatives market is larger than the size of the Visionaries market, the price sensitivity is higher there and so margins may be much lower. Companies like Computer Associates dominate the Skeptics markets and make a lot of money in services and maintenance with very little expenses in engineering and new product development. Teknowledge Corporation's primary customers, have included the Defense Advanced Research Projects Agency (DARPA), a classic Technology Enthusiast and Visionary organization. IBM, once the giant amongst the Pragmatists is now showing its clout in the Conservatives market place with sales and services to small companies. Sun Microsystems achieved huge success by establishing its products as open systems standards thus taking the Pragmatists market by storm.

At the same time, for Venture Funded start-ups the growth requirements make the Bowling Alley phase a preferred target.

What the Chasm means for Venture Funded Start-ups and other New Entrants

Why the Chasm exists


Because Visionaries and Technology enthusiasts want to use a product before anyone else, no existing references are needed to sell to them. In fact, references might be counter productive, suggesting that the opportunity to be ahead of their competitors has already passed. Pragmatists on the other hand, according to Moore and Brown, are pack animals and look for safety in numbers. They want to know that there are already other purchasers like them to feel safe.

Pragmatists don't accept references from Visionaries and Technology Enthusiasts, because Pragmatists see Visionaries and Technology Enthusiasts as far more risk tolerant. Pragmatists fear that the earlier adopters' successes may not be repeatable without the substantial effort and customization of the product that Visionaries insist on. A pragmatist doesn't know how they would customize such a product, and they don't want to spend the time or expend the effort to become educated. For Pragmatists the product must be ready to solve their problem as is, or they will wait until there is such a product.

Moore argues that these differences between Early Adopters and Pragmatists cause a "chasm" to develop. Companies that are successful with the Early Adopters are rarely able to successfully ignite sales to the Pragmatists. Today's "mainstream" market leaders and are supplanted by new entrants. I will say more about this when we cover Disruptive Innovation, but suffice it to say for now that in accordance with Moore's model selling to Pragmatists requires different sales skills, and different product attributes than selling to Early Adopters.

A side effect of the Chasm is that if we are successful at pioneering an Early Pragmatist market we may have little to fear from the incumbent market leaders who gained their success selling to Early Adopters. The traits that made them successful to date will inhibit their success in crossing the chasm and competing effectively with our new market entrant.

According to Moore, a company can be successful even if it never moves beyond the Early Adopters, as long as it creates a constant stream of such innovations that it can sell to these customers. And the size and other characteristics of the company have to match what is possible in that market place. Because the percentage of Early Market adopters is smaller than the rest of the life cycle, such companies will be more limited in growth compared to companies on the other side of the chasm.

An alternative destination that we will speak of later is merger or acquisition of a company that is successful in the Bowling Alley.

Why the Bowling Alley Phase is Ideal for Venture Funded Start-ups and other New Entrants


In contrast, the SWIFT method is designed to help Venture Capital funded companies enter the market during the Bowling Alley phase (or to kick it off if it has not already started) and then achieve market dominance during the Tornado phase. These phases are those which are best suited to the ease of entry, leadership potential, growth, and liquidity/exit requirements of Venture Capital.

Here is why:

Because of the Chasm, no entrant in the Bowling Alley has sufficient brand awareness and clout among the Pragmatists to dominate the nascent market. There are no barriers to entry yet which will prevent success for a late comer. (Indeed, keeping in mind the earlier two phases, late comers are the most likely to become new leaders).Who will become the market leader is anyone's guess, and leadership changes are fluid. The market is still small, but growth is rapid. Leadership Fluidity, is important for new entrants, making the Bowling Alley an ideal place to start.

As sufficient numbers of "Early Pragmatists" demonstrate success with the new technologies, their success stories motivate "Late Pragmatists" to join the stampede like herd animals.

Market growth in the Tornado can become exponential, and soon the markets are sizable. This rapid growth is necessary to meet the expectations of Venture Capital investors, who may be seeking returns on their investment of upwards of 40% per annum.

As the markets become large enough, market share and brand awareness come to matter more and more, so that the market leadership become stable, often freezing in a dominant market leader ("the Gorilla"), two or three alternative suppliers with significant share ("the Chimps") and the remainder of the market is limited to many extremely small competitors ("the Monkeys").

While there is still some fluidity in leadership but also some separation among larger and smaller players, a large marketing war chest can be valuable. The emerging Gorilla and Chimp candidates may become excellent candidates for a public stock offering (IPO) to fund their continued growth and to improve their competitive position during this phase.
Also this is the time for merger's and acquisitions. By merging the #2 and #3 market share competitors the previous market leader might be effectively challenged. Acquiring a number of "Monkeys" can also boost any company's market share.

