von Graham Horton
In a post from 2008, I described the Windermere Hierarchy, a model that explains on what basis buyers make a selection when they have different offers to choose from. The model states that there are four criteria, which are ranked in the customer’s mind. These are (in descending order of priority):
- Functionality
- Reliability
- Convenience
- Cost
The Windermere model suggests that customers will make their purchasing choice based on the highest priority criterion which does not satisfy their requirements. Thus, if none or only one of the alternatives available meets all of their functional requirements, they will choose the alternative that meets the most. However, if more than one alternative satisfies their functional requirements, they will make their purchase based on reliability. Similarly, if more than one alternative satisfies both their functional and their reliability requirements, they will choose based on convenience. Finally, if more than one alternative meets criteria 1, 2 and 3, the customer will choose based on cost. In this case, in the customer’s mind at least, the product has no distinguishing features – it has become a commodity which can only be sold by price discounting.
The model can be used to identify what kind of innovation is appropriate for a given product, because knowing at which stage it is in its market, it is known on what basis customers will make their purchasing choice. This in turn implies that the criteria 1 to 4 represent a long-term dynamic of a market: products that provide a new solution will initially see improvements to their functionality. In the second phase, reliability will be improved, in the third convenience, and finally innovations will be sought that reduce costs.
I believe it is of interest to look at each of the criteria more closely. This will enable us to identify different sub-criteria, which may give better suggestions for innovation goals. In the following, I describe three variants of each criterion.
Functionality
- Range of Features. This refers to the number of features the product has. Innovation in this category means adding a feature to the product, thus increasing its functionality.
- Intensity of Attribute. This refers to the numerical value of any given feature of the product. Innovation in this category means increasing a positive value, such as horsepower for an engine or the brightness of a lamp.
- Appropriateness for Usage. This refers to how well the features of the product match the needs of the customer. This may include attributes such as the flexibility or modularity of the product’s functions. An example would be allowing the product’s functions to be reconfigurable according to the current mode of use.
Reliability
- Longevity of performance. This is the most common meaning of reliability and is typically what is covered by a warranty: For how long will the product perform at the required level without interruption?
- Trust in supplier. The customer may need the supplier for the entire lifetime of the product, for example for maintenance or updates. They therefore need to trust that the supplier will be willing to provide these services in a fair and customer-friendly manner. For example, manufacturers of premium tableware often guarantee the availability of a design for ten or more years, so that customers may continue to own a complete set, even when the inevitable breakages occur in the home.
- Availability of support. Similarly, a product may become valueless if no support ceases to be available for it. IT systems are one such example.
Convenience
- Ease of Use. Customers prefer simplicity of operation. One famous example is IDEO’s design for a radically simple-to-use heart defibrillator. The classic counterexample were home video recorders, which were so complicated to program that only a small fraction of the customer base ever managed it.
- Accessibility of Product. How easy is it for customers to get information about the product or view the product itself? This might include travel time to the nearest stockist, in-store availability of a model for „test-driving“ or no-questions-asked refunds if a product fails to satisfy a customer’s needs.
- Simplicity of Appropriation. How easy is it for the customer to acquire the product? Does it require complicated searches or bureaucratic procedures? Given the opportunity, customers will choose the easier route. Amazon’s patented „One-Click-Buying“ is an example of an innovation in this area.
Cost
- Financial Costs. These are the most obvious type of costs. They include not only the purchase price, but also maintenance and repair costs.
- Physical Costs. These are other resources that are required or consumed in order to use the product such as storage space, personnel or toner for laser printers.
- Intangible Costs. These include psychological factors such as management attention and stress incurred by using the product, as well as factors such as the negative impact on office climate or brand image.
The Windermere hierarchy is a valuable tool for predicting the future basis of competition; by refining each of its core categories, better innovation choices can be made which in turn can prolong a product’s competitive advantage.
von Graham Horton
While listening to a presentation by Gartner Inc. recently, I learned about the Gartner Hype Cycle. Gartner consults in the field of information technology, and they developed the hype cycle in the 1990s as a way to visualise the phases the media go through when reporting on a new technology. Gartner claims that, in 1999, they used this tool to predict the Internet bubble of 2000.
According to the Gartner model, media coverage of a new technology goes through five distinct phases:
- Trigger. The new technology is presented to the world, for example as a scientific discovery or a product launch.
- Inflated Expectations. In the second phase, a large amount of publicity generates over-enthusiasm and unrealistic expectations.
