INNOBLOG

Look around your office. How many of your colleagues are sitting at a desk with a telephone? Why on earth are they still doing that?

The last stage in the development of a business model, our CEO Mark Johnson writes in his recent book Seizing the White Space, is the evolution of a company’s business rules, success metrics, and behavioral norms, which, he says, “connect the elements of a business model and keep the system in proper balance.” In many industries, a company’s rules (“employees must wear the company polo w/ black slacks during working hours”) and metrics (“employees shall be compensated at 20% commission for all sales beyond $x-amount”) are fairly easy to identify and articulate.

Norms, on the other hand, are far more implicit, and often executives and employees do not recognize the impact they have on the business. Explicitly examining the norms that a company currently takes for granted can unlock the full potential of business model innovation.

Understanding where norms come from helps to clarify what they are. For every key process in a business model, there are a number of sub-processes. For example, the key process “hiring and training” can be subdivided into “resume screening,” “interviewing,” “extending an offer,” etc. At some sub-level, defining a process becomes pedantic and useless. At this level, the process can be approached in many different ways, though over time patterns of behavior emerge as ingrained actions that simply become “the way things are done.”

Anyone who has been “the new guy” at a company can attest to the rate at which norms are spread by word of mouth. Examining them is important because while all employees work through processes in some way, often this is not the optimal way. Suboptimal norms (relative to the purpose of the business model) often arise as behaviors that compensate for immediate constraints in either resources or knowledge.

A good example of this is the general layout of office workers (think of the TV-series The Office): Until the late 1990s, a common white-collar norm was to work at a desk using the office landline phone and a desktop computer, all day, every day. The lack of mobile phones and portable laptops made any other arrangement difficult, even though being stationed in a single location was often not ideal for either productivity or job satisfaction. Slowly, more liberating working norms have emerged at many companies, as resources like online communication, wireless handheld devices, and Bluetooth headsets allow for greater flexibility and more efficient freedom of movement. And yet, look around your office. How many landlines do you see on people’s desks? Is the message they send to employees in line with the purpose of your business?

Norms like these, which are rooted not just in a company’s business model but more broadly in the culture of the wider industry or society, are especially hard to identify and manage. But for the insightful manager, the good news is that many constraints to optimizing norms (resources and knowledge, to say nothing of rules and metrics) are highly fungible. Jaguar’s recent IT switch from Microsoft Outlook to Google Apps is a case in point. Not only has this shift saved the company millions of dollars, but it holds the potential to engender a new and powerful set of employee norms, as over 14,500 staff worldwide begin to work with Google Docs, Gmail, and other cloud-based live-document programs.

Wired editor Chris Anderson, ever the eloquent early adopter, probably describes that potential most vividly here in his book Free:

I’m typing these words on a $250 “netbook” computer, which is the fastest growing new category of laptop. The operating system happens to be a version of free Linux, although it doesn’t matter since I don’t run any programs but the free Firefox Web browser. I’m not using Microsoft Word, but rather free Google Docs, which has the advantage of making my drafts available to me wherever I am, and I don’t have to worry about backing them up since Google takes care of that for me. Everything else I do on this computer is free, from my email to my Twitter feeds. Even the wireless access is free, thanks to the coffee shop I’m sitting in.

Not all business models will call for Anderson’s working norms (using unsecured wireless networks may not be a good idea for financial services folks, for instance), but an important (and actionable!) part of optimizing norms for your business model is to consistently remove resource constraints, as well as educate your people on the best use of available resources.
 

What if you made a product and it was perfect? It fulfilled your customers’ desires completely, and they wanted (and were willing to pay for) nothing more? What would happen when you “improved” it?

Sometimes, you find out -- as Coca-Cola did with New Coke -- right away.

But far more often, companies overshooting their customers’ needs and desires never know, I think. As they move on to their new and improved futures, these innovators don’t hear the resigned sighs of customers quietly grieving their abandoned products and services.

After all, what business ever asks its customers, “What did I used to make that you wish you still had?”

But a quick, if unscientific, poll around the office (hardly a random sample but one whose respondents ranged over three decades in age) turned up not only a surprising number of grieved products but an even more surprising amount of shared passion. Cries of shared exasperation went up from the rest of us as people recalled products they had loved and lost, all of which had been “improved” upon or diversified in some way that made them undesirable, driving us to their competitors.

To give you just a taste:
1. The standard Pantene shampoo that has been my coiffuring staple for years was recently divided into a matrix of 21 different shampoos, providing P&G with much more shelf-space coverage at CVS but leading me to select a competing brand after being overwhelmed by the new selection -- and underwhelmed by the new performance.
2. And that six-dollar, plain moisturizer I bought for years? Gone! Replaced by a slew of $50 moisturizers that tout facelift-like properties that I’m not about to pay for.
3. What about those Gap jeans that used to be 100% reliable but have been diversified into a myriad of fit options when we just want the classic look that we used to enjoy? “So sad,” says one Innosighter, speaking for many more.
4. We miss that Nike running shoe that now has too many features to feel natural or affordable,
5. the Wilson NPro nSurge tennis racquet, which lost us as customers when it added “[K] factor” technology,
6. and the original Jeep Cherokee, which cannot be replaced by the smaller Liberty or the crossover Subaru Outback.
7. We hoard the last remaining tidbits of Aveda’s Rosemary Mint shaving lotion, Earth perfume, and Estee Lauder concealer -- saving them for weddings and other special occasions.

Collectively, we mourn.

So, are we just anomalies? Do we each represent an unsustainably small market in our preferences? Perhaps. Though we were all surprised at how many of us were pining after the same lost products. As our colleague Allen put it, “Their small product innovations have innovated the classic [product] out of my life. Why did they have to ruin a good thing?”

Let me be clear here. I’m not suggesting that companies stop improving core offerings. We advise our clients that product improvement (that is, incremental, sustaining development) should comprise a critical, dominant part of any company’s innovation portfolio – complemented by disruptive efforts, focused on planting the seeds for long-term growth. Keeping those two separate is the trick, and sometimes for reasons that are not at all obvious.

For instance, Innosight Venture’s Managing Director Scott Anthony often tells clients to be wary of something he calls “Penrosian Slack,” – that is, slack capacity on innovation teams. In her (very dense) book The Theory of the Growth of the Firm, Edith Penrose argued that you could tell a company’s future strategy by looking at its slack capacity, because the slack capacity always gets filled. So an idle manufacturing line starts running, a salesperson with time on her hand starts making sales calls, and so on. The company’s strategy gets pulled off track by the activities that fill the slack capacity. Perhaps we sometimes further develop products that already optimally meet consumer needs simply because we have product development teams that need to be productive.

Customers are often happier with the simpler, cheaper version and won’t pay more for a more sophisticated, heavily featured offering. Jobs-based customer research can reveal what your customers are and are not willing to trade off; sometimes, the best move is none at all.

Our poll suggests that recognizing a good thing when you’ve got it is devilishly hard. What successful products have been innovated out of your life?

Human physiology functions rhythmically. Our heart beats in regular intervals, our brain operates in waves, we breathe regularly, and we follow patterns of sleeping and activity, feasting and fasting.

I recently listened to an HBR interview with Tony Schwartz (CEO of The Energy Project) in which he argues for a conscious approach to aligning work patterns with our “ultradian rhythms” (basically, the 90-minute energy cycles that comprise the 24-hour circadian rhythm). The idea is to work for intense 90-minute intervals, followed by a brief period of renewal and recovery, followed by work, and so on. This approach should maximize our productivity, Schwartz says, because it’s in line with our bodies’ natural rhythm of energy expenditure and renewal.

For me his findings raise the question of how else we might apply the power of rhythm, and they lead to what at first glance might be a surprising analogy from a much older body of research: Herman Melville’s Moby Dick. Most people remember this (if they remember it at all) as the story of Captain Ahab and his unnatural obsession with the great sperm whale, but it’s also a trove of information about the natural behavior of whales themselves. Sperm whales, too, follow an ultradian rhythm, as Melville describes in careful detail:

[The whale] systematically lives, by intervals, his full hour and more (when at the bottom) without drawing a single breath . . . Upon rising to the surface, the Sperm Whale will continue there for a period of time exactly uniform with all his other unmolested risings. Say he stays eleven minutes, and jets seventy times, that is, respires seventy breaths; then whenever he rises again, he will be sure to have his seventy breaths over again, to a minute.

I find this imagery of depth useful in thinking about ultradian rhythms as they relate not just to productivity but to learning, and specifically how they apply to jobs-to-be-done research. To be effective, the process of gathering, understanding, retaining, and applying the new information that leads to actionable customer insights needs to follow a similar pattern: First the “deep dive” into the complexity of people’s behavior, their circumstances, and their motivations, but then a rising at regular intervals to step back, synthesize, and simplify our new-found knowledge from the deep. If we spend too long in the deep we risk drowning in the chaos, without establishing context or relevance, in great stress and confusion. But if we spend too long at the surface we risk becoming simplistic and, again, irrelevant. Out of that carefully balanced process come effective formulations of discreet stakeholder jobs that are simple without being simplistic.  

Like many of my friends, I fancy myself an amateur interior designer. But, aside from spontaneously rearranging the furniture and accessories in my home and decorating my sister’s first apartment (including pulling together design boards for our “design consultation”), nothing formal has come of our efforts.

Not so for friends Andrea, Casey, and Ashley who, in 2009, pooled their collective design experiences and opened luxury interior design firm Avenue Interior Design. I’ll be honest, I don’t know much about Avenue but I’m willing to bet that, like most companies that operate at the premium price tier of their industries, their business was a bit slow due to the Great Recession. But, unlike most premium companies, these intrepid designers did something different. They did something disruptive. They created I Heart Design.

I Heart Design is an online interior design website that offers consumers the expertise of trained designers and the benefit of custom designs for a fraction of the cost and time.  Here’s how it works: 

1. Pick your design style from nine options (everything from Wall Street to Rue Claudel to Surfside Ave)
2. Answer questions about the room you want to make over and upload its measurements and some photos along with any specific instructions (for example, “My husband loves this photo of the soaring eagle. I hate it but it needs to be in the room. Can we hide it somehow?”)
3. (NOTE: this is the disruptive genius part) Review your estimate which is based on the square footage of the room
4. Relax
5. In three weeks, you receive a box with two floor plans, recommended paint colors and window treatments, decorating tools (tape measure, tape, etc), and the password to your private interior design store
6. Visit your design store to buy as much or as little of the furniture and accessories from your design

That’s it! No time-consuming appointments. No wasted effort trying to tell the difference (let alone choose) between eggshell white and cumulus cloud white. No judgmental stares when you flip out about the price tag on the purple shag sofa that the designer insists you simply must have.  No paying the equivalent of a month’s rent to decorate a room the size of a closet.   Just a few minutes answering an online questionnaire and taking some photos and measurements gets you two personalized designs and your own virtual store, all for a price that is (literally) proportionate to your room size.

I Heart Design is a perfect example of how “good enough” can be great and how an existing company can use their understanding of consumers’ jobs-to-be-done and a new business model to attract nonconsumers and build an entirely new revenue stream.

I heart disruptive innovation and that’s one of the reasons I heart I Heart Design.

 

One of my favorite Harvard Business Review articles from last year was "The Innovator's DNA." The article by Innosight founder Clayton Christensen (yes, I'm biased), BYU Professor Jeffrey Dyer, and INSEAD Professor Hal Gregersen describes the critical characteristics of successful innovators, and presents practical tips for business leaders looking to strengthen their innovation muscles. And I have begun to see the Innovator's DNA tools and research helping companies improve their ability to successfully innovate.

One of the pieces of guidance that the professors offer is to "consciously complicate" your life by engaging in experiments. As the article notes:

"Like scientists, innovative entrepreneurs actively try out new ideas by creating prototypes and launching pilots ... The world is their laboratory ... Experimenters construct interactive experiences and try to provoke unorthodox responses to see what insights emerge."

That sounds daunting. But it doesn't have to be.

For the past decade or so, I've had a very defined morning routine. After I get out of bed, I have a cup of coffee. The gap between alarm and caffeine rarely stretches much beyond 10 minutes.

Then, one random week, I was in a circumstance where having coffee first thing in the morning just wasn't possible. To my surprise, I actually found myself functioning better in the morning when there was a longer gap between waking up and having coffee.

It could have been a random occurrence tied to the specifics of the circumstance, so I decided to experiment. One day I'd wake up, work for a bit, have breakfast, then shower. The next day I would wake up, immediately have a shower, have breakfast, and work. These weren't perfectly controlled experiments, but I did notice a consistent pattern. I felt less tired when I didn't have coffee immediately after waking up.

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

Near the end of December, I created a survey with a single question: "Which companies do you think have done the best job of driving growth through disruption — transforming what exists or creating what doesn't through simplicity, convenience, affordability or accessibility — between 2000-2009?"

More than 3,000 individuals nominated close to 300 different organizations or individuals (a few may have been less serious, such as the three nominating my mother).

I sifted through the nominations, and identified the most frequent nominations in three categories: established high-technology companies, established non technology companies, and emerging companies (at least as of 2000). I then turned to a handful of disruptive experts to get their perspectives. Without further ado, the results:

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

There’s a popular adage that “imitation is the sincerest of flattery.” Well, it amazes me how often I hear “it’s like Netflix for…” as a new company is being touted as innovative because it has borrowed (what it thinks is) the Netflix model. Generally speaking, it’s a great idea to consider borrowing a successful business model from one industry to apply to another, but there needs to be thoughtful consideration as to what the core of that business model is, so that it is not misapplied.

