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The following is a guest post by Juan Pablo Vázquez Sampere. 

"Your innovation strategy is great, kid, but is it going to give me growth in the next quarter?” Chances are your CEO has responded this way to your innovation initiatives. Here’s a way to answer this question affirmatively. As Scott Anthony points out in his new book The Silver Lining, low-end disruption can bring growth.

Our research in Europe has shown that a strategic cost-reduction initiative coupled with a low-end disruption helps meet two corporate goals with just of initiative. Low-end disruption and cost reduction are two sides of the same coin. They are two extremes of the same continuum, just as the same enzyme is used in the body to balance two biological processes.

When it comes to cost reduction, European managers try to apply one of these alternatives:

1. Rank the Income Statement cost and expenses account by size and determine a percentage of reduction for each.
2. Negotiate a layoff with the government (a step that would be unnecessary in the United States).
3. Kill the product features managers think the customer won’t notice.

Instead of relying so much on your gut, we propose this methodology to deliver a high-growth product along with a significant cost reduction.

• Step 1: Understand that company insiders can almost never truly understand what features the customer actually values. The reason is that companies analyze the market in from the point of view of the way they make money. They never see the actual shape of the market. It is next to impossible for a company to understand the job its customers are hiring it for, let alone try to improve its products based on that job. This is a well-proven reason to seek outside help in understanding the rugged landscape of customer jobs your company is making money from.
   
• Step 2: Create a Base of Competition/Product Matrix: Pick one of your products and create a spreadsheet for it. Insert a column for each and every one of its features. Also, insert five rows in the matrix with the following entries: “Functionality 1”, “Reliability 1”, “Convenience 1”, “Adaptation 1”, “Personalization 1”.
   
• Step 3: For each row, classify the features listed in each column as follows: If the feature listed describes a Functionality, then insert a mark in that row. Then create an additional row beneath “Functionality 1” with the name “Functionality 2”. Continue doing this with the rest of features and bases of competition until you have them all assigned.
   
• Step 4: Prepare a mini-survey with the content of the matrix. Interview no more than 25 customers. Using customer-friendly terms, ask them, essentially, “by what percentage is this feature overserved?” Tell them that if they answer 100 it will mean the feature is just good enough. If they answer less than 100 that will mean the feature is underserved, and if they answer more than 100 it will mean they are overserved. The amount over or under 100 will be the percentage by which customers are over- or under-served. Please don’t make this survey statistically significant — the sample very small deliberately, so the sample error can prevent you from reducing reinvestment in features that might still be slightly underserved.
   
• Step 5: Calculate the mean of the percentages from all rows exceeding 100 that refer to a functionality or a reliability. Then subtract to that mean 100. Now subtract the mean from all the percentages. Convert to a dollar amount using your current cost-allocation budget. Chances are this is a significant cost reduction.
   
• Step 6: The number in dollars you calculated from the previous step is your total cost reduction. Decide how much of that you want to keep, and use the rest to launch a low-end Disruption.
   
• Step 7: You have now a great starting point to launch a low-end disruption. Just pick the matrix of the product you just prepared and reinvest the desired amount of money in the rows that contain the words “convenience”, “adaptation” or “personalization.”

The next time your CEO asks you how to use innovation to deliver short-term growth, show your new low-end disruptive product concept and explain the rationale used. Our experience in Europe with this has been very positive. Results obtained with this methodology are usually counterintuitive for senior managers, and they normally consider that refreshing. We have used this methodology several times now during the current economic crisis and still haven’t found a CEO unwilling to give it a try.

In times of crisis, the objectives of cost reduction, growth for the next quarter, and making a successful, more convenient, and affordable product are not inversely related. They are actually regulated through the same enzyme — your company’s values. You can’t change them, and values are put to the test in times of crisis. If you can build a solid argument to launch a simplified, more personalized product to a customer who is now much less willing to pay, you will create a precedent that will prove really helpful for your company’s future strategic positioning.

Juan Pablo Vázquez Sampere is a partner at Stratemic and an Associate Professor at IE Business School in Madrid, Spain.  

RFID, SAP data center, dedicated Verizon network, Windows CE with touch screen interface…for flavored water? The cola wars have come a long way from blind taste tests in the local shopping center!

With the limited release this summer of the new Coca-Cola Freestyle machines (pictured at left), Coke is essentially introducing a new business model into the fountain drink industry, one that with serious disruptive potential. The system is about the size of a small Coke machine you would see on the street but features a large touch screen interface and single dispensing position. The consumer simply navigates through 100 varieties of beverages and then the machine uses micro-doses of flavor from canisters stored inside to precisely mix up the selection. Profiled in this recent InformationWeek article, the Freestyle is a consumer and customer service tool, a network node, an inventory and supply chain manager, quality control, and business intelligence agent all in one. The integration of these various functions and their associated data streams offers Coke the rare opportunity to improve their performance on the sustaining curve while simultaneously introducing a disruptive play into the market (for more on these curves, see The Disruptive Innovation Primer).

On the sustaining front, Coke is offering its consumers a wider array of drink choices at the point of consumption. They hope this greater array of choices will delight many consumers who leave the fountain disappointed that their preferred beverage was not offered. They also hope the increased number of options will capture a significant portion of the non-consuming market who have traditionally selected water or no beverage at all as the options traditionally available at the fountain were not to their liking. Both of these are significant competitive advantages that will move Coke further up the sustaining curve. However, increasing the number of flavors alone will not yield transformative growth.

