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Terminal Value

Why Innovation Fails and How We Can Fix It with Tony Ulwick


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We have Tony Ulwick with us today of Strategyn. strategyn.com. And what we are going to be talking about is why innovation fails and how we can fix it. This is actually a topic that’s pretty close to my heart because I had a corporate career that lasted about 20 years, most to which was spent at Intel Corp. Which in the technology world is frequently referred to as chibzilla. And one of the things that I observe is that in a lot of cases there would be a tremendous amount of money that was dumped into some strategic initiative or another and in a number of cases it would just be epic biblical disasters. And the thing is, failure isn’t necessarily the problem. In fact, failure is a necessary part of progress. The part that always astounded me is how much capital and resources would be committed to something that either a really never had a chance in the first place or b just continue to keep getting fed while showing absolutely no signs of value down the road. It seemed to me that if you’re going to fund innovation that you need to figure out whether it’s going to be viable fast and then either double down on it or cut it off. But again, Tony, I would absolutely love to hear your thoughts here. 

Sure. I love what you’re saying. I’d love to start with my story too. I worked with them for years, IBM. I worked with their personal computer division back in the 1980s and I witnessed my first product failure working with them. It was the IBM PC Jr. And you know the headlines in the Wall Street Journal the day after we introduced the product, the PC Jr is a flop. And it was and it cost IBM a billion dollars over years. 

And these are in a billion dollars in 1981 is probably like, what, about 4 billion today?

Yes, it was so wasteful and it occurred to me, just like you just said, how can a company with all those fast resources just waste so much time and energy on a thing that really never had a chance to succeed? And it occurred to me that innovation, ideally the output of the innovation process should be a concept, a product idea that you know is going to win in the market before you start developing it. 

Yeah, actually I don’t even know that I would necessarily go that far because I would say it’s an innovation idea that, you know, can win in the market. Okay, so for example, here’s one of the examples that I like to put in. Now this has been buried in Intel’s financial statements a long time ago, but many, many years back Intel got this bright idea to put together a media division. And so what they wanted to do was basically they wanted to be a distributor of media as a way of enabling technology hardware. Okay, well so when they did this, they had less selection than Voodoo. This is back before Amazon Prime was a thing. So prime video is a thing? Your main competitors, Voodoo, you have less selection, equivalent pricing, and no proprietary content and no proprietary deals. There’s, like, literally no competitive advantage other than the fact that and add on top that you have a higher cost structure and this is your corporation’s about 50th priority. 

Yeah, no chance.

There’s no way this could succeed.

Exactly. Well, this is why I spent my career trying to figure out, well, how can you possibly figure out that a product will win in the market before you start developing it? So this is where I go down this path of job speed on theory. I’m not sure if you’re familiar with that, but the concept is pretty simple. It’s the idea that people buy products to get a job done. Okay, so a job could be a task, a goal, anything you’re trying to achieve, which makes perfect sense, people buying products to do something. So the next element associated with this is, well, if that’s the reason why people buy products, a winning product would be one that gets the job done significantly better. And what we’ve learned over the years is significantly better means about 15% better, at least at a minimum, or more, because most people won’t switch from a product if it gets to jobs at 1% better or 2%. Like, why would you, right. But there’s a threshold because people are essentially loyal to getting the job done better, not to a particular brand or a product. So then the thought is, well, if the goal is to get the job done a lot better, how can we assure that we’re getting the job done a lot better? Well, this took me down the path of figuring out, well, what does better mean? Well, better means faster. It means more predictably. So things always go the same way, and it means to get a great result. So there’s no imperfections. It’s just like any process, right? Faster, more predictably, higher output throughput. 

I just had a little bit of an interjection. It reminds me of one of the old jokes in the tech industry. They say the three things you’re looking for are better, faster, and cheaper. And you can pick two. 

Yeah, it’s true of any process or any job, right. To try to get the job done faster, more predictably, higher output throughput. So what this led us to is to define customer needs in this fashion. So we call these design outcomes, we call this approach outcomedriven innovation. But the goal is to go talk to customers about the job they’re trying to get done and figure out all the metrics they use to measure success to get the job done. So if you’re preparing a meal, you consider minimizing the time it takes to clean up after meal, minimize time it takes to prep the food, minimize the likelihood of overcooking the food, or under, cooking the food, these measurable outcomes that would suggest that you’re getting the job done the way you want, right? So then the thought is, if we can capture all those and figure out where people are struggling to get the job done, we could then come up with solutions that we know will get the job done better or more. Turns out you can do this. We can quantify all this. We can figure out which of these needs are the most underserved. We do this through quantitative research. We can find that maybe there’s ten needs that are super unmet, right? If that’s the case, let’s focus on those, not just one of them, but all ten of them. So we’re not getting the job done just a little better. Let’s focus on all ten. So that the concept we come up with. We know we’ll get the job done a lot better. And because we can measure that, we know our concept will win in the marketplace before we start developing it.

