8. Making Decisions for Profit—Success Emerging from Chaos

Innovation is not just about a good idea; it is a process of managing what can appear to be an army of people over a set amount of time making multiple interconnected decisions. Rather than micromanaging, let the product requirements guide the legions who make the detailed daily trade-offs. Yes, these product requirements emerge from an early research and planning stage that is chaotic. But that is good—for the chaos enables exploration and learning. The more you can learn about your market, the better the framework for your decisions.

Toronto, Canada. Jimmie Spear needed a new truck. His Silverado had lasted eight years, and it was costing him as much to maintain it as his car payments used to cost. His truck was his life, or at least his livelihood. Jimmie worked on independent construction. He worked on somewhat sophisticated construction jobs, building additions and the like. But he mostly worked independently, usually hiring a high-school kid to help him out. He liked the freedom. In the eight years since he bought his truck, lots had changed in his life. He was now married with two kids. His weekends and even some nights were filled with family things, from food shopping to going to the park with the kids and the dog. So his wife was on his case to rethink his truck purchase. She wanted a family car, one that could safely drive the kids around. Jimmie needed a workhorse, but it was more. His truck was him. It was a statement of who he is! He wanted a truck with meat, one that looked like it could handle the tough jobs he gave it. He knew he was pretty hard on the vehicle. Some trucks looked wimpy. They probably were.

Jimmie decided to take the kids out Saturday to look around. He visited GM first and was intrigued by the Chevy Avalanche, which had a rear seat that folded down to increase the truck bed size. It looked great. It could be a two-row family vehicle on weekends and his construction truck on weekdays. He then found the Nissan Titan with its four doors, its full truck bed, and the ability to fold up the rear seats for extra storage space for his tools when the kids were not around. Nissans were hot! The strong front with the extensive use of chrome not only looked great but gave him the reassurance that the truck was made of solid parts. Although the kids had had enough and really wanted to just go home and watch TV, he also stopped by the Ford dealer. The new F-150 was inviting. The truck sure looked tough on the outside, but, if he really wanted to splurge, he could get that cushy leather interior.

It used to be that a truck was a truck was a truck. What amazed Jimmie was the amount of choice he had and the amount of feature comfort he could enjoy in a truck. He could justify the tough-looking exterior with safety and comfort for his family. Who would've thought that, with the goal of dragging around a 4×8 sheet of plywood and some tools, there could be this much variation in trucks?

Complexity in the Decision-Making Process

Think about the amount of work it takes to design a toothbrush. There are only two main parts: the handle and the bristles. But the handle may be a bit intricate, with an area that flexes and co-molded rubber on the plastic so that there is a solid grip when the brush is wet. The bristles are of different lengths and angles. Some clean around the gum line, others flex to clean between the teeth, and still others brush the tooth surface. Deciding on each of these toothbrush features takes significant research and decision making. This includes a thorough understanding of the mouth and teeth, material analysis of flex performance and oral compatibility, and a thorough understanding of the ergonomics and physiology of the hand and arm.

To ensure that the intended market finds the product appealing, the product team must be aware of trends in the bathroom and kitchen and of general fashion trends in colors and shapes. The team must know the latest materials that are available and might potentially be used in the product and the latest manufacturing techniques that might allow for the next innovation. A toothbrush must be sold in a package at the point of purchase that stands out and sells the toothbrush inside, and variations of packaging must be designed and prototyped for market tests, with those tests conducted and analyzed well before the product launch. The package must also connect to the lifestyle of the person who is buying it.

There are also legal issues. In the case of intellectual property, you need to make sure you are not infringing on another's patents and, if not, are protecting your unique idea with both design and utility patents to limit potential of rip-offs. Also, a product that is put inside a person's mouth carries liability issues. The label on the package has to have every important piece of legal information required by whatever federal agency is responsible for protecting the public from poorly designed, dangerous toothbrushes and from product misuse. If a problem arises from poor information or product misuse, the other side of the corporate legal department will be called into action. Not only is product liability a nightmare for a particular product team, it also can have an impact on the company brand identity.

