Thursday, June 28, 2007

Book Review - Payback

For a while now I've followed the writings of Jim Andrew from the Boston Consulting Group. His annual survey about innovation in corporate America provides an interesting window into what's on the minds of corporate leaders about innovation. Jim and a fellow BCGer, Harold Sirkin, have just released a new book about innovation called Payback, Reaping the rewards of innovation.

As you might guess from the title, Payback is about closely and carefully identifying the measurable, tangible benefits of innovation. Too often, innovation appears as a "good thing" but we don't measure the results very carefully. In these cases it can be hard, if not impossible, to indicate the direct benefits and payback of innovation. Andrew and Sirkin want to change our thinking about innovation, and make us much more hard headed about the reasons for innovation and the expectation of return.

The book is divided into three sections. The first section looks at payback from innovation and its importance. The second section is about choosing the "right" strategic model and the third section is about alignment for innovation.

In the first section, the book looks at what should be obvious but often isn't - the investment in a new idea and the "cash curve" an idea represents. That is, almost all new product or service ideas require an up-front investment before there's a return, which drives the cash curve negative. Eventually, sales begin and revenue turns the curve upward and a new product or service crosses the breakeven threshold and starts to earn money. The problem many innovations face is that we are too optimistic about the "ramp up" and investment and discount the costs of investment. The authors break these costs into four phases - Startup costs, Speed or time to market costs, Scale or time to volume costs and support costs after the product is launched. Generally speaking, we underestimate the startup costs, and larger firms fail to take into consideration the bureaucracy and barriers to new product development, so speed to market is a challenge. We overestimate the "hockey stick" or ramp up, so the cash curve for many innovations never reaches the break even threshold.

Again, we know a lot of this stuff - but where innovation is concerned, too often we fall in love with our ideas and don't take a hard headed look at the payback of the ideas.

In the second section, the authors look at three innovation models, which are really strategic decisions about how your firm should innovate. These models are: integrator, orchestrator and licensor. Of course one firm may follow several or all of these models in its various business units.

An integrator controls all aspects of the innovation - from ideation through product launch. The authors note that the integration strategy is important when:

  • control is necessary
  • the company has world-class capabilities
  • risks are manageable
  • knowledge assets have to be protected
  • or simply, there's no better choice.
Orchestrators combine their own talents with the skills and talents of others to bring innovations to market. Orchestration is a good option when:
  • A key capability is missing
  • You are entering an unfamiliar market
  • You don't want to invest in building a capability
  • You have trusted partners
  • You want to share the risk of development
The final model is licensing. The authors note that licensing makes sense when:
  • the company does not have the resources to commercialize an idea and can't acquire the resources
  • there's an opportunity to create critical mass through adopting a standard
  • the competition can be transformed into a royalty source
The last section of the book is about aligning the organization to support and nurture innovation initiatives. The authors point out several significant challenges to innovation that are structural or cultural:

  • Innovation strategy is at odds with business strategy
  • Innovation is all talk and no support
  • Innovation is an island
  • The innovation process is fragmented
  • "Dynasties" monopolize innovation resources
  • Metrics (and compensation) confound the goals of innovation.
Frankly, this was my favorite section of the book. We've found that in most of the firms we've worked with, the management teams have innovation religion, but aren't sure how to change the culture and get people on board, much less how to make innovation sustainable. The list of challenges I've just provided will occur in just about any firm where the culture and the strategic intent for innovation are not firmly in place. A lot of these challenges can be chalked up to what the authors called "alignment". Strategic alignment, team alignment, compensation alignment, role alignment - all of these things and more must be aligned for innovation to succeed, since, as the authors point out "..the effect of any organization on innovation is often a negative one. This is because organizations, no matter how nontraditional they may be, are primarily designed for control, standardization and reduction of risk - and these characteristics can be the enemies of innovation."

Payback is a good book, but I would have ordered it differently. I strongly favor the last section, since it is alignment and cultural change that make sustained innovation possible. Only when you have sustainable innovation should you worry about payback on innovation. Clearly, the investment in innovation is important, and none of us will invest in concepts with very uncertain outcomes. However, getting the process and cultural attitudes are more important initially than payback. I'd then focus on the returns of innovation and how to maximize those returns. The middle section points out some of the models that are possible to pursue as an innovator - many firms will have all three of these models operating simultaneously - creating and launching ideas themselves, partnering with others to bring new ideas to market and licensing great concepts to others. Choosing a strategy for innovation is important, but I think getting the process up and running initially and tying it to strategic intent is the most important concept - what the authors call "alignment".

