CHAPTER FIVE

INNOVATION WITH A PURPOSE

THE OPEN EXHAUST OF THE twin-cylinder engine was roaring wildly, 24 horsepower braying in his face. The hot and acrid exhaust offended his nostrils and numbed his ears. The exhilaration was almost palpable. Years of dreaming and months of assembly finally over, the frail collection of bamboo, fabric, and agricultural spare parts called out to him. Sweat beaded on his forehead despite the modest temperature. The time was now. His pulse quickened, he eased in the throttle, the noise increased, and the machine began to move. Faster, faster it accelerated. The wind was pummeling his bare face with fierce intensity. Never had he experienced anything like the mingled sensation of fear and elation he was feeling now.

He was moving at an incredible pace—faster than the fastest horse, as fast as railroad trains he’d heard about. He sensed the dried earth passing behind him. On and on he went, seemingly forever, but actually only for seconds. The moment had come.

The machine grew lighter on the wind and was caught up suddenly, as if by a supreme act of willpower, and he was airborne. The machine eased into the spring air, its vibrating structure pulsating in the airflow. His elation was palpable. But what? He had no control. He couldn’t steer! But faster and higher his machine took him, until a few moments later: Whomp! He was unceremoniously deposited full speed into a gorse hedge 12 feet from the ground. He was fortunately unhurt, but chastened by the experience. He climbed down from the hedge and onto the ground. As his pulse slowed, he realized: He had flown! He had really flown! Not a bad performance, actually.

Aloft for forty-one seconds, covering a distance of 350 feet, this manned flight should have set off bells of triumph throughout the world. It did nothing of the kind. The world would wait seven years before news of this event would even be published.

The pilot-builder was not named Wright. The year was not 1903, and the place was not Kitty Hawk, North Carolina. The year was 1902, and the young pilot’s name was Richard Pearse.¹ The place was Waitohi, New Zealand, and it was a full year before the famous flight over the dunes at Kitty Hawk, North Carolina. (We should note that whether or not Pearse was the first to fly is a matter of controversy to this day.)

Impossible? The Wright Brothers were not the first? No, not impossible. In fact, many inventions suffer a similar fate. The failure to successfully promote and implement the invention relegates it to anonymity until someone successfully relates it to a commercial use—a market need.

This seminal cornerstone of aviation history was obscured by a number of contributing factors. Richard Pearse was not seeking commercial gain. He was doing his flying experiments for his own satisfaction. As with many inventors, he was obsessed with flying, not with business. Knowledge of his feats also suffered from Pearse’s self-imposed seclusion: The religious neighboring farmers thought his flying obsession to be the “work of the devil,” not to mention frightening their farm animals. Nor did it help his place in history to be located on the outer fringe of the other side of the world. Word of Pearse’s accomplishment was not even published until 1909.

The Wright Brothers suffered no such disadvantage. Orville and Wilbur Wright were intent on commercial success from the outset. Their success, not to mention fame, was commensurate. They clearly had market applications in mind when pursuing manned flight.

The moral of the story is that invention in the absence of market need or market fit is seldom successful—at least, it is seldom successful for the inventor. When invention finds itself in search of a market, the search is commonly long and fruitless. As managers in a modern competitive business environment, we must do better, and we can do better.

DEVELOPING THE CAPACITY
NEEDED FOR INNOVATION

DEVELOPING DETAILED AND accurate knowledge of target customers is fundamental to usable innovation. In this chapter, we are specifically concerned with the means and process of identifying and securing the market information necessary to focus our innovation efforts.

Figure 5-1 is the Innovation Management Model with a particular area highlighted. The shaded area shows that all four systems are involved in activities that either generate or utilize customer information and knowledge. System IV—creating the environment for innovation—is clearly involved in this effort, since any company plans for the future certainly require some model or assumption about whom the company will be serving, and this is clearly a System IV activity. System III—the strategic and managerial—is also involved here because the operational management of the organization makes use of customer information all the time.