Acquisition is also a common strategy among the former market leaders of the "Rainbow" Phase, who were unable to cross the chasm before, but who now see their market shrinking rapidly. Indeed, this can be an effective and repeatable strategy for a company who achieved great brand awareness and controls a large distribution channel. Effectively, the company lets venture capital pay for the R&D, and lets the market select the winners. They then meet their own growth targets by acquisition of the market approved technology which they can help grow even faster using their own channels. This kind of acquisition strategy has been seen in many of the biggest names in high technology, including Microsoft, Oracle, IBM, Hewlett-Packard, Cisco and AOL, and is now helping generate growth for Google and Yahoo as well.

Both IPOs and acquisitions provides the "exit strategy" wherein the Venture Capital Investors can achieve liquidity and thereby cash out their investment and return the expected substantial returns to their fund.

In the next post we will explore in more depth the characteristics of the remaining market phases and the traits that define the typical stakeholder driving purchasing decisions at that phase.

Thursday, September 14, 2006

Innovation and the Technology Adoption LifeCycle

Having identified the archetypal stakeholders, it is time for us to start to describe them in ways that will help us create an innovative product or service that will motivate them to acquire it, purchase it and use it. To do this we need to understand their motivating goals and task they perform, and we also need to know something about their buying preferences and habits. We will come back to goals and tasks in a future post, but in this post I will introduce one of the models of buying preferences and habits that I find helpful.

There are many ways to analyze the buying preferences and habits of a consumer, and there are many books that cover these preferences and habits. The choices are too large to cover here, and even too large to enumerate here, but a serious designer will want to get a broad exposure to this literature throughout their career.

I have found one particular methodology especially helpful, and I’ll briefly cover it here. The methodology in question has been named the “Technology Adoption Life Cycle” by marketing consultant Geoffrey Moore, who first described this model in his books "Crossing the Chasm" and "Inside the Tornado" .

I highly recommend these books, as well as Moore's "Gorilla Game" , "Dealing with Darwin" and “Living on the Fault Line” to interested readers who want to know more. I would also like to thank sales consultant Rick Brown of “Life Cycle Marketing” who has shared with me his further extensions of this model including additional tools for identifying TALC types of stakeholders through various characteristics of those types.

The Technology Adoption LifeCycle (TALC) methodology divides up the stakeholders and corresponding preferred markets into six types:

Buyers Markets
Technology Enthusiasts Innovation
Visionaries Rainbow

“the Chasm”
Early Pragmatists The Bowling Alley
Late Pragmatists The Tornado
Conservatives Main Street
Skeptics End of Life

Each type of customer has certain identifying characteristics and purchasing preferences, and it is the predominance of these specific customer types at different stages of the lifecycle that characterize a market phase.

Technology Enthusiasts and the Innovation Market

For instance, TALC calls the first group of people to adopt a new technology: Technology Enthusiasts.

For high technology innovations such as those we focus on, the Technology Enthusiast is typically someone in engineering or information technology. Technology Enthusiasts want to purchase the latest new technology and be a part of determining what it is useful for. Often they have limited purchasing power on their own. They may offer to beta-test a product in order to keep their costs down and they may not have sufficient budget to purchase the product when it reaches final release. With limited purchasing power, these people may be poor candidates for the Customer or Economic buyer, but very frequently play the role of the Evaluator or Technical Buyer, where their vote of confidence is crucial to product acceptance by the organization.

The market that corresponds to the Technology Enthusiasts’ preferences is called the "Innovation market" in TALC.

While we adopt this usage for conformity with Moore's well known model and terminology, it should be noted that Innovations, in the sense that we have defined the term earlier, can be marketed at every stage of the lifecycle. And each stage, these new products do represent a true innovation to the members of that market -- even if they may have been well known to stakeholders in earlier phases. In fact, as we will see in a later post, Disruptive Innovations often achieve that disruptive characteristic by entering the market in the later "Bowling Alley" phase while leaving the former mainstream companies on the other side of the chasm.

AlthoughTechnology Enthusiasts can be enthusiastic adopters of innovative technologies, a problem for companies targeting this market phase is that Technology Enthusiasts have little money to spend. As a result, a common experience of many start-ups in the dot com boom and subsequent bust was that it was easy to gain the interest of wildly enthusiastic Technology Enthusiasts during a free beta test period, but this customer base evaporated when the company tried to “monetize” their customer base by charging for these products. This is a useful lesson for both entrepreneurs and investors trying to gauge the likely adoption of new technologies.

An additional risk for companies who are successful in getting sufficient revenues to prosper during this phase is that this market can be quickly saturated. Once knowledge of a new technology becomes widespread, Technology Enthusiasts no longer gain influence by telling others about it, and so they naturally turn their attention to the "next new thing." Thus a company successful in this Innovation market must ultimately create additional innovations that can be sold to this market, or they must find a specififc competative advantage of their product which allows them to transition to the Visionaries and the Rainbow market.