And then I would put another caveat on that. And that if you can measure that, and if you are not providing that superior value proposition, you know to keep looking until you do provide that superior value proposition. Because my observation is that one of the things that drives a lot of really bad projects is that you’ll get a senior executive who essentially has their political weight behind a certain initiative. And what they want to do is they don’t want to look like their initiative is a failure. So they’ll keep pushing it. And if it gets behind, they’ll push it harder. And then if it stumbles when it goes out of the gate, they’ll push it harder. And what you really need to do is you really need to figure, okay, do you have that winning proposition from the start? Because the thing is, right, if you have a winning proposition, then you need to start with that, and then you need to build toward it. And it’s very frequent that you can start with a winning proposition. And for whatever reason, you can lose some of those winning pieces. And sometimes you lose all of them by the time you get to market. And sometimes by the time you get to market, something comes out that’s better than what you did, and you still lose anyway. But if you don’t least start with that winning proposition, your chance of winning is zero. And so the way that I kind of think about it is it’s almost like a big funnel where you have to start where the math all makes sense, and then you have to be continually testing as you get closer and closer to market to figure out whether you still have that winning proposition. Because once you’ve spent the money, once you’ve burned the time it’s gone, you can’t get it back. 

You’re exactly right. We’ve seen many cases where companies initially conceptualize a solution that they know will win. But as they start developing it, like I said, things happen. They can’t do it quite the way they want. They give up on it. They try to speed the market, and they’ll focus on a couple of outcomes and not all of them. And they end up with these incremental products that fail in the marketplace. 

Anybody who’s ever had experience with enterprise resource planning software knows exactly what that’s like. So, yes, I spent about a half decade at Intel doing on a data system team where we were with the ERP suites and oh my goodness, those things were painted. But anyway, I’m just getting us off on a tangent. Let’s go and get back on topic here. Just kind of talking about avoiding some of those pitfalls. Because the thing that I really hear you saying is that you need to be continually reassessing whether you have all those winning pieces in place. Because I think there’s two parts to that equation. Part number one is what is our product, our solution, and what are the winning elements it has? Part number two is what is the market competitive environment look like? What does that look like? Because what can very easily happen is you can start developing something, and by the time you get to market, a new competitor has come in that has a superior value proposition that you can’t compete with or that you don’t compete very favorably with. 

Yeah, this is why you have to work to beat the competitors right up front. Right? So this is why we look for needs that are totally unmet across the board by any competitor. But one of the things I’ve noticed is that, like, even the Lean Startup movement, for example, I know a lot of entrepreneurs follow that approach. It’s silent on how to define a market. And I find this interesting because a lot of the startup approaches will suggest that you hypothesize the market, the product concept, the needs, and you think of all of them at once and then go test them and you’re iterating on the market. The needs of the product to try to find that product market fit, that becomes extraordinarily difficult. So what we recommend that our clients do is to define a market, but not as a vertical or a product or technology, but as a group of people and the job they’re trying to get done. So parents who are trying to pass on life lessons to children would be a market, or surgeons who are trying to restore blood flow to an artery would be a market. 

The way that I would articulate that, which I completely agree with, but the way that I would articulate that is to say that a market is a result because people buy as a result. They don’t buy a product, they don’t buy a service, they don’t buy a thing. They buy what it does. And more specifically, what happens as a result of what it does. As you say, people don’t buy a drill  or a drill bit. They buy a hole. What they want is a hole. They need a drill to drill a hole, but what they ultimately want is a hole in something. That’s what they’re buying. 

Yeah, that’s it. And we refer to it as the job they’re trying to get done. Right. So it’s interesting then, you know, I like that example because when you look at the world of innovation through the drill maker’s eyes, you think you’re in the drill market and that your competitors are drill makers and that you go talk to customers about needs for better drills. But when you look through the market, look at the market through the lens of the homemaker, you realizing you’re in the market for creating quarter inch holes and you’re looking for the best solution, not drills. You’re competing with anything that can create a quarter inch hole.

 Your goal is to come up with a solution that gets job done better than any of those other competitors.

 So I agree, looking at that lens, it opens the door to recognizing nontraditional competitors so that you can be in a market that won’t get disrupted. And this is the other thing I often think about and see is that if you define your market as a drill market and something comes along that’s better than a drill, well, then your market is gone, right? But the market for creating quarterinchols is still there. It’s just been supplanted by something else. So defining a market as a group of people in a job to be done has a lot of advantages because it doesn’t go away. It’s a long term focal point for value creation. So you can stay focused on that for decades without wondering what market you’re in.