Next time you are in your local drugstore, look at the number of toothbrushes you have to choose from. It was not long ago that a simple bend in the handle under the product name Reach was seen as a big breakthrough, but in product development terms, that design was a century ago.

As noted, a typical toothbrush has two parts. Now let's bring it up a notch and think about the innovation breakthrough for the next toaster. A toaster has 20 parts and it is an electric appliance. You have significantly upped the product's complexity and the number of decisions that must be made.

If you are designing a new car, you take the complexity up further by a power of 1,000, to 20,000 parts. Every part must be designed or specified, and many of the parts must work in unison as a subsystem. Subsystems must then work in concert to meet the vehicle's performance requirements. Often, to achieve the best performance in one subsystem, another must work below expectations. For instance, the addition of a small oil pump can dramatically extend engine life. The trade-off is that this oil pump would circulate the oil immediately before a cold engine start, so the benefit of this pump would cost multiple seconds of delay before the car could start. Thus, trade-offs are considered and aspects of the product redesigned until the overall product is satisfactory. The best vehicles perform beyond expectation and deliver an optimal experience that surprises and delights the customer. Given that the vehicle's product development cycle is still about three years or more, consider the vast number of decisions that must be made and that effectively come together to produce a successful (or unsuccessful) vehicle. How many of those decisions can be wrong and still produce an affordable, appealing, and profitable car or truck?

When you are driving your car, with its 20,000 parts, imagine the number of things that have to go right. Hundreds of people have to be coordinated over several years in a cohesive plan. Innovation is not just about a good idea; it is a process of managing what can at times appear to be an army of people over a set amount of time making multiple interconnected decisions. For example, as an initial concept establishes a product direction, a brand statement must be developed, including marketing insights, visual strategy, and an attribute strategy. At the same time, there is a need to establish technical constraints such as standards and manufacturing capabilities. There are also technical development issues and the development of a market model. Further down the process, there are financial issues in allocating budgets and determining the product's feature content from all the options that are considered. There is the customer strategy that includes feature packages offered in different models of the product. There are decisions on acceptable and anticipated levels of manufacturing quality and expectations on the product's fit and finish (otherwise known as craftsmanship) and the technical feasibility and reliability of the technologies and manufacturing methods. In every successful product, many key decisions must be made if the potential innovation will reach maximum potential and generate the equity in brand and profit needed to sustain a company.

Organizing the Decision-Making Process

Not only are there numerous decisions, but each decision is related to many others, typically as a trade-off. There is no way to make a product, say an SUV, that has high fuel efficiency, lots of cargo room, three rows of seats, premium features, high performance, tight craftsmanship, and individualized feature choices, all at a low cost. Choices are made, and aspects are sacrificed. Some vehicles are exciting to drive and have all the comforts of your living room and cost more than many homes, while others are barely tolerable to sit in but can carry a load and are affordable to a large market. The former vehicle likely has a high price and high margins with low volumes, while the latter has a lower price and lower margins but high sales volume.

There are different approaches to managing the trade-offs. The commodity or cost-focused company sees the decision process as one to design a product for mass consumption at minimal cost, so financial considerations serve as arbiters of ideas. As the product's unique and most beneficial aspects are compromised for cost considerations, eventual margins also narrow. The narrow margins lead again to the need for additional cost cutting. The resulting product tends to sit in a competitive space with low price and low margins.

The high value-differentiation lifestyle-oriented company sees differentiation as the ultimate goal, to achieve a new level of experience for the customer. The lifestyle-driven approach promotes aesthetics and usability as the driver, with technical superiority fulfilling performance expectations. The result may be lower levels of production but at much higher margins.