Visionaries and the Rainbow Market

A Visionary, on the other hand is usually a senior executive, probably a vice president, and his or her interest is to find a sustainable competitive advantage – a solution no one else has to a business problem that all their competitors have. As a senior executive, they often have authority to make large financial commitments and therefore frequently play the role of the Customer or Economic Buyer in purchases, and occasionally play a powerful role as a Sponsor to Technology Enthusiasts who bring them news of innovative technologies that could be used to create such advantages.

The corresponding market is called the "Rainbow market", because Visionaries drive technologies to be customized into a wide spectrum of custom solutions each of which precisely fits that Visionary’s needs. Visionaries don’t want off the shelf solutions; if such products were available off the shelf, competitors could buy them too and just neutralize the strategic advantage the Visionary hopes to get. Visionaries want a wide range of custom solutions so that they can get the solution that most precisely fits their needs.

While there may be more Visionaries than Technology Enthusiasts, the Rainbow market can also be a difficult one for companies to thrive in for long. Because Visionaries can command significant budgets, they may be able to use that leverage to induce a small new company to create a solution so customized that it cannot be fielded as is for any other potential customer.

This fragmentation leads to markets dominated by companies who invest considerable professional services effort into determining customer needs and in creating custom solutions. Because of the high amount of customization by highly specialized and technically skilled staff, margins for such products are often extremely high. And because every solution is customized, the companies successful in this stage rarely create “off the shelf” solutions that are truly usable by the mainstream customer who don’t know what customizations to ask for.

Moreover, as we will see later when exploring Clayton Christensen’s related Disruptive Innovation model, the next class of prospects, Pragmatists, have less stringent requirements than the typical Visionary. Moreover, because their needs are less complex, the margins on sales to these new prospects will pay is typically much lower. As a result, executives at a company successfully selling to the higher end visionary customers will find that there is a strong financial disincentive to investing in products for the lower margin pragmatist market when higher margin products can still be sold to their existing best customers, the Visionaries.

Kit Car Confusion

In part due to the forces, rather than offer a standardized product, at best a “toolkit” product will be offered. The toolkit will be sold with technical training and consulting providing customers with help in creating their own custom solutions (and generating those high margin professional services revenues the manufacturer is used to).

Toolkits often appeals to engineering driven companies populated by engineering teams consisting of many Technology Enthusiasts and Visionaries who like to create their own solutions. To these individuals, a toolkit seems to have a potential reach of a huge “horizontal” market, in which every customer solves their own unique problems with their own custom, vertical, solutions. In comparison, a targeted “no configuration” solution aimed at just one vertical or demographic, seems too narrow – they feel such a solution abandons all the other potential users whose differing needs will now be left unaddressed.

The problem with this view is that the mass market customer doesn’t want to put the effort into creating their own custom solution. In fact mainstream customers rarely want to put any effort into identifying their own needs sufficiently to specify such a solution. Instead, they look for existing solutions that address problems they are already aware that they have. If the proposed new product doesn’t solve all of their problems – at least is solved one!

Toolkits thus don’t address their needs and in fact reduce the size of the relevant market. This is often startling and confusing to technical innovators who are facile with new technology and love to create (and demand) customized solutions.

In SWIFT we often refer to this kind of misunderstanding about the nature of markets as “Kit Car Confusion”. To understand why, consider the following scenario:

InnoCar is a company trying to break into the automotive vehicle market. InnoCar hires a marketing researcher to find out what kind of vehicles people want.

The researcher develops the following two tables. He found that prospects greatest preference for a new vehicle by class was as shown on the left. However, he found that prospects admitted that they would prefer one class vehicle some of the time and another class another part of the time, based upon how many people or how much cargo they needed to carry. The researcher then generated the 2nd chart showing how much of the time people wanted 2 seats, 4 seats, 5 seats or 7 seats.

Model preference % seats
Compact car 4858 27% 4
Economy Car 3884 21% 5
Sports Car 1400 8% 5
Luxury Coupe 100 1% 2
Luxury Roadster 800 4% 2
Compact Coupe 1145 6% 2
Roadster 829 5% 2
Sports Coupe 951 5% 2
wagon 1213 7% 5
hatchback 2980 16% 4
SUV 124 1% 7
Total 18284 100%


seats


% time
2 21%
4 43%
5 36%
7 1%

100%

The researcher concluded that, assuming all vehicle classes generated the same profit, if InnoCar wass going to produce just one class of vehicle, the compact car would address the largest single market segment of 27% of the total available market.

However, if the car could be reconfigured to into a hatchback when extra storage was needed, the car could address 43% of the available market.


If the car were made even more configurable, allowing it to stretch to 5 seats on occasion, 79% of the market could be addressed.