 Exactly. Well, hey, I have a question that I’d like to get your thoughts on. So there’s a popular theory that I’m somewhat sympathetic to that true innovation cannot come from industry incumbents or comes from industry incumbents so rarely as to almost ignore it. Now, there are a couple of exceptions, but generally speaking, companies that are at a dominant position in an industry tend to be overly vested in the status quo and do not have the internal political capacity to create disruptive innovation that will otherwise crater their existing business. Clayton Christensen wrote about this in the Innovator’s Dilemma. His thesis was that companies need to disrupt themselves. I’ve very rarely seen it happen, especially if you have high profit margins. There are very few finance departments that will allow you to fund something that’s going to cut your profit margins in half. Based on your observations, do you think that’s the case or do you think that it is sustainably possible for kind of entrenched industry leaders to be innovative? I think if you have someone like Steve Jobs or Jeff Bezos at the top who is innovation focused and isn’t concerned about profit maximizing, then, yes, that can happen temporarily, but eventually the shareholder advocates and the Wall Street people get to them and they’ll start margin optimizing. 

Yeah, you’re absolutely right. I mean, it’s hard for them to build the business case to say, hey, let’s go cut into our current revenue stream and see what happens. But despite that, there still is a way forward. Clayton Christensen’s view is that we can come up with a product that gets job done worse and charged less. That’s his disruptive innovation thinking, and that can work and not hurt you. If there is truly an overserved market, in overserved market, I need to find that as a group of people who would pay less to get the job done worse. Right. So if there is a group of people that have a lot of overserved needs, then you could come up with a solution at a lower cost that gets the job done worse, and that wouldn’t impact your other segments who might be underserved, who want to get the job done better, but you could still create a solution to charge more. 

The problem comes when somebody else comes up with a way to get the job done better and still charges less. 

That is absolutely right. We call that the dominant strategy because that always wins. Right? Because now you’re satisfying people that are underserved and people that are overserved, but you can generally play in all spaces. I like using Uber as an example, where Uber premium, that’s where they basically started. They charge more to get the job done better. That’s a good differentiated strategy. And then they came up with Uber X, and the claim there is, we’re going to get the job done better and charge less than taxes. So that’s that dominant strategy, and that really affected, that really helped drive their growth. But they stopped there. They also came up with the disruptive strategy that says, well, is there a situation where people will pay less to get the job done worse? That’s where they created Uber pool. Yeah. Does exactly that. Now you can share ride, it’s horrible. Get there later, takes longer, but it costs less. And then you can also charge more and get the job done worse. Now, think of the instances like where Uber has their what do they call it, search pricing, right? And there are situations that arise where there’s limited supply and over demand, and you’ve got to wait longer to get your ride, and we’re going to charge you four times more. So all those things can happen. And I find it interesting that Uber has a strategy for each, and they all operate at the same time. So I do think it’s possible for a company to think through this and be in all places at once without really disrupting their initial model. Right. It takes a lot of thought and consideration and of course, you have to be able to figure out, are there under surf segments of the market? In other words, are people struggling differently to get the job done? And that’s kind of stuff that we work on when we do our segmentation schemes, we actually segment around the unmet needs so we can figure out other groups of people that are underserved, overserved, along with dimensions and so on. And so then you can craft a strategy like that that has implications across the board. 

Got it. All right. Well, hey, Tony, this has been a great conversation so far. I was just thinking, if you could give us one or two last thoughts and then maybe throughout your website. That way people know how to get hold of you.

Sure. So I’ve been at this for quite a while, and people wonder, why doesn’t everybody do this? And what I realized is that so many people are just we’re inherently wired to think of solutions space, and it’s just fun to come up with solutions and come out from that angle and experiment or just keep putting money into your products and hoping that they’re going to win. But Doug, as you said earlier, right? It’s amazing how many people put money into products that will never make it, that never had a chance of making it. So you can’t do that. As tempting as it is to follow the ideas, first approach, innovation, it’s never going to work consistently. Right? That’s why it’s so important to come at it from the other angle. Understand needs, understand what needs are. The other interesting thing I find we ask this all the time amongst product teams is their agreement as to what a customer need even is. And 90% of product teams, they say no. Huge problem. If everyone’s trying to satisfy customer needs. And we can’t agree on what they are, we certainly can’t agree on which ones are unmet and how to best address them. So I think those are the key things that companies need to focus on in order to really move themselves forward into generating consistent growth. 

Got it. 

Yes. If you want to check out our website, it’s at strategyn.com I also have a free audiobook and free e-book that you can get at jobs-to-be-done-book.com with hyphens between all the keywords there. 

Excellent.

Be happy to send copies out automatically. So just go in and grab one. 

Beautiful. Hey, Tony. Really appreciate your time today. 

My pleasure. Thanks for being. I appreciate it. 

Thank you.

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