The Netflix model is a great example of business model innovation, which disrupted the entire movie rental market by providing customers with convenient, inexpensive entertainment. The model has resulted in numerous imitators, renting children’s toys, audio books, dresses, magazines, and beyond.

One of the big risks that many “it’s like Netflix for…” companies take is that they have borrowed some of the processes (e.g. creating rental queues online and home delivery of products) without thinking of the business model as a whole. The success of the business model depends on the integration of the customer value proposition (CVP), profit formula, and key resources and processes (see the Four-Box Business Model Framework). At the heart of the Netflix model is the customer value proposition: convenience and cost savings. Careful consideration should be given to what the benefit to the customer really is, in terms of what important and unsatisfied jobs are being addressed. For instance, if not convenience or cost-saving, is the value in time-saving or variety?

A big red flag that a model is being misapplied is if there is a weak customer value proposition, because the tradeoffs for the target customer are too high. Think for a moment about something that you own that you would hate to rent, or about something that you would want to select in store, not select over the Internet. Chances are the things that first come to mind are likely not a good fit for the Netflix model. When it comes to borrowing business models, it simply is not enough to think that because it worked in one industry it will work in another.

Could these interpretations of the Netflix model work for some of these companies? Sure. It’s too early to say whether these businesses will individually or collectively succeed, but here are a few questions that entrepreneurs looking to borrow a business model should think about:

1. Is whatever you are borrowing going to help fulfill your target customer’s important and unsatisfied jobs-to-be-done?
2. Will this model be unique to your industry? If not, are you at risk for becoming just another “me-too”?
3. What are you really competing against? Will your would-be-customers be willing to accept the tradeoffs your model presents?

If done properly, drawing from business model analogies in different industries can be a way to spur business model innovation. Consider which aspects of a business model you are borrowing and whether those fit with your vision and the customers for whom you are trying to create value.

 

On October 14, Walmart sent shivers down some spines and a bolt of excitement up others when it announced plans to offer nationwide cellphone and mobile data service. Developed in cooperation with TracFone Wireless, the service (called Straight Talk) will offer two wireless plans, one providing unlimited voice, data, and texts at $45/month and another allowing 1,000 minutes, 1,000 texts, and 30MB of data at $30/month. Some quarters quickly labeled this development disruptive. But is it so?

For an offering to be disruptive, it has to provide superior performance along new dimensions (and, likely, worse performance along some existing dimensions) when compared with existing innovations. Disruptive innovations either create new markets by bringing novel features to nonconsumers or offer more convenience, better access, and lower prices to customers at the low end of an existing market. Let’s see if Straight Talk fits the bill.

At $30 and $45 a month, the service will send many smiling all the way to the bank. According to Nielsen Mobile Bill Panel Data, the average U.S. adult spends $78 per month for 1,000 minutes. The $30 Walmart plan would save that customer $576 per year and the $45 plan would save them $396. There is no doubt that the plans offer cell phone service at a substantially discounted price relative to existing mobile calling packages. Available exclusively at more than 3,200 Walmart stores, the service is accessible to many nationwide. Given that the service is offered without a contract, Straight Talk is certainly convenient for those tired of the conventional two-year agreement.

These elements seem to suggest that Walmart’s offering is disruptive. But the ultimate disruptive effect is contingent on a number of additional factors.

One of those is how incumbents will react to Straight Talk. Historically, many incumbents have, to their detriment, ignored offerings that cannibalize the low end of the market, instead opting to concentrate on the high-end where the margins are more attractive (think Sony PlayStation’s initial response to Nintendo’s Wii gaming console). One may assume that the incumbents in this case would be companies such as Verizon and AT&T, but the story is more complicated.

Here, it becomes prudent to mention that there’s some very interesting complexity behind Walmart’s offering. Through TracFone, Walmart is acting as a Mobile Virtual Network Operator, or an MVNO, which uses an existing carrier’s network instead of building its own – in this case, it’s Verizon’s. This isn’t a new strategy. In fact, many mobile companies failed because they struggled to nail down a winning MVNO strategy. For example, in spite of having pretty cool phones, Amp’d Mobile failed because its young, hip subscribers were massive credit risks who failed to pay their bills. XE Mobile also bit the dust after facing stiff competition from Virgin Mobile USA, which had the targeted college-going market firmly under its control.

That said, I think MVNOs that offer cheap plans with cheap phones can succeed. Specifically, a successful company would need to have a clear target customer, address key customer jobs-to-be-done through a compelling product/service offering, and develop a viable way to make money while doing so. One good example is Sprint’s own in-house brand, Boost Mobile. Launched in 2002, Boost Mobile has done relatively well by offering a wide range of quite slick handset options, dependable roaming capabilities and availability in more than 17,500 cities nationwide. Therefore, it would appear that unlike the previously unsuccessful MVNOs, Boost made some incredible headway in addressing the issues critical to success.

For these reasons, the disruptive potential of Walmart’s offering will continue to hinge on how the company works to address a number of issues: 

• JOBS to-be-done: some MVNOs struggled partly because they offered inferior handsets that failed to address the social and emotional jobs of crafting a hip identity for their customers (imagine a hefty 4.6 ounce, 1-inch thick flip phone fighting to win the hearts of consumers fiercely attached to the iPhone or the Blackberry). While Straight Talk seems to have addressed the “I don’t want to pay a lot for my wireless service” functional job through low prices, will it have a line-up of phones trendy enough to attract a huge customer base?
• Target customer: the current offering will largely attract those in the low-margin, low-end of the market – many likely plagued by high debts and high risks of default. Will it be the Amp'd story all over again? Will Walmart’s prepaid model help where Amp’d tried to go without a contract? What strategy does Walmart have to move up-market where margins are more attractive?
• Business model: unlike Boost Mobile, Straight Talk is dependent on another carrier for its network making it very vulnerable, just like many fallen MVNOs. How will Straight Talk create value for itself? Will its business model be unattractive to market leaders? How will its distribution channel fit into the model? Will market leaders such as Boost Mobile flee or will they fight?

The management at Straight Talk must flawlessly execute its strategy in dealing with these issues. Then, and only then, will Walmart’s powerful distribution channel prove to be a disruptive spoiler for many incumbents.

 

In a chat last week, Boston Red Sox General Manager Theo Epstein explained why he wasn't bothered by J.D. Drew's relatively low number of runs batted in (quotes from Joe Posnanski's blog):

"When you're putting together a winning team, that honestly doesn't matter. When you have a player who takes a ton of walks, who doesn't put the ball in play at an above average rate, and is a certain type of hitter, he's not going to drive in a lot of runs. Runs scored, you couldn't be more wrong. If you look at a rate basis, J.D. scores a ton of runs.

And the reason he scores a ton of runs is because he does the single most important thing you can do in baseball as an offensive player. And that's NOT MAKE OUTS ... Look at his runs scored on a rate basis with the Red Sox or throughout his career. It's outstanding.

You guys can talk about RBIs if you want ... we ignore them in the front office ... and I think we've built some pretty good offensive clubs."

Business managers can learn a lot from how baseball general managers build and manage their talent portfolio by drawing on the findings of baseball's Sabermetrics revolution. And the same is true for business managers trying to balance their innovation portfolios: how can they focus on the metrics that really matter?

According to the old-fashioned metrics, the run-batted in is a vital statistic. But smart general managers like Epstein recognize that the RBI is not a valuable measure of performance (it actually correlates with the on-base percentage of the hitters earlier in the lineup).

Innovation managers, too, need to look beyond "obvious" but potentially misleading statistics like first-year revenue, first-mover advantage, and leveraging core competency to hidden drivers of success, such as targeting non-consumption and minimizing first year losses.

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

 

There is something about travel writer and TV host Rick Steves’ earnest dorkiness that makes him endlessly endearing. His Europe through the Back Door travel philosophy mixed with cringe-inducing puns and awkward asides disguised as humor are the reason his guidebooks are my go-to source for planning and enjoying trips to Europe. 

Recently, he added podcast tours of various sites in Rome, Florence, and Venice to his product line, and the chance to have Rick in my pocket was enough to motivate me to buy a new iPod hours before leaving for a 2-week trip through Italy.

As my husband and I sat in the Sistine Chapel, staring up at the ceiling and gladly accepting the neck cramps that are inevitable when listening to a 45-minute “tour” of Michelangelo’s work, I couldn’t help but think about all of the products and services I was in the midst of disrupting:

• Organized tours – I was saving money (the podcasts are free), free to move at my own speed, and never had to jockey for position to hear my tour guide. I was giving up the opportunity to ask questions, but 45 minutes on any topic is usually enough to satisfy my curiosity and, if I want to know more about something, I can always look it up.
• “Free” tours – It’s not uncommon for “tour guides” (college students, professors, locals) to linger outside of major tourist sites and offer “free” tours (tips are expected at the end, but not required). These tours are usually quite good but have all the drawbacks of organized tours.
• Travel books – Again, the podcast saved me money – the iPod is a lot lighter than a book (this is very important when you spend 12 hours walking around a city), and I didn’t have to worry about bumping into people, falling down steps, or getting pick-pocketed because I had my nose in a book.

I basked in the joys of this disruptive solution – good enough on information, delightful on price – for several days. Until we went to the Roman Forum. That’s when the Disrupted (i.e. a “free” tour guide) struck back.

As we were navigating our way from the Temple of Remus to the site where Julius Caesar was assassinated, we were confronted by a woman. “On a leash!” she screamed at us, “I never saw anyone wander around with earphones in until 2009!! I have lived in Rome for 30 years and I don’t understand why people would want to visit and be on a leash!!!”

History suggests that those being disrupted are usually unhappy with their plight, but this was the first time I’ve had a face-to-face confrontation with one of the Disrupted. I wanted to explain the theory of Disruptive Innovation to her, teach her about gives-and-gets and “good enough,” and help her figure out how to join the Disruptors or even disrupt them.

But it was safer to back away slowly and mentally log another give-and-get: get a crazy tour guide screaming at you for 15 seconds, give up the risk of spending 90 minutes with her on a tour.

 

As the daughter of a clinical social worker and a social psychologist, I read with interest the findings of a recent study assessing the effectiveness of Internet-based psychotherapy. While the approach will likely overcome barriers for some patients, the potential impact on non-consumers seems limited.

The authors conducted a randomized trial of online, real-time cognitive-behavioral therapy in which each patient was assigned to a single therapist and communication took place via typed free text. At eight months, 42 percent of the intervention group had recovered from depression compared with 26 percent in the control group.

That online therapy can be effective is good news, as this approach can overcome barriers of convenience and access for the patient. Web-based counseling might also minimize the stigma of going to a public setting for mental health care and could cut down on a provider’s overhead costs. But a disruptive innovation? Not so fast. Unless online therapy is offered by a less-skilled provider at a lower cost, I’d wager that some current consumers of care will transition to this new channel but few non-consumers of therapy will be swayed to partake. My assumption is that cost and stigma are the biggest barriers to consumption, and that the largest portion of care costs derives from the compensation required by highly-educated providers. In the online model, these provider costs remain high. Additionally, the stigma of therapy that comes from simply participating in mental health care, regardless of the location, is not addressed by the online approach.

A truly disruptive offering might look more like the model employed by Cogito Health (full disclosure: the founder is a classmate and friend of mine … but that doesn’t make the business any less wicked cool). Using voice-recognition technology to identify and monitor the progress of people who could benefit from behavioral health support, the company improves diagnosis while cutting out the cost of a psychologist in screening people for depression. Lower-cost, decentralized care without the involvement of an expensive expert? Now we’re talkin’.

 

The other day one of my clients asked me a deceptively simple question: What is the best market research technique? It turned out to be a leading question, as he had in his hand an article from a recent article in Inc. that said, "Given limited resources ... it generally makes sense to go quantitative."

While of course quantitative surveys can generate important learning, it's dangerous to assume there is any single "best" market research technique.

Quantitative research certainly has its place. It is particularly useful when a company is trying to determine how it can steal share from existing competitors. In this circumstance, the company can define the market space and rattle off performance dimensions that might matter to customers without much difficulty.

Qualitative techniques can also help to identify non-obvious ways to delight current customers. Consider a story told by Procter & Gamble Chairman A.G. Lafley about his own learning while working on the Tide brand in the 1980s:

"Every year consumers would rate the Tide powder cardboard package as excellent; excellent to shop; excellent for opening; excellent in use — on, on, on. So, I'm in basements in Tennessee, in Kentucky, doing loads of laundry with women, and after three or four or five of these one-on-one sessions, I've realized that not a single woman has opened a box of Tide with her hands.

Why not? How do you open a box of detergent? Why don't you open the box of detergent with your hands? You'll break your fingernails! You're not going to subject those nails to a box of laundry detergent. So, how did they open the box? They had nail files; they had screw drivers; they had all kinds of things sitting down on the shelf over their washing machine, and they thought our package was excellent! And you know what? We thought our package was excellent because they were telling us our package was excellent."

Qualitative techniques become even more important when a company is hoping to grow an existing market or create a new one. Quantitative research into non-existent markets is fraught with difficulties. How can you describe performance dimensions the customer can't imagine? How can customers project usage of something they have never experienced? As the old saying goes, "Markets that don't exist can't be measured and analyzed."

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

A recent article in the Wall Street Journal caught my eye, as it described a shift away from hourly billing by law firms that seems an apt analogy for needed changes to healthcare pricing.