Engineers at InnoCar propose creating a "kit car" in which body and interior parts of the car could be bolted together in various combinations on a standard engine and chassis to allow the customer to drive a gas conscious compact car for commuting on Monday through Friday, a 2-seater sports car on a Friday night date, a family car for when other members of the family visit on Saturday, and an SUV for bringing home new furniture on Sunday. Cars would be delivered unassembled to the purchasers drive way. Once initially assembled, a car can be reconfigured whenever desired. Reconfiguration can be accomplished by any competent home mechanic, using provided hand or power tools in as little as 4 hours! Since the vehicle is capable of ALL configurations, this should address the maximum market.

Of course the flaw in this theory is that while people might want different vehicles at different times, they aren’t willing to learn to become mechanics or spend 4 hours to reconfigure it. So while InnoCar’s design is far more flexible than LuddiCar’s one model, any color so long as it is black” family sedan, LuddiCar winds up with the greater share as people drive off the lot in an already running LuddiCar instead of assembling their vehicles at home.

The combination of differing needs (and profit margins) between Visionaries and main market purchasers, plus Kit Car Confusion, often prevent companies who are successful selling to Visionaries from making the leap to selling to the mainstream.

These forces lead to what Geoffrey Moore calls "the Chasm" phase of the Technology Adoption LIfe Cycle. In our next post, we will begin looking further at the Chasm, as well as the phases on the other side of the chasm.

Thursday, August 24, 2006

What is a Stakeholder Chart, and How Do We Use It?

What is a Stakeholder Chart, and How Do We Use It?

In our last post on Innovation Theory we discussed Who Are Stakeholders? Today we will begin to apply these definitions in determining the necessary characteristics of the new innovation we will be designing.

In the course of that post we defined several roles that Stakeholders may play. In particular, we defined the following roles:

  • User
  • Buyer
  • Evaluator
  • Ally / Blocker
  • Sponsor

In the case of many inexpensive consumer products, there is only one decision-maker that has to be convinced to purchase the product. The purchaser is in charge of the finances needed to make the purchase, is knowledgeable about what they need the product to do, and will ultimately will be the user of the product as well.

Knowing who all the stakeholders in a purchase/usage situation are is important for us to know before we begin designing our innovation, because stakeholder relationships have a huge impact on what product and service characteristics will be adopted quickly, which may be adopted slowly and which most likely will never be adopted at all. We’ll see an example of that later, but right now let’s work through a simpler example that I call Anita’s New Car.

Anita’s New Car

The following example illustrates these roles. The accompanying Stakeholder diagram is often useful for capturing the roles and lines of influence between individuals:


Anita's New Car Stakeholder Influence Diagram


This diagram captures the stakeholder relationships in the case of “Anita’s New Car”. Anita is just about to turn 16 and, as is common in her upwardly mobile suburban neighborhood, she wants a car for her birthday. Anita Carr is the “User”, because if a new car is purchased, she will be the one to operate it. But in a major purchase, the situation is often different. Consider the case of Anita, a girl who wants a car for her 16th birthday. If a car is purchased, she will be its “User”. So the car’s features have to please her and be usable by her. For instance, because Anita’s driver’s education class didn’t teach students to drive a manual transmission, Anita is only considering cars that have an automatic transmission. It also needs to be stylish enough that she is proud to show it off to her friends.

Anita really prefers cars that she feels are “sporty” or “cute”. Anita likes Lexus SC300, the Jaguar XJ-7, the VW Beetle, the Chevy Corvette, the Suzuki Samurai, the Honda del Sol and the Toyota Cressida.

However, Anita is not the only stakeholder who will determine whether a car is purchased for her, or even which car is purchased. Anita is not financing the car herself; she needs her family to make the payments.

In Anita’s home, it is Anita’s mother, Iona Carr, who is responsible for keeping the checkbook and budget. Ultimately, Iona has veto power over any proposal if she feels the amount of money that will be spent on the car is excessive. Naturally, she is looking for a frugal investment. Iona plays the role of “Buyer” in the purchase decision.

Iona decides the Lexus and the Jaguar are out of their budget.

Anita’s Dad, Denton Carr, is also involved in the decision. Denton knows a lot about what makes a car safe and reliable. He plays the role of the “Evaluator” or “Technical Buyer”. Denton is concerned with which cars are reliable, safe and efficient.

While Iona may set the overall budget for selecting cars, there may be cars that are within the budget but which don’t meet his safety and reliability requirements and so he may veto these cars. Similarly, Denton might recommend a car because of its safety and reliability track record, but Iona may veto that purchase if it is too expensive. The final choice must pass both sets of hurdles.

Denton checks the cars in Consumer Reports and finds the Corvette has a high rate of repair, and that the Suzuki turned over in their obstacle avoidance test. So he removes those from the selection list, leaving only the VW Beetle, the Honda del Sol and the Cressida for Anita to choose from.