- Disillusionment. Technologies fail to meet expectations and quickly become unfashionable. Consequently, press coverage diminishes rapidly.
- Enlightenment. A small number of businesses or universities develop an understanding of how the technology can be used appropriately.
- Productivity. The technology becomes stable and evolves into second and third generations. It is applied where appropriate and does a useful job.
I immediately realised that this model can also be applied to the way new innovation methods are treated in the media and that it illustrated a thought that I have had for some time. However, I also recognised that the diagram in the form proposed by Gartner was insufficient to represent what I wanted to say.
The Gartner cycle is drawn in the space-time plane: the horizontal axis represents time and the vertical axis represents the level of hype about a technology (see here and here for some examples.) This representation only allows one relationship to be mapped: the one between hype and time. However, I also wanted to display the adoption of the technology / method, something which is only contained implicitly in Gartner’s model. I therefore switched to a phase space representation, with Level of Adoption on the horizontal axis and Level of Hype on the vertical axis. This allows me to display the behaviour of both over time. The result is shown in the following diagram:
Here, we can still see Gartner’s five phases, as changes in the vertical coordinate of the curve. We begin at the lower left with the Trigger, where there is no hype yet, advance along the curve where we see hype sharply increasing and then decreasing, and end up at Productivity, where the hype has converged to a level that is appropriate. At the same time, we can follow the horizontal development of the curve, where we see zero adoption at the Trigger, followed by an increase in adoption as a consequence of the hype, where many companies adopt the method, even though it is not appropriate to their needs. This is followed by a decrease in adoption as reports about the failure of the method to live up to its expectations become available. Ultimately, at the Productivity stage, the adoption converges to a level at which the method is being used by those companies for whom it is an appropriate tool.
In the title diagram, I have included a number of popular innovation methodologies, placing them where I currently see them in the „innovation“ hype cycle.
- Stage Gate Process. The Stage Gate Process is now well established and used by many companies as a standardised framework for their innovation process. Although the stage gate process ia still being developed, most companies have found a form which suits their needs and are applying it as a productive tool.
- Lead Users. The hype about the Lead User method seems to have died down now, as companies try to figure out when the method is appropriate to them and how best to apply it.
- Disruptive Innovation. Hype on disprutive innovation was still very intense last year, but seems to be yielding to newer topics as companies realise that disruptive innovation only describes one very specific type of innovation and is not the magic bullet that it once seemed to be.
- Crowdsourcing Ideas. Commonly (but incorrectly) referred to as „Open Innovation“, Crowdsourcing Ideas was the „big thing“ in 2009 and the first part of 2010. Internet platforms for crowdsourcing ideas sprung up all over the internet and companies from BMW („Virtual Innovation Agency„) to Starbucks („My Starbucks Idea„) started portals where members of the public can submit their ideas. While this is clearly not a viable approach in most cases, the hype about this topic is still very strong, and we have yet to see the first (public) reports on the limitations of this approach.
- Design Thinking. This seems to be the current „Big Thing“ in innovation; it gets most column inches in the various innovation blogs and discussion forums. It is still unclear (at least to me), how useful this concept is for innovation as a whole and therefore how dramatic the disappointment will be when it comes.
One nice thing about the phase space representation of the hype cycle is that it allows different variants of the cycle to be plotted. In the diagram below we see
- the Canonical Form (blue), which corresponds to the phases already described,
- the Flash in the Pan (red), which drops back to zero quickly as people realise that they have been fooled into following a valueless management fad.
- the Quiet Revolution (green), where a new concept or method remains below the hype radar and slowly gains in popularity and coverage as word of its usefulness spreads.
Some assorted observations on the innovation hype cycle:
- I think that Crowdsourcing Ideas is actually on the Flash-in-the-Pan curve, since I do not believe that it has any substantial value for innovation.
- You can recognise when a concept has entered the Disappointment phase when you start to see blog articles titled „What is wrong with Crowdsourcing?“, „Beyond Crowdsourcing“, „Crowdsourcing 2.0“ and so on.
- I have no idea what method or technique will be the next to become visible on the innovation hype cycle.
- I would place Blue Ocean Strategy in roughly the same location as Disruptive Innovation in the cycle.
von Graham Horton
Tim Kastelle writes a blog on innovation called Innovation Leadership Network. In a recent article called Filtering, Crowdsourcing and Innovation he discusses crowdsourcing for innovation. There he states that one of the conditions for success is that you must ask a question.
