Market Driven Innovation
Market Driven Innovation (MDI) is designing, managing and implementing your innovation process based on the needs and wants from your key markets. MDI is not new, but still today, many companies have found it difficult to transform their innovation work from their entrenched technology and product forward approach they have been using to a market back approach. Often, their entire business processes have been built around their assets and products they produce and their go-to-market strategy based on their historical sales experiences. The result of this behavior is premature commoditization of their value propositions, their most important assets. Market Driven Innovation is based on a strict set of principles:
o Engineering/technical resourcing decisions are made based on a validated market need and an attractive business case.
o Organizational Focus is achieved from understanding market segments and targeting the most attractive segments for growth
o A cross-functional team approach, marketing, technical, and sales all contribute to the growth initiative together, and thus are aligned on the strategy:
o Accelerated ramp up after launch from a higher operational knowledge of the market
o Accelerated technology development because better design specifications from a segmented market
o Driven by business leaders who make resource allocation decisions consistent with the strategic direction of the business, and link development to marketing process.
Market Driven innovation begins with a business orientation towards specific and targeted markets. These markets define strategy which defines resource allocations especially those resources dedicated to the innovation process. In this context we define innovation as the creation of value, and Market Driven Innovation as placing emphasis on customer values, beginning with choices as how a business goes to market; to how they position their brand and products in those markets they proactively choose to serve; to the nature of their product improvements; and to their search for new products and services that may more effectively meeting the emerging future needs of their targeted markets.
Identifying these target markets is core to Market Driven Innovation. Understanding what drives market growth and major unmet needs of the key market players as well as how they define value and establish the basis for generating growth ideas and concepts – straight from the market. These ideas and concepts are the genesis of the innovation process. The more market back concepts, the more opportunities for successful growth. Knowing target markets enables a business to:
o Design, communicate, and deliver more robust value propositions aimed at specific market segments
o Capture more of the value we provide because they can measure the value and make strategic pricing decisions that are consistent with their marketing strategy.
o Apply resources more effectively where they bring value by focusing them only on where value is identified.
o Develop and bring new offerings to the market faster because they know what the market values and how to deliver their offering based on value.
o Evaluate new markets where they can bring more powerful value propositions and new offerings
These elements of business design when generated from a market back learning model, form the basis for a market driven organization, and more specifically, Market Driven Innovation as a core driver of your growth process:
o Provides business management with facts from direct contact with the marketplace to decide which concepts merit moving forward with resourcing.
o Balances depth and speed in this disciplined approach using an organized set of activities.
o Enables cross function teams to develop a common understanding, direction, and shared values throughout the innovation cycle
o Enhances chances of success
Voice of the Customer (VOC) captured early and operationally is an essential component of creating and delivering value with the growth process. Capturing VOC is not a trivial or casual activity, and well thought our and designed VOC is critical to Market Driven Innovation. Effective VOC requires:
o Learning Customers desired outcomes – what they want to happen to help them become more successful.
o Getting to Fact based and data driven information that can be translated into offering features that address the customer outcomes.
o Clearly identifies the benefits the customer will receive and thus the discrete value they will place on an effective solution to them.
o Must be well understood by both marketing and technical in the same way with an aligned sense of the relationship to strategy and core competencies.
VOC is the work you do and do well before you even think of applying technical resources to do product development work. In this regard, you don’t misuse valuable and limited technical capacity. Technical people need to focus on projects that have been market validated both to focus their limited resources and provide them with advanced market specifications that help accelerate the development cycle.
To this end, as we will discuss more later, you engage your technical resources along side of your Marketing people to co-learn VOC, and thus both are better prepared to do their work that is defined by your targeted markets. In this way our resources are aligned from day one of an innovation effort through to launch of a new offering. A key outcome of an aligned and shared approach is achieving success faster and at less overall cost. No wasted costs as a result of false starts and lingering stops.
The three key components or a successful change to market oriented MDI are:
o Creating The Right Mindset – Leaders set the agenda
o Building the necessary skill set – A common framework for implementing
o Providing the best toolset – Fact based information guides decisions
Incorporating all three into the business process is a requirement for successful transformation to a market driven organization. It’s as straight forward as knowing where you are going, how to get there, and a map to take you there. We will discuss each of these three success drivers in more detail below
Creating the right mindset
Leaders must take charge of the agenda beginning with examining and changing how they lead, what marketing and technical practitioners do differently, and most importantly, how they work together using a rigorous framework from concept selection through to offering commercialization. Leadership owns the MDI process highlighted below. The first two levels in the process, Concept Development/selection and Market Validation are the critical elements. In this model, Leadership does not resource technology development until sufficient market evidence and validation provides the basis for resourcing. Technology resources only work on market validated concepts. Leadership’s ownership of the process means they:
o Demonstrate the value and set expectation
o Focus and align the organization around strategic direction and core capabilities.
o Identify, and guide the performance requirements necessary to generate the profit results.
o Organize people to assure the right combination of organizational strengths are applied to both know and act effectively on markets.