Anita’s Grandmother, Shirley Rich, lives on the east coast, while Anita and her family live on the west coast. Shirley doesn’t travel much any more, but she pays for Anita to fly out to see her for two weeks every summer. Shirley dotes on Anita, her only grand-daughter, and she wants Anita to be happy.

Last month, Anita told Shirley that she really wanted a car for her birthday, but she didn’t think Mom was going to approve it. She asked Shirley to talk to Iona to try to change her mind.

While Shirley doesn’t particularly care which model Anita gets, and while Shirley will probably never ride in Anita’s car, she does want Anita to get the car she wants. So she went to bat and lobbied Iona to get Anita the car she wants.

In this scenario, we can see that Anita’s Grandmother plays the role of a “Sponsor”. Her influence on Anita’s mother may be critical for this purchase to be made.

It should now start to become clear that there are multiple stakeholders whose needs must be met for a purchase to be completed. But there are even more stakeholders we must be concerned with.

Anita’s 14 year old younger brother, Noah Carr, also plays a role in the decision making. He plays an Ally or Blocker role. In this case, Noah supports Anita getting a car, because he believes that if Anita has a car she can take him to the mall with her after school, so he doesn’t have to be dependent upon Mom to drive him. Not only is depending on his mother inconvenient, it conflicts with his social image goals. As he tells his mother: “It is Sooo Uncool be driven to the mall in a ratty old station wagon, Mom!”

He’s been helping feed information about the purchase decisions to Grandma Shirley to get her help in arguing the case for a car for Anita with his parents.

Noah hopes that Anita will get a car that will be cool and impress his friends when he arrives, like the new VW beetle he showed to Anita. Noah is an Ally, because he will benefit from Anita acquiring a car and driving him places, and he will benefit more if the car is “cool” and less if it is “an old heap”.

Anita’s high school friends Norma Walken, Ivana Driver, and Vera Wright all like to hang out together after school. While all have their driver’s licenses, no one has a car of their own. Sometimes they are able to borrow one from their parents, but that situation isn’t reliable and all too frequently they have to walk. Norma, Ivana and Vera want Anita to get a car that will fit all four of them comfortably plus all there gear when they head for the beach. And they hope that she will let them drive it on occasion as well. Norma, Ivana and Vera are also Allies. They stand to benefit from Anita getting a car, especially if it is large enough for all four of them and their gear. While they think the Beetle is really cute, they are hoping she will get something larger like the Suzuki Samurai or Toyota Cressida that could carry a lot of stuff to the beach. They are also discouraging her from considering the two-seater sports cars like the Corvette and the Honda Del Sol.

Anita’s boyfriend, Axel Bender is also an Ally, though his interests are very different from those of Norma, Ivana and Vera. Quite frankly Axel would like Anita to spend less time with her girl friends and more time alone with him. He also would like Anita to get a sporty car, that he can drive some times, because he hasn’t had a car of his own since he wrapped his last one around a light pole while drag racing. To achieve his personal goals Axel is urging Anita to get a two-seater sports car like the Honda Del Sol or the Corvette so that he can drive it some times, and in which he knows that they will be alone together and not carrying her brother or her friends. Plus the tops on the Del Sol and Corvette are removable so that the car becomes a convertible – even better for his friends to have a clear view of him driving this cool new car.

This kind of competition for conflicting feature sets by different Allies is common and why one person’s ally is another person’s blocker.

Rusty Lemon is the salesman at the local VW dealership. He also plays the role of an ally. He wants Anita to get a car she is happy with, but he strongly prefers that it be a VW since that’s how he will get a commission. Moreover, there is a special incentive to the sales rep who sells the most New Beetles to first time buyers this month, so he is pushing that particular model, and hoping to close in the next week. This makes Rusty an Ally as well.

Ultimately Anita picks the VW Beetle because it comes in purple, her favorite color, and because Rusty made her feel really good about the choice, using Noah’s and Norma’s recommendations as part of the sales pitch.

But the purchase could not have been made without everyone else’s involvement. While not everyone got their first choice, everyone could be satisfied with the eventual purchase. If the goal of a product design is to specify a product that will be profitable, the design needs to reflect the requirements of the multiple people involved in the purchase.

This sort of multi stakeholder involvement is more common than uncommon in expensive purchase and most Commercial sales. A good SWIFT design recognizes all these sorts of roles and makes sure that each one is addressed, since any one stakeholder that is not minimally satisfied and represented in the plan may cause the sale of the product to come to a halt or fail.

In the foregoing stakeholder analysis, Anita and her constellation of other influencers are not real people but are Archetypal stakeholders that represent a typical stakeholder in a given role. We don’t want our design to be so specific to the idiosyncrasies of a single real prospect that our product won’t work for others. However, we also want to avoid what Alan Cooper calls the “plastic user syndrome” – where we justify bad design choices by constantly changing the characteristics of our users so that we actually design something that is too general or complicated for actual users. By using Archetypal stakeholders we make sure that we actually design something that will be usable by real people.