The pragmatic innovation company balances these two extremes with a product that supports its brand, stands out in the crowd, and is priced to reach an appropriate market. Its customer-focused approach understands cost limitations based on an expectation of performance and features in consideration of the context of use of the product. In other words, the customer-focused approach delivers a high value differentiation within the purchaser's financial means.

If cost were the ultimate arbiter of trade-offs, decisions would be fairly straightforward. Whichever option would be cheapest overall would win out. But because virtually no company uses costs as the only criterion, at least successfully, how do innovative companies manage the host of decisions?

The StageGate model of product development is one good baseline for companies to use and many do. StageGate defines deliverables across the product development process that must be met to move through one “gate” to the next stage in the process.¹ The five stages are major project activities run sequentially from scoping out a market to launching a product, while the gates are checklists to make sure each stage was sufficiently explored. Although the foundation is appropriate, the problem is that all the models companies generate in using this and similar approaches are ideals. These ideal models are often generated by committee, appointed by management, and given to teams without their understanding why the model was developed and adopted, or even the motivation behind the steps. The teams never interpret the model for their application. No product program actually runs like the ideal model. When a team reaches a roadblock or has to deal with input that was not anticipated, it often falls behind and may never figure out how to adapt to the change. The models don't tell the team how to meet the gate requirements, especially the early ones critical for innovation, just what they are.

Managing product development using a pragmatic, innovative approach is a challenge. It requires balancing equal and opposite forces. The best managers seem to find a way to keep the big picture and goal in mind and also feel free to vary the program as it develops. Instead of hoping the program will go according to the ideal, these managers realize from the beginning that the ideal is there as reference for support, not a process carved in stone. They can shift and interpret the process as needed and address new issues that arise as the inevitable variation happens, adjusting accordingly. Instead of feeling threatened and trying to make the ideal process model fit the unanticipated issue, they enjoy the sport of meeting challenges.

We use the concept of rock climbing to help you understand this approach. You can plan a climb and set your path, but even if you have climbed a mountain before, every climb is a new experience. Weather can vary and change the conditions. Your approach will vary no matter how much you may want to keep it the same. The mountain itself can change, making terrain more or less easy to navigate. Aron Ralston became famous for his incredible, almost superhuman ability to overcome defeat when he was stranded while rock climbing in the wilderness alone. A large boulder fell and pinned his arm. He had to make a life-altering decision. Ralston calmly realized that the only thing to do was to cut off his arm; otherwise, he would surely die. Not only did he effectively do that (we will let you read the details elsewhere on your own), recognizing that he had to apply a tourniquet or he would bleed to death, he then had to climb down the mountain face, lowering himself down a sheer cliff with only one arm, and walk an extensive distance to find help. His actions are a testament to what a person can do to survive. He sees himself as a stronger person for the experience and has turned a disaster into a personal triumph. He is the epitome of grace under pressure. He found the resources internally to survive the unpredictable obstacle. Because he was a good planner, he knew how to adjust the plan rather than sit there helplessly and starve to death. He has written a book, Between a Rock and a Hard Place,² and has appeared on numerous TV shows. Just when you think you are at the brink of disaster, it is always possible to find the opportunity to turn impending doom into an unprecedented success if you can just step back and see the big picture. You need a process that gives you structure, and you need to adapt to the unpredictable. This is the foundation of innovation.

The Butterfly Effect

Within that structure, if the product development process at times seems chaotic, it is! If a butterfly flaps its wings in Brazil, this could cause a storm in Belgium the next week. You have heard the story or maybe have seen the movie. This is the basis of the mathematics of chaos, where a small event can have enormous and unpredictable consequences down the road. The decision-making process in product development has many similarities to the butterfly flapping its wings, the seemingly small event. Decision making, like wing flapping, is highly causal: one apparently insignificant decision can significantly affect the outcome, just like one flap of the butterfly's wings can have a profound effect on the weather.

