Executives are under constant pressure to boost revenue and increase profitability. In the abstract, that’s fairly straightforward. When you stop and think about what you actually need to do to have a meaningful impact, however, the details can quickly become mind-blowing. Take, for example, a company with $20 billion in annual revenue, which is below the mean revenue for a Fortune 500 company. For that company to achieve 5% organic growth, it would need to bring in $1 billion in new revenue each year. That’s the equivalent of creating a fairly sizable new company.
For companies of all sizes, the demands to improve performance often rise above finding some small opportunities for cost savings or launching a moderately successful new product. With customers getting more demanding, competitors popping up more quickly, and pressures on resources growing steadily, sometimes the only solution is to change the game.
Becoming a game changer
Being an industry game changer doesn’t mean having the most cutting-edge technology or the fastest-moving teams. Rather, research has shown that the most successful innovators often employ at least one of the three tried-and-true innovation methods that I discuss below.
Jobs to be Done (JTBD). The first key to disrupting an industry is to relentlessly focus on what your customers need. And while that may sound trite by now, only 9% of new product ideas actually address a clear customer struggle. Instead, companies often focus on one-upping their competitors’ feature sets, relying on what customers say they need (rather than exploring unarticulated needs), and attempting to emulate companies that have been successful in the past. Don’t get me wrong – maybe there’s value in being the Uber of whatever your product category is. But only if that on-demand model responds to an under-satisfied job that the customer is trying to get done.
That’s where JTBD comes in. The Jobs to be Done model looks at eight distinct factors that represent how consumers – in both the B2C and B2B spaces – make decisions about what to buy. As I alluded to above, one key is to ensure that your offering responds to an important job that consumers are struggling to get done to their satisfaction today. But that’s just the tip of the iceberg. While that focus on a job – or in some contexts, multiple jobs – should be a guiding light for your innovation efforts, it’s also important to look at the rest of the Jobs to be Done framework. You’ll need to understand how customers define that a job is being satisfied, what obstacles could stand in the way of them buying or using your offering, and why they view the competitive set as being broader than your traditional view of the competition. With a holistic understanding of how consumers think, you can design solutions whose value is immediately obvious in the market.
Costovation. Another key challenge with innovation is that things can get very expensive very quickly. Depending on your industry, you could be moving dozens, hundreds, or even thousands of ideas into your innovation funnel to find the next commercial success. While you hopefully have safeguards in place to ensure that the investment in most ideas is minimal until there’s proof of a viable idea, the costs can still mount quickly. Moreover, even those concepts that get commercialized successfully often overshoot customer needs and end up being more costly than they need to be. As I described the concepts of Jobs to be Done and Costovation at a research conference a couple weeks ago, an executive at one of the world’s leading tech companies confessed to me that “we are the worst offenders at over-engineering the product but still not satisfying the job.” It’s a struggle that permeates organizations of all sizes and industries.
Costovation is a concept that builds off Jobs to be Done. The fundamental premise is that you design your offerings – and the processes that support them – to focus only on the jobs that are most important to your target customers. The rest is just cost and complexity. By focusing on things that don’t really matter to the customer, you end up investing substantial resources in features or services that generate no additional return. Moreover, they often cloud your messaging, making it hard for consumers to recognize the value you are offering. Cost-cutting may not be the most exciting part of innovation, but the returns can be enormous. This cheat sheet looks at 20 strategies for reducing costs while still exceeding what consumers are looking for.
Business Model Innovation. The final key to keep in mind as you explore ways to make a big impact on your industry is that innovation is about much more than just the product. One of my colleagues worked on some research to examine over 5,000 innovations over a 15-year time period to determine what makes an innovation successful. A small but important finding is that successful innovation is hard. In that study, the aggregate success rate – where innovations returned their cost of capital – was only 4.5%. The game changers were key; 2% of the innovations explored delivered 90% of the value of all of the innovations studied.
So what was different about those 2%? Rather than just innovating the product, the most successful innovations leverage 6 or more different types of innovation, including efforts related to the offering (the product), the configuration (the system for turning the product into a business), and the experience (the customer’s journey of discovery, purchase, and use). And while it’s important to innovate across multiple domains, the biggest opportunities are generally anchored around the profit model and the customer engagement bucket. Companies that focus there can truly change the game.
All of the research shows that innovation is hard. No matter the metric, the vast majority of innovation efforts do not end in success. But the vast majority of innovation efforts are also done poorly. They don’t focus on the jobs customers are trying to get done, they end up increasing cost and complexity faster than they increase value, and they focus heavily on the product at the expense of other more valuable opportunities to innovate. The companies that avoid these common pitfalls have a much higher success rate when it comes to innovation.
Dave Farber is a strategy and innovation consultant at New Markets Advisors. He helps companies understand customer needs, build innovation capabilities, and develop plans for growth. He is a co-author of the award-winning book Jobs to be Done: A Roadmap for Customer-Centered Innovation.