The real disruptive potential here lies in the data, not the drinks. By mixing flavors on site in the machine and capturing purchase behavior real time, Coke is better able to test new offerings and immediately respond to market insights around existing and emerging consumption patterns at a hyper-local level. Each point of purchase becomes a kiosk through which Coke can interact with its consumers and test their reactions to new formulas and new messaging. It is no longer dependent on limited and lagging sell through data from its restaurant customers, rather, it can decide which beverages to present to the consumers based on time of day and recent consumption patterns. Much like Zara has done in the apparel industry, Coke is virtually eliminating the time lag between trend identification and capitalization.

Coke also made sure to address the “jobs” of their channel partners, namely the restaurants selling the beverages. By opening up the data to these outlets, Coke is expecting them to play an active and informed role in increasing beverage revenues while the RFID-controlled, networked inventory and supply chain control system promises to address long-standing frustrations.

As the benefits of this smart system are realized, we expect to see other restaurant chains shifting from competing fountain suppliers to Coke. 

After returning from a recent trip to Tokyo, friends were eager to hear about any culinary adventures I might have had. “Did you eat a lot of sushi?” They wanted to know. “Well, some,” I’d respond, “Mostly from 7-Eleven.”

That response tended to make people pause. The thing is, Japanese convenience stores (“combini”) are pretty fantastic. Although they are recognizably similar to their American counterparts, with snacks, drinks, and toiletries, there is a critical difference in the high-level job-to-be-done that the stores address.

In the United States, convenience stores seem to see themselves as solving a fundamental job-to-be-done like “Provide access to a mini-grocery store when the real grocery store is far away.” Under this rubric, convenience stores offer products like chips, tuna, and milk.

The overarching meta-job of a combini, however, is more like “Make inconvenient tasks more convenient.”  Under this theme, combinis sell delicious and cheap ready-to-go bento meals and mini-meals. They’re also the place to go to pay utility bills, buy concert tickets, or drop off luggage to be taken to the airport.

This strategy has proved extremely successful. 7-Eleven is actually Japan’s No. 1 food retailer and most profitable retailer overall, and the Japanese branch now owns its American parent.

A lesson here is that even companies that appear superficially similar to each other may be aimed at fundamentally different jobs targets, which dictate the strategic choices they make. The “make the inconvenient convenient” job has a lot of headroom to grow; plenty of things in life are inconvenient. This meta-job provides a platform for all manner of profitable offerings that would seem out of place in an American convenience store. 

On the other hand, the American meta-job of providing small grocery stores has pigeonholed the industry in a modern environment where access barriers to larger grocery stores are fairly low. Hopefully, American convenience store retailers can learn the lessons from their Japanese equivalents quickly — I could really go for some yakisoba.

About two months ago, a colleague convinced me to sign up for Verified Identity Pass' Clear service. I dutifully filled in the forms, had the company capture my fingerprints and take pictures of my iris, forked over a couple hundred bucks, and received my Clear pass in the mail.

I wouldn't quite say the Clear card changed my life, but the next couple months of travel (at airports that had special Clear lines) were a breeze. I made at least one flight because of Clear. I started recommending the service to my colleagues.

Then, last week, a sad email arrived in my inbox:

"At 11:00 p.m. PST today, Clear will cease operations. Clear's parent company, Verified Identity Pass, Inc. has been unable to negotiate an agreement with its senior creditor to continue operations."

I'm honestly not all that surprised at this outcome. Clear was a beautiful technological solution. The machines worked reliably, processing my fingerprints almost instantaneously. The service delivered on its value proposition.

But I couldn't help but notice how Clear employees always outnumbered Clear customers in my visits to Boston, New York, Washington, D.C., and Cincinnati.

While I have no inside knowledge about Verified's operations, I'm willing to wager that the company fell into two traps that make it hard for innovators to build new growth businesses.

Read the rest at Scott's Havard Management blog, Innovation Insights.

• Retailers Cut Back on Variety, Once the Spice of Marketing by Ilan Brat, Ellen Byron and Ann Zimmerman | WSJ.com

  Will this affect the increased pace of incremental innovation in consumer packaged goods? "In the next year or so, these and a few of the other largest retailers are expected to slice the assortment of products in their stores by at least 15%, industry executives and analysts say. This is a challenge for manufacturers, who have grown accustomed to churning out incremental variations on popular products to maintain shelf space and keep their brands fresh in consumers' minds."

• IBM Aims for a Battery Breakthrough by Steve Hamm | BusinessWeek

  Article points out the GE, among others, is also making a play in batteries. "Industry leaders have called for just this kind of concerted effort amid concern that the U.S. will miss out on one of the most important technology shifts in history—the switch from gasoline to electricity as the primary power source for light vehicles. The worry is that the U.S. will trade its current dependency on the Middle East for oil with a new dependency on Asia for vehicle batteries. 'We lost control of battery technology in the 1970s,' laments Andy Grove, former chairman of chip giant Intel. 'Battery technology will define the future, and if we don't act quickly it will go to China and Japan.' "

• The 99-Cent iPhone App That Kills Print Journalism by Ray Richmond | The Wrap

  I have it. And it's good enough that it's hard to imagine how a publication could sell online access if it was also available via this iPhone app. Media disruption continues.

• MediaBugs Rethinks Corrections by Taking a Page from Programmers by Zachary M. Seward | Nieman Journalism Lab

  In a move borrowed from open source programming, startup MediaBugs purports to offer an improved, centralized method for media corrections. "Improved" partly because many media sites have no well-defined path for users to point out corrections, nor prominent place to publish corrections for readers to see.