I found the book to be a real mixed bag - full of good advice but the sections seem to target different audiences and out of the order I'd prefer to see them. Naturally, as someone who is interested in the cultural and process aspects of innovation, I found the third section the most compelling, and the concepts and advice in that section are worth the reading by themselves. These ideas are more operational and topical, while the second section is really written to a very senior management audience who can choose the appropriate innovation models. The second section is really about the innovation strategy you'll choose. Finally, the first section seems "obvious" to anyone who has launched a new product or service, examining the costs and benefits of a new product or service and the cash curve. What the first section reminds us is that we too often fall in love with our ideas and neglect the hard evaluation of each phase of a new product or service development, underestimating costs and overestimating adoption, leading to many ideas that fail to achieve break even.

This is a tough book to evaluate, since it is chock full of great ideas and models to use to evaluate your business and implement change, yet to me it feels a little unfocused in its target and the consistency of its message. James Andrew is a noted leading thinker in the innovation space, and for that reason alone the book is worth a long look. The ideas around alignment and leadership are especially important and worth reading.
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posted by Jeffrey Phillips at 12:55 PM 5 comments

Monday, June 25, 2007

Achieve Breakthrough Innovations

If you'll look down, on the lower right margin of my blog (for those of you who read the blog as a webpage) you'll see Google Ads. Since my blog is about "innovation", most of these ads are for companies that offer products and services related to innovation. Biting the hand that feeds me (not so much really) today, I want to talk about the shameless marketing pitches that you'll see here and other places on the web, and the unrealistic expectations they establish.

"Achieve Breakthough Innovation" is just one of several ad headlines. Surely, it must be simple to achieve "Breakthrough" innovation on a regular basis. We probably just need to follow an easy 12 step formula to become a world leader in innovation in our industry. At least, that's what the ads would like for you to believe. Starting an innovation initiative is relatively easy - becoming consistently proficient at innovation over the long term is possible but requires a lot of dedication. Becoming a "master" at breakthrough innovation - constantly disrupting the market with brand new products and services or business models - is unrealistic and sets up too many firms for failure.

Why promise the moon at the start of a relationship or project? Creating and maintaining a culture that supports and enables innovation takes time - most firms that have been working at this for any length of time at all will tell you it will take one to two years to fully engage the company in an innovation process. And that's just to get the incremental ideas flowing. Given the fact that the "breakthrough" ideas are much more difficult to create and implement, it's a virtual certainty that most firms will not have many "breakthrough" innovations in a period of even five years. So, why all the hyped advertising and outrageous promises? Why not set some realistic expectations about the work involved to become more effective at innovation, then mature the process and the firm through the stages to get to the breakthroughs?

Innovation, like any business process change, is not quick and is not simple, but it can have dramatic results. Implementing a more effective innovation culture and process means changing the way people think, work, and are compensated, to generate ideas and implement those ideas as new products and services. Hopefully, some of those ideas will be breakthroughs. But setting the bar so high, so early will most likely lead to disappointment and failure.
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posted by Jeffrey Phillips at 5:06 AM 6 comments

Wednesday, June 20, 2007

Characteristics of innovators

I was speaking with several clients and prospects about what makes a person a good leader of an innovation initiative. Clearly, they need to be good communicators and understand the corporate culture, and they need to inspire the team to work together effectively. However, I think there are several characteristics that make a really great innovation leader:

- they have a vision or dream that they want to realize
- they aren't afraid to fail to achieve that vision
- they aren't willing to be distracted from that vision

Begins to sound a bit like a zealot or an evangelist, doesn't it? In many organizations, even innovative ones, sometimes the innovation team needs to have not only a belief in its ideas, but some zeal for the ideas, since not everyone else shares your perspective or vision.

Also, a good innovation leader is sticky. People and ideas tend to clump to the leader because of his vision, and his or her ability to convince others that the ideas they are working on are important and they can be successful. Too often we half-heartedly join a team but have little to gain or lose if the idea succeeds or fails. Cortez burned his boats for a reason when he landed in the New World. Perhaps a little more boat burning is in order in your business?