None of the crowdsourcing portals in the Internet that I know do this. Instead, they simply say, „Citizens of world, send us your ideas!“ I agree with Tim that this is not a promising approach, and the many failed initiatives that are out there confirm this; they receive thousands of ideas, of which only a very small number – if any – are good enough to be implemented.
Tim’s article raises an interesting question for companies using idea portals, namely: „What question should we ask?“ As anyone who facilitates ideation workshops knows, the more precise the question, the better the answers will be.
Some simple questions would be
- How could we improve our product?
- How could we improve your customer experience?
These are simply re-formulations of the information the company is interested in. Because they are so generic, they will not provide much better ideas than no question at all.
More interesting questions would be
- What annoys you about our product?
- What was the most unusual situation in which you used our product?
- When don’t you use our product, although we might have expected you to?
These questions are still fairly standard, but should nevertheless yield some interesting leads for innovation.
Most ideation techniques use a change of perspective:
- What could we do that would make our product the only viable alternative for you?
- If you became CEO of our company, what would you change first?
- How would a multi-millionaire improve our product?
- What do you think our product will be like 10 years from now?
- We have a top-secret innovation plan hidden in our vault which will revolutionize our product. We are offering a prize if you can guess what it is!
Questions like these should inspire the creative (and therefore most valuable) visitors to the portal. The result will be a smaller number of higher-quality ideas.
If you were a company with an Internet-based idea portal, what questions would you ask?
von Graham Horton
In yesterday’s post I wrote about uniqueness and how it improves competitive position to the point of essentially becoming a monopoly. By coincidence, on the same day I discovered a very good example of this effect.
In this video, Charlie Rose interviews Spanish chef Ferran Adrià about his philosophy and his restaurant El Bulli near Barcelona. Adrià was recently voted the best chef in the world and is renowned for his highly individual, avant-garde approach to his profession.
One result of this is that El Bulli is perceived as a unique restaurant and, as a consequence, it is extremely difficult to obtain reservations. In 2010, the restaurant will be open for less than six months of the year on an average of only five days per week. Booking for 2010 opened in January, and seats for the entire year will probably sell out before the month is over. On the same page, the restaurant points out that processing the reservations will be slow, and makes no apology for this fact.
Evidently, Adrià has created a product which delivers such unique value that he can afford luxuries (such as remaining closed for more than half the year) that would be inconceivable for the vast majority of companies. This, I believe, is a very good example of the benefits of uniqueness.
von Graham Horton
One of our recurring tasks is encouraging clients to expand their innovation horizons. Companies often seem to want to restrict innovation projects to a comparatively narrow scope, which can severely limit their potential. For this reason, I am constantly looking for ways to motivate and visualise the wider range of possibilities that are available.
One such visualisation I call the „Relationship-Competence Space“, which is shown in the figure at the top of the article. This diagram shows a two-dimensional space spanned by the axes Product Competitive Basis and Relationship Intimacy. Each axis covers the range from the worst to the best possible situations to be in with respect to both attaining and retaining customers.
Product Competitive Basis describes the basis on which a product competes in the market. At the bottom of the scale we have Commodities, which – in the customers‘ eyes at least – have no distinguishing features at all, and compete solely on price. At the next level we find Features, which is the most familiar category to most people. Here, products compete on the basis of the features that they provide. PCs, digital cameras and other personal electronics fall into this category. Above this, we have Value. Here a product competes based on the value it provides to the customer. A surprisingly large number of people confuse this category with the previous one. At the top end of the scale we find Uniqueness. In this case, a product uniquely solves a customer’s problem so that, for a certain target market at least, it no longer has any competition at all.
On the vertical scale we have Relationship Intimacy, which describes the depth of the relationship with the customer. At the bottom, we find Anonymity, where the company essentially has no relationship with its customers at all. At the next level we find Interaction, where the company at least succeeds in getting its customers to interact with it in some way. At the third level in this dimension, the company has succeeded in earning the customers‘ trust. Finally it is possible to become integrated with the customer. This means that the product or service is so intimately part of the customer’s life or business, that – exceptional circumstances aside – they would not even consider defecting to a different supplier.
In the case of both dimensions, the lowest end of the scale represents the worst possible situation to be in from a competitive point of view. If a customer cannot tell the difference between your product and your competitor’s, then you are stuck in the commodity trap and are faced with price pressure and zero customer loyalty. Similarly, having no relationship at all with your customers makes it very easy for them to defect to the competition. This is the case, for example, for classical commodities such as gold: if I want to buy gold, I go to a commodities exchange. I will buy the gold that is offered to me for the lowest price and I will never even know in which mine the gold was produced (nor am I interested in finding out).