System II—provision of shared resources—is also an important participant, since customer models and knowledge certainly are shared resources and information. And members of System I—the operational team level—participate both as users of the information and as the source for much of the data required to construct the model itself.²

A clear and concise strategic market segmentation model is a key resource for any organization. Even governments, for example, create and use such knowledge. In the case of a representative democracy, each politician gets elected by knowing the wants and expectations of his constituents. The politician who can best serve the needs of the constituents—who can provide what the market wants—is the one who gets elected. Each politician represents a “segment” of the population, and information on that population is necessary to the system for it to remain viable. Let’s examine the customer knowledge requirements in more detail.

FIGURE 5-1.THE INNOVATION MANAGEMENT MODEL HIGHLIGHTING THE DEVELOPMENT OF MARKET INFORMATION

STRATEGIC FOCUS IS
ALWAYS MARKET FOCUS

AS NOTED IN Chapter 1, strategic imperatives determine the goals and strategies of the organization. And the key strategic decision—for all organizations—is the choice of which customers to serve, which is variously referred to as customer focus, market focus, or close to the customer. Without a clear understanding of whom the enterprise is trying to serve, a great deal of time is devoted to casting about for agreement on product issues, service issues, cost issues, or promotional issues, when each area should clearly be aimed at target customers.

Goal setting and strategy development virtually cry out for clearly defined and carefully chosen customer targets. In the absence of clear targets, assumptions are substituted so development can proceed. The more assumptions are required, the more trial and error must replace skill. Invariably, then, conflict, confusion, and frustration occur.

Many executives are said to spend far too much time on daily operations issues. In fairness to them, strategic decision tools can be hard to come by, and workable tools to identify customers and segment markets are often nonexistent. It is difficult to be strategic when customer information is scarce or inaccurate. Likewise, it’s no easier to be innovative when strategies are enshrouded in a fog of generalization and ambiguity. Operations decisions are likewise difficult. Innovation becomes ill-defined and without direction. Innovate what?

Three key elements can focus innovation activities:

1.Clear strategic understanding of target customers

2.Concise, well-founded strategies to reach and serve those target customers

3.Communication of corporate goals, strategies, and customer knowledge to employees

It may seem obvious that every company would want clear targets as to the customers it wishes to serve. After all, some customers are always more profitable to serve than others, and some are easier to serve (i.e., are a better fit for your organization) than other customers. It is remarkable that few companies actually do have a clearly defined vision of their target market. Yes, there may be anecdotal information about customers, sometimes quite accurate. Too many companies, though, have “evolved” into the customer base they currently enjoy, rather than consciously deciding on the basis of evidence what they should be doing and whom they should be serving. This slow and steady evolution often deprives businesses of the most fundamental choice available to them: whom they choose to do business with. Such lack of clarity usually takes the form of assumptions about customers, compounded with anecdotal experiences, modified by expensive marketing mistakes, and leavened with a large dose of opinionated wisdom.

THE DANGERS OF INACCURATE INFORMATION

Not long ago one of the authors, invited to discuss market segmentation, met with the executive management team of a sizable manufacturing company. The company had grown steadily to a point where it was now an NYSE-traded corporation approaching $2 billion in sales. Not long into the meeting, it became apparent that some in the group felt there was no need to waste time or money segmenting markets. This attitude had thus far prevailed—despite several failed efforts to expand into other parts of their present industry. The minority, who had invited us to the meeting, felt the reason for the failures was the very real fact that they knew virtually nothing about the actual users of their current products. More important, they knew little or nothing of those adjacent sectors into which they had hoped (and tried) to expand. They had been making assumptions, of course, but the assumptions had been inaccurate.

One might ask how any company can grow to that size with so little information about its users and the market for such products as a whole. It’s not so hard to understand when you find out that the company makes rather generic, low-tech products. It becomes easier still when you learn that it markets almost exclusively through distributors, wholesalers, and retailers who actually handle the selling activity. This manufacturer had little or no personal contact with customers (ultimate customers—the users of the products). Growth had been greatly assisted by the company’s successful efforts to become a low-cost producer. Key members of the executive group had determined (with some degree of validity) that generic, high-value products, in limited variety and undistinguished design, would find their own market. By definition, this was true for the customers who had been drawn to their existing products.

History had treated this generic but blindfolded approach all too kindly, helped considerably by the fact that larger competitors were content to serve different segments, virtually ignoring our audience’s core customer base. But now, times were changing and the company wanted to grow into new segments, but was enjoying very little success. This was obviously a “production-driven” organization, which may have read the “market-driven” books—but the key executives didn’t really believe them.