Finally, a person who wants to lead innovative initiatives must have the ability to persevere. He or she must be able to accept setbacks and continue to press forward. The idea or outcome is what is important, not the little successes or failures along the way. Too often we can be turned aside but small challenges or roadblocks and we give up too easily on our vision. How many times has someone in your organization looked at a new product or service and said - we thought of that first - but allowed some issue or challenge to get in the way of realizing the vision?

Innovative leaders need to be savvy about the culture and understand how to influence and change the culture of the organization they work within, usually by asking questions and begging forgiveness rather than seeking permission. They've got to know when and where they can violate the rules, and when they MUST ask for the ability to color outside the lines.

Innovative leaders are an interesting combination of the consumate inside who has not lost their sense of wonder and is more interested in the success of the idea than the short term gain or loss of prestige. These leaders are people who inspire others to identify new solutions and get onboard with their visions. They are people who constantly say "why not, and why not us?" when others say, why bother?
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posted by Jeffrey Phillips at 2:32 PM 5 comments

Thursday, June 14, 2007

Book Review: Group Genius

The path to becoming more innovative often requires debunking a number of myths or commonly held beliefs. For instance, the idea that a lone genius is often responsible for an invention or innovation. In fact, most innovations or inventions spring from the combination of the work of many people. Edison did not create the lightbulb alone, nor did Al Gore invent the internet by himself.

In his new book, Group Genius, Keith Sawyer looks at the power of Group Genius, the impact of collaboration on creativity and innovation. Rather than rely on a single genius, we should be harnessing the power and knowledge of many people in our organizations. Through a number of interesting examples, Sawyer demonstrates how the power of collaboration increases the capability of the firm to generate more ideas and better ideas, and enhances the culture of innovation.

Sawyer starts off the book with a few characteristics of creative teams:

  1. Innovation emerges over time
  2. Successful collaborative teams practice deep listening
  3. Team members build on their collaborators' ideas
  4. The meaning of an idea becomes clear over time
  5. Reframing the problem or solving a different problem
  6. Recognizing that innovation is inefficient
  7. Innovation emerges from the bottom up
Although he presents these ideas early on, they don't receive enough exposition throughout the book. These concepts alone, however, are enough to chew on for quite some time.

Sawyer divides the book into three sections, looking at how teams collaborate and how corporations collaborate. Yes, I know that's two sections. The third section is a little less defined and really looks at how we as individuals think and the mental models we use which provide frameworks which can limit our thinking and creativity.

In the first section, on team collaboration, Sawyer demonstrates the power of improvisation as a method to improve problem solving and innovation. His argument is that too many rules and too much planning tend to choke out creativity and innovative problem solving. He provides several examples where groups were faced with significant challenges and had to improvise solutions on the spot. While improvisation is often inefficient, it can lead to better ideas and better results in some cases. Sawyer also describes "flow" - a concept that originates from research by Csikszentmihalyi. Flow is a heightened state of consciousness that occurs when:

  • People are working on tasks that match their skills
  • There's a clear goal
  • There's constant feedback as to progress and attainment of the goal
  • The person is free to fully engage in the task
Research shows that "flow" is essential to creativity. Sawyer moves on to describe a number of conditions that need to exist for a team to achieve flow, using examples from sports teams to improv to major corporations.

In the second section, the Collaborative Mind, Sawyer looks at successful innovators and people who were highly creative and seeks to determine how they got that way, and how "regular" people like you and me can become more creative. In this section there are a number of exercises to help you start reframing problems and step away from your usual perspectives and context.

In the third section of the book, Sawyer looks at using the concepts of collaboration and group genius within an organization - how to organize for improved collaboration and innovation, how to build collaborative webs and how to collaborate with customers. In this section he offers some very useful ideas and approaches to use within any team or organization.