So it is with product development that every decision affects every other decision, with one decision connected to the next, and each downstream decision dependent on previous choices. If a slightly different decision were made—say, to create a different visual line in a vehicle, or select a different spring mechanism in a toaster, or choose a different material for the bristles in a toothbrush—the implications of those decisions produce a very different vehicle, toaster, or toothbrush.

Unlike the butterfly, product developers can influence the outcome of the process. The research, insight, and feel for the product and process allow them to make decisions that are likely to lead to more successful outcomes. Each informed or insightful decision affects the next informed or insightful decision, and so on. The butterfly wing flapping is very much a random occurrence in the weather system; the butterfly at best can control its own flight and has no awareness beyond its own activities. The butterfly does not understand causation. Successful product developers understand the cause-effect relationship and the overall implications of feature selection and form choices for the product's gestalt—how the product looks and functions as a whole. Unfortunately, some product developers are more like the butterfly. They make independent decisions without a thorough understanding of the market opportunity, the customer, or the rest of the product as a whole, never understanding why their product falters or fails in the marketplace.

The butterfly flapping its wings is, for the weather system, a random event. Decision making in product development is not. That said, many random influences provide fodder for decision making. For example, the brainstorming process used so frequently early in design to stimulate ways of conceptualizing possible product solutions is wrought with random thoughts and analogies. The seemingly random thought process is filtered with an early understanding of the marketplace, directing the process toward a blissful instead of stormy end.

Throughout the product development process, random external events do occur that cannot be predicted. Political and social events rapidly change needs and desires of a customer base. Increased gas prices lead to concern about gas mileage and, eventually, fewer trucks and SUVs sold. As a result of 9/11, there is less travel and more focus on safety. It is hard to predict what the competition will do. A disruptive technology, or even one that makes small but noticeable improvements, may mean disruption in bringing a product to market.

Some of these external events are devastating to a product or company, whereas others are not. As a result of 9/11, most airlines in the United States struggled while respirator company Mine Safety Appliance had record earnings as people purchased gas masks in record numbers. Although an event like 9/11 was unexpected, and its impact on the economy and psyche clearly was unusual, it does illustrate the need for a system that is robust to random influences. New Balance, having made the social decision to keep a portion of its products “made in America,” was positioned to stand against foreign competition and American competitors that made their products overseas as people in the United States made emotion-based purchases after 9/11.

Chaos Within Structure

Although the external influences are unpredictable, a structure to good product development guides the process to success and provides methods to improve the robustness of decision making. The structure of the product development process guides you through the unknown, helping you define your goals, constraints, and variables. Every product opportunity has a different set of goals (what you want to achieve), constraints (things you cannot change), and variables (things you can and must change). The challenge in developing truly innovative products is first to identify a unique set of goals, then to identify a set of variables that can be modified to reach those goals, and then to understand the real versus perceived constraints on those variables.

When Palm Computing came out with its first PDA, its competitors believed the form factor to be a real constraint, because the computing power (and the larger chips back then) required to recognize handwriting took up substantial space. Palm's innovative solution came from the recognition that form factor was a variable after all, at least as long as customers were willing to learn a new graffiti alphabet. Palm's innovation launched the whole PDA category, which had thus far been a flop. The butterfly flaps its wings within the constraints of physics. The product development process must work within the bounds of physics, but it is also influenced by humans, culture, society, and thought, all of which were key to Palm's success.

The structure of the process does not define the goals, constraints or variables—it does not do the work for you. It provides guidance on how to navigate the space of the unknown. It helps you make robust decisions based on insights and incomplete or even incorrect facts. The fodder it provides to make those decisions is based on the centrality of the customer. The customer unites all divisions of the innovative company—the user is the fulcrum that balances goals, constraints, and variables.