As it turned out, the majority opinion won, and to our knowledge the company has continued to follow its old strategy, blissfully unaware of the diverse segments in its own marketplace. Actually, their challenge was not all that difficult to solve, but their mental models—their preconceived notions about doing business—wouldn’t let them pursue a more enlightened and hence more successful strategy. They simply didn’t understand the new and more demanding customers they wished to add to their portfolio. How could one expect the necessary innovation to occur inside this company in the absence of clear targets, and the absence of the knowledge of the needs and wants of each group? It couldn’t.

Unfortunately, anecdotal customer information usually contaminates really useful information. Executives meeting to discuss strategic matters easily fall into the habit of: “I think we should do so-and-so because last week I was talking with John Thackory of ABC Rivets, and he wants a lower-cost product solution, and that sounds like a good idea.” Someone else then recites another experience: “That may be, but yesterday I talked with Betty Wiener at Brookings Bolts, and she wants more features—and she’s willing to pay more to get them!” Then another will bring up his latest example: “Ned Sackville over at Fabulous Fasteners says what we really need to provide is faster delivery and JIT inventory services. Ned’s been in this business a long time and knows what he’s talking about.” On and on the conversation goes until everyone finally wears out the subject, and the team finally ends up taking a guess—or deciding to decide later. Frequently, the most powerful member’s anecdote carries the day. Another profound strategic decision made, documented, and launched.

Anecdotal customer information is dangerous precisely because it is true—well, partially true, at least. It is true about somebody, some company, somewhere. But this is a fragile reed upon which to build a high-stakes business strategy. For example, what can you say about the geology of the earth based on examination of a single stone? Everyone can find examples to make a case, but if each is describing a different stone, the description of the earth will be sorely inaccurate and impossibly confusing.

THE SOLUTION TO THE PROBLEM

In the case of markets, the best solution yet discovered is to examine the market as a whole, then divide the total market into bite-size pieces containing customers with very similar needs, buying behavior, and decision methods. This is the purpose of a market segmentation model. It’s now possible to see how many types there are and precisely describe those in each category. From such a model several key decisions can be made with confidence. You can:

•Choose that segment (or segments) that best suits your goals and resources.

•Develop strategies to win the targeted customers.

•Determine what is necessary to successfully implement those strategies with targeted clients.

It isn’t possible to know too much about your target customers, but to be useful, customer information needs to be structured in such a way to be accessible to those parts of the organization that can exploit it. The ability of your employees to innovate in product development, in process development, in distribution, or in promotion all depends on their understanding of the intended customer.

In our earlier book Powerful Products: Strategic Management of Successful New Product Development, we devote an entire chapter to segmenting markets effectively and provide detailed how-to information. This discussion would be particularly useful to readers involved in business-to-business or industrial products, for whom traditional survey methods of developing segments leave much to be desired in both cost and precision.

COMMUNICATING THE
STRATEGY TO EMPLOYEES

IN CHAPTER 4, we discussed the development of corporate strategy to foster innovation. But once that strategy is developed, it also needs to be communicated to everyone in the company. Otherwise, innovations are unlikely to see full fruition.

Each organization has unique requirements, but when in doubt it’s better to overcommunicate than the reverse. Invariably, it seems harder for the small organization to communicate effectively than for the larger organization. One would think it would be easier, but the small company may lack a communications or promotion department with writers, copy editors, a printing department, in-house photographers, and production managers to run the program. Managers in smaller companies may be physically closer to their employees, but they are often the least likely to share the most useful information.

Here are some communications guidelines:

•Structure the information so it is useful to diverse functions.

•Make sure all employees have access to:

Goals

Strategies

Customer information

Why they should help

•Use every vehicle available to communicate clearly and often, including newsletters, e-mail, meetings, direct mail, and special brochures.

•Recognize that repetition is both necessary and desirable.

In the frenetic pace of day-to-day business demands, such employee communication requirements may go unattended. It somehow seems easier to handle the urgent issues (even if these are not the most important) than tend to things that are more important but clearly less urgent. Don’t make the mistake of not communicating with your people—all of them.