While past Innoblog posts have looked at innovations targeted at those overshot by the current legal services model, law firms’ high-end customers are also demanding fundamental changes. With the recession in effect and law firms scrambling for work, large companies that consume millions in legal services each year are telling law firms they must agree to fixed-fee contracts rather than charging by the hour. Pfizer, for example, says it plans to cut its domestic law firm expenditures by 15-20% through flat-fee contracts. The pharma giant will pay lump sums to firms to handle specific areas of work, such as litigation or tax issues, telling law firms that they will no longer make their historical profit margins. This change in profit margin necessitates business model innovation for law firms, as it does for healthcare providers under pressure to lower rates.

In both the legal services and healthcare industries, consumers are not currently paying based on what matters to them – results.  In legal services, results mean completing an entire project, case or workstream.  In healthcare, results mean improved health. Currently, however, providers in both fields are incented to do more work, whether or not the customer really needs it.

Law firms have experimented with flat fees for repetitive, predictable assignments (e.g., patent applications) but stress that hourly billing will likely always be used for more complex, high-risk/-return projects.  Similarly, healthcare providers such as MinuteClinic have moved to charging relatively-low, flat fees for a finite range of standardized treatments for clearly-diagnosed ailments. More complex conditions requiring greater skill for diagnosis and care continue to be treated at higher-cost hospitals/clinics for fees and services that are not known at the beginning of care. In both fields, providers can and should scrutinize which procedures are routine enough and sufficiently standardized to be offered profitably at a lower, set price.

Using lower-skilled providers

For these more routine tasks, law firms and medical providers can hold down costs by employing lower-skilled staff. In order to offer flat rates, Orrick, Herrington & Sutcliffe LLP, for example, hires fewer grads from elite law schools and also employs college grads to perform more routine tasks.

Increasing efficiency

By realizing efficiencies, Orrick has increased by 300 percent its revenues from non-hourly billing in the last year while remaining profitable. How? First, the firm is incented to accomplish the same amount of work in shorter time. Second, tools provide information on efficiency to allow educated adjustments in time allocation. For example, a software system alerts lawyers when they hit certain percentages of a flat-fee budget and biweekly reports indicate how a lawyer is spending his/her time.

The biggest shift required of law firms and healthcare providers, however, is a change in the value proposition they offer to customers. As Pfizer’s general counsel commented, while the company could have simply demanded a discount from law firms’ hourly rates, it instead hopes to create a system in which the firms work more collaboratively with Pfizer and Pfizer’s other law firms.

 

Most companies have turned from feeling paralyzed by the economic shocks of 2008 to plotting response strategies appropriate for today's tough markets. One thing companies need to carefully consider is how to confront the new reality of increasingly value-conscious customers. 

For example, earlier this year Quiznos decided to create a completely new sandwich at a reasonable price point. In March, it rolled out the "Toasty Torpedo," a 13-inch sandwich on ciabatta bread cost a mere $4. Sales spiked. Based on consumer feedback, Quiznos created an eight-inch version called the "Toasty Bullet" for a $3.

Not only did Quiznos appropriately set a target of creating an affordable product (just like Martin, whose sub-$1,000 Series 1 guitar I discussed last month), the company adjusted its strategy based on market feedback.

Both of these elements are key parts of the success pattern described in "Learn to Love the Low End," Chapter 7 of The Silver Lining. That chapter draws on examples like the Flip Video, First Solar, and McDonald's original "Speedee Service System" to describe how to innovate in ways that connects with value conscious customers and accelerates growth in emerging markets.

While Quiznos chose innovation, other food service companies have tried to reach value conscious customers through discounting. As discussed in a recent Wall Street Journal article, this approach has proved problematic for some restaurant chains.

The problem chains have seen with discounting is they end up serving customers they would have served already. Companies are learning that discounts aren't enough to entice customers that weren't interested in visiting the chain in the first place.

Of course, companies always need to think about how to deepen their connection with their core customers. And experimenting with non-product innovations is almost always worthwhile.

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

When making a pitch for your idea be sure to describe how the business will become big and be specific in your ask.

Shark Tank is an adaption of the Japanese television show Dragon’s Den, which gives entrepreneurs the chance to pitch their plans to venture capitalists (“the sharks”) with the goal of securing investments to pursue their ideas.

The show provides useful lessons to not only aspiring entrepreneurs but to any innovator who needs to pitch a new product idea to their bosses for continued exploration.

When we conduct workshops at Innosight we have teams present their ideas in short pitches answering the following questions, much like on the show.

1. What problem are you solving for consumers?
2. What is your idea?
3. What is the business? How will you make money?
4. What specifically are you asking for?

People in our workshops and people on the show do quite well on the first two questions. They have personal stories of how they identified the needs (or Jobs) in the marketplace and have creative and compelling presentations of their ideas (songs, prototypes, samples).

The area where we have seen the biggest room for improvement is in the third area, demonstrating how they will make money and make the business big. The “Sharks” (and your bosses) want to see that there is real interest from customers in the innovation and a clear path to develop a big business. Questions you should be prepared to answer are:

• Do you have sales? How many units have you sold?
• How do you know people are interested in this product?
• Who is the customer? How much do you expect them to pay?
• How many stores are you in? Have you shown this to a retailer who said “I like this, I want to sell this”
• How do you know people will buy that?

The other shortfall is not being specific enough in “the ask”. People who ask for money to build the brand so they can then go to trade shows or retailers do not fare well. Whereas people who ask for money to fulfill production for orders they have in place already do well. Be specific. You need to show how what you’re asking for will help build the business and help make them money.

As you pitch your innovation ideas be sure to describe why the business is compelling and make a specific “ask”.  To see the process in action check out the show (Sundays on ABC at 9pm EDT).

 

I love books. I love going to bookstores, browsing through the shelves, feeling the paperbacks conform to the curve of my hand or the weighty strength of hardcovers as I lift them off the display tables. I love getting home and cracking the spine of a book, tracking my progress with dog-eared pages or used boarding passes, and filing the book away on one of my many bookshelves like the trophy it is.

For me, reading a book isn’t just about language or plot, it’s a multi-sensory experience. Which is why I swore I would never own a Kindle.

Sure, Kindles are amazing. The e-ink technology is (literally) studied by scientists and business school students. The compact size is great for traveling. And the ability to automatically download books, magazines, and newspapers saves time, money, and paper. Despite all these very functional benefits, I felt like the Kindle was robbing me of the experience of a book and that was something I was simply not willing to give up.

Then my circumstances changed. Shortly, I will be going on an extended trip which will (hopefully) allow me plenty of time to read. As I started planning, I realized that I would probably need an extra suitcase for all the books I wanted to take with me. The thought of carrying yet another bag (and a very heavy one) was not appealing but neither was the thought of bringing fewer books or reading slower. Suddenly, a solution that I wouldn’t even consider became the perfect solution.

At Innosight, we talk a lot about Jobs, but this experience highlights a component of our Jobs approach that often gets overlooked: Circumstances. In this case, my Jobs – read a good book, have access to the books I want, enjoy my reading experience – did not change. What did change, however, are the Circumstances in which I need to satisfy those jobs (e.g. at home vs. on the road, unlimited storage space vs. limited storage space). Simply changing these circumstances completely changed my set of acceptable solutions, shifting it from traditional books to a digital reader.

So I bought a Kindle.

It’s not perfect. The pages turn a bit slower than I expected and I’m afraid of hitting the wrong button and doing who-knows-what to the book I’m reading. But for 3 weeks on the road, these seem like small sacrifices to ensure full access to a library of wonderful books.

 

A meeting I had recently with some folks at Gillette highlighted an important issue facing the would-be innovator — the "curse of knowledge."

Chip and Dan Heath described the curse of knowledge nicely in their 2007 book Made to Stick (highly recommended to all innovators). The basic problem: people who have deep knowledge about a topic sometimes assume other people have that same knowledge. That can lead to major missteps.

The brothers Heath bring this to life by describing a simple experiment run by a Stanford doctoral candidate in the early 1990s. The researcher gave subjects a list of popular songs like "Happy Birthday" and asked them to tap those songs out on a table. Another person had to guess the songs. The researcher asked the "tapper" to predict the percent of songs the "listener" would guess correctly.

The tappers — who could hear the song in their heads as they tapped — assumed that people would get 50 percent right. They actually got 2.5 percent right.

What does this mean for innovation? Managers who have spent their entire lives working in an industry often suffer from the curse of knowledge. They assume customers know more than they do. This curse can blind managers to opportunities and threats.

During my meeting at Gillette, one group member described how "of course" the last place you should shave is around your mouth. As I tend to shave my chin last, I asked him why.

"Well, that part of the face has the most nerve endings," he explained. "So you need to give more time for your shave prep [lotion or gel] to work."

As that was news to me, I wondered if I was alone in my naivety. So I launched a quick survey.

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

I love a good list. I come from a long line of planners and little makes me happier than the feeling of organization that results from purging my head of the jumble of to-dos (all of them important action items that could be unintentionally forgotten in an instant if not written down!) onto a nice, clean sheet of paper. Ahh.

So when I was recently introduced to Toodledo, a site for “easy to use, online to-do lists,” I thought I’d surely found a new best friend. Toodledo would un-tether me from my paper-based list. I would be able to add to or retrieve my list on my Blackberry as I wandered about in the world, and I could separate categorically distinct to-dos like, “Go for a run” and “Figure out what I want to be when I grow up.” Most helpfully, I wouldn’t have two or three different lists with overlapping to-dos, each started when I didn’t have immediate access to previous lists. 

The odd thing is that I haven’t used Toodledo at all; in fact, I find it to be something of a turn-off. The site offers many tools to help the weary planner. I can "import tasks from other programs, collaborate with other users, or use “a special tool that analyzes dates, priorities, time estimates, and other characteristics to create a customized schedule of the best use of your time.” Upon registering for the site, I see links for sharing, filtering, sorting, prioritizing, and for files, goals, statistics, booklets, forums, and goals. But I can’t figure out how to just enter a task. When I finally find the tiny tab for adding a task, I’m prompted to enter a due date, folder, repeat assignment, priority, and note. I’m tired already.

The beauty of a list, to me, is the simplicity. I have one, uncluttered picture of my to-dos. In concept, Toodledo meets an unsatisfied job-to-be-done for me. But rather than starting with a bare-bones offering, Toodledo overkills with a product more like Microsoft Project than my paper list. Instead of serving as a selling point, Toodledo’s feature set comparison prompted me to look at some of its competitors that offer fewer features and, presumably, a cleaner, simpler product.

 

The lessons?

1. Beware of overshooting. While adding features often seems like a good idea, just because you can add them doesn’t necessarily mean that you should.

    

2. Choose defaults wisely. The site wouldn’t be so overwhelming if the default was simple, with the option to add on any/all features.

    

3. Think broadly about competition. Based on the “feature comparison chart,” Toodledo staff clearly see other to-do list websites as their competition. If they had thought about the paper-based list and the advantages it has, they might have rethought some of their strategy or messaging.

    

4. Set expectations appropriately. Toodledo looks like a great tool for complex task management, just not for a simple to-do list. While it is clearly a good product for some people and needs, it fulfills a different job than one might expect based on its whimsical name.

    

 

This article is the final installment of a 10-part series highlighting what companies need to do to transform uncertainty into opportunity. The full list will be posted on HarvardBusiness.org and SilverLiningPlaybook.com. The Silver Lining is available now.

10. Does your organization have a plan to help leaders transform themselves?

Einstein once defined insanity as doing the same thing and expecting different results. Managers hoping to transform their businesses have to start by transforming themselves. They have to build the capability to confidently confront the paradoxes they will increasingly encounter.

Unfortunately, most research shows that few leaders have developed the capability to deal with paradox. Why? Historically, success hasn't required it. Fortunately, management can follow a range of strategies to begin to drive the personal reinvention that must precede corporate reinvention.

For example, a manager at a Fortune 100 company who heads up new business development activities launched an online business with a relative during his "nights and weekends" to get first-hand entrepreneurial experience.

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

There are very few things I rave about. But there is one thing on that very short list that I considered worthy of a take-you-by-the-shoulders-and-stare-you-dead-in-the-eye rave: Daily Candy.

For the uninitiated, Daily Candy is a daily email customized to the city in which you live (12 cities so far) that uses wonderfully witty and snarky prose to give you the latest info on fashion, beauty, food, entertainment, and culture.   Their recommendations are so unique that pretty much anything I own that elicits compliments was discovered through Daily Candy.

This is why I was both interested and surprised this week when Daily Candy and Target announced a partnership in which Target would advertise in Daily Candy’s emails and Daily Candy editors would provide content for a new section on Target.com that highlights up-and-coming designers. As I read the WSJ.com article I had 3 nearly immediate reactions:

1. I didn’t know Daily Candy was owned by Comcast.
2. This is GREAT! I love Target and if Daily Candy will help me find the coolest stuff there that’s even better!
3. Wait a minute, are Daily Candy emails going to start “recommending” Target products? I don’t want that. Anyone can buy Target stuff.

Once I recovered from my retail roller-coaster, I was struck by the fact that the combination of two things I truly enjoy (Target and Daily Candy) could combine to become LESS than the sum of their parts. Both satisfy my jobs-to-be-done better than alternatives — Target because it provides access to interesting products and very cool design at a low cost and Daily Candy because it helps me find unique statement pieces well worth their premium. But the partnership between the two increases the attractiveness of one (Target) while compromising the attractiveness of the other (Daily Candy).