We give our Archetypal characters names, such as Anita Carr, so that we can better imagine their goals, needs and reactions, and so that we can discuss these characteristics with other designers. I prefer to give these characters amusing but memorable names so that I can remember what role they play by their names.

How to use Stakeholder Analysis to Solve Design Problems

Now let’s apply this stakeholder model to another real world problem. In 1998 I had the opportunity to apply SWIFT methods to design the PlaceWare Web Conferencing System (now Microsoft Live Meeting).

One goal for our design was to serve the needs of sales and marketing people who want to deliver an effective multimedia presentation to a potential customer, without the need for either party to travel to a common location for a face to face meeting.

One of the first things we note that is unusual about this goal is that there is not one Archetypal user, but at least two that we must satisfy: the presenter, and the attendee.

If we did not do a full stakeholder analysis, we might be tempted to create a design that was very powerful and attractive to presenters, but which might be too complicated for attendees.

Or we might design a product that was simple and fast for attendees, but not powerful enough to meet the presenter’s needs.

Failure to take care to address both stakeholders’ needs has doomed many “groupware”, “collaboration” and “communication” products.

But there is another application of Stakeholder analysis that can help inform our designs.

Consider the problem we faced with the PlaceWare Web Conferencing Center. Once we had software that could address the needs of both attendees and presenters, we faced a choice about how we would sell it and deploy our server.

For instance, we could:

1. Sell our server software to be installed on the customer’s own computers,

2. Sell a custom hardware appliance that was preloaded with our software

3. Operate our own servers and provide a web based service.

While our design might serve presenters and attendees equally, Choices 1 and 2 require the involvement of a new stakeholder: someone in the IT department. Because these solutions work on the customer’s own equipment, this person will be concerned about the load that such software puts on the local servers and networks. This means that such a system would actually complicate the life of such a person. On the other hand because choice 3 does not run on any computers within the customer company, this IT stakeholder is not present in the choice 3 stakeholder’s analysis.

By doing the stakeholder analysis, we could see that the sales cycle of Choice 3 would be considerably faster and adoption higher than in choices 1 and 2. And with that insight the choice to field our software as a web based service became clear.

Summary

We’ve seen how to create a stakeholder influence diagram and use it to identify all the people who must be satisfied to sell our product, and how this can affect how we choose to field our product and other characteristics.

In coming posts we will look at how to further analyze our stakeholders in terms of other buying characteristics, known as their Technology Adoption LifeCycle (TALC type).

Who are Stakeholders, and Do They Know What They Want?

Do Stakeholders know what they want?

In his reply to my post on What is Innovation?, reader sparky commented that:

By stating that "People don't adopt an innovation because they are forced to do so. They adopt an innovation because they are motivated to do so." and during your whole post you assume that the user knows what he wants and that the stakeholders are interested in different goal than value optimisation.

In today’s topic I’m going to elaborate on the different kinds of stakeholders, which includes both users and buyers, and their distinctive tasks.

But first, in a quick aside, let me clarify that I do not think that Stakeholders know what they want. To the contrary, I believe that they often do not know what they want. However, I do claim that stakeholders, when they are aware of and confronted with two alternative ways of accomplishing their goals:

1. the way they have done it in the past, and

2. the way they might do it if they employed the innovation,

are able to assess whether alternative 1) or alternative 2) appeals to them more.

This is not the same as knowing what they want. In many cases, stakeholders are unaware that any alternative under than 1) is even possible. In that case, they aren’t even going to go looking for an alternative. They feel the chronic pain, but they ignore and are resigned to the pain because they don’t know that pain killers exist.

For these stakeholders to change the alternative has to find them. This is a question of generating problem awareness, and will be a topic of a future post.

Similarly, they may be aware of their pain, and they may even be aware that solutions are possible, but they don’t know where they are, what they are called, how they work, nor who sells them. This is a question of providing solution awareness, and that too will be covered in a future post.

Finally it should be mentioned at this point that when we providing information about solution to people who don’t aren’t yet aware of the nature of their problem, they don’t know what to do with that information and so they ignore it.

To better understand how we might address this topic, we need to have a more rigorous understanding of who exactly are the stakeholders, and what roles do they play in the purchase and adoption of an innovation?

Who Are Stakeholders?

When I use the term Stakeholder, I mean a person (never a company or organization!) who plays one of the following roles in a purchase situation:

User (also known as the “end user”) a person who performs the task of using or employing the innovative product or service in order to achieve their goals.

Buyer (aka the “economic buyer” or “the customer”) a person who performs the task of selecting and purchasing the product or service, in order to meet their goals.

Evaluator (aka the “technical buyer”) a person who evaluates the alternative solutions during the purchase process. Evaluations typically are done in terms of goal attainment.