At the other ends of the two scales, having a product with a unique value proposition or a seamless integration into the customer’s life or business represents the ideal competitive situation, since, in both cases, the customer is very unlikely to switch to a competing offer. To offer a personal example, I only own one pair of shoes. I have bought one pair of these same shoes every year for about 20 years. To me, at least, it is uniquely comfortable, and I have not the slightest inclination to search for an alternative.
When innovating an existing product or service, it makes sense to consider making progress along both dimensions of the diagram rather than just remaining in one location and tweaking the parameters. To limit the interpretation of the question „How can we improve our product?“ to „What features can we add to our product?“, for example, is to ignore several – possibly much more significant – opportunities.
P.S.
For those who are interested, the shoe mentioned in the article is the Model 336 by Jacoform.
von Graham Horton
One of the currently most fashionable topics in innovation is companies using the internet to ask customers for ideas. This seems to a reasonable thing to do, since it is clear that any innovation can only be successful if it is accepted by customers. Therefore – so the argument – it makes sense to ask customers for ideas for products and services. Indeed, there are now many examples of this concept to be found on the internet. However, there is also an opposing view which states that asking customers for ideas is ineffective. This has led to what I call the „Ask-The-Customer“ Paradox: Should we or should we not ask customers for their ideas? In the following, I will refer to those who answer „yes“ as the AYEs and those who answer „no“ as the NAYs.
The AYEs currently hold the fashionable position – a large part of the innovation-related blogosphere and the printed media coverage of innovation are devoted to discussing what is now almost ubiquitously, but nevertheless erroneously, termed „Open Innovation“. (This is, in fact, a hijacking of Henry Chesbrough’s much broader and more ambitious original concept of Open Innovation). The AYE position receives a lot of support from aficionados of social media, who see internet-based customer idea portals as a good example of the usefulness of Web 2.0. Many companies have already embraced the concept and created portals that solicit ideas from the general public. One of the best-known examples of these is My Starbucks Idea. Two quotes that could represent the motto of the AYE position could be Nobel prize winner Linus Pauling’s „The best way to get a good idea is to get a lot of ideas“ and Bill Gates‘ „Every day we’re saying, ‚How can we keep this customer happy?‘„
The premise of the NAYs is that customers often do not know what products they want and that it therefore doesn’t make any sense to ask them for ideas. This position is based on claims that customers have no knowledge of technological possibilities and that they cannot name problems they are not aware that they have. Instead, proponents of the NAY position such as Clayton Christensen (of disruptive innovation fame) and Anthony Ulwick of Strategyn recommend finding out what the customer is trying to achieve (the so-called „job to be done“). Two quotes that could represent the motto of the NAY position could be Henry Ford’s statement „If I had asked customers what they needed, they would have told me, ‚better horses‘“ and „Nobody knew that their car had standard transmission until one day the neighbours came home with an automatic.„
The resolution of this apparent paradox is actually quite simple: It lies in recognising the difference between tasks and solutions. As Theodore Levitt famously said, „People don’t want to buy a quarter-inch drill – they want a quarter-inch hole.“ Making a hole in the wall is the task the customer wants to get done, a drill is one solution for that task. (Going one step further, people don’t want to make quarter-inch holes either, they want to hang objects on the wall.) When the AYEs ask customers for ideas, what they receive are suggestions for solutions („I want a drill that works in both concrete and plaster„); on the other hand, when the NAYs are asking customers about the tasks they wish to carry out, they are looking for opportunities („I want to hang a picture on the wall with a minimum of effort and mess„). The important point here is that the company can now use its expertise to find innovative ways to help the customer achieve their goal which may be completely different to existing solutions (such as an adhesive, a sucker pad or a magnet).
In conclusion, customer idea portals as they are currently popularly advocated will produce limited results; they will only provide suggestions for solutions that are apparent to customers, given their level of expertise and self-knowledge. They can lead to incremental improvements, which are good for maintaining customer loyalty and short-term competitiveness, as well as for public relations. Ideas for radical innovations, on the other hand, cannot be suggested by customers, but have to be elicited from analysing what customers want to achieve. One rather obvious consequence of this analysis is that companies interested in radical innovations should perhaps set up internet portals that do not ask the public for their ideas, but about the jobs they are trying to do. I don’t know how that could be implemented, but I am sure that, if successful, the feedback obtained from such an instrument would be invaluable for creating innovative new products.