As a business person, I completely understand the business rationale that drove the partnership — Daily Candy gets guaranteed ad revenue from Target and Target attracts more visitors increasing the ad rates they can command. But as a raving fan of Daily Candy, I feel like their pursuit of new revenue streams may compromise their ability to satisfy my important jobs around unbiased recommendations for unique products.

This tension highlights two principles we often stress with our clients — focus on your consumers and build a solution that satisfies their important jobs better than existing solutions then build a business model that supports the solution.   Making choices that change the solution or the business model in a way that compromises your ability to satisfy your consumers’ important jobs (in a real or perceived way) creates space for competition.

Daily Candy continues to have a relatively unique approach and style that keeps it on my list of raves. But I’ve stopped physically accosting people and proclaiming its virtues. And, depending on whether the partnership impacts its current solution, the once-inconceivable may become possible — relegating the daily email to the Spam box.

 

An interesting article in the Wall Street Journal this Monday raised a provocative question: are we entering a new era where consumer electronics retailers will wrest competitive advantage from consumer electronics manufacturers?

Over the past couple of decades, the balance of power has been squarely in the hands of the manufacturers. Companies like Apple, Sony, Panasonic, LG, and Garmin have largely competed by introducing better performing products.

General retailers like Amazon and Wal-Mart who sell electronics along with other products have done well in this era. The leading U.S. specialist retailer, Best Buy, has also thrived. But other specialty retailers have struggled. For example, Circuit City sought bankruptcy protection late last year and liquidated this year.

Monday's article described how Best Buy's store brand business is booming. For example, the company sells a global-positioning system that has Google search functionality and a digital picture frame that lacks many of the expensive bells and whistles of products made by Philips and Kodak. Best Buy recently reported that sales of products under company-controlled brands like Geek Squad, Insignia and Dynex soared 40 percent in its most recent fiscal year.

Historically, these kinds of efforts struggled as consumers sought status symbols and demanded the latest and greatest set of features.

The success of Best Buy's program could be an early sign that the era of feature- and function-based competition is waning in some categories, opening the door to customization- and cost-based competition.

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

Any time a barrier prevents consumers from satisfying an important job, the market is ripe for disruption. Consider the significant barriers keeping physicians from adopting electronic medical record (EMR) systems, or expanding on those systems they do have. In a study published in the New England Journal of Medicine, 88 percent of physicians without electronic medical record (EMR) systems and 80 percent of physicians who already have EMR systems cite “cost of capital” as a barrier to adoption or expansion.

Who can blame them? Widely published estimates cite the costs of electronic medical record (EMR) systems as ranging from $15,000 - $50,000. However, this does not take into account the costs of hardware, implementation, training, and ongoing support, which can easily take the full costs of an EMR system to $250,000 - $300,000 for the first year.

So who will enable the disruption for which this market is ripe? Enter WalMart. Long known as a purveyor of cheap toothpaste, toilet paper, and televisions, WalMart announced this week that it has partnered with Dell and EClinicalWorks to offer physicians a package of hardware, software, installation, maintenance, and training for the everyday low price of $25,000 for the first physician and $10,000 for each additional physician in the first year.  While WalMart’s announcement is significant (especially to incumbents in the healthcare IT space), it is also significant, and important, to note that they are entering healthcare IT in a classically disruptive manner: 

1. Understand the important and unsatisfied jobs of key stakeholders: Physicians today are not just caregivers, they are businesspeople forced to deal with the bureaucracy of managed care and the headaches of managing an office. Any solution that enables them to spend more time with clients and less time on paperwork without a significant impact on the bottom line will be quickly embraced.
2. Create an innovative business model: With its understanding of physicians’ important and unsatisfied jobs, it was likely easy for WalMart to create a solution with an appealing value proposition. However, they likely realized that additional resources would be needed (or at least helpful) to execute the strategy. Enter Dell and EClinicalWorks. Each brings its unique experience and reputation to the solution creating something greater than the sum of its parts: 
   • WalMart claims that its role is one of an integrator. While this is true, largely because of their purchasing scale, it does offer three other key resources: widely recognized expertise in logistics and coordination, an existing physician customer base of approximately 200,000 physicians, and an existing distribution network through its 600 Sam’s Club stores. 
   • Dell supplies the hardware – either a desktop or tablet PC – and the installation services. While WalMart could likely have partnered with another hardware vendor, Dell’s experience in supply chain management and reputation for good customer service likely gave it an edge over cheaper but less well-known hardware companies.
   • EClinicalWorks supplies the Internet-based electronic medical record and practice management software, training, and maintenance. Already used by 25,000 physicians, EClinicalWork brings credibility in the healthcare IT space.
3. Use an emergent strategy: This is neither the beginning nor likely the end of WalMart’s foray into healthcare. In 2007, it partnered with the University of Arkansas and Blue Cross Blue Shield to conduct research on how to improve healthcare IT in the US.  In February 2008, it opened co-branded clinics with a common EMR platform operated by EClinicalWorks (surprised? You shouldn’t be), and in September it promised to provide all employees with access to electronic health records. It’s reasonable to assume that each of these activities were small steps to resolve assumptions related to IF and HOW WalMart should enter the EMR space. 

Supported by the Obama administration’s $19 billion investment in healthcare IT via the Recovery Act, WalMart’s foray into EMR is likely to be yet another successful step in its journey into the healthcare space. In the short term, WalMart is likely to benefit from sales of the system and the ability to influence patients and physicians to fill their prescriptions at WalMart’s pharmacies or to buy medical supplies and durable medical equipment at Sam’s Club. In the long term, its savvy use of the principles of disruptive innovation positions it well to successfully disrupt incumbents.

 

Last Thursday (March 5) I ran a Webinar for Harvard Business Publishing and Chief Learning Officer about "Leading Innovation in the Great Disruption: Keeping Organizations Moving in a Downturn" (slides and audio will be available on the Chief Learning Officer web site later this week). With close to 500 attendees, the questions flew fast and furiously. I thought it would be useful to share my perspectives on some of the questions more broadly (as I did after my February audio conference with HBP).

Q: What would be the one key question that businesses should ask their customers?

Most companies start conversations with customers by asking "What don't you like about what I am selling you?" or "What do you need?" or "How can I get you to buy more of my stuff?" These questions aren't bad (well, maybe the last one is), but they tend not to provide overly useful guidance to innovation decisions.

Instead, seek to understand the problems customers are facing that they can't adequately solve today. And probe to understand the "why" behind any response. Digging into the why almost always illuminates innovation opportunities.

Q: What is the best approach to identify "jobs-to-be-done" when you are far back in the value chain, i.e. material provider?

There are a couple of different approaches to follow. One of course is to do market research among end consumers. For example, the most important customer for most consumer packaged goods (CPG) companies like Procter & Gamble and Unilever is large retailers like Wal-Mart and Amazon. But CPG companies clearly spend billions to understand end consumer markets.

Another approach is to involve the companies who purchase your materials into the discussion. See if there isn't a way to build a common perspective about the jobs-to-be-done that helps inform opportunities for collective innovation. ...

Read the rest at Scott's Harvard Management blog.

Given the shaky state of the world economy, companies are in a tough spot: while there is the need to be fiscally conservative, it is more important than ever to push initiatives for current and future growth. However, attracting new customers can be an expensive process, and a common response to a financial crunch is cutting marketing and advertising budgets.

We here at Innosight always recommend that companies address nonconsumption, since doing so is the surest way to create new growth. But nonconsumption does not exclusively refer to noncustomers; an oft-overlooked dimension of nonconsumption is the nonconsuming occasion. In other words, consumers of your product may not be consuming in all the ways and at all the times that they could.

That’s why existing customers might be the easiest place to look for new growth. Among the population of consumers that already know and like a product, there may be barriers preventing them from more frequent consumption. Understanding these barriers to full consumption helps to illuminate solutions. Two disparate industries, pharmaceuticals and home cooking, illustrate what such solutions might look like.

Pharmaceuticals and Packaging

Although more than half of Americans take at least one prescription drug, massive nonconsumption exists in the form of medical noncompliance. Noncompliance is such as widespread problem, in fact, that the Boston Globe reported recently that the US economy loses $100 billion annually as a result. In addition, health insurers pay for expensive hospitalizations and procedures that might have been preventable, employers experience reduced employee productivity, and, of course, the patients themselves may face injury or death. And yet one of the major contributing factors to medical noncompliance is simple forgetfulness.

Accordingly, combating forgetfulness would be a logical way to boost sales for the pharmaceutical industry (not to mention reduce costs for health insurers). One new product that offers a potentially inexpensive and effective way to remind people to take their medication is Vitality GlowCaps, pill container lids that glow and eventually play a tune when it’s time to take your medicine. Already available for sale, the company believes that with volume, such technology could be a fairly cheap and ubiquitous part of medication packaging. Embedding such a sensor and alert system into pill bottles could eliminate the forgetfulness barrier, reducing nonconsumption among existing pharmaceutical users.

Home Cooking and Marketing

PAM cooking spray has long been a choice of home cooks for preventing cookies and muffins from sticking to the pan. Con-Agra has recently decided to push PAM into contexts in which consumers currently use other products like oil or butter, or in many cases, nothing at all. Con-Agra is banking on the idea that consumer awareness of PAM’s myriad uses is a barrier to consumption in those additional contexts.

A recent print and tv advertising campaign educates consumers that PAM spray can perform such tasks as helping cooks work with sticky food like popcorn balls, give baked potatoes a crispy skin, and prevent spaghetti from clumping while cooking.  Even simple marketing solutions — like printing additional use suggestions on packaging — could spell big returns if they overcome such awareness barriers.

It is worthwhile to periodically consider your existing customers and any barriers they might have to more frequent consumption. Opportunities like these may be low-hanging fruit for growth, without the need to create a new product or attract a new customer. Keep an eye out for them! 

At Innosight, we talk about understanding both jobs-to-be-done and compensating behaviors to spot, shape, and scale innovations. But what methods do you use to get these insights? Here’s one you may not have thought about: deprivation research.

The premise of deprivation research is: the best way to understand what people want in a product is a deprive them of it. Consumers don’t know how they truly feel about a product or the role it plays in their lives until they find themselves without it.

The technique has been used by Pizza Hut, MTV, and Burger King. It is designed to surface actionable insights that can be used to customize marketing campaign and design product feature sets that delight consumers and improve their lives.

For example, MTV wanted to understand the role that MTV and MTV.com play in the role of their heavy users. The market research firm U30 conducted a deprivation study, in which they deprived heavy users of all things MTV for a month. They asked them to track how they felt and what they turned to instead and how satisfied or unsatisfied they were alternatives. They learned that when these users were deprived from MTV they felt less connected to conversations with their friends and felt out of the loop. The data they collected was used to develop better programming, web sites and advertisements.

This technique has also been used by Burger King in advertisements testing just how loyal consumers are to the Whopper (aka “Whopper Freakout”). JanSport also deprived students of their back packs for a week to see what they used instead and what they missed most. This lead to product upgrades including a rubber piece on the bottom of the bag to prevent contents from getting wet and extra compartments for keys, music players, etc.

The implementation is fairly straight forward. In a nutshell, the process is to recruit heavy users of your product and ask them to live without it for one week (this is best suited for non-essential products that are part of a person’s daily routine, like beverages, cosmetics or consumer electronics). Ask participants to keep track of their experiences in a daily journal with pictures and videos of compensating products, services, or behaviors they are using. Ask them to answer:

• How do you feel?
• What do you miss most?
• What products, services, and behaviors are you turning to as replacements? When do you use these? What about these alternatives is disappointing? What is delightful? Why?

Deprivation research complements other research methods (like surveys and focus groups) to give you new insights into customer’s jobs and compensatory behaviors, which can then be used to spot, shape and scale new innovations. We’ll continue to post novel, low-cost ways to gather consumer insights and jobs-to-be-done in upcoming blog posts.

 

• How to Keep Innovating - BusinessWeek

  Microsoft Research Principal Scientist Bill Buxton outlines some tips to keep innovating, including "Always be bad at something that you are passionate about...always be a beginner at something, and always be in love with what you are beginning. [And] when you get good at one skill, drop another in which you have achieved competence in order to make room for a new passion at which you are — yet again — bad."

• A World Transformed: What Are the Top 30 Innovations of the Last 30 Years? - Knowledge@Wharton

  Audience members of the PBS business program Nightly Business Report  from around the country were asked to suggest innovations they think have shaped the world in the last three decades and a a panel of eight judges from Wharton reviewed and selected the top 30 of these innovations. Results include GPS systems and online shopping/ecommerce/auctions (e.g., eBay) as well as Internet, broadband, WWW (browser and html), PC/laptop computers and mobile phones.

• How to Leverage Technology and New Media to Grow Your Business, The Coolest College Start-Ups Article - Inc. Article

  Profiles 16 entrepreneurs following the Michael Dell "business start-up in a dorm room" model.

• JetBlue to refund airfares to laid off workers - News- msnbc.com

  Like Hyundai, JetBlue is tweaking its value proposition to match the reality of its recession-spooked customers' lives.

In the January 14 issue of Strategy & Innovation, we offer up our annual Year in Preview story (free reg. reqd.) by Scott D. Anthony. This year we've added a new feature to this feature — we asked Innosight partners to write short industry specific predictions of the industries in which they have expertise.