Group Genius is an excellent book, because it combines theory with practice and practical guidelines. Too often, books about innovation and creativity are written from a purely academic viewpoint, with a lot of research and theory described, but not much information on how to put the information into practice, or from a very tactical perspective, suggesting a few tips or techniques or offering up some simple exercises. Sawyer does a good job of demonstrating the thinking behind his suggestions, but also presenting a number of actions that a team or corporation can take to become more innovative by tapping the collaborative genius of a team or the company. He uses a lot of examples, from improv actors to large corporations, but always within context. The section on the Collaborative Mind is interesting but really more focused on the individual and his or her creative capability, while the sections on team and organizational collaboration are focused on how your teams, groups and business units can harness the power of collaboration to achieve more creativity, better problem solving and generate better ideas.

Some books about creativity are read once and filed on the shelf for occasional reference. Group Genius is a book that will be so dog-eared and so heavily used you may need more than one copy for your own use, and a number of copies for your co-workers as well. This is a book that can be used by an individual, a team or a business unit, with relevance for all of them. This book is my first introduction to Keith Sawyer's work, and I look forward to reading his other books after reading this one. I highly recommend it to anyone who is searching for ways to improve the collaboration, creativity or innovative capability of a team or company.
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posted by Jeffrey Phillips at 10:05 AM 6 comments

Monday, June 11, 2007

The role of HR in innovation

I am a late convert but I am becoming ever more convinced that the most important person in your company where innovation is concerned is your VP of Human Resources. Right about now, about 20% of you reading this are nodding "yes" vigorously, while the rest are reading in stunned disbelief.

Let me explain why HR is so important to corporate, especially sustainable innovation. First, innovation is foremost a commitment of resources to an uncertain future. People dislike uncertainty and are somewhat unwilling to risk their jobs or futures working on items that are new or risky, without the appropriate assurances that the firm needs and requires people to try new things and make mistakes. So, the ability to communicate that failure is expected and people need to "think outside the box" and will be rewarded for doing those things is important.

Second, you need to identify people who can "think outside the box". Let's not assume that everyone is equally innovative, but instead let's recruit people for their innovation capabilities. Are they inquisitive? Are they locked into one viewpoint or willing to consider others? Are they open to new ideas, new concepts? These questions have a lot to do with how people are recruited and how their skills are improved to welcome innovation.

Finally, the most powerful force in business is culture. While corporate culture is not necessarily the responsibility of HR, the people who are hired and the training and cultural imperatives placed on the business are done so through HR, so HR can have a big impact on whether or not the firm is culturally attuned to innovation.

So, we've identified the roles people play and the risk or encouragement of innovation, the ability of the people to think about innovation and to be creative, and the ability to impact or influence the culture. All of these are features of the business that HR can impact.

Over time, one can argue that innovation is a sustainable competitive advantage, and that businesses can can attract and retain creative, innovative people and implement a culture that sustains innovation will create strong competitive advantage. If so, HR will have a huge impact on that company and its culture.

Too often we think of innovation as the responsibility of a product team or a business unit. Innovation springs from the minds of creative individuals working in an environment that spawns and encourages innovation. Attracting and keeping the most innovative people, and constantly improving their skills, and creating a culture that supports innovation will enable the firm in the long run to differentiate itself. These are all roles for HR.
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posted by Jeffrey Phillips at 8:29 AM 199 comments

Friday, June 08, 2007

Bubble up or Push down?

There's a phenomenon in business that anything successful must have been decided from the top and pushed down - in hindsight everything was certainly a strategy clearly defined. In reality I think many good concepts bubble up - they are implemented by teams at lower levels in the organization and prove so valuable that the management team is forced to accept them and acknowledge their value.

Look at Six Sigma as an example. While many firms have embraced Six Sigma, Lean and other similar programs, do we honestly believe that five to ten years ago many CEOs were advocating the value of Six Sigma? Possibly some of them were looking for solutions to reduce cost, waste and inefficiency, but I'm fairly certain few of them were championing "Six Sigma". There were a few, granted, that got on board early, but I suspect that Six Sigma and other similar approaches "bubbled up" - that is, these initiatives and approaches solved problems in a specific team and their use and value spread throughout the organization, and happened to solve problems that the CEO needed to solve as well.

The question becomes then, why did Six Sigma succeed and if it did "bubble up", why was it successful? First, Six Sigma came along at a time when firms were seeking to reduce cost, and Six Sigma gave them a standard methodology and approach. Second, Six Sigma spread through word of mouth, then was adopted as a corporate standard in many cases, rather than the other way around. In other words, it proved its value and had advocates before it was thrust on others. Finally, there is a body of work around Six Sigma, it has a specific meaning and a fairly standard approach, so it can be taught to others.