Allies (aka “advocates”,“stumbling blocks” or “blockers”) persons other than users, buyers and evaluators who stand to benefit or lose based upon the purchase decision. In general, a person is an ally if they stand to benefit from the acquisition of the innovation and a stumbling block if they do not. Typical allies are people who are served by users (e.g. if the user is a customer support professional the customers who call in would be allies). Typically, sales representatives whose products and services are under consideration in the purchase process also fall into this category.

Sponsors Sponsors will never receive any direct benefit from the adoption of the innovation, but they are interested in the personal welfare or success of one or more of the other stakeholders. In pursuit of their own goals of supporting their chosen stakeholder, sponsors can smooth or impede the purchase or adoption processes of the other stakeholders.

In a future post we’ll look in more detail at an example that demonstrates each of these roles.

Tuesday, August 15, 2006

What is Innovation?

What is Innovation?


When we say a product is Innovative, what do we mean really? Do we just mean that it is new? Is novelty alone enough? And new to who? To me? To you? To those in the know? To those who are always the last to know?

In this blog I am exploring a number of topics concerning Innovation, Innovation Strategy, and particularly about the deliberate strategic application of The SWIFT Design New Product Innovation Method(TM) to ensure commercial success and widespread adoption.

In another post I'll be talking more about a specific kind of Technology Innovation that is an important component of SWIFT: namely what Clayton Christensen calls Disruptive Innovation.

As an entrepreneur and new product design strategist, these kinds of innovations are particularly interesting because they result in new market entrants overturning of the status quo market - even when the well established market leaders are fully aware of the innovation that is about to destroy their market. And it is the theory of Disruptive Innovations that lent its name to this blog.

However, before we go onto Disruptive Innovation, let's just start with the simpler question of what makes a product an innovation. Because in the course of our exploration of what innovation is we are going to come across some key concepts in SWIFT involving

  • stakeholders,
  • goals,
  • tasks,
  • desire, value and motivation,
  • efficiency, effectiveness and advantage,
  • personal and task reliability, performance, effort and expense,
  • habit cessation and habit formation,
  • new product adoption,
  • learning curves,
  • product mastery and productivity and
  • commercial success.

These are the building blocks of our methods and we will be returning to them again and again through out this blog.

There are many definitions of innovation available on the Web. Here are just a sampling:

Wordnet defines an Innovation as an invention:

invention: a creation (a new device or process) resulting from study and experimentation

In contrast, the Wikipedia definition. speaks of an innovation as being useful, and applicable in a commercially successful way:

Innovation is the introduction of new ideas, goods, services, and practices which are intended to be useful (though a number of unsuccessful innovations can be found throughout history). The main driver for innovation is often the courage and energy to better the world. An essential element for innovation is its application in a commercially successful way. Innovation has punctuated and changed human history (consider the development of electricity, steam engines, motor vehicles, et al). ...

The US government also speaks of innovation in terms of the marketplace:

Introduction of a new idea into the marketplace in the form of a new product or service or an improvement in organization or process.

The Scottish Enterprise speaks of innovation as creating value:

Creating value out of new ideas, new products, new services or new ways of doing things.

Meanwhile the New Zealand government speaks of efficiency, effectivenss and competitive advantage:

The creation, development and implementation of a new product, process or service, with the aim of improving efficiency, effectiveness or competitive advantage.

And finaly, Logistics Focus offers a more cynical view:

A new idea, method or device. One of the most overused nouns in the business vocabulary today. (With all of this innovation going on, why aren't more people satisfied with their logistics operations?) We are counting the days until we hear the buzzword "re-innovation."

Let's see if we can reconcile these views a bit.

An Innovation must provide value. Value is in the eyes of the stakeholder who perceives the value. Value comes from the stakeholder's expectation of increases in efficiency, effectiveness and advantage. Value creates desire.

In a marketplace, desire by stakeholders called customers motivates purchases creating commercial success.

But there are products that are quite successful at creating the expectation of value but that ultimately leave the purchaser's expectations unfulfilled. We do not consider such products innovative. In software we call these disappointing products "shelfware", because once they are purchased and found wanting the software sits in a box on the stakeholder's shelf because no one wants to use it.

So, it isn't enough that the innovation motivates purchases, the innovation must also be adopted. That is, it must be used.

In usage, value is measured by stakeholders resulting actual improved efficiency, effectiveness and advantage.

Wait! Improved efficiency, effectiveness and advantage of what?

Aha! This is another important point. To have improved efficiency, etc. the person must have a specific pre-existing goal.

And not only that, they must also have some specific pre-existing tasks that the stakeholder regularly performs in hopes of achieving their goal as reliably, quickly, easily, and inexpensively as possible. In most cases these tasks are performed so regularly that they have become habitual.