Some overall themes:

• The darkening economic climate is good news for innovation — after all, abundance is at the root of many corporate struggles with innovation.
• It has never been easier to develop and scale an idea. Innovators can draw on high-quality, low-cost tools to develop, test, and begin to commercialize ideas without tens of millions of dollars of investment.
• Innovation has never been more important. Success in what we are calling the Great Disruption requires mastering perpetual transformation.
• Companies that are partially disrupted (such as print media) and those that are innovation novices will have a tougher go of it, as the current economic climate isn't favorable for their challenges.
• On-the-brink disruptive attackers and companies that have progressed in their efforts to make innovation systematic will be more likely to find their efforts paying off.
• Companies that demonstrate an ability to love the low end will find that strategy effective if they are able to master business model innovation and gain a deep understanding of how the low-end consumer measures value and develop unique offerings tailored to key value drivers.

Those industries for which uncertainty in the markets and uncertainty regarding potential governmental policy and regulations changes will struggle this year until the economy settles down and the policies of the new U.S. presidential administration begin to take shape. Finance and healthcare are two such industries.

Here are some of our partners' industry-specific predictions:

• Media: A strong likelihood of continued bankruptcies among media companies.
• Defense: A push toward decentralization and away from aircraft- and ship-specific platforms.
• Manufacturing: A shift toward innovation and away from strict reliance upon Six Sigma and cost-cutting.
• Automotive: No automakers will fold, but we will see consolidation of vehicle models in the saturated marketplace as a better linkage develops between customer requirements and available models.
• Retail: Growth among retailers targeting the low-end as well as those that can add high-level services that high-end consumers will pay for.
• Consumer products: CPG companies that do well will be those that strive to push the boundaries of their innovations, looking beyond just new products to new categories, new business models, and new channels.
• Finance: Reduced scope and size among financial global financial services firms, and an opportunity for low-cost tools and data providers.
• Healthcare: Widespread implementation of Electronic Medical Records, as proposed in the forthcoming economic stimulus package, could radically shift the balance of power between physicians, healthcare provider organizations, and insurers. 

Due to the ongoing recession, a lot of people have a new job — job-hunting.

Finding a job has a lot of components, and in today’s world many of them require a computer and a working Internet connection. Many people have these at their home, but another place these amenities can be found, and for free, is the library. So it was no surprise to read today in the Wall Street Journal that Folks Are Flocking to the Library, a Cozy Place to Look for a Job.

According to the article, the library provides a job-seekers a solution succeeds along all three of the dimensions that, according to our JOBS^TM methodology, must be present to constitute a perfect solution:

• Functionally, job-seekers need to be able to connect to the Internet for their job-hunt. Libraries offer free Internet access and free computers as well, and an atmosphere conducive to work. As one patron was quoted in the story, “there's something about the library that helps you think, at least for me."
• Emotionally, the job-seekers are trying to get out of the house to stave off the blues. They also need to feel like they are making forward motion with their job search. And they need cheap or free means of entertainment, which the library provides via books, videos, and even video games, which some libraries now offer.
• Socially, the library offers a place job-seekers can connect with others, including some who are in a similar situation. Many libraries offer job-hunting seminars and other help.

Unfortunately, although libraries are fulfilling perfectly the jobs of job-seekers, the influx of job-seekers is overwhelming the jobs of the library. The story notes that higher numbers of patrons using services are straining many libraries that have cut budgets and staff due to the recession.

 

A couple of years ago I first heard the story of Markus Frind, the founder of dating website PlentyofFish.com who, it was said, worked about an hour a day on his site and was making $10,000 a month. That was annoying enough. Now, a recent profile of Frind in Inc. magazine says Frind works an hour a day and brings in $10 million a year.

I bring this up not to annoy you, but to point out that Frind has built his fortune mainly by following the disruptive playbook. His “blueprint,” as he described it to Inc.: “Pick a market in which the competition charges money for its service, build a lean operation with a "dead simple" free website, and pay for it using Google AdSense.”

We would add, find a market with significant amounts of nonconsumption. PlentyofFish.com is aimed at nonconsumers of sophisticated dating sites – people who people who want to browse profiles but are not ready to purchase. The unintended side effect of this was that PlentyofFish.com also turned out to be the “perfect place for paid dating sites to spend their huge advertising budgets.”

Frind is a master of resource constraints. He uses many fewer servers than most database-driven sites with his traffic, only has three employees, and resists adding features. He has even profited by *not* making what would to others be obvious improvements to PlentyofFish.com: “On a site this big and this complex, it is impossible to predict how even the smallest changes might affect the bottom line. Fixing the wonky images, for instance, might actually hurt Plenty of Fish. Right now, users are compelled to click on people's profiles in order to get to the next screen and view proper headshots. That causes people to view more profiles and allows Frind, who gets paid by the page view, to serve more ads.”

Finally, Frind has written code that tracks what users do and serves them profiles based on the preferences their search patterns suggest, not on what they say they want. Expressing a preference in your profile for blondes but spending your time searching for brunettes would get you more profiles for brunettes. In this way Frind indirectly listens to his customers. He doesn’t believe in directly listening to them. He told Inc., "I don't listen to the users," he says. "The people who suggest things are the vocal minority who have stupid ideas that only apply to their little niches."

The disruptive playbook doesn’t account for all of Markus Frind’s success – the Inc. article makes him sound like the rare person who’s managed to make his personality quirks work for him and not against him. But PlentyofFish.com is a great example of how one person can master disruption and benefit handsomely.
 

It’s not often that a TV ad stops me in my tracks and causes me to rewind the DVR so I can see it again. But that’s exactly what happened this Sunday when I saw the ad introducing Hyundai Assurance — a new program that promises that if you buy a new Huyndai and, in the next year lose your income, you can simply return the vehicle.

Wow. A car with a return policy.

Impossible? No. Innovative? Yes.

Given the current economic climate, consumers are (understandably) scaling back spending on essential and luxury items alike. We are delaying major purchases and trying to squeeze every bit of usefulness out of the products we currently own.

In response to this, and given the long development and production lead times in the auto industry, car makers are relying on business model, rather than product, changes. Most are focusing on changing the Profit Formula (for more information on the Business Model Innovation framework, go here) by offering significant rebates and discounts. Hyundai is the first (and so far only) car company to change its value proposition.

The value proposition is composed of the target consumer, that consumer’s job(s) to be done, and the offering that satisfies the job(s). Hyundai realized that people haven’t stopped buying cars because their jobs to be done – “get to and from work,” “be financially secure,” “feel prepared for any situation,” “provide for my family” – have changed. Rather the “hiring criteria” (or, in our JOBS methodology, the “objectives”) used to select an offering has changed. For example, consider a consumer with the job to be done of “be financially secure.” Before the crisis, she might have used hiring criteria like “…in 20 years” or “…by maximizing investment returns.” However, in the face of economic uncertainty and increasing unemployment, she may look for offerings that meet criteria like “…in the next 12 to 24 months” and “… by minimizing financial obligations.” Hyundai Assurance directly addresses these objectives while the profit formula changes (rebates, discounts) that other car makers are offering target a different set – “…at purchase” (because down payments are reduced or eliminate), or “…during ownership” (because monthly payments are reduced) and, as a result, fall short of satisfying her job to be done.

Ten years ago, in response to skepticism about the quality of its cars, Hyundai introduced America’s first 10 year/ 100,000 mile warranty. People thought they were crazy. But it worked. Hyundai’s sales grew and the other car companies follow suit. People probably think Hyundai Assurance is crazy but, because it’s grounded in and understanding of consumer jobs and hiring criteria, I think it will work. After all, not many things make me stop in my tracks and say, “Wow.” 

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

To be a CEO these days is an especially difficult task. The economic crisis can unexpectedly shorten your legacy and your tenure. Your competitive advantage might be eroding and you are constantly worried your top talented individuals might feel disappointed or want to leave. While CEOs are asking everyone and anyone where they see the next wave of growth, they pray their competitors won’t detect it first.

The disruptive innovation model can help CEOs find the next wave of growth. Our research, using disruptive innovation, has isolated the impact the crisis will have on almost any industry. This research has been distilled from the last six months of data we have from our clients in Europe that, overall, operate in 16 industries.

Here’s what the current landscape looks like when viewed through the lenses of disruptive innovation:

1. Upsurge in overserved consumer demand: More and more consumers are migrating to products that deliver less for less. Their willingness to pay for almost any product has decreased. They have finally realized they are just as well satisfied with a good-enough solution that is more simple, convenient and affordable. In a way this is a massive upsurge in demand that has been left unattended. It is also a demand that is not going to return to where it was before the crisis emerged. We have found that the best recipe to tackle this opportunity (before your competition does) is picking from your portfolio a cadre of your worst-performing products and making them more simple and foolproof. They must be carefully adapted to a very specific moment of consumption and the features your corporation values the most must be dramatically reduced. How do you know you are doing this assignment well? If you and your organization think the product is getting unacceptably worse… then you are on the right track!
2. The fastest learning moment: This coming year 2009 will be one of the best years ever for entrepreneurs and new business ventures. The reason is that the crisis has shortened substantially the time you need to realize you made a mistake. If you launch initiatives based on “invest a little, learn a lot” this is the year when you will learn “the lot” very quickly. This is because when the economy is thriving consumption is incentivized and that generates an inverse-selection problem, that is, consumers you are not interested in are buying your product without realizing its full value. Unfortunately since they appear in the market research studies, they subsequently drive investment bias in the next sustaining innovation. This biased input makes the product less attractive to consumers who do find its true value. Paradoxically, the payoff for experimenting in a crisis scenario is tremendously high.
3. Main competitors will be frozen: Corporations focused on chasing the next high-margin consumer have frozen their initiatives because of uncertainty. The reason is that getting approval from the board is now very difficult. These days you might only get it if you are proposing a cost-reduction initiative. In my opinion this is a gift from your competitors. They are going to be paralyzed for the next couple of years! Next year their projects aren’t going to pass through the board scrutiny. The year after they will have to update their pitch and put the resources and team together, as you know, a very time consuming process. When was the last time you knew what your main competitors were going to do for the next couple of years?

Here is a winning formula for those planning to launch a new product or to start a venture in these crisis-imposed circumstances: Pick an industry that is very fragmented, that has three or more weak economic substitutes (same need served with different technologies), that has more than 80 percent of its demand overserved, and has demand that is underserved and has remained so for at least five years.

This should be the central point of your conversations. There are quite a few industries that meet these attributes. If you don’t start this initiative somebody else will. If so, solid research shows that will be the last mistake your company will make.

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

The holidays are here. Get within 500 feet of a mall and you will be bombarded with sales signs, overwhelmed with Christmas carols, and swallowed by crowds of seasonal shoppers. While all of this may be overwhelming, there is one very good thing that comes with the hustle and bustle of the holidays – cookies.

I love cookies and there is no time of year more cookie-centric than the holidays. I have many fond memories of baking cookies with my mom, gleefully squishing Hershey’s kisses into the center of peanut-butter cookies and carefully painting icing on sugar cookies. This is why I was so fascinated by Arrowhead Mills’ “Bake with Me,” a line of baking mixes designed to encourage interaction between children and their caregivers. In addition to the baking mix, each box contains a promotional item, such as a cookie cutter or decorating stencil, to carry the interactive element from the box to the baking sheet.

Like most other baking products, there are sumptuous shots of sugar cookies, brownies, or cupcakes on the packaging, but what makes this packaging stand out on the shelf is that it also features a photo of a child in a chef’s hat happily mixing a bowl of batter. “The idea behind the package design was to develop a look that would really stand out on shelf to deliver the unique proposition; a fun activity for mom to do with their kids...,” explains Martha Seidner, a vice president at Smith Design, the agency responsible for design of the “Bake with Me” packaging.

All baking companies target functional jobs around taste, attractiveness of the food, nutritional value, and preparation time required. Arrowhead Mills has nailed the emotional jobs of parents, such as:

• Feel like a good parent
• Establish/reinforce my relationship with my kids
• Create lifelong memories with my kids

By targeting emotional jobs, “Bake with Me” effectively overcomes traditional resistance to baking mixes as less authentic (and lower quality) than baking from scratch by satisfying other (and arguably more important) jobs related to the parent-child relationship.

Well done! Now, let’s gather the family and friends and start baking some cookies.

 

The Wednesday-morning quarterbacking has begun in earnest as people pick apart the campaign strategies of the winners and losers. Jack and Suzy Welch chimed in at Business Week with their disappointment at McCain's loss as well as some high-level views on what business leaders can take away from the successes and failures of the two candidates: 

Listening to the analysts during last night’s televised election results shows, I too was struck by what we can learn from the two efforts — more specifically how the principles of innovation were so cleary in evidence in this election.  Let’s look at how a few of the key models we advocate to drive corporate growth were applied by the Obama camp to generate a significant win: 

1. Target nonconsumers — when a company is able to connect with a segment of the population who are not buying a product or solution and convert them, growth follows.  The Obama team embraced this, looked beyond the Democratic “base” and even the registered Independents and sought to engage first time voters.  The result?  The highest voter turnout (64.1%) since 1908 (65.7%) with 68% of first time voters going for Obama.
2. Look for opportunity at the bottom of the pyramid — instead of seeking big ticket donations and endorsements from key party pundits by aligning his message to their narrow needs, Obama sought support from a very broad base and raised a record amount of funding from first time donors through small, internet-based donations.
3. Rethink your business model — Obama used technology to reach and engage a younger voting community and encouraged others to do the same. Who can forget Obama-girl at the top of the YouTube charts?