The fuzzy front end, or the early stage of product innovation, will be chaotic. That chaos is a good thing. It enables exploration and learning. The more you can learn about your market, the better your filter on the chaotic ideation process. Chaos helps with the accuracy in finding and defining a good product direction. Later, the process begins to change. There is enough focus, enough variables and constraints identified, that the system begins to be more predictable, that precision becomes the focus. Although not every random event downstream can be anticipated, many can, and a robust process thinks about scenarios of disruption. Some can be designed for, making a robust product with longevity in the market; others cannot. Accepting chaos allows you to more aptly deal with random impact as it takes place, to work with it rather than against it. Rather than fight it, be the choreographer of the chaos.

If you squash the chaos, you squash the exploration and research so critical to the success of developing a product. You work hard to produce a quality manufactured product. You later find out that your precision was on but your accuracy was off, that the market does not want your well-made product because it does not meet their expectations of the product's experience of use or purpose. You find yourself scrambling to add or remove features, not understanding that their inherent interconnectedness causes functional, aesthetic, or manufacturing problems with other features. Your soft and hard quality goes down, and you scramble to make both satisfactory.

Interdisciplinary Decision Making

All exploration centers around the customer, at least tangentially if not directly. Marketers are well acquainted with customer research, as are industrial designers. But the technology and financial people should connect with the customer as well. We have found that the best companies have integrated teams that engage in customer research together. Different disciplines are trained to interpret information in a different way, so the integrated and inclusive team is more likely to have a richer understanding of customer needs and desires, and thus a better understanding of priorities as the design process proceeds.

To see the value of integrated teams, consider the opposite case, the extreme case of dominance by single viewpoints. The techno logy company tends to emphasize the product's performance, technology capabilities, and manufacturing capabilities. These high-tech products are technically state-of-the-art but often miss the boat on customer satisfaction. These companies excel at quality programs with precise results but miss the accuracy of the market and lack true innovation. Many technology companies provide business-to-business products or services and have seduced themselves with the notion that they do not need to worry about nontechnology product features. However, these companies are vulnerable to competitors that can provide products with hard and soft quality.

Cost-oriented companies emphasize financial and resource allocation decisions. The result is often an unexciting but predictable product with slim margins. These products often find themselves considered or competing with commodities. Rumor has it that the canned soups on today's shelves taste nothing like the same products of yesteryear, that manufacturers have little by little switched to cheaper ingredients. Such is the way of cost-oriented companies in mature product categories.

Marketing-oriented firms emphasize price promotions, direct- mail flyers, and highly touted but trivial updates to their product lines. Lemon-scented, anyone? Style-oriented companies emphasize decisions based on aesthetics and trends. These products are exciting to look at and trendy to own but often are impractical for long-term use, or at times even short-term use.

Each discipline has something to bring to the table, essential viewpoints and skills for competitive firms. Each needs to understand the customer so that they can set the macro structure in place, so that trade-offs do not compromise what the product is planned to offer, so that the product is not brought to a market that expects another. Pragmatic innovators solve this dilemma by understanding the customer through extensive research, setting decision priorities based on that understanding, and maintaining that priority throughout the product development process.

To consider why integrated decisions are needed in practice, consider one experience of an automobile firm as it was in the midst of a grille redesign. Grilles are one feature of a vehicle that makes a statement about the vehicle's personality. In people's minds, this translates to the ability for those who drive the vehicle to make a statement about who they are, or at least who they want to be. Grilles can be large and bold, with strong, thick, vertical lines, as with a Hummer; they can be refined and simple, with horizontal stripes, as with a Cadillac; or they can be subtle and nondescript, as found in many Pontiacs. Hummer, Cadillac, and Pontiac are all brands of GM, but each makes a unique brand and aesthetic statement, partially through various grille designs. The Buick brand, for example, has a unique grille only when it has an oval base with a small bump in the middle on top. Remove that bump, and the grille looks a lot like a Ford oval. The grille is a critical aesthetic feature that defines a vehicle's brand identity and personality. In the case of Jimmie Spear that began this chapter, one of the biggest factors in the impression of the strength of a pickup truck is the grille. The Avalanche, Titan, and F-150 all suggest a different personality partly because of their grilles.