The value proposition of the innovation for the stakeholder is thus:

"By performing new tasks, with the aid of this innovation, you will achieve your previous goal more reliably, faster, easier or inexpensively than they in the past."

Now we see why so many merely new products fail to achieve the success a true innovation does.

People don't adopt an innovation because they are forced to do so. They adopt an innovation because they are motivated to do so.

But anyone who has ever tried to consciously break a habit knows how hard it can be to do so. The previous tasks have become automated. So they don't require any thought. But the new tasks require conscious effort -- so they usually aren't easier than the past.

The new tasks might ultimately be easier once the stakeholder achieves mastery but during the learning phase the stakeholder must focus effort on breaking old habits and forming new ones. At this time, the tasks are likely to be more onerous than they were before. Unfortunately, many products can't make it through this adoption and mastery period before users give up and go back to their old ways.

But clearly some products do get over this learning curve hump, the hump that Barry James Folsom has called the Folsom curve. How do the products that make it over this hump succeed? The answer takes us back to efficiency, effectiveness and advantage. The stakeholder must perceive such significant and measurable improvements that it is worth the switching cost.

Example: Matrix programming languages vs. VisiCalc

Consider this illustrative example: In 1978 a group of managers at Corning Glass Works explored the possibility of replacing one software application with another. The applications in question were so called "matrix program languages". Each relied upon an imaginary matrix with columns named by letters and rows named by numbers. Non programmers could then create simple reports by writing a number of formulas, one per punch card, which contained definitions for individual cells in the matrix. CGW had long used one of these languages, and there were an estimated 5000 "dusty decks" in users hands that were used to create various accounting consolidations and P&L reports each month.

A new matrix programming language from a different vendor was identified that was superior in many ways. There were many more useful predefined functions, including commonly used financial functions for calculating interest, future values, present values, etc. It was felt that these new functions would greatly simplify creating new reports in the future. Unfortunately though, each one of the 5000 programs would have to be re-written, or the company would have to pay to license both and maintain expertise in both. User resistence to learning the new system was expected, even though ultimately it might be better.

CGW management correctly recognized that even though new application building would be simplified, most of the usage of these systems was running old already working programs. CGW recognized that these users would not be motivated to get over the learning curve and the company stuck with its older matrix programming language and 5000 dusty decks.

The new alternative wasn't an innovation, it was merely new.

However, within 2 years an innovation did occur, and it swept away those dusty decks almost over night. The innovation was VisiCalc. The product was so innovative that many users were out ahead of the IT department in adopting it -- even purchasing their own personal Apple IIs, and bringing them in from home.

From the point of view of the underlying mathematics, VisiCalc did what the matrix programming languages did, indeed initially some of the functions available in the matrix programming languages were not yet in VisiCalc.

But VisiCalc did the math in an interactive way. The result was that when a user of VisiCalc made an error in a formula, they IMMEDIATELY saw the result was in error, and they corrected it right away, the error didn't persist and users were not even aware that they had spotted and corrected an error in an instant.

In comparison, the compiled batch card deck matrix programming languages required that the formulas would be key punched, and then later fed into the card reader. Eventually the results were printed on the printer and forwarded to the user. The result was that even in the case of habitual behavior user accuracy was low, completion time high and cognitive load daunting.

Although VisiCalc required learning a new language, the results of spreadsheet creation - even during the learning period - were fewer undetected errors, and far shorter turnaround time. With such advantages users quickly abandoned even their existing card decks.

The rapid adoption and success of VisiCalc (and failure of the alternative matrix programming language) at CGW was not an accident. It could have been predicted even before the first line of VisiCalc was written.

Summary

In summary, we can see how our theory of strategic innovation is built upon the following principles that we will explore further in coming posts:

  1. Stakeholders, including Customers and Users, have prexisting goals that motivate their current behaviors.
  2. In order to achieve their goals, and to do so reliably, speedily, easily and inexpensively Stakeholders perform their current, typically habitual, tasks.
  3. The challenge for the New Product Innovator is to create a new set of tasks, supported by the innovation, which is superior to the existing tasks in achieving these pre-existing goals.
  4. Stakeholders assess improvements in efficiency, effectiveness and advantage, as measured by relative improvements in reliability, speed, effort and expense required to achieve their goals.
  5. These relative improvements create value, generate desire and stimulate motivation sufficient for Stakeholders to initiate the breaking of the previous habitual behaviors and tasks and their replacement by the new tasks required by the innovation.
  6. Care must be taken to ensure that learning curve effort to overcome the old habits does so as to promote rapid adoption, product mastery and productivity as the new tasks and behaviors become habitual.
  7. Through a thorough understanding of these steps we may more reliably create innovative products capable of commercial success.

In the coming posts I hope to lay the groundwork for a rigorous method that can allow companies to make similar evaluations and achieve far more success through adoption of deliberate Innovation strategies and specific design methods to ensure adoption well before product development is complete.