Tuesday, March 15, 2016

Innovation and N "X" D

Henry Ford is perhaps one of the most well-known innovators in the US.  After all, it was his mass production line that helped people make the shift from horses or high cost / low quality automobiles to a reliable, affordable car - the Model T.  Ford wasn't the first to manufacture a car, but he was the first to realize the power of a low-cost, reliable automobile.  Strange then, that his position in the automobile industry was usurped only a few years later.

Ford perfected a process by which he determined the model, the shape, the size and especially the color of the automobile.  "Any color as long as it's black" was his motto.  And when people did not have cars, the allure of a car, even if it did not have many options, was appealing.  Under pressure, Ford introduced the model A as an upgrade from the model T, but Ford wasn't interested in creating a range of alternatives, of introducing a number of options.  Ford was a synthesizer and a manufacturing innovator.

The guy who stole a march on Ford, and really defined the automobile company structure that we have today was William Durant.  Durant foresaw that people would want a range of products and options.  He created what became General Motors by offering people more choice of options, more flexibility and product families.  While Ford grew rich on the Model T, his company grew stagnant and failed to understand the wants and needs of customers.  Durant understood the breadth of customer expectation and worked hard to meet it.  Durant was a merchandiser and understood the potential of product families and brands. 

There's an innovation analogy today

Currently, many innovation teams are shaping up a lot like Henry Ford's company.  Instead of cars, they are working on innovations.  And you can have any innovation you like, incremental or disruptive, as long as it results in a tangible product.  We've even got separate names for the different activities:  "fuzzy front end" where ideas are generated, and "new product development, or NPD" for the activities where the ideas are converted into products.

When companies are just beginning their innovation journey, and innovators are far from mature, product innovation focus makes sense.  But eventually companies and individuals mature, and their innovation production should broaden and meet expanded needs.  Instead, today, most innovation teams create product ideas, and feed a machine called New Product Development, which is built to receive product ideas and convert them into new tangible products.  What happens when innovation generates outcomes other than products?  Where do the new ideas go to become new business models or new customer services?  Here lies the rub:  Just like Henry Ford, most corporations have perfected the innovation process, as long as it's a product.  And somewhere out there, in existing firms or new companies, are the Billy Durants, who are thinking about how to expand the definition of innovation and create a range of outcomes, that will simply swamp companies that only think about product innovation.

Beyond New Product Development (NPD) teams

I was thinking about this issue recently when talking to a client about their innovation process.  In their case, innovation is a well-oiled machine (as long as it's a product) and the front end works reasonably well with the new product development process.  What would happen, I asked, if new ideas that represented business model innovation, or channel innovation, or customer experience innovation, originated from the fuzzy front end?  Where would those ideas "go" for further development?  Where was the defined process for business model development?

Of course we both knew the answer.  The NPD process is optimized and streamlined for developing tangible products.  The NPD process will reject anything it can't make.  And, there is no defined process for any of the other types of innovation outcome.  There's not a "New business model development (NBMD)" process or team.  There's no "New Customer Experience Development" process or team.  With luck the CX or UX team associated with product development might recognize a need, but it would have to be related to a new or existing product.

What's the Need?

Sure you might say, but most companies need to create a stream of new products, whereas we may only change a channel or service or business model periodically.  Therefore we don't need a standing process in order to do business model innovation.  But what's true about businesses generally is that they are very good at things they do regularly and are terrible at things they do infrequently.  Without definition, without practice, can your organization create new services, new customer experiences, new channels and new business models?  Because I can easily imagine a "front end" of innovation that generates not only products but services, customer experiences and business models, and further I can imagine a day in the not too distant future where you may decide that one product line or business unit needs more product innovation, while another needs channel or service innovation, while another needs business model innovation.  Is your firm nimble enough to do this?  Does it have enough experience to develop and commercialize different forms of innovation successfully and potentially in parallel?  How long did it take to get new product development processes right?

You need a New business model/service/channel/customer experience Development process

Now that you've got a refined and perfected (well, almost) NPD process, it's time to start thinking about a New Business Model Development process, a New Customer Experience Development process and so on.  The good news is that developing new business models and customer experiences may be a bit less work than developing new products.  The bad news is that there really aren't any well-defined methodologies or worse, much experience around this. Yet the need will only grow as demand for innovation beyond the product grows.

As the range of innovation outcomes increases, the ability to convert new ideas into services, channels, business models and experiences will become paramount.  This doesn't negate the need for NPD, but emphasizes the need for NXD, where X stands for business models, services and experiences.

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posted by Jeffrey Phillips at 6:13 AM


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