Understand innovation and the product lifecycle.
When we help customers innovate, we depend on some key theoretical constructs to set the scene — in this somewhat long article, and I will deal with the most important — in context — to set the scene!
We often hear people say — why talk about products if you promote a customer-focused strategy?
The answer is VERY SIMPLE!
Understanding your products, market, and product’s position in the market help you to ask the right questions when you engage with customers!
The chosen tools here will also give you lots of insight into customer behavior you need to understand (often, the customer doesn’t know why they behave in a specific manner).
ANSOFF and the IA MATRIX
Ansoff’s matrix was developed to help managers understand products' market penetration potential and how to grow products in a market whilst understanding the underlying risk.
It’s a simple two-by-two matrix that essentially uses two measures; what exists and what is new — applying each to two categories, the newness of the product or service or the company's newness in a specific market.
Clearly, doing something new in a new market can be quite risky!
Ansoff then describes a possible approach for each position on the matrix, which he calls a market penetration strategy, product OR market development strategies, and a diversification strategy.
One of the unintended results of the Ansoff matrix is that very few organizations perused diversification because of the associated risk. But if you think about it, it is in this quadrant that most worthwhile innovation occurs, and innovators continually disrupt markets. It is here where you will find people with the gall to out invented everyone else!
But what if we change tack a little? We are, in any case focusing on innovation in ADapT™ (our innovation-driven, digital transformation method)!
Bansi Nagji and Geoff Tuff developed the Innovation Ambition Matrix (based on the ideas in Ansoff) that fits today’s topsy-turvy conditions infinitely better! The measures stay the same, but it helps us understand the consequences of the different choices better!
The choices described for the three options are given can be summarized as follows:
From a product perspective, you can use your existing products and assets to serve customers in existing markets. Essentially describing business as usual — and you do that if you are good at what you do (focus on your core).
You can incrementally add product (we would also say product features) and assets and enter into adjacent markets where you could serve customers adjacent to your existing customers. By doing that, you would expand the business into areas that are new to the company if it proves more profitable, or
You can develop entirely new products and assets used to serve new customer needs that no one served before and thereby create an entirely new market! We agree with Nagji and Tuff — this is the nature of real transformation and innovation.
Please note — we did not say that everyone must abandon all core and adjacent activities to pursue a breakthrough approach to turn the market on its head — that would be reckless.
What we do say is you should pursue all three strategies!
You need to find out which customers, which products and which markets you should target with each!
It’s actually not that difficult; we will give you that answer a bit later in the book!
THE BCG MATRIX
The Boston Consulting Group (BCG) Matrix, also known as the growth-share matrix, is a portfolio management technique that helps companies decide how to strategically manage their portfolio of products.
The Matrix is divided into four quadrants — the horizontal axis representing the relative market share for each of their products and the vertical an indication of the market's growth rate for any specific product/product category. Note you are plotting the market growth, not the product growth — it may indicate that you may have a product that sells poorly in a high growth market segment — then you need to find out why it’s not selling!
The intent is to identify growth opportunities and make it easier for companies to divest products that no longer make sense.
Traditionally the BCG matrix was used in larger companies, and the top 20% of products in the portfolio were analyzed in detail!
Later each plot was also represented by different circle sizes — showing the relative contribution of each to the organization’s products, revenue.
The four quadrants are called Question Marks, Stars, Cash Cows, and Dogs.
As a dog lover, I object to this characterization — so I call products in the segment showing no promise and contributing little, Do-dos — because these products are clumsy and will soon become extinct.
Do-dos: These are products with low growth or market share.
Question marks: Products in high-growth markets with low market share.
Stars: Products in high-growth markets with high market share.
Cash cows: Products in low growth markets with a high market share
DIFFUSION OF INNOVATION & CROSSING THE CHASM
The diffusion of innovation model developed by Everett Rogers is a critical insight that, for us, opened many doors of understanding and provided context to so many unanswered questions. You may not know the term, but we are sure that you know the picture!
Rogers's key insight was not that products go through a distinct lifecycle but that customers in each phase are emotionally looking for something entirely different. For products to succeed, that core emotional need needs to be satisfied if you want your product to succeed!
Geoffrey Moore added to the insight 29 years later, when he published his book “Crossing the Chasm” in 1991 (it’s a recommended read. Moore did several updates — if you want to buy it, buy the 2014 ed.)
The lifecycle above using Rogers terms with Moore’s in (brackets).
If innovators want to communicate (or market) to adopter groups successfully, it is necessary to understand the characteristics of the target group, and different strategies should be used to target different adopter categories.
Innovators — These are people who want to be the first to try the innovation and are willing to take risks. Innovators love ideas because they are innovative and new.
Early Adopters — are opinion leaders. They enjoy a leadership role and embrace opportunities to change and improve, and know change is essential.