If all of that is true, can innovation "bubble up"? Or should it be "pushed down"?

If Six Sigma was successful at the lower levels of the organization and was adopted as a management mantra later, that was because for the most part Six Sigma appears to be a tactic or operational effort, while innovation appears to be much more strategic in nature. Incremental innovation is conducted in product teams, but innovation is tightly tied to strategy, and often the management team will need to advocate for disruptive innovation, so it may not bubble up easily. Additionally, innovation has many different meanings, depending on the purpose and perspective of the individual or team. Incremental or disruptive? Product or Service or Business model innovation? Too many different definitions mean that its hard for innovation to be passed from one team to another very easily. Also, since there are different definitions, there are also different approaches. With no standard "approved" approach to innovation, it's hard for one team to pass along what it has done, and what it has learned, to another team unless all the teams agree on an approach.

In many firms, innovation happens in a wide range of product groups, business teams and business functions, but with different intents and different strategies. This means it will be hard for innovation to "bubble up" and management teams should try to create more common philosophies and goals - in other words, sponsor the innovation that is happening and try to organize it, shape it and frame it in ways that create more common approaches. So, innovation should bubble up and be pushed down.
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posted by Jeffrey Phillips at 8:00 AM 36 comments

Thursday, June 07, 2007

Book Review: Hidden in Plain Sight part two

I've had the opportunity to read and consider Erich Joachimshtaler's book "Hidden in Plain Sight" and wrote previously about the first two sections of the book, which outline his thoughts on customer advantage and demain-first innovation and growth. With these ideas, Joachimshtaler advocates a completely new "outside in" approach to identifying new markets, new products and services. His approach requires a significant change in the way most businesses approach new product development, but would quickly differentiate any firm that adopted the approach.

In the last section of his book, Strategies for Realizing Customer Advantage, Joachimshtaler turns his attention to marketing strategy, brand strategy and portfolio management and an examination of how to connect and engage with customers. Using examples from BMW, VW and MasterCard, he demonstrates how the consideration of marketing strategy and brand helped reposition these firms in the minds of their prospective customers, and the customers they already had. Much of the first two chapters in this section is interesting, but really targeted to a chief marketing officer who has the capability to rethink branding and customer experience.

Joachimshtaler saves his best chapter for last - Internalizing the Innovation and Growth Agenda. In this chapter he examines the steps Jeffrey Immelt took to change the way GE thought about itself as an innovator. Immelt entered a well-oiled machine that was excellent at execution and wanted to create a firm that excelled at sustained innovation. To that end, he created a number of initiatives. First, the concept of Imagination Breakthroughs. Each business unit leader had to submit ideas for their business unit that could become a new product or service worth at least $100M in organic revenue. This shook up the culture because traditionally, innovation had been the responsibility of the product management team - now more people and a broader perspective were involved, and the stakes are much higher. Second, he tied senior management compensation to the ability to generate and follow up on these Imagination Breakthroughs. Finally, they created the idea of "One GE" - that is, one united face to a customer, regardless of the opportunity or challenge. Then, using the demain-first innovation concept, they worked to get much closer to the customer - using "dreaming" sessions where executives and customers looked at product and service opportunities. Can you imagine Jack Welch in a "dreaming" session?

As I stated earlier, Hidden in Plain Sight is a great book about strategy that uses innovation as an outcome to help a firm differentiate itself through much more detailed understanding of its customers. Hidden in Plain Sight advocates a complete reversal in the way most firms generate ideas and create new products and services - changing the perspective from a highly segmented, quantitative examination of customers and products to a much more deeply understood customer experience which informs marketing and innovation to create products and services that are relevant to customers' expectations and aspirations.

If you are interested in the nuts and bolts of innovation and how it works, this probably isn't the book for you. If you are interested in the work involved to change your product and service development strategy and gain real insights into your customers and what they really want, then this is the book for you. It combines the rationale for making the change, examples of firms that have taken a very different approach to customer experience, and ideas about how to use that new perspective to drive innovation of new products and services.
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posted by Jeffrey Phillips at 4:53 AM 32 comments

Monday, June 04, 2007

Book Review: Hidden in Plain Sight

From time to time I receive a request to read and review books or white papers on innovation. Generally speaking this is something I enjoy doing, since it is interesting to see the many different definitions of innovation and the various perspectives on what makes innovation "work".