In the production of vehicles, every year car companies modify vehicle features or aesthetic ornamentation to freshen up the look. About every seven years a major redesign, possibly down to the level of the platform itself, is taken on. The fixed investment for tooling of the vehicles is so expensive that large portions have to be reused each year to pay back those costs, until the major redesign occurs. Even in those major redesign years, there is usually some level of carryover; in other words, some of the parts are reused—“carried over” from the previous design.

We observed the redesign process of a vehicle during the overhaul year at one auto company. The grille became an issue of note. To save costs, the grille was originally slated as a carryover part, one that was used on the previous model vehicle. It looked great there, so why not use it again? Although this company was effective at producing successful vehicles, there was a lapse in focus on and shared understanding of the customer. The finance groups drove the decision-making process for the vehicle's early direction. The vehicle sold well, but the economy was shifting, so excess spending was carefully watched. The initial program description called for the carryover grille.

Over time, however, the design studio argued that the grille needed to be redesigned to support the vehicle's new emerging image and style. They argued for a significant increase in budget and time to incorporate that change. At the same time, engineering, with a lack of understanding of the integrity of aesthetic features, argued to keep the carryover part to meet the cost and timing targets given to them by finance. This stemmed from a finance group that refused to allocate resources to modify that part. The studio eventually won the argument, and the grille was redesigned. If the project management team had better done their homework on the customer upfront, they would have included the voice of the studio before the program description was set. Their priorities would have been different. Instead, the program was delayed and the cost target missed because of this design conflict. The company was pragmatic enough to recognize its error before it was too late. The production vehicle not only has a unique and strong brand identity, with a bold grille at its forefront, but the vehicle has been a major success in the marketplace.

To understand why so many companies default to a commodity mentality in decision making, which was really the problem in the grille conflict, consider again the vast number of decisions that have to be made throughout the process. There are many variables in the product being designed. A car has upward of 20,000 parts. Each part has several features that must be identified, modeled, and designed through variables. Many of these variables are interconnected in that deciding the solution to one affects the solution of others; the variables are constrained to influence each other. Physical, aesthetic, legal, and financial constraints limit the realization of the variables. It is understandable that technologists focus on those variables that they can understand and model, and the same goes for finance and even design. It takes effort and insight to work as a team in communicating and negotiating solutions for all of these variables.

The interconnectedness of the variables is often quite tight. A slight change in one variable may profoundly affect how other variables are chosen as the process proceeds. That is the effect of chaos, which is so often squashed too soon. If the team at the auto company decided to carry over the grille, the influence on the car's aesthetic is much different than if the grille is redesigned. The same is true about the features of the grille as it is redesigned. If it is bold, the vehicle takes a bold stand, and all the other aesthetic details must align with its look and feel.

To not have costs end up as the ultimate arbiter of decisions, it is important to account for the perspectives of the different functional areas that relate to the product, to rely on a research and development process that integrates the viewpoints of performance engineers, industrial or studio designers, marketers, finance, manufacturing, technology development, and customer research. All this input is needed because variables are understood by and often controlled by each of these disciplines. These perspectives blend together for decision making to achieve a solution that maximizes the potential for each within the context of the others. Within the structured research and design process that crosses functions, the at-times chaotic countless daily decisions about variables can be effectively managed. To use the drinking-from-a-fire-hose analogy, the cross-functional product design process is the hose that can be pointed in various strategic directions, while the day-to-day decisions are allowed to pour through, uncontrolled at first.

Finally, a certain amount of chaos exists and has to occur in the system. If you allow it to flourish early, if it is channeled well, it becomes a benefit, because it allows greater exploration in the early process. Rather than getting bogged down in analyzing every last decision early, let the customer insight lead you to your next decision point; let the process guide you.