Early Majority — adopt new ideas before the average person, but they do so because they see evidence of the benefits of the innovation and want those benefits.
The Late Majority are skeptical about the benefits of a product and will only adopt an innovation after being tried and tested by the majority.
Laggards — are very conservative. They don’t like change and will resist change until there is no more choice but to change.
Rodgers also defined a communication strategy with each group, and this is where Moore picked up the strands and developed the next level of insights.
Although ostensibly the same categories of potential customers for innovations have stayed the same, Moore gave them different names to better suit his narrative. He called the categories;
Technology Enthusiasts say I want what you have, it’s cool, and we want to play with it!
Visionaries believe what you (the inventor) believe — that your product has future benefits, and they are willing to try it to be market leaders.
Pragmatists say I need what you have (because we see that it solves a problem by looking at what others have done with your product). They don’t want to be first, they don’t want to experiment, and your product must be a complete product, which works as shipped.
Conservatives say we want what they have (because we don’t want to be left behind), and
Skeptics say we will get it because we have to (it’s the only way we can stay compliant with the rest of the world).
Moore then developed a go-to-market playbook for each of three of the categories and two for the pragmatist domain (you will see why later), identifying;
- Who’s the target customer?
- Why would they buy your innovation?
- The stage of product development needed?
- Is it appropriate to work with partners in selling and installing the product?
- What should the sales and distribution strategy be?
- How you should determine and handle pricing
- How would competition work?
- How you would position yourself and your product, and
- What is the next category/type of customer/s you should target?
Moore realized that many new innovations fail to cross the chasm (gain broad market acceptance) for very particular reasons. If one is aware of that and follows essential guidance, that chance of innovation success is substantial!
The main reason why so many innovations fail to cross the chasm is that Enthusiasts and Visionaries come to the innovator; you have to make it known that you have this innovation — remember, they said I believe what you believe and want what you have.
To cross the chasm, organizations need to provide definite proof that their innovation is a solution to a problem the target market has. The pragmatists want that evidence from one of their own (not the high-tech risk-takers that are enthusiasts and visionaries).
The ONLY way to do that is to find a pragmatist in a niche market with a pain that all the current main street products and services cannot fix. They are desperate for a cure, which is the ONLY reason they will give the new innovation a chance.
Innovators then need to dedicate all their efforts and resources to create the cure for the pragmatist in pain to collect and produce the evidence other pragmatists want to see. So in the pragmatist category, there are two playbooks, one for the pragmatist in pain and other people like them, and one for the broader market of pragmatists.
Innovation, Innovation Types, and Product Lifecycles
So that brings us to Clayton Christensen.
Christensen developed most of the fundamental theory used in innovation categorization today. He also identified that different types of innovation map to the diffusion of innovation lifecycle.
In his 1997 book “The Innovators Dilemma,” Christensen identified three types of innovation, which have totally different rules, outcomes and, as it turns out, happen in different places in an organization. Innovation in one setting is not enough, and one can find evidence of all three innovation types in successful and market-leading organizations.
- Disruptive (or empowering) Innovation
- Sustaining Innovation, and
- Efficiency Innovation
Disruptive innovation is OK if you are at the beginning of the adoption lifecycle and your customers are enthusiasts and visionaries. Still, pragmatists will not and cannot deal with innovations that are unproven and unpolished.
Sustaining innovation is what is required when your primary customers are pragmatists.
Once you get to conservatives, you are faced with a declining opportunity, and the only way to make more money out of fewer sales — is to use efficiency innovation.
Moore also echoes this sentiment and has developed additional guidance for each phase and specifically the move from disruptive to sustaining innovation in the book Zone to Win.
What always bothered us was that Christensen did not answer the space on the pragmatist side of the chasm (the pragmatist in pain), and most assumed that disruptive innovation would address the space. We tried that approach, and it does not work at all!
We have, however, seen that disruption does not play to the sensitivities of pragmatists; they want something more concrete than what they consider to be “an experiment”!
Before his death in early 2020, I heard Christensen speak about a new category of innovation called — potential innovation, and by the description in his talk, I said eureka!
The view is now complete;
• Disruptive Innovation,
• Potential Innovation,
• Sustaining Innovation, and
• Efficiency Innovation
We can now define the type of innovation needed for a product throughout its whole lifecycle. We know what to do. We know how to make products and services the best they can be during the entire diffusion of the innovation cycle.
Full circle from Rogers to Moore, to Christensen to ADapT!
This theory is critical because it is on these foundations that we will build and teach you HOW to innovate.
The most important part of your strategic assessment will use these concepts to understand best what exactly you need to do for every customer in every market with every product you offer!
This article is part of a series exploring the use of Agile ADapT™, a Digital Transformation Method for incumbent organizations struggling to compete in the digital age.