I've had a chance to review Erich Joachimsthaler's book "Hidden in Plain Sight", which I've found to be an excellent book. To that end, I've decided to dedicate two posts to the review. This post is about the first half of the book, Sections one and two on opportunities to innovate and grow and "Demand-First" innovation. In a subsequent post I'll review the third section of the book on strategies for realizing customer advantage.

First, let me start out by saying that this book is not necessarily a book "about" innovation. This is a book about corporate strategy and what I like to call strategic intent. Hidden in Plain Sight addresses a far-too-common problem - the fact that many firms have become comfortable with their understanding and view of customers from the "inside out". In this manner, many firms have segmented the customer base and determined the specific needs and wants of customers - which is traditional marketing best practice. The problem is that too often this segmentation and understanding of needs is based on the company's perspective of the customers' needs and opportunities, rather than from the perspective of the customers themselves. What happens in these cases is learned myopia and artificial comfort from the fact that we "know" our customers and understand them. Eventually what happens in these cases is that an unexpected competitor disrupts the market because they had a better understanding of the opportunities and challenges the customer faces.

So, what Joachimshtaler proscribes is an "outside in" mentality, combined with a "demand first" innovation model. In the book, he describes how Frito-Lay undertook extensive research to understand how and why people used snack foods - going well beyond traditional quantitative research to understand the reasons behind why people ate what they ate and when they ate. Much of the work Joachimshtaler describes sounds like Voice of the Customer research, although he does not describe it that way. He calls this creating the "demand landscape".

According to Joachimshtaler, Frito Lay was concerned that many of its long held beliefs were being proven incorrect. For example, Frito Lay pioneered the point of purchase rack for its snacks and assumed that most decisions for purchase were based right at the cash register. In watching consumers however, it became clear that was no longer the case. Many individuals ignored the point of purchase racks to select a specific snack. Frito management decided "We had to start thinking more about why consumers consume our products and not longer about how they purchased them". This meant that Frito Lay management had to change their thinking about customers from "point of purchase" to "point of consumption or use" - what Joachimshtaler calls "point of purpose". This last concept is why I label the book as a book about corporate intent rather than a book about innovation. In this context, innovation becomes a method or an approach to providing solutions to the new corporate intent.

The first two sections of the book do a great job laying out Joachimshtaler's concepts about customer advantage and demand-first innovation. In these two steps, the author depicts a major shift in how most firms understand and react to their prospects and customers. In his estimation, most firms are operating under an "inside out" view of customers that is tainted by internal perspectives of customers wants and needs, and by a product centric rather than customer centric approach. Additionally, years of segmentation and other marketing efforts have eliminated a number of potential customers and markets that could be viable. Once the firm decides to understand its customers in a new light, it can begin to shift its product and service development models to understand the customer demand, then create ideas for new products and services based on this new understanding. Again, this advocates using innovation and the tools and techniques for innovation (including ideation, brainstorming, consumer contradictions or seeming irreducible tradeoffs) as an outcome to generate ideas after the company has adopted a new strategic intent. I don't argue with that approach, but this switch to become much more consumer focused will require a dramatic investment in time and energy to refocus the corporate culture and the "old habits". The question the management team must answer at this juncture is: What is causing our lack of growth and differentiation? A poorly defined strategic intent, which means we can innovate but often miss the mark due to an "inside out" approach, or is our strategy ok but we simply don't innovate very well? Joachimshtaler has a very clear approach in the first case.

There is a lot to like in this book - several examples used in the book could be cribbed from customers I've worked with recently. As I've pointed out to many of my clients, innovation needs to be tightly aligned with strategy and strategic intent, or it will not be successful other than as a product extension strategy. Joachimshtaler takes this concept and reverses it, demonstrating that a new strategic intent - customer advantage - will ultimately drive new innovation approaches.

I'll provide a review of the remaining section of the book - Strategies for Realizing Customer Advantage - in a subsequent post.
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posted by Jeffrey Phillips at 12:07 PM 37 comments