Three crucial questions are answered in market validation and business case development:
1. Is there an external basis for believing the concept has sufficient value to the market to proceed?
2. What is the best validated value proposition that sets the design basis for development?
3. Can we make money from developing and commercializing this value proposition?
Building the Necessary Skillset
The Innovation provides the basis for skill development and tool utilization. Each element of the framework requires specific work designed to deliver decisions to move from one element to the other. A short description of the work elements are describe below.
Concept Development and selection: Developing and characterizing concepts (sometimes called the “Fuzzy Front End”). Idea generation methods are generally well-known and most work well enough to assure a good set of concepts to evaluate. What we uniquely require is a concept characterization approach that helps the evaluators better understand and choose among several concepts.
Market Validation: Once a project has been chartered, a decision (stage gate) is made to resource to development and includes four key components, validated market landscape; Value Proposition Development; Competitive Alternative Assessment; and Business Model Evaluation. A validated market landscape identifies and characterizes the market spaces in which the concept may bring value. In this context, it provides the basis for demand, and thus the first real attempt at generating revenue potential. It identifies the key specifiers and influencers, and begins to describe their unmet needs that the concept may address as well as key hurdles that must be overcome to have a successful and sustainable initiative.
The Value Proposition is a description of the value your concept will bring to the targeted market, the benefits the market will receive, and how you will get paid for bringing the value. Value proposition development is the holy grail of marketing. If you learn your value proposition, and it truly brings the market real value, you can build the remainder of your growth initiative around it. Value propositions must be measurable and actionable.
Business Case Development: Before you engage in developing the required technology, answer the questrion – “Can we make money on this value proposition?”. Market Driven Innovation often requires a new way to go to market to accelerate and maximize acceptance and value capture. Value adding chain analysis through to the end user is an important skillset to utilize for business model evaluation. Business models are defined by what customers are selected; how we capture value; our level of strategic control; and the scope of our value proposition. The Business Case should be determined as early in the innovation process as possible. Opportunity modeling can provide the necessary basis for understanding the top line potential and the marketing cost for the innovation.
Technical Development:Effective market validation provides the product developers/designers a clear and crisp basis for building in the necessary design elements into an innovation. We now know the needs (what the market is willing to pay for) and the wants (potential areas of uniqueness). No more starts and stops caused by changing specifications from learning on the fly. Product developers can utilize their best practices with the certainty that they are on the right track. Because we begin the development process with clear market understanding, we now can bring the key customers into the development cycle early and often. We know their testing protocols, and their current standards by the competitive alternative they are using today. We design, we test, we engage the customer to test, we upgrade. Active parallel processing accelerates the development process and we get to launch faster.
Commercial Launch: Preparing for the launch includes the short term developing the marketing entry plan and the marketing mix, and the longer term multigenerational planning. These should be done together since the longer term positioning could have an effect on the launch protocol. The launch plan includes the target market; the offering positioning based on the value proposition; the communications strategy and plan; the channel strategy and plan; the pricing strategy and implementation plan driven by long term optimal pricing decisions. Multigenerational planning (beyond the launch); includes second and third generation offerings; strategy mapping; and a revenue acceleration plan. The managing process and control plan are incorporated into the commercial launch to assure optimum demand creation and delivery
Providing a Useful toolset
The toolset necessary to enable Market Driven Innovation consists of an integrated qualitative and quantitative set that enables the Market Driven Innovation team to successfully address the critical market questions identified in their chartered project. Two interdependent approaches make up the composite of Voice of the Customer (Market Driven). Together, they are designed to answer all the questions necessary to progress through the innovation process defined earlier.
A qualitative market learning tool should be installed to translate concepts into possible value propositions, begin the segmentation process, define the industry structure and dynamics, and expose the relative value vs. competitive alternatives. It also provides the basis for design of the quantitative VOC that follows once a decision is made to proceed to the business case and technical development stages.
A quantitative instrument that captures: concept tests including value elements and price; attribute importance rankings and current performance ratings; outcomes rankings; feature benefits; and competitive ratings. Other pertinent information to assist in segmentation should also be incorporated.
Getting Started With Market Driven Innovation: Market Driven Innovation can either be installed inside a business unit which is structured with both a technical and marketing unit, or can be institutionalized within a corporation as “the way we innovate”. The initiation for each is different given both the breadth and depth the sponsors must address in the change process. It is simpler and much faster to initiate change in an organization that is both ready and organizationally integrated. The leadership can evolve the change live while doing their innovation work by starting with a few projects that are definitive and have a short horizon. As the teams demonstrate success the change process takes on a life of its own and becomes a natural new way of doing work. The basic framework for such an approach is:
o Leadership diagnostic to define both scope and level of change required. Many groups already have an external perspective to their work and thus, change becomes a reinforcement of their beliefs.
o Develop and agree on a project plan to install MDI.
o Training the leadership and team on MDI elements. Utilize one or two projects to exemplify throughout the training. Note: the idea here is just in time training. Teams are trained on each element then they experience the element and move forward to training and experience thought each stage of the process. Prevents training fatigue and accelerates progress towards commercialization
o Select and charter projects.
o Customize framework to fit organizational culture and existing operational approaches and language.
Market Driven Innovation can be easily introduced into a Lean Six Sigma culture.