GETTING AND ORGANIZING INFORMATION

IT’S NOT ONLY important to get the necessary customer information. It’s also important to organize it.

MINING INSIDE SOURCES OF CUSTOMER INFORMATION

Many organizations overlook a treasure trove of information right under their noses. In a sort of reverse “not-created-here” syndrome, many companies discredit internal sources of market information on the premise that such information could not possibly be as accurate or valuable as that which might be purchased from a high-priced research firm. Makes sense, right? Wrong, at least sometimes. Many research organizations use inferior sources but have impressive methods of categorizing and processing what they do gather. The result can look persuasive yet provide little real, useful understanding of customer segments.

Ironically, the best information can often be found in the heads of your own sales force, wholesalers, distributors, specifiers, and retailers. The problem is not that these people don’t have (know) what you seek. More likely, there is no efficient or effective method to secure and categorize the knowledge they have.

Your sales force should be your primary source of information. These are the folks in daily contact with real live paying customers, and they are the first to hear the customers’ successes, failures, problems, complaints, suggestions, and praise. It is the salesperson who has to negotiate the contract. It is the salesperson who has to overcome objections and justify the value of your product or service. Experienced salespeople come to know instinctively whom they can sell, whom they cannot, and why.

In addition to sales, there may be others who can supply vital market information. Customer service representatives are also in personal contact with customers. Depending on their role in the organization, they can be important sources of suggestions for improvement and often have a keen understanding of the customers they serve.

Marketing folks spend their careers trying to better understand customers and use that understanding to the benefit of the company. In a sense it’s their primary job to understand the customers and the markets the company does or might serve. They are usually the primary coordinators of market information. But even they might benefit from closer proximity to the strategies and company needs at the corporate level.

Last, don’t overlook the credit and collection people either. They may be in direct contact with your clients and may get input that others are not in a position to receive. They certainly learn about problems that cause customers to withhold payment of invoices.

ORGANIZING INFORMATION

Having the source of information does not mean the information is actually available. Usually, it is not available to those who need it most.

Here are some principles for organizing market information for innovation:

•Select a structure that you can build on—i.e., a structure that is expandable and grows with you.

•Use your market segmentation model as a framework.

•Don’t bother collecting information you don’t need.

•Don’t collect information that you don’t plan to maintain.

•Make someone responsible for the gathering and maintenance of customer information. (If everyone is responsible, then no one is responsible.)

•Conversely, do not try to create a massive bureaucracy. Manage only what needs to be managed.

•Recognize that information technology is a wonderful and useful tool, but it should not drive your information requirements. Collect what’s necessary and useful, not what’s convenient for the IT department.

•Beware of “secret” information. If it’s secret, who is going to benefit from it?

•Know that if you make the system too hard, no one will want to have anything to do with it.

IN SEARCH OF COMPETITIVE ADVANTAGE

THE ULTIMATE OBJECTIVE of commercial innovation is to create or extend competitive advantage. Sure, there are innovations you willingly undertake that may not provide competitive advantage, but these are usually those most valued by owners and managers rather than customers.

Competitive advantage generally accrues from some way to better serve a customer—better than your competitors serve the same customer. The best innovations are those that can be protected, as with patents or copyrights. These are sustainable for the period granted and/or renewed. But these are not the only sources of advantage, of course, or even of a sustainable competitive advantage.

Some other sources of competitive advantage that may be sustainable are:

•Proprietary processes

•Proprietary technology

•Unique customer knowledge (such as your segmentation model)

•Cost leadership

•Corporate and employee attitude

•Shared values when these values and the exercise thereof constitute a competitive advantage

There are many other sources of sustainable advantage, many of which are industry-specific. Our point is that the underlying creation of these and many more sources does, in itself, constitute an act of corporate innovation. For example, the collapse of a market leader, leaving the successor in an advantageous position, is not an innovation. It’s good fortune. A shift in market taste or fashion may favor a given company for an extended period without any particular innovation being responsible.

WHEN THE TARGET KEEPS MOVING: THE
INTERNATIONAL SPACE STATION PROJECT

THE ROOTS OF the International Space Station Project (ISSP) lie in the early 1980s, when NASA began amassing the efforts of academics, government officials, and industry in support of an orbiting space station in which astronauts would live and from which they would conduct experiments. From these beginnings has come what is now a $47 billion undertaking—and the largest space project in history, involving the cooperation of the most advanced nations on earth. But despite its name, the space station then was definitely not “international.” Instead, it began as a proprietary national effort to keep U.S. science out in front of the Soviet Union.

The ISSP involves the participation of 16 nations (the United States, Russia, Belgium, Brazil, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland, and the United Kingdom). The objective is to place a space station the size of a football stadium in space. Technologically challenging in the extreme, ambitious on a massive scale, it is complex, expensive, and difficult. Simply put, it is a behemoth. It was undertaken—in the official vision—to be a triumph of international cooperation at the frontier of human technology.

But that’s not all it is. It is also incomplete, over budget, and late, very late. The ISSP is also a good example of the difficulty of innovating and implementing an ambitious project in an environment of conflict and self-interest.

On its way to a democratic government and a market economy, Russia fell into a depth of economic bedlam seldom seen in modern history. The once formidable and still proud Russian space community cannot pay its bills or meet its obligations. Nor does the Russian space agency today command the respect many Russians feel it deserves. Yet much to the chagrin of its other ISSP partners, in early 2000, Russia announced that it had found additional outside funding for Mir, its proprietary but aged space station, and would consequently not allow Mir to end operation in 2000 as originally planned. When Russia had decided to participate in the ISSP, it had agreed to abandon Mir. The United States was consequently concerned about the Russian decision, since there was considerable doubt that Russia could support both projects, leaving its commitments to the ISSP in question. In late 2000, though, Russia announced that Mir would end operations and be intentionally crashed into the ocean in the spring of 2001. Conflicts of interest within a development effort can be so debilitating as to destroy projects that lack the deep pockets of the ISSP.

This is just one example of how the ISSP is a classic case of conflicting cultures and interests. It is a governmental showcase of how not to complete a commercial project. That said, the ISSP may well be worth all that it costs and wastes if it promotes international cooperation to any appreciable degree. But it would not be a model for corporations to emulate.

The project is instructive because it provides a clear example of difficulties caused by lack of alignment. Instead of clear alignment of goals, we find:

•An organization (NASA) looking for a project to justify its existence

•National pride, on the part of everyone involved

•Differences in national resource availability

•Old animosities haunting current relationships

•Political demagoguery

•An attractive target for “potshots” from all quarters

•Mission creep

•Goal conflict among the partners

Thus, the project is behind schedule, over budget, and the victim of drifting performance criteria. Only governments could afford, condone, and ultimately claim victory for such an accomplishment.

Could such a result occur on a smaller scale in the corporate environment? It happens all the time. But because such stories are seldom newsworthy, no one hears about them. In fact, the typical corporation goes to considerable length to bury such failures.

What lessons can we learn from the International Space Station Project?

•Clear goals focus action.

•Common, shared purpose mobilizes people to efficient action.

•Intangible, interpersonal elements like pride, heritage, nationalism, and the like are extremely powerful motivators.

As we strive to make our organizations more creative, innovative, and productive, we managers have an obligation to provide the nurturing environment wherein innovation can flourish. It is certainly possible for individuals to innovate in difficult conditions. But it is also much more difficult (and expensive) for an organization to successfully bring great ideas to fruition and market success in an environment of conflict, confusion, jealousy, bureaucracy, and rigidity.

SUMMARY

•Strategic focus is market focus.

•There are three elements of focusing innovation: (1) clean, strategic understanding of target customers; (2) concise, well-crafted strategies; and (3) clear communication of goals, strategies, and customer information to employees.

•Inside sources of customer knowledge are often the most powerful, if there is a method for procuring and organizing such information.

•Getting the right target from the outset is the most effective way to avoid shifting goals and moving targets.

•Sustainable competitive advantage comes only from innovation.

•Frequent changes of corporate direction result in confusion, and confusion is an enemy of successful innovation.

NOTES

1. C. Geoffrey Rodliffe, Wings Over Waitohi (Wellington, New Zealand: Avon Books, 1993).

2. For a complete description of the procedure for developing an effective market segmentation model, see Chapter 4 of Roger Bean and Russell Radford, Powerful Products: Strategic Management of Successful New Product Development (New York: AMACOM, 2000).