By contrast, McCain did everything we would expect from one about to be disrupted:

1. Focus on your best customers — for this campaign McCain moved away from his popular bi-partisan approach and played to the conservative base. His selection of Sarah Palin as his running mate was widely regarded as a move to bring his ticket back to the “right” and appease long-time critics of his in the Republican party.
2. Ignore the threat — McCain secured the Republican nomination in March, but was largely quiet during the balance of the hotly contested Democratic primary through the summer.  By not using this time to develop his own grass-roots support network in all 50 states, he yielded valuable ground to the Democrats who used the free news cycles to generate additional momentum for their eventual nominee.
3. Cramming — running a new solution through the traditional business model. McCain was not a typical Republican. This was a large part of his appeal and likely one of the reasons he did so well in spite of the economic climate and general distaste for his party at the moment. However, he took his non-traditional approach and crammed it into a very traditional campaign. He engaged the same leaders who had run Bush’s campaigns, he cut himself off from the media, and became the Republican candidate instead of John McCain. Utilizing traditional campaign tactics smothered his unique qualities instead of bolstering them.

Of course, there were a lot more forces at play that helped determine the outcome of the election but nevertheless, these contrasts were clear to me as I watched the map get filled in last night. 

When a company talks about trading off pure performance in the name of lower prices, disruptive alarm bells start ringing. After all, companies like Dell Computer, Southwest Airlines, Wal-Mart, Charles Schwab, and Nucor have prospered by following this kind of low-cost disruptive strategy.

A startup company called LifeSize Communications hopes to be next on the list. As described in a recent BusinessWeek article, the company offers reasonably high-quality videoconferencing over the Internet at prices that are sharply below emerging market leaders Cisco Systems and Hewlett-Packard. LifeSize's solutions range from $5,000 to $40,000, compared to as much as $300,000 for Cisco's solutions.

It's reasonable to predict that we'll see an increasing number of similar low-cost strategies as economic woes continue and start-up companies seek to find the opportunity in economic turmoil. Therefore, it's natural to ask: How can you tell if a low-cost disruptor is going to succeed?

Our analysis of companies that have successfully and unsuccessfully followed low-cost disruptive strategies suggest that for LifeSize to succeed, it must be able to answer yes to three key questions: ...

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

Rarely have I read a newspaper article peppered with as much clearly disruptive language as “The Tell-All Campus Tour,” by Jonathan Dee in the 9/21/08 New York Times Sunday Magazine’s annual College Issue. The story shines a spotlight on Unigo.com, a new college-search website that allows current students to review their school, posting videos and photos as well as extremely, um, candid opinions.

The site is so new, in fact, that last Friday when I clicked over to it midway through reading the article, I got an error page. But once I successfully accessed the site and poked a round a bit, I found a plethora of information — the kind of nitty-gritty details I would have killed for when I went through my own fraught college search.

About my alma mater, one of the 24 lengthy student reviews opened with: “The best thing about __ is that almost every single good thing you will read about in the recruiting materials is true. The one thing I would change is the level of outrageous unresponsiveness the administration often displays. The __ beurocracy [sic] is probably the one major reason why some people decide to transfer.” (I admit, it pained me to see the typo, but I felt a familiar twinge of Red Tape Angst.)

Unigo’s extremely entrepreneurial 26-year-old founder, Jordan Goldman, also co-founded one of the first college review books to include quotes from students, rather than being written exclusively by professional reviewers. But he still saw a huge gap between the needs of high school students and their families as they seek the perfect school, and the standard offerings from companies like Princeton Review and U.S. News and World Report.

“My whole family chipped in for me to go to college,” Goldman said in the Times. “They were saving from when I was 2 or 3 years old. That the best resource for a four-year, $200,000 decision are these books — with no photos, no videos, no interactivity, only three to five pages per school on average, fully updated usually once every several years — just doesn’t make the grade. This is the most important decision people that age have ever made, and the information is just not there.”

OK, so we have a clear unsatisfied need. What’s the disruptive angle? Let’s let some denial do the talking. The Times contacted Christopher Gruber, who heads admissions for Davidson College in North Carolina, one of the 268 colleges currently covered by Unigo. His reply when asked if he’d looked at the site (the company sent letters to the admissions offices of all the reviewed schools, granting them early access before Unigo went live): “I’ve got to be honest with you, I’m not spending a ton of time navigating those student-driven sites. My sense is that the traditional big players, like Princeton Review, are the major sources for online information too, in part because those are the names that parents still recognize... The ones that we supply information to are the ones that we spend the most time on.”

If the Unigo model works, it will likely disrupt the typical college guidebook business, giving free, ad-supported content in far greater detail than the average Princeton Review manual can provide. But it will also shake up how college PR and admissions teams have to do their jobs. Challenged by a well-organized, extremely comprehensive resource that gives students a warts-and-all view of the school, official viewbooks and campus tours won’t seem as convincing. (Dee, the writer of the Times story, mentions one video posted about Notre Dame, in which an official tour guide goes around the campus with a friend, giving the official spiel and then letting her friend tell the left-out bits.)

“You can review anything online,” Goldman said in the Times. “You can review the most trivial things, but you can’t review your college. There’s no platform for this incredibly important decision that costs so much money.”

In the year preceding its launch, Unigo developed a network of unpaid interns at the colleges it covers, who in turn got fellow students to write about their schools. 100 of the interns were sent Flip video cameras (another disruptive product!) and filmed typical scenes on campus or interviewed fellow students.

From the Times article:

“[Unigo] changes the game from an economic standpoint too: it costs a lot of money to travel far away from home to check out schools, and Unigo offers an unfiltered, detailed, often somewhat eccentric view of campuses all over the country. A 45-second video in which an unseen student pans around the courtyard at Sarah Lawrence on a sunny day and simply describes what she sees (including a student-run barbecue pit called PETA, which stands for “People Eating Tasty Animals”) is so evocative that it makes the one-page U.S. News summary — or the descriptions in Sarah Lawrence’s own admissions catalog, for that matter — read like junk mail.”

And one of the young editors for the site, Max Baumgarten, summed it up nicely in the article: “I don’t think [the colleges] know the numbers. The whole package is something they should be a bit scared of, but they’re not. They don’t really understand the immensity of it.” 

With the launch of its banking-by-shoebox service, Amsterdam-based bank Insinger de Beaufort created an elegantly simple offering that overcomes the barriers of time and skill that limit consumption of financial services.  While Insinger’s shoebox service targets high-end consumers, could the model be altered to create a low-end disruption?

Here’s how the service works: After meeting with a private banker to discuss financial planning goals, Insinger’s customers receive a shoebox by mail into which they can drop everything from tax return forms, speeding tickets, insurance-related forms, bills to be paid, investment statements, and bank statements.

On a monthly basis, Insinger collects the box via courier service, processes all the paperwork inside, and sends the clients a notice of the resulting transactions within three business days.  Once every quarter, clients receive a full report outlining the status of their transactions, accounts, spending patterns, and overall financial position. This information serves as fodder for annual discussions between the client and his/her banker to assess changes in financial position and planning.

The shoebox service addresses functional jobs, such as “Pay my bills on time,” “Ensure I don’t miss any payments,” “Remove the hassle of handling my finances,” and “Have more time to do what I enjoy.” Just as critical are the emotional jobs addressed by the service, such as “Reassure me that my financial affairs are taken care of and nothing has slipped between the cracks,” and “Know that someone is keeping track of my spending and investments to help me make good financial decisions.”

In its current form, the shoebox service is a sustaining offering, given that it targets the most profitable, demanding banking customers with a high-cost service (rumored to run €415 to €850 per month, depending on service level).

However, many of the jobs and barriers addressed by the service are ones also found amongst low-end non-consumers of financial services.  While the low end of the market may not have as many jobs related to investment management, these potential customers are also constrained by time and skill when trying to satisfy jobs related to bill payment and financial management.

Could a similar service have disruptive potential at the low end of the market by using a different business model? At Innosight, we would ask the following types of questions to assess the feasibility of such a model:

• Which components of the service are critical for meeting the jobs most important to low-end customers and, therefore, need to be retained? Which components can be cut without diminishing the value to low-end customers? For example, could the personalized financial planning service be stripped out and replaced with templated trend reports of a customer’s spending and investments, along with automated recommendations based on those trends?
• Could the service be offered through a low-cost business model relative to Insinger’s labor-intensive, personalized approach? For example, could the transfer of documents, bill payment, or trend analysis be automated to avoid the costs of couriers and manual processing?
• Are there distinct jobs and barriers for low-end consumers that should be considered in designing the product? For example, is there an additional job of, “Make sure I don’t overdraft on my bank account” that is related to the cash-flow challenge faced by many low-end consumers and is important/unsatisfied for this market? Could this job drive development of a new feature to provide a credit cushion to customers or otherwise prevent overdrawing on accounts, or is the cash-flow challenge a big enough barrier to prevent such a service from taking hold with the masses?
• Are there potential partners with capabilities that could minimize the investment required for an initial service offering and that would be motivated to support the model? For example, would Intuit (maker of TurboTax) be interested and able to provide automated report generation capabilities or input on selling the service as a subscription or as a software product?

If the questions above can be answered favorably, a viable opportunity may well exist for a disruptive product that could enter the low-end market and eventually develop into a good-enough alternative to more traditional, expensive financial services.

 

We’ve written a number of times [here and here and here] about the emerging industry dynamics that are propelling solar energy up a truly compelling disruptive trajectory. As the signals become increasingly clear that solar will indeed be a significant energy technology, billions of dollars of investment have poured into the industry and the pace and scale of innovation has exploded.  

A terrific recent post on Treehugger.com, a leading cataloguer of emerging sustainability innovations of all kinds, recaps 15 exciting advances in photovoltaics over the last year. The majority of the advances relate to the ongoing conversion efficiency race, as companies and labs working with different base technologies seek to design cells that convert sunlight into power in ever more effective, and therefore cost-effective, ways. Conventional silicon-based solar cells are getting closer and closer to their target of grid parity, at which point they figure to displace conventional sources of electricity without relying on government subsidies and incentives. 

Meanwhile, disruptive thin film-based solar panels are nearing “good enough” efficiency – performance rates at which they become economically viable. Some, led by industry pioneer First Solar, have already reached that point, and have grown astronomically as a result. 

Beyond the efficiency race, the Treehugger post recounts exciting adjacent developments like radically new approaches to mounting solar cells and breakthrough printing processes to mass manufacture them.  

With all these exciting developments, how can we begin to sort killer businesses from the fascinating technologies that will never make it out of the lab? We’d start with a couple of core disruptive innovation principles.

First, we’d like to see innovation efforts directed at the business model as well as the technology. Historically, business model innovations that make the consumption of a new technology easier, cheaper, more accessible or more convenient have been the best predictor of success in an emerging industry. Think of the way that Apple created iTunes to definitively separate the iPod from all the other MP3 players.

Some technologies are different enough from the herd to really lend themselves to new business model approaches.  One can imagine all sorts of avenues for CoolEarth’s solar balloons, for example.  By freeing solar collectors from their rigid mounts, CoolEarth can take the capability to produce clean and renewable power to new contexts, such as the developing world.  

Second, we’d look to ride disruptive waves.  Industry leading silicon-based cells have plenty of headroom to grow, and many of the companies that make them will likely enjoy lots of success in the years to come, but thin film manufacturers are nipping at incumbents’ heels. There are signals that the disruptive wave is picking up steam: SunPower, one of the foremost silicon-based incumbents, received a huge new order a few weeks back from California utility PG&E; significantly, though, they only got a fraction of the contract – the lion’s share went to new thin film player OptiSolar. 

The advantages inherent in the thin film paradigm (flexibility, lower cost manufacturing via reel-to-reel “printing” rather than semiconductor fabrication) will assert themselves as technologies approach economic viability. Thin film will exert more and more cost pressure on conventional solar, and could also open up new markets that silicon-based cells just can’t reach.  

Meanwhile, the next disruptive wave after thin film is beginning to gather, as so called organic solar cells being developed by companies like Konarka make their way into initial foothold applications. 

So, how should one monitor an explosively dynamic, fast moving, ascendant yet bubble-prone field like solar? Try to spot developing waves, watch carefully for signals that disruption is underway, and all the while pay special attention to companies that innovate with their business models, not just their technologies. 

 

I have to give credit to the folks at advertising agency Modernista! for dismantling the company’s existing website in favor a “site-less” approach. In this disruptive move they’ve done much more than simply save on site design.

By foregoing the breadth of information available on a traditional site, they focus viewer attention on the company’s art and creativity. It’s a big win (and just plain cool).

The company’s new homepage consists only of a small menu that floats over the viewer’s referring site or over the Modernista! entry on Wikipedia. Click on the “Print work” menu tab and you’re directed to the company’s work as presented on Flickr; click on “TV work” and up pops a You Tube page with videos of Modernista!-created ads.

This new approach is different, budget and very simple. To many, it would be a leap down in terms of the traditional metrics that define good website design. The company’s “conventional” website was a resource-intensive, complex site that resembled a kooky (yes, I said it) haunted house. It was impressive yet overwhelming, flexing the firm’s creative muscle with more animation than most viewers could handle. The new site is perhaps less user-friendly for those expecting a traditional website structure, and offers less context for the depicted company work. The new format could also yield negative user-generated critiques of Modernista!’s work on the social media pages that serve as its website.

The trade-off for these drawbacks? A cleaner site that demonstrates the firm’s creativity, confidence in letting its ads speak for themselves and comfort incorporating Web 2.0 platforms in its work. The site has generated more blog traffic and buzz in a wider range of forums than a traditional website with fancier features would have done, with this blog post as a case in point. Isn't that the goal of a website as a marketing tool? And the move isn’t one that other leading advertising agencies are likely motivated to follow. Voila! Disruption.

But that’s just the web site. The real disruption will be if Modernista! applies a similar leap-down approach in developing client advertising campaigns that have worse performance on some traditional dimensions but are, perhaps, simpler and more affordable relative to conventional advertising.

 

One of the trickiest bits of the disruptive innovation puzzle comes once a company launches or acquires a disruptive business: How to integrate the new venture into the parent company while protecting what made it work in the first place. We refer to it as “avoiding institutional antibodies” — making sure that entrenched rules or nit-picking comments (“…But we don’t do it that way!”) don’t prematurely kill innovation efforts.

An article in the New York Times a couple weeks ago gave a surprising example of successful institutional antibody avoidance. Disney and Pixar: The Power of the Prenup outlined the various ways those two wildly divergent companies have worked to maintain the spirit of Pixar since their 2006 merger.

“When Disney bought its rival, Pixar, in 2006 for $7.4 billion, many people assumed the deal would play out like most big media takeovers: abysmally,” wrote Brooks Barnes in the June 1 article. “The worries were twofold: that either Disney would trample Pixar’s esprit de corps (turning Mr. Lasseter into a drone, chanting “Hi Ho” en route to Mickey’s animation mines) or that Pixar animators would act like spoiled brats and rebuke their new owner.”

In fact, so far the companies seem to be getting on well, and Disney’s stock has made welcome gains in recent months. Some of the successful tactics Barnes described include drafting an explicit statement of what would not change at Pixar, including the retention of superior benefits packages, no contracts and no move from Emeryville to Burbank. Meanwhile, the company has conceded to Disney’s push for sequels to popular movies like Cars, ramping up its production schedule and outsourcing some animation.

It should give others who are facing the institutional antibodies challenge hope: If Disney and Pixar — who spent years before the merger embroiled in personality clashes and combat over partnership deals — can make it work, anyone can.

Typically, business model innovation is understood in the context of the for-profit sector. When looking for new ways of being innovative, companies might find inspiration in the last place they would have expected: the non-profit sector. Those tasked with running a non-profit are forced to think differently in order to maximize the impact on those in need, while minimizing overhead and reducing direct costs related to providing the public service.

In a recent article in New York Times magazine, Stephen Dubner and Steven Levitt discuss a new trend -- charitable organizations run like businesses. One of these new models is an organization called Smile Train, which calls itself a “new breed of non-profit that is run like a for profit.” This non-profit shares the same mission as organizations like Operation Smile: to provide free cleft lip and palate surgery for millions of poor children in developing countries. While traditional treatment missions offered by organizations spend as much as $1,400 on a cleft surgery, Smile Train has managed to reduce the cost of a single surgery to $250.

How have they achieved this 82 percent cost reduction? (Social) business model innovation. Smile Train has managed to innovate along the same dimensions we would consider when analyzing the business model of a for-profit organization. We think of a business model as an organization’s blueprint, a complex system governed by interdependencies between four key components: a consumer value proposition, a profit system (for non-profits would include direct and overhead costs), key resources and processes. Smile Train has managed to take an innovative approach to each of these components.

Profit systems & Processes: Traditional missions provide cleft palate surgeries by transporting philanthropic doctors to developing countries to conduct as many surgeries as possible during the short period of time they are there/where there is a need. Travel expenses, equipment and supplies may account for as much as 75 percent of the total cost per surgery. Due to a small number of doctors and a large number of children in need, nearly 80% of these children are turned away. Smile Train has taken a different approach to solving the same problem by using new technologies, including digital patient charts, virtual surgery software and a digital cleft library in order to train local physicians to perform the surgery. Not only does this dramatically reduce costs, but it enables and entirely new population of physicians to perform multiple surgeries, thereby reducing costs even further.

Key resources at Smile Train –- funds provided by generous donors -– are focused solely on covering equipment and materials necessary for each surgery and improving training programs for local doctors. In the traditional non-profit model, a percentage of these donations covers administrative costs as well as efforts to raise more money. This results in a new value proposition for donors as well. Beyond key resources and processes necessary to dramatically reduce costs, Smile Train’s founders pay out-of-pocket for all non-program expenses. As a result 100% of donations go directly towards paying for cleft surgeries, and 0 percent goes toward administration and overhead, which accounted for only 2 percent of total expenses in FY07.

In order to maximize the number of free cleft palate surgeries performed on millions of children in need, Smile Train looked to traditional businesses to find new ways to approach the non-profit model. Out of all cleft charities, Smile Train claims to have the “highest productivity and lowest overhead.” Wouldn’t any for-profit company love to say the same?

 

The market reacted with surprise today when it emerged that Blockbuster has offered about $1 billion to purchase electronics retailer Circuit City. The potential deal threatens to distract both companies from the unenviable task of wrestling with disruptive forces affecting their respective core business models. Over the past few years, online video rental pioneer Netflix has used its no-late-fees model to pummel Blockbuster. After dragging its heels for a few years, Blockbuster started fighting back in 2004. It now has a reasonable share of the online market but has never figured out how to be as profitable as Netflix. And Netflix is moving on to the next act -- developing a strategy to win in the video on demand market. Circuit City has had to contend with Best Buy, whose larger stores and lower prices have allowed it to dominate the electronics retailing market. Circuit City is also trying to play catch up in the emerging market for services to small businesses and individual consumers, where its Firedog service trails Best Buy's Geek Squad service. Behind Blockbuster's bid is a bold plan to expand its retail footprint and transition its business from video retailing to become in the words of CEO James Keyes a "one-stop shop with solutions for the consumers". Keyes said the combined entity could model itself after Apple's popular stores. Consumers could rent videos from Circuit City locations, or buy hardware from Blockbuster locations. Combining Blockbuster and Circuit City seems like a pretty bad idea to me (Circuit City doesn't seem to be convinced either -- the company is refusing to give Blockbuster access to its books).... Read the rest at Innovation Insights

 

In her previous post, my colleague Kathleen considered the implications of disruptive innovation as it applies to the business of charity. In making her point, she mentioned CK Pralahad's 2004 book, The Fortune at the Bottom of the Pyramid, and one of the success stories cited within, that of the Hindustan Lever Limited (HLL).

HLL's success is a great story of a company creating a business model customized to the local market; it is also a great story of an incumbent reacting to a disruptive startup. However, HLL almost failed to spot the disruption until it was too late, and the story of their success partially obscures the achievements by the true innovator -- a company called Nirma.

Nirma was founded in 1969 by Dr. Karsanbhai Patel, a science graduate and government chemist. Patel had been experimenting with ingredients in his back yard to make a detergent. After discovering a simple recipe, he founded Nirma to sell his product door-to-door in the neighborhood. In interviews, Patel has discussed the company's origins saying, "It all started to earn a side income, and at that stage, I had never imagined this kind of success."

Nirma retailed at only a fraction of the price of competing products, costing only Rs.3 per kg instead of Rs.13 per kg charged by the competing brands. The product was a great success not only because of its low cost and high quality, but also due to the unique door-to-door distribution model pursued by Patel.

Initially, Patel had a great deal of difficulty in persuading the local shop owners to stock his product. It was only when he recruited local housewives to help sell and create demand for the Nirma product that he stumbled upon a compelling and scalable business model.

By the early 1970's Nirma had appeared on the radar screen of executives at Hindustan Lever Limited. HHL was the manufacturer of Surf, one of the best-selling detergents in the country. However, their reaction was dismissive, saying, "That is not our market”,and “We need not be concerned."

Their perspective was that Nirma was an inferior quality product being sold to people who weren't currently purchasing Surf, and that their sales would be unaffected by any growth in Nirma's popularity.

Luckily for HHL, they soon recognized the disruptive threat posed by Nirma, and were able to adapt their own strategy to compete, launching Wheel detergent to try and stem the (ahem...) tide of Nirma into the low end of the market.

In developing their strategy to fend off Nirma, HHL’s wheel product was created specifically for low-end consumers. HHL noted that the primary source of water for washing was river water, and so created Wheel with a high percentage of oil relative to water. HHL also created entirely new production, distribution and marketing capabilities in order to deliver and sell Wheel, investing heavily in creating entrepreneurial door-to-door programs aimed at driving sales at the village level by tapping into the networks of local rural women, just as Nirma had done.

So, what lessons can we draw from this case?

1. Target disruptive products at non-consumers: By targeting non-consumers of existing laundry detergents, Nirma was able to stay 'below the radar' of Hindustan Lever, giving them time to experiment with their sales strategy, refine their business model and then grow rapidly - all while avoiding competition.
    
2. Create a compelling solution by considering Gives and Gets relative to existing solutions: Nirma offered a compelling solution allowing consumers to make a simple trade-off relative to existing products. Get a far cheaper alternative to Surf, but Give up a fraction of the cleaning power, which was already more than sufficient for most laundry occasions.
    
3. Think expansively about how you define your market. Rather than categorizing it along traditional dimensions, consider definitions using a jobs-based segmentation. Had HHL thought of their market in this way, it would have been far clearer that Nirma was a disruptive threat at an earlier point in time.

Alasdair Trotter is a venture leader at Innosight Ventures.

Rebecca Waber

 

Theres a lot of excitement, as well as a lot of skepticism, surrounding e-readers like Amazons Kindle and Sonys Reader. Believers in the technology are thrilled with the ability to carry an entire library around with them, as well as the ease of looking up an unknown word or immediately purchasing the sequel when they finish a novel. On the other hand, skeptics point out several disadvantages: the high price point ($399 for the Kindle), peoples psychologically high standards for replacing the revered book, and an e-books inability to be lent out, written on, or passed on through the generations. On balance, it appears uncertain if the Kindle will spark the reading revolution Jeff Bezos is hoping for.

One thing stands out to me amid the debate, though- why the exclusive focus on books?

The technology that makes these e-readers possible is electronic ink (eInk) and electronic paper, which work by using electrically charged ink particles suspended between two layers. The Kindle uses an electronic paper product made by eInk Corporation. The eInk technology has many novel advantages; not only does it allow you to change text after a document has been produced, it also works in all light levels, including direct sunlight, its flexible, and doesnt need to use power when maintaining an image. This gives it disruptive potential vis--vis both hard-printed media as well as electronic screens.

Many other applications would welcome these advantages and could be accepting of the tradeoffs. Some ideas that come to mind are signage and flexible electronic price tags. In fact, there is already movement down the non-book path; an eInk watch is already for sale, and several cellphones in Europe are being developed to have roll-out flexible displays that significantly increase screen real estate while maintaining the phones small form factor. These markets may well prove to be important stepping-stones for the commercialization of this potentially disruptive technology. Ultimately, given the more recent developments in both color and video-capable epaper, eInk may eventually allow us to rethink the very definition of screens.

 

Rebecca Waber

 

If youve ever wished you could buy your very own Star Trek-type replicator, youre finally in luck. While not quite so instantaneous or hands-off, it is now actually possible to create a vase or spatula right on your desktop. And "3D printing, as it is known, is a technology with incredible disruptive potential.

3D printing actually refers to a number of different processes, but what they all have in common is that they take a 3-dimensional image (like a CAD image, or even a CT scan) and build up that object in a progression of layers. These devices are sold by a number of companies, such as Dimension Printing, Desktop Factory, and Z Corp.

3D printing can not currently compete with traditional manufacturing in terms of mass-produced products; it has lower resolution and durability, not to mention the inability to produce high volumes of goods. However, 3D printers have been constantly improving in terms of their size, speed, cost, and need for human intervention.

So far, based on their current capabilities, 3D printers have found a foothold in rapid prototyping. They tend to be marketed towards professional designers, students, engineers and architects who value the ability to produce custom models and prototypes in-house, and for whom low volumes and the other deficits of the technology are not a problem.

And yet, the potential for this technology outside the rapid prototyping market is vast, and its eventual markets unknown. One exciting application may be in biotechnology, as researchers are already studying the possibility of printing organs and bones. The technology also offers the possibility for extremely personalized consumer goods, since tweaking a digital design is relatively easy. With companies competing to produce machines affordable for even the home, and one group even helping do-it-yourselfers build their own 3D printer, Im already imagining a future where people buy (and probably pirate with illegal file-sharing) digital blueprints instead of physical objects for certain classes of products. Consequently, not only does this process of manufacturing have the potential to dramatically shake up its own industry, but the industries of the products it manufactures. This may not be something well see soon, but this is definitely a technology that Im going to keep my eyes on over the next couple of decades. Breakthroughs in the key performance dimensions mentioned above size and cost of the machine, print speed and quality, ease of use and automation could lead to significant disruption in the markets suited for the new benefits that 3D printing provides.
 

Two weeks ago, the British rock band Radiohead announced that they were releasing their long-anticipated new album in ten days time. Ordinarily, when a band finishes an album, it takes three or four months to get it into stores, but Radiohead accelerated this process by self-releasing their new songs, online. If avoiding the record labels altogether wasnt enough, the band made even more of a splash by asking fans to name their own price for the digital download.

Innosight President Scott Anthony posted his take on Radioheads innovative distribution model over at the Harvard Business School Publishing website. In brief, Scott characterizes the scheme as disruptive, and points out that its impressive and immediate success ought to be instructive to the music industry, which is still reeling from the disruptive onslaught of digital music:

"Interestingly enough, early data suggests that customers are paying comparable prices to what they would pay in stores or online (full disclosure, the author ponied up $10 for the digital download). This is great news for Radiohead who doesnt have to split revenue with distributors and the record label. Early estimates pegged the groups first day take at around $10 million from sales of 1.2 million albums.

Not only will this effort provide a bonanza of data for economists, it is yet another nail in the disruptive coffin of the major music labels.

Historically, record labels provided a very valuable set of services. They scoured the world to identify up-and-coming artists. They helped those artists build fan bases. And they provided different ways for musicians to connect with that fan base.

New mechanisms allow the collective to identify new artists. For example, buzz-worthy bands start attracting friends and friends-of-friends on News Corps MySpace. Last.FM (purchased earlier this year by CBS Interactive for around $300 million) keys users into obscure artists they might like based on their preferences. This democratizing of talent discovery mimics changes in the lending industry, where credit scoring techniques obviated loan officers who used intuition and judgment to make lending decisions. Radiohead is demonstrating the power of a direct model in the music industry.

The genius behind Radioheads move is that they are capitalizing on the revolution in access enabled by digital distribution a revolution that has rapidly dilated the market for non-mainstream music. Back in the go-go 90s, when, in my teenage years I found myself moved by Radioheads particular brand of wry pre-millenial dystopic anomie, the mainstream distribution channels available to me (FM radio, MTV, Rolling Stone, etc) were too narrowly focused on manufactured pop and fashions of the moment to give me what I was looking for, to "get my job done in innovation parlance. I wanted to trace the sonic lineage of the music I liked, to discover cool bandsand all a kid could do in this regard was trawl through record stores, scour British rock magazines, and worst of all talk to burnt out old dudes.

Nowadays, of course, this task is effortlessly and painlessly accomplished through iTunes and Wikipedia and Myspace and Facebook and Pitchfork and last.fm, and every kid on campus is bopping to would-have-been-obscure indie music on their iPod. This massive democratization has made it so much easier for the casual fan to find and access music, and, for a band, all it takes to get downloaded by every kid on campus is buzz and what creates buzz like a clever, counter-intuitive, disruptive new business model?

Previous business model innovators in the rock world include the Rolling Stones, who pioneered the band-as-mega-corporation concept in the 70s and 80s, and David Bowie, who "went public by securitizing his catalogue in 1997. That said, this skeptical listener sure finds it interesting, if not slightly ironic, that Radiohead, avowed crusaders against globalization and the premier flag-waving anti-corporate band of the last decade have gone and bought into this notion of band-as-corporation

In my last blog post, I referenced recent announcements by Microsoft, Google, and Apple of new or increased online storage offerings. In the post, I took advantage of these announcements to envision a world where personal computing (i.e. applications, storage, content) would migrate to the cloud, signaling an end to local computing as we know it. Rather than requiring a heavy client device such as a traditional desktop or laptop computer, a user would be able to access online applications, storage, and content through any connected device with web browsing capability (i.e. from a wristwatch and mobile phone to a home appliance with a screen or a television to a connected vehicle).

The evolution of inexpensive (moving to free) online storage, ad-supported online applications, inexpensive connected client devices, and inexpensive (one could argue that its costs will shift to zero at some point) connectivity have tremendous implications for the ways in which business gets accomplished in the future. Consider the following

In 1937, economist Ronald Coase published an article, The Nature of the Firm, in the journal Economica. Within the article, Coase argues that firms exist because there are costs inherent to free markets such as costs of communication, of sharing information, of trying to find goods and services. Given these costs, Coase suggests that firms are formed because it is more efficient and less expensive to complete many of these tasks internally within a formal organization rather than outsourcing them to the market and thus incurring these added costs.

In September 1998, MIT Professors Thomas Malone and Robert Laubacher published an article in the Harvard Business Review entitled, The Dawn of the E-Lance Economy. In the article, Malone and Laubacher describe how the evolution of technology and the decreasing cost of communications are making the traditional corporation obsolete. Taking this idea further, the authors envision a world where business is "carried out autonomously by independent contractors connected through personal computers and electronic networks. These electronically connected freelancers--e-lancers--would join together into fluid and temporary networks to produce and sell goods and services. When the job is done--after a day, a month, a year--the network would dissolve and its members would again become independent agents. (Citation)

Consider these two articles jointly. In essence, Malone and Laubacher argue that the evolution of technology reduces to zero, over time, many of the costs that form the basis for Coases argument. If the costs inherent to free markets disappear or at least become negligible, it becomes possible to marketize all sorts of functions and tasks traditionally left to formal organizations. Along these lines, in 2004, Malone published The Future of Work, an excellent book examining how decreasing communication costs will lead to the decentralization of organizations.

These trends and analyses, when viewed through an Innosight lens, fit the patterns of interdependency and modularity. In 2003, Clayton Christensen and Michael Raynor authored The Innovators Solution, a follow-up to Christensens 1997 work, The Innovators Dilemma. Within Solution, Christensen and Raynor introduce a discussion of interdependent and modular systems. Synonymous with optimized or proprietary systems, interdependent systems have unique linkages between elements ranging from product components to the members of a product value chain. Essentially, the pieces are integrated like puzzle pieces and have only specific partners (consider the iPod and iTunes). Modular product architectures, on the other hand, are synonymous with the concept of plug-and-play and resemble building blocks, consisting of standardized interfaces, enabling parts to be easily swapped in and out (consider Linux or Java vs. Microsofts integration of Internet Explorer with the Windows operating system).

By definition, interdependent systems often lead to higher performance than modular systems because the system is closed and optimized. In contrast, modular systems often lead to lower costs because there are a greater number of suppliers, since interfaces are standardized and pieces can be swapped in and out. In industry, interdependency is often required to raise the performance of a new solution. Eventually, however, continued interdependency often drives the performance of that solution beyond that which the target market is willing to pay for. The target market then frequently turns to modular solutions which, at that point, often offer good enough performance along with modularity-driven advantages such as lower cost, convenience, or other ancillary benefits.

Returning to the Coase and Malone and Laubacher articles, it is clear that the potential shift from hierarchical, industrial corporations and multinational megacompanies to one of individual e-lancers can be considered similar to the shift from interdependency to modularity. Indeed, considered in the context of the definitions above, the dominant corporations and value chains of today can be thought of as interdependent architectures, delivering high levels of performance when complex coordination is called for. On the other hand, such corporations and value chains are often fraught with challenges such as high costs due to overhead and of putting specialized systems into place (e.g. the costs of maintaining physical infrastructure, HR systems, training employees, employee benefits etc).

As Christensen and Raynor found, modular architectures are often the solution when interdependent architectures prove too costly. Considered in the context of this research, the e-lance economy may represent a modular stage of organizational evolution - indeed, an architecture of easily swappable or plug-and-play components (e.g. individuals or resources). In an age where closed, proprietary systems are recognized as inhibiting the ability of organizations to respond to or even identify innovation-borne change, modularity seems a promising answer; virtually every element of the value chain could come together on an ad-hoc, objective, modular basis without being hamstrung by the subjectivity and myopias brought on by business process and the long-term commitments to physical infrastructure, a capital investment in which innovation may quickly make irrelevant.

On the premise of a future in which organizations become increasingly loosely organized, a forthcoming blog post will examine how vendors can put themselves in the best position possible to create and capture value when an immense shift (such as this one) occurs - as Christensen, Raynor, and Matthew Verlinden articulated in their 2001 Harvard Business Review Article of the same name, it is important to Skate to Where the Money Will Be. In the meantime, I look forward to any and all thoughts, reactions, comments, and questions.

All companies aspire to reach that critical billion dollar mark " a steep goal for any business. Google, eBay, Yahoo, and Intuit are just a few examples of an elite group of companies that built breakthrough ideas into billion dollar businesses. In the recently released book Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth, David G. Thomson identified the success-patterns of these billion-dollar Blueprint companies.

Innosight found that over 50% of the blueprint companies [that reached a billion] studied by Thomson were disruptive businesses, supporting Thomsons first Essential to building a billion dollar business: develop a breakthrough value proposition that creates, redefines or optimizes a market.

If you have been following Innosight and this blog, you know that disruptive businesses that either create new markets or reshape existing markets by delivering relatively simple, convenient, low-cost innovations have a higher probability of success than those that do not. Properly managed, disruptive strategies have tremendous potential to create growth and transform markets.

The key to creating your own billion dollar baby is to find the next big idea for growth and then properly manage that growth on a trajectory to a billion dollars. Easy, right? If you would like to learn more about how to grow your business to a billion, check out these resources:

To learn more:

Blueprint to a Billion: From Disruption to Dominance by JOE SINFIELD, DAVID G. THOMSON, AND CHRIS CARTER " forthcoming article in Strategy & Innovation

FREE WEBINAR: Join David Thomson and Joe Sinfield for The Path to a Billion, August 24th 11:00am EDT

1-day Workshop: The Path to a Billion: Turning a Big Idea into a Billion Dollar Business, September 21st, Reston, VA

From the Wall Street Journal this morning comes a story about disruption in interstate bus travel. New entrant Megabus.com, hubbed in Chicago, serves eight cities in the Midwest and advertises fares as low as $1.50. Like its airline counterpart Southwest, the companys operating expenses are far below rivals. Passengers reserve tickets online eliminating staffing costs. Megabus routes leave from street corners avoiding the congestion and fees of major bus terminals. The service targets both non-consumers, drivers wary of Chicagos $3+ gas, and low end consumers of other bus services willing to forego flexibility and amenities for bargain basement prices. On a typical route, rival Greyhound advertises fares three times higher than megabus.

Low end bus services have had success in other markets. The famed Fung-Wah bus services linked cities like Boston and New York for as little as $10. Fung-Wah initially served the cities Asian communities traveling Chinatown to Chinatown. Despite few amenities, a spotty safety and on-time record and the occasional live chicken passenger Fung-Wah and its imitators soon became favorites with students and budget travelers up and down the east coast. And Megabuss own parent company Stagecoach started a similar bargain bus network in Scotland.

So how does high(er) end rival Greyhound respond? By emphasizing its upmarket amenities. According to the WSJ: Greyhound says its customers can walk in and buy a ticket on the day they travel, rather than having to reserve it online. Then, they can wait in terminals with wireless Internet and TV sets.

How about it? Is megabus good enough or do you need Wi-Fi to make the wait for your bus ride worthwhile?

Getting the Customers Innovation Job Done
Tuesday, February 28th - 12:30pm - 2:00pm EST

Learn tips and tricks for increasing the odds of creating winning new offerings. Join Harvard Business School Professor Clayton M. Christensen as he discusses his latest research summarized in the recent Harvard Business Review article, "Marketing Malpractice: The Cause and the Cure." He will talk about the jobs-to-be-done framework of understanding customers and expand on these concepts. Professor Christensen will explain how a company can create new markets by innovating to help customers perform a job for which no optimal products exist.

Innosight 1-day Innovation Seminar
Thursday, April 27, 2006 - Chicago O'Hare Hilton

Innosight is holding a one-day, cross-company workshop that will go over the basic disruptive innovation principles and how to put the principles into action. This seminar is a cost-effective way to train you or your team in the principles and can be a vehicle for a team that is struggling with a disruptive problem to learn a new way to problem solve.

The day has been designed to help you develop the capabilities you need to create innovation-driven growth within your organization and to equip you with tangible tools and techniques to do so.

Register by March 15th and save 10%. Register a group and save up to 30%. Seating will be limited in order to enhance the learning experience and enable individualized application of the concepts and tools.

"Best seminar ever (I have taken many in the past 20 years)"
~ Comment from a participant at the December Innovation Seminar

The Wall Street Journal had two particularly interesting stories yesterday. The first ("How Water Backpack Went to War", reprinted without registration at the Pittsburgh Post-Gazette) talked about how a small company has found success adapting a backpack it developed for hikers for military purposes. The "CamelBak" gives users ready access to a clean water supply without needing to reach for a bottle, obviously a critically important need for soldiers in arid environments or under threat of chemical or biological attack.

Interestingly, the company that makes the "hands-free hydration system" (appropriately named CamelBak Products LLC) has said that its military work has helped its consumer marketing as well. The military forces it to push the frontier along different dimensions than regular consumers, and the innovations the company develops helps it further improve that offering.

A story like this one talking about how an innovation designed for the consumer market has found its way to the military crops up every few weeks. Someone who combines systematic thinking about unsatisfied jobs to be done of on-the-ground soldiers with focused innovation efforts will have a blockbuster business on their hands.

The second article ("At Starbucks, a Blend of Coffee And Music Creates a Potent Mix") discussed how Starbucks has moved into the music business. If youve been to Starbucks recently you probably have noticed this. Most Starbucks have a couple of CDs by the register. Some CDs, such as Alanis Morissettes recent effort, are exclusively distributed in Starbucks.

Although the connection between coffee and music might seem to be a bit tenuous, Starbucks forays into music make a great deal of sense. It comes back to that age-old question: What business are you really in? Starbucks wants to define itself as the third place beyond the home and the office. What do you do at a third place? Drink coffee, surf the Web and listen to music. Although its not clear exactly how big a money maker the CD business will be for Starbucks, it will be interested to see what other services the company layers on as it seeks to maintain its heady growth trajectory.

Any other examples of products cascading from the masses to the military? Or thoughts on reasonable add-ons at Starbucks?