Part 1: The Jump-Start

To jump-start, choose a few new products or services your firm recently brought to market. These offerings need to have been in the market long enough to judge their financial performance. The idea is to compare their performance with what was predicted in the business plan. Were they successful? How do you know? Do you believe it? Did you launch a feature shock, minivation, hidden gem, undead, or a big success?

We have created an online diagnostic tool to help you diagnose the strengths and weaknesses of your overall innovation process (http://www.monetizinginnovation.com). Ask your innovation team to go through each task in the tool and report back with the results. The results should give you a high-level gauge for the status quo. One caveat: Make sure their inputs aren't biased. The key to improving innovation is to begin by being brutally honest. If you find strong practices in certain areas, document them. If you didn't find any pockets of excellence, don't despair. That means you have a big opportunity to improve the way you monetize innovation.

Once you finish the diagnostic, it is time to go one level deeper. To do this, discuss the nine rules of monetizing innovation and the checklists of CEO questions (at the end of Chapters 4 through 12) with your team, specifically for the chosen products. What steps were missing in your current process?

Now it's time for you to start participating in early-stage research and development meetings and jump-start the process. Of course you don't want to drop in on your new product team unannounced. That will only make them anxious: What are you doing there? Is something wrong? Are you about to reprimand them? Is there a new order?

Well, there is, but begin tactfully. Let the new product team know in advance you want to attend these meetings and you'll be listening to their ideas and, most important, challenging them. That will prepare them and keep them focused on the guiding principles of monetizing innovation.

In these meetings, you'll need to begin by explaining your vision and goals for monetizing innovation. You'll have to educate (a polite word for “sell”) new product team members on how an innovation process for designing a product around a price will make their work far more reliable and successful, not to mention profitable for everyone. Go through each of the nine rules and the steps each involves.

By now, you will have completed the diagnosis of your firm's current innovation monetization process. You should have a crystalline picture of its strengths and weaknesses. At this point, we predict you will be itching to try out some of the recommendations you've found in this book.

Part 2: The Pilot

For the pilot, select a candidate—a real, new product idea that is in your pipeline. If you are a multiproduct company, keep it simple. Choose one product that's representative of your business.

If you don't already have a cross-functional innovation team, this is the time to form one. It should consist of managers from R&D, product, pricing, marketing, sales, and finance. Choose a person to fill the crucial role of monetization hero. What's that again? That's the individual who will be accountable for the success of the initiative. Therefore, this must be the person in charge.

Remember the Optimizely case study in the last chapter? A key factor in the company's monetization success was appointing a monetization hero to the team and putting that person in charge. The monetization hero should have solid product experience and be familiar with your firm's existing innovation processes. This person should also have a broad perspective on the organization—especially the strengths, weaknesses, failures, and successes of the current innovation process. The monetization hero should listen for best practices that emerge in the cross-functional innovation meetings during the pilot phase.

Two rules of engagement for team members are critical for success in these innovation meetings:

1. Each member should hold the others accountable for the ideas they generate. That creates a culture of constructive conflict.
2. Empower people to say no. They must have the license to challenge features that will result in a feature shock or an undead. As we noted in earlier chapters, “less is more” goes sharply against the grain of product developers who believe more is better (and most of them do). But if people are afraid to say no, you'll be stuck in your old model, and the new monetization process will never get off the ground.

Jump-Start and Pilot also includes allocating budget to survey what target customers value about your product concept and, of course, their WTP for that value. You have to get a quantitative understanding of the size of your target market and the value customers place on your new offering. This data will give your R&D teams the directions they need for segmenting the product, product configuration, and bundling strategy: which features to include, which to exclude, and why.

Now you're ready to kick off the pilot and use the nine rules to monetize it. Since this is a pilot, you should be documenting what is and isn't working. But you should be intently taking your first product through all the nine rules and designing it accordingly. This is an iterative process, and you will not excel at every part of it on the first try. Your mindset needs to be “test and learn.”

Part One: Scale

Scale involves identifying other kinds of products (in different business units, short versus long life cycle, and so on) to put through your program.

The idea is to select one product from each of your firm's primary product groups. This is critical in a large, multiproduct company because by piloting one from each group, you avoid the “big-bang” approach of having all product development initiatives cut over to a new process at the same time. You need to crawl before you walk, and you need to walk before you run.

The six elements of scaling are summarized below. They are largely applicable to multiproduct firms. If you are a single-product company or a small start-up, some actions may not fully apply to you, but we will still encourage you to read on and absorb the nuggets!

1. Consult the process and playbooks you created in the pilot phase. Put the steps of that process into a workflow diagram that people can understand. Decide whether any of these steps must be customized to the needs of a specific product or product group.
2. Dedicate a monetization team that will work across products. Based on the pilot's results, decide whether you need to recruit internally or externally for this team. The monetization team works on monetization every working business hour; usually this is a full-time mission. Depending on the complexity of the organization, the team could become its own department. A member of this team must work hand-in-hand with the cross-functional product development team as well as be part of all new product meetings. This structure has been instrumental to Dräger's and Swarovski's success. Their monetization teams work closely with the product teams every day, all the time. In a start-up company, the monetization team and the cross-functional innovation team can be one and the same. In bigger companies, it's better to form a team whose sole responsibility is developing and applying the new monetization process.
3. Assign clear roles and responsibilities to the cross-functional innovation team. Again, a monetization team member must attend all innovation team meetings. That person is accountable for making sure the innovation team implements all nine rules. Other functional team members should be responsible, consulted, or informed. (See Figure 14.1 for typical team roles and responsibilities.)
4. Make sure the cross-functional teams meet regularly and ask the right questions. Ask the CEO questions found at the ends of Chapters 4 through 12. Be prepared to seriously challenge each team to make sure they have the market segmentation, customer value, and WTP evidence in hand.
5. Track new-product performance using all the KPIs you've identified. Remember to use the sales, operations, and customer KPIs, not just the financial KPIs (which we explained in Chapter 12).
6. Implement a review schedule to measure the performance of products you've put through the monetization process. You need to determine what worked, what didn't, and what you'll do differently.

The Scale stage ends after you've finalized all your process documents and playbooks and put several new products through the monetization process. If everything has worked the way we believe it will, you should have a handful of roaring success stories that will help you in the next stage: making the new process stick so you don't backslide to the old ways of developing new products.

Part Two: Stick

Creating a culture that embraces the nine rules of monetizing begins with designing a training plan and a change-management plan. You will need to get all your teams fully competent at executing the nine rules. You must find the skills gaps (especially in product, marketing, and sales) and develop training programs to fill them.

Instituting a new product development process, especially in companies that have invented and commercialized products in a defined way for years, won't be easy. Your change management plan shouldn't underestimate how much resistance you'll face. You shouldn't let individual agendas delay or derail the cutover to the new processes. For every business function, your plan for managing organizational resistance should document a) why the change is necessary, b) what needs to be done, and c) how to do it.

In the end, if you want your company to fully adopt the nine rules of this book, everyone who plays a role in new-product success must buy into the need to make substantial changes.

But the change starts with you. You must lead by example. You need to start showing up at new-product meetings and asking tough questions. You must continue communicating the importance of developing and commercializing new products in this manner.

Telling success stories is the best way to convey the importance of monetizing innovation in the ways we've prescribed. Fortunately, you have them because you've conducted your successful pilots.

You will also need to be able to say “no.” Nearly every product development pipeline we've encountered has undead products lying around, diverting resources, energy, and attention from more deserving ones. It's time for your organization to pull the plug on them.

Killing unworthy new-product ideas not only takes courage, it also takes practice. One of the best ways to do this is to create a list of the costliest undead products in your firm's portfolio. (You know which ones they are; you've read Chapter 2.) By getting your organization to kill these offerings, you will, in effect, be creating the right culture for successful innovation to flourish. Of course, this is a culture in which a “yes” to every new product idea (or feature) no longer rules. You could say it's a culture in which the old approval process shifts from “yes/maybe/no” to “no/maybe/yes.” It's a mindset in which every product has to earn its way into the market before it is launched. That's the Porsche way, as we discussed in the previous chapter.

Cultures built on yes/maybe/no may seem more exciting. But if every idea starts with a yes and you go all the way, by the time you can say no, it is far too late and the train has left the station—and so has your product.

Last, you need to reward the people who develop products customers love because they enlisted customers' input to design the product features and determine how the product is priced. Nurturing that kind of ambition requires providing disincentives for those who lowball the goals for a new product—its market potential, how much the market is willing to pay for it, and so on. Too many managers set low goals for new products—lower revenue targets, lower-than-necessary prices—with the hope that more customers will buy them. But by lowballing, managers are returning profits that belong in your company's coffers to customers in the form of ill-conceived discounts.

Does that sound right to you? We don't think so. Discourage lowballing and other incentives that encourage people to over- or underinflate a new product's potential.

1. Putting All Your Eggs in One Basket

The process and playbooks you build cannot be dependent on just one person or one group. What happens when that person leaves? People do, you know. Teams change. Further, if the monetization team is held solely accountable for keeping the process going, and it alone knows the ins and outs of the new process and what needs to change, your company is vulnerable, especially if other teams (such as product, marketing, and sales) are disengaged and are just going along with it.

The process is important, and you have to implant it into the DNA of your organization. To do this, you must get every group equally excited, invested in, and motivated through incentives to embrace the change.

2. Not Forming a Cross-Functional Team

The cross-functional team is essential to creating a culture that designs new products around the price. In most organizations, R&D and product teams are tasked with innovation; marketing and sales are charged with positioning and selling the innovation. Without marketing and sales managers' early involvement in the new process, they are likely to fumble the ball when it comes time to market and sell your new product. They won't know how to communicate the value of your innovation. Months later, the customer value you ascribed to it early in the product development process will be lost in translation. Your disappointing revenue and profit numbers will reflect this failure.

3. Banking on the Big Bang

For a change as fundamental as the one recommended in this book, implementing it all at once is not possible. This is especially true in large, multiproduct companies. Sweeping, successful change requires incremental steps. Once you've piloted your first products and then tested, refined, and measured your first successes, only then can you scale. Simply put, if you bet too much too early, you put your whole stake at risk. That's not wise.

4. Imagining One Size Fits All

Monetizing innovation is not a cookie-cutter process—not in this book, at least. One size never fits all. You must tailor all the steps we've outlined to your company's capabilities, skills, tools, existing processes, and culture.

5. Having Too Many Opt Outs

You get the new process into the DNA of your company only through repetition (especially if you are a big company or a multiproduct company). For achieving repetition, your team needs to adhere to the process and follow it through to the best extent possible. If there are too many opt outs, people will tend to revert back to status quo. Best-in-class companies institute automated workflows with stage gates, ensuring that a product passes one stage gate (with the right approvals) before it moves to the next.

6. Getting Blinded by Science

In the early stages of designing your product around a price, when you are having the WTP conversations, remember you're only trying to get to a ballpark idea of an acceptable price. As you keep designing the product, you must keep refining this estimate. Trying to optimize your price before you start designing produces a false sense of precision. You may get an A on your process but an F on your innovation. Applying the philosophy and principles you find in this book is far more important than applying its math.

7. Avoiding Messy Information

Be prepared: The information you collect won't be perfect. In this life, nothing is. Some of it will be confusing. Don't let that throw you off. Step back and draw pragmatic conclusions from the data you have, and don't follow the arrival of data that fails to align with it with a witch hunt. If you accept that you will encounter messy information, you will be better prepared to take a step back and see the majesty and magnitude of the forest instead of all those twisty, confusing trees.

8. Cheaping Out

Everything has a cost. Make sure to allocate sufficient budgets to the steps outlined in Chapters 4 through 12. You must assign adequate people and budget. It will be more than you like; it will take time; and you'll have to fight for it. Failing to do so will sabotage everything you hope for, but when you get what you need, you'll find your investment will pay off in relatively short order.

9. Letting the C-Suite Delegate Everything

This last pitfall can do the most damage of all. In the Simon-Kucher & Partners Global Pricing Study we mentioned in Chapter 1, we found that companies in which senior executives led the change to extract full value from new products averaged 33 percent more profit than companies where executives delegated that responsibility. When C-level leadership is not committed in body and soul, if monetizing innovation is not one of your top two organizational priorities, and if that is not reflected in C-level involvement, we would advise you not to embark on the journey.

But If You Are Ready for the Journey.…

This book was written to illuminate the path that some of the world's most successful product innovators have traveled and to show you how you can do the same. You can, of course, choose to accept or reject our advice.

Given that our prescriptions for making this journey involve so many and varied radical changes for executives involved in product development, marketing, sales, and the C-suite, we expect many readers will wonder whether it's possible to implement these changes in their organizations.

In the 1999 science fiction movie The Matrix, the hero, Neo, is presented with a blue pill and a red pill and asked to choose. Taking the blue pill will allow him to continue to exist within the comfortable but fabricated reality of the Matrix. The red pill will push him into the real world to confront the difficult truth of his existence.

If your company's innovation process is built on hope—a gut instinct before you bring your products to market that they will pay off—your organization has chosen the blue pill. If some (or even most) of your innovations have paid off, you still have been building them on a tenuous foundation, one that could give way at any moment.

In a world in which innovation success has become more important and more difficult, we believe no company can afford to build its future on wishes, hopes, and dreams.

This book has attempted to show you the red pill. It may have made you uncomfortable; reality is often hard to face. It is always easier to take the blue pill and keep building products and slapping on a price that you hope will deliver a profit. But, if you want to transition from hoping to knowing, you must take the red pill.

That is the one that will set you on a fast trajectory to fully